Theme 1 Flashcards
What is the economic problem
That there are infinite wants but scarce resources
What is economic activity
The production of goods and services to satisfy needs and wants
What is economic welfare
The benefit gained by individuals firms or society in the production of goods and services
What is a renewable resource
A resource that can be replenished like trees
What is a non renewable resource
A resource that can’t be replenished
What is opportunity cost
The benefit lost if the next best alternative when making a choice
What is a trade off
When you get a benefit at the cost of another benefit
What is an economic agent
The individual, firms and government that partake in economic activity e.g the demand for and supply of goods and services
What is a free market economy
Where firms decide what goods and services to produce with limited government intervention
What is Profit maximisation
To produce a level of output where profit is at its highest
What is sales maximisation
To achieve the highest value of sales by volume or value
What is profit satisficing
To make enough profit that satisfies but isn’t the only motivation
What is cost efficiency
A business objective in which the business achieves the maximum level of outputs with the lowest value of inputs
What is employee welfare
A business objective in which the business looks after the economics and physical well being of their workers
What is customer satisfaction
A business objective in which the goods and services meet the needs and expectations of consumers
What are social objectives
To behave in a way which benefits society like creating employment or supporting the community
What is ROI
Return on investment is how much money the business is getting back on a capital investment in a business
What is a stakeholder
Anyone with an interest in the actions of a business
What are government objectives
Maximise the welfare of society as a whole
what is CSR
corporate social responsibility - where a business tries to act ethically and help economic development, make stakeholders happy
what is creative destruction
getting rid of old methods with innovation
what is an entrepreneur
a person who spots an opportunity and takes the risk in order to get potential rewards
what are the four factors of production
land, labour, capital, enterprise
what is added value
the ability to ensure that the value of the output is higher than the sum of all the inputs value
how can added value be achieved
USP, enhancing customer experience, marketing to increase perceived value
what are non financial motives
ethical stance, social entrepreneurship, independence, homeworking
what is ethical stance
to behave in a good manner or be morally correct, provide a morally correct good or service
what is social entrepreneurship
motivated by supporting a cause rather than making a profit
what is independence
being your own boss make own decisions
what is homeworking
match family commitment to work commitment
what is capital
capital has multiple meaning like money, equipment, factories and offices (premises)
what is capital goods
a piece of capital that will bring a stream of income into a business
what is land
all of the natural resources that come from the earth e.g. oil, crops, fish (raw material to generate goods)
what is labour
all the workforce in an economy
what is human capital
the value of a worker , decided by their skills, education and training
what is specialization
when economic units focus on producing a specific good or service
what is economic units
individuals, firms, regions or countries in an economy
what is division of labour
specialized use of workers within an organization (roles)
what is productivity
the amount of output per worker
advantages of specification
each economic unit can focus on what they are best at
- more efficient with time
- better technical economies within an economy
what are technical economies of scale
when a economic unit invest in physicals capital in order to have cost advantages over other firms
disadvantages of specialization
work can become monotonous (repetitive)
- may limit the size of the market
- reduces flexibility of workforce (less range of skills)
what advantages can specialization cause
- lower unit costs
- better quality
- innovation of physical capital
- creates a USP
what repercussions can specialization cause
- economic agents that specialize have a risk of losing their market
- in a competitive global market UK economic agents can quickly lose market share
- this means that the UK must quickly improve production process
what is GDP
GDP is the total value of a country’s output per year
what are interest rates
the price of money e.g. the cost of borrowing or the reward for saving
how can interest rates affect a business
- if a firm has loans or overdraft this will affect the amount that has to be paid back
- influences the level of demand by consumers
what are exchange rates
the cos of one currency in terms of another currency
effects of exchange rates
- SPICED
- WPIDEC
- fluctuations in exchange rates can cause uncertainty with foreign suppliers
what is taxation
taxation is the process of imposing charges of businesses or individuals by the government
what is unemployment
the number of people who are actively looking for a job whilst not being in work
what is availability of workers
in times of high unemployment there will be an excess of available workers which makes recruitment easier
what is inflation
a general rise in price or a fall in the value of money
what is RPI
retain price index - a measurement of a basket of goods that people buy in the uk and its cost
what is CPI
consumer price index - RPI but it excludes housing costs
what effect does inflation have on businesses
increased costs due to higher inflation - will be passed onto consumer
what are the 4 stages of the business cycle
Boom, recession, slump and recovery
what is private benefit
the benefits that come from individual or firm through economic activity (benefit from consuming a good or service)
what is a normal good
a good where if price rises demand falls and vice versa
what is demand
the amount of good or servicer that consumer are willing to buy at any given price
what affects demand
- price of the good
- consumer income
- price of other goods and services
- trends
- advertising / other factors
what are veblen goods
goods that demand doesn’t change / increases when their price goes up
what is a substitute product
a product that can be used as an alternative, creating competition
what is a complementary product
a product bought alongside a good or service
what is an inferior good
a good where demand decreases as income increases
what causes a shift
if a change in demand is caused by anything other than a change in price
what causes a shift
- change in price of substitutes
- change in price of complementary goods
- change in consumer income
- change in trends
what are sunk costs
costs that the firm have already paid and will not be recovered if the firm leaves the industry
what is supply
the amount of good or service that producers are willing and able to sell at any given price
what can affect supply
- price of the good
- changing costs of production
- technological process
- prices of other goods or services
- government policy e.g. taxes and subsidies
what is an indirect tax
are taxes placed on goods or services produced by individuals or firms e.g. VAT
what is a subsidy
a finance given to producers to encourage them to produce a good or service / lower prices (doesn’t have to be paid back)
what causes a shift in the supply curve
- changes to the cost of production
- new technology
- indirect taxes
- government subsidies
what is market equilibrium
where demand is equal to supply
what is excess demand
when there is more demand than supply leading to increased prices by suppliers
what is disequilibrium
when there is excess demand or excess supply
what is a mass market
the market in which the production of goods is at a large scale e.g. mobile phones
what is a niche market
a small specialised market for a particular product or service (not for a wide audience)
what are economic incentives
the reasons for economic agents to provide goods or services
what is rationing function
increased demand or reduced supply leading to increased prices
what is signalling function
the signal given to consumer and producer whether to leave a market due to changing prices e.g. higher prices signal consumers should buy less
what is incentive function
when a consumer or producer is motivated by a course of action e.g. higher prices incentivise a producer to enter the market
what is allocative efficiency
when society is producing goods to match the need of consumers e.g. consumer satisfaction is maximised
what is market segmentation
when a market is split into subgroups of consumers with similar characteristics to help identify different wants and needs
what are the different segmentation methods
demographic
geographic
income
behavioural
what is demographic segmentation
segmentation based on characteristics like; age, gender, race, religion etc
what is geographic segmentation
segmentation based on where people live
what is income segmentation
segmentation based on level of income and profession
what is behavioural segmentation
segmentation based on behaviour when purchasing e.g. way of purchasing, brand loyalty, time of purchase
what is competitive advantage
a feature of a business that allows it to perform better than other in the market
what can cause competitive advantage
product differentiation
ability to add value
operational efficiency
position relative to competitors
what are different kinds of differentiation
product - USP
promotion - create desire, exclusivity or brand loyalty
operation objectives like R and D and innovation
how can you add value to a product
-manufacturing
- marketing
-technology
-customer service
- USP
what is a stable market
a market in which there is little change in supply and demand leading to consistent prices (equilibrium)
what is a dynamic market
market are always changing due to social trends, change in technology, taste, and the competitive environment
what are commercial banks
ones that offer general services to the public and firms
what is liquidity
the ease in which an asset can be turned into cash
what is credit
the creation of money by banks that can be used to buy goods or services
what is collateral
an asset pledged as security for repayment of a loan to be forfeited if you don’t repay
what is risk
it is possible to calculate the degree of risk / measurable
what is uncertainty
it is not possible to find the probability due to unpredictability / not measurable
what is limited liability
when the investors liability is limited too how much they invested or were promised in share capital
what is unlimited liability
the owners of the business are responsible for all debt of the business / high risk
what are the types of credit
loans
overdraft
trade credit
what is trade credit
when a customer is able to pay for a good or service on as later date
sources of credit
banks
some other firms
what is venture capital
investment from an established business into another business in return for a percentage of equity in the business
what is share capital
the capital raised from selling shares
what is leasing
leasing is where a business gets to benefit form an asset without owning or buying it outright
what is retained profit
profit from earlier years that is reinvested in the business
what is market failure
when the allocation of goods and services are inefficient
what is government intervention
when the government takes action to remedy allocative inefficient markets
what are externalities
the costs and benefits to a third party created by economic agents when undertaking their activities
what are negative externalities
costs to a third party that are not included in the price of the economic activity
what are positive externalities
those benefits to a third party that are not included in the price of the economic activity
what are private costs
costs of consuming or producing goods or services that must be paid for by those that use them e.g. the individual or firm
what are social costs
those costs of consuming or producing goods or services that are paid for by society
when do negative externalities happen
when social costs are greater than private costs
what is a private benefit
the benefits of consuming or producing goods or services that are received by an economic unit e.g. consumer or firm
what is a social benefit
benefits of consuming or producing goods or services that are received by society
what is marginal benefit
the benefit to a consumer of consuming one more unit of a good or service
what is marginal cost
the cost toa producer of producing one more unit of a good or service
why do governments intervene in markets
-reduce market failure
-reduce inequalities in the distribution of income and wealth
- to support UK industry
what is a merit good
a good or service that is considered beneficial
what is a demerit good
a good or service that is considered harmful
how can the government correct market failure
-regulation
-legislation
-indirect taxation
-grants and subsidies
-voluntary agreements
what is regulation
rules, normally set in place by the government to modify or determine the behaviour of firms and organisations in the market
what is legislation
the creation and enacting of laws in order to protect consumers, firms and society as a whole
what is government failure
when government intervention leads to a net welfare loss in comparison to the free market acting alone
what are administrative costs
the expenditure that the government spends on intervening in markets
provision of information
the government seek to reduce the lack of perfect knowledge within a market and asymmetric information
what is perfect knowledge
both buyers and sellers are fully informed about the price, and utility of the good and service
what is a grant
a loan that doesn’t have to be repaid that is given to fund a specific thing e.g. setting up in a new area
what is average cost
the average cost of producing a unit of output
what is the margin of safety
how much actual output is above the break even level of output
