Term 2, 2021

Question 1

Primary Production

Answer 1

Includes all industries involved in the cultivation of land, grazing animals and extraction of raw materials from land or sea (e.g. mining).

Question 2

Secondary Production

Answer 2

Includes all industries involved in processing raw materials and producing goods (e.g. manufacturing).

Question 3

Tertiary Production

Answer 3

Includes all industries involved in the production of services rather than goods (e.g. transport).

Question 4

Quaternary Production

Answer 4

Includes all industries involved in the production of services relating to information and communication (e.g. education).

Question 5

4 Types of Production

Answer 5

Primary

Secondary

Tertiary

Quaternary

Question 6

4 Types of Firms

Answer 6

Sole Trader

Partnership

Proprietary Limited Company (Pty Ltd)

Public Company (Ltd)

Question 7

Sole Trader

Answer 7

The simplest business structure which is inexpensive to set up because there are few legal and tax formalities (e.g. plumber).

Question 8

Partnership

Answer 8

Two or more people/entities who do business as partners or receive income jointly (e.g. lawyers).

Question 9

Proprietary Limited Company (Pty Ltd)

Answer 9

Company which does not sell its shares to the public (e.g. small business).

Question 10

Public Company (Ltd)

Answer 10

Company which does sell its shares to the public (e.g. large business).

Question 11

Internal Economies of Scale

Answer 11

The cost advantage gained as production and efficiency increases (i.e. the larger the company, the more economics of scale).

Question 12

External Economies of Scale

Answer 12

The benefits accrued by all firms within an industry due to the growth of the industry.

Question 13

Business Concentration

Answer 13

The degree a relatively small number of firms account for a relatively large share of the market.

Question 14

Contestable Market

Answer 14

If a large number of firms have a small share of the market.

∴ Requires Innovation
∴ More Choice
∴ Minimal Government Intervention

Question 15

Concentrated Market

Answer 15

If a small number of firms have a large share of the market.

∴ Difficult to Enter the Market
∴ Less Choice
∴ Heavy Government Intervention

Question 16

Vertical Integration

Answer 16

A single firm gaining control of all the stages of production (e.g. owning the mine, refinery, smelter, fabricating plant).

Question 17

Horizontal Integration

Answer 17

A single firm gaining control of one stage of production (e.g. owning all the mines).

Question 18

Barriers to Entry

Answer 18

Initial Capital

Information and Trading Secrets

Economies of Scale

Advantage for Existing Firms

Government Regulation

Predatory Pricing

Privileged Access

Question 19

Rational Consumers

Answer 19

Rational consumers are only ever willing and able to pay a price for a good or service equal to the satisfaction (utility) they get from it.

Question 20

ACCC

Answer 20

Australian Competition and Consumer Commission exists to enhance the welfare of consumers through the promotion of competition, fair trade & a range of protections.

Question 21

Cartel

Answer 21

A formal association of firms that aims to control a market for a particular product.

Question 22

Price Fixing

Answer 22

When firms eliminate competition and agree on the prices to charge customers.

Question 23

Collusive Tendering/Bidding

Answer 23

When firms agree with each other to submit prices to ensure high profits and sharing of work among them over a period.

Question 24

Exclusive Dealing

Answer 24

When a firm requires its products to be purchased to the exclusion of all others of the same type.

Question 25

Resale Price Maintenance

Answer 25

When a supplier sets a price at which a retailer must resell its products which restricts competition to features other than prices.

Question 26

Price Leadership

Answer 26

When one firm in the industry often the largest sets the price for products and other firms adhere closely to this price.

Question 27

Fixed Costs

Answer 27

Initial costs which remain the same regardless of production quantity (e.g. rent).

Question 28

Variable Costs

Answer 28

Additional costs which change based on production quantity (e.g. materials).

Question 29

Cost of Production Formulae

Answer 29

(Fixed Costs + Variable Costs) / Units of Output = Average Cost (per unit of output)

Question 30

Diseconomies of Scale

Answer 30

The average cost of production increases as the firm’s size increases.

Question 31

Prima Facie

Answer 31

At first glance; correct until proven otherwise.

Question 32

Law of Diminishing Marginal Utility

Answer 32

Prima facie, for every additional consumption of a product, there is a decline in the marginal utility or satisfaction.

Question 33

Law of Diminishing Marginal Return

Answer 33

As more of a variable factor is added to a fixed factor, a point is reached when the extra output will decline.

Question 34

Dynamic Efficiency

Answer 34

Firms adapting to changes within an economy via technology (e.g. self-check-out).

Question 35

Intertemporal Efficiency

Answer 35

Production while ensuring resources will be available for future generations.