Theme 1 Markets, consumers and firms Flashcards
Define scarcity
Resources are finite meaning there is a limited quantity that can be supplied
What is the basic economic problem
There are unlimited wants and only a finite quantity of resources to satisfy the wants
Define opportunity cost
The benefit derived from the next best alternative that is lost when making a decision
Define economic activity
The combination of factors of production used to produce and supply goods/services
What are the 3 economic assumptions
- Economic agents are rational which is reflected in their decision making.
- Consumers aim to maximise their utility by gaining the most satisfaction from consuming a product.
- Producers aim to maximise their profit from producing/supplying.
What is profit maximisation
Profit maximisation is a business objective in which the firm aims to produce at a level of output where the surplus of total revenue over total cost is the highest.
profit maximisation occurs where marginal revenue = marginal cost
What is sales maximisation
A business objective that aims to supply the highest quantity of output available
What is profit satisficing
A business objective that aims of generating a satisfactory amount of profit to be incentivised to supply but purely motivated by profit.
Define market share
The proportion of the total sales in the market that was produced by one firm.
calculated as:
Business A sales / market sales x100
What is cost efficiency
Cost efficiency is the aim of reducing the cost of producing a good without decreasing its quality.
This is used to maximise profits.
What is employee welfare
The aim of ensuring employees are well off economically and physically.
this links to motivating employees and help maintain employee/employer relations
Define the term stakeholder
Anyone with a vested interest in the actions of a business
examples include:
customers , employees. shareholder, government, community, suppliers
What is the difference between primary and secondary stakeholders.
Primary stakeholders have a direct relationship with the business.
Whereas secondary stakeholders are not directly related to the business although the are affected by the businesses actions.
Define the term shareholder
A shareholder is an investor who owns shares of a business.
shares are a proportion of the ownership of a business
what is a dividend
Dividends are a proportion of a business’ profits after taxes and other costs are deducted. This is a return on the shareholders investment given out to satisfy the shareholder.
The amount of dividends given to each individual shareholder is derived from their proportion of shares in the business, the higher the shares = higher dividends.
Explain what retained profit is
Retained profit is the profit left after dividends have been deducted this can then be used to re-invest back into the business in order to improve operations.
Shareholders can agree to withhold dividends for a certain period of time in order to use the retained profit to invest in big projects.
Explain Corporate Social Responsibility
(CSR)
Corporate Social Responsibility is a commitment by a business to behave ethically and contribute to economic development.
This includes aspects such as improving or maintaining a high quality of life of their workforce, the local community and society as a whole.
What are each stakeholder objective
The objectives of shareholder,owners,employees,managers, customers,suppliers, the local community and the government
- shareholder and owners = the success of the business + level of profits
- managers = good salaries + opportunities for further career progresion
- employees = good wages, job satisfaction, job security + career progression
- customers = good quality, range and reasonable prices
- recive payments on time have regular orders
- local community = increased employment levels in the local area
- the government = decrease unemployment rates and increased tax revenue through corporation tax.
EXplain a few possible stakehoder conflicts.
employees vs shareholders , owners vs customers,
- employees vs shareholders = increased profits means that shareholders want higher dividends however employees want higher wages and profit is limited.
- owners vs customers = Owners may want to profit maxamise this means increaing prices to where mr=mc , however customers want lower prices therefore they demand less.
Define the term enterprise
The combination of land , labour, capital and entrepreneur knowledge to produce and supply products.
Define the term specialisation
Specialisation is the concentration of resources into producing a specific type of good or service.
For example the uk economy specialises in the financial sector.
Explain what is the division of labour
Division of labour is the act of separating the production process into multiple different tasks which are then carried out by workers who specialise in the specific area.
For example an assembly line in manufacturing plants.
What are the advantages of Specilaisation for firms
- The employees have a greater understanding of the requirements for producing a good or service.
- The firm can concentrate their resources into goods or services that they are most knowledgeable at producing.
- Reduction in time waste which can lead to higher productivity.
