The firm Flashcards
What is the transformation process of firms ?
Resources (Inputs) to outputs ( goods/services)
What is creative destruction ?
Not being able to succeed in the modern market - going extinct
What are the factors of production ?
- Capital earns interest
- Land earns rent
- Labour earns wage
- Entrepreneurship earns profit
What does human capital mean?
The quality of labour
What is the pivotal factor of capitalist production ?
ENTREPRENEURSHIP
Types of growth?
Horizontal growth
Organic growth
Vertical growth
Diversified /conglomerate growth
What is horizontal growth ?
When firms grow through their normal activity / business
What is organic growth ?
The growth of a firm through its own resources
What is vertical growth ?
When a firm expands by going into another part of production / market that it has interest in
What is diversified /conglomerate growth /
When a firm enters another market / industry
What is the definition of market structure ?
This characterises a market according to the degree of competition in it.
What is a monopoly ?
This is when a firm has the ability to exclude competing firms to enter the market
A monopoly removes the incentive to innovate and leaves the firm less responsive to consumer interests
What are transaction costs ?
Costs associated with undertaking business activities or other forms of economic exchange
What is a multinational firm ?
A firm which owns and controls assets in more than one country
Types of firms `/
- sole proprietors
- partnerships
- companies
What is unlimited liability ?
This is when personal wealth of the owner of the business is affected by failure in the business
What is limited liability ?
This is when the personal wealth of an owner is treated as separate to the business
Differences between sole p., partnerships and companies in terms of tax ?
Sole proprietors and partnerships are taxed once only
Companies are taxed twice - corporation tax and any dividends paid to shareholders are subject to income tax
Differences between sole p. , partnerships and companies in terms of raising capital ?
Sole proprietors and partnerships have to raise capital themselves. The capital comes from the owners.
In a company, they raise capital from selling shares on the stock market
What is consumer surplus ?
This is the amount consumers would be willing to pay for a good or service above the price that they actually pay
What does economies of scale mean ?
This is when a firm produces a larger output without an increase in cost of sales e.g Google can produce their whole icloud infrastructure without raising costs of producing it
What does economies of scope mean ?
This means that a firm can collectively produce a goood or service for a lower price than they would discretely
what is resource allocation ?
The commitment of a society’s productive endowments (e.g. labour and machinery) to particular uses or patterns of use
What is the valuation ratio ?
This is the market valuation of a firm expressed by the price of shares divided by the total net book value of asset
What does factor intensity mean ?
this means the emphasis on the use of one particular factor
What is the austrian view regarding entrepreneurship?
- entrepreneurs anticipate rather than react to demand.
- they equilibrate the market rather than operate in equilibrium
- they are never satisfied with the state of affairs in the market
- only alert entrepreneurs will promote changes to the markets (those who are motivated by profit and competition
- equilibrium is always out of reach which means a free market
What is the schumpeterian view regarding entrepreneurship?
Markets evolve with a constant state of disequilibrium because old failing businesses are being replaced
What is the schumpeterian view ?
Innovation is key. Innovation competition is more important that price competition
no firm would be safe in the long run without using innovatino
