Theme 1.1- Scarcity, choice and potential conflicts Flashcards
What is the basic economic problem?
Scarcity. Wants are unlimited and resources are
finite, so have to be used and distributed optimally.
When producing goods, what does the economy have to consider?
What to produce? How to produce? Who to produce for?
Define opportunity cost
The value of the next best alternative foregone.
Define economic agents
Individuals, firms and governments that partake in economic activity, the demand for and supply of goods and services.
Define free market economy
One where firms decide what goods and service to produce with limited intervention from the government.
What is profit maximisation? Give an example
Where revenue is maximised and total costs are mimimised. Profit maximisation occurs where marginal cost (MC) =
marginal revenue (MR) (each extra unit produced gives no extra loss or revenue).
E.g. Apple charges premium prices.
What are the benefits of profit maximisation?
- Greater wages and dividends for entrepreneurs
- Retained profits
- In the short run, the interests of the owners/ shareholders are most important, since they aim to maximise their gain from the company.
- Some may profit maximise in the long run as consumers don’t like rapid price changes.
What is sales maximisation? What are the 2 ways you can achieve this? Give an example.
When as much of goods and services are sold as possible without making a loss. This can be achieved by sales volume (number of units sold) or sales value (total sum of money spent by consumers).
E.g. Amazon charging lower prices.
What is profit satisficing? Give an example.
To make enough profit to be satisfied but not purely motivated by profit.
E.g. family businesses where work-life balance is important.
What is survival? Give an example.
To continue to exist as a business. This is the most important shot-term objective for start-ups and struggling businesses).
E.g. restaurants during the pandemic.
What is the market share objective? Give an example.
Maximising sales to increase the chance of surviving in the market, brand recognition, customer loyalty and market power.
E.g. Samsung selling a wide range of products catering to different market segments.
Define market share and give its formula.
The proportion of total market sales that a firm has.
(Business sales / market sales) x 100
What is the cost efficiency objective? Give an example.
To control costs so the maximum value of outputs is achieveable with the lowest value of inputs.
E.g. Walmart bulk-buying.
What is the employee welfare objective? Give an example.
To look after the economic and physical wellbeing of the workforce. This increases productivity, reduces turnover and helps maintain positive employer/employee relations.
E.g. Google giving onsite healthcare, free meals and other benefits.
What is the customer satisfaction objective? Give an example.
To ensure goods and services meet customer needs and expectations, which build customer loyalty and maximises sales.
E.g. Zappos giving free returns and prioritising customer experience.
