Topic 1 - Introduction, Businesses in an economic context Flashcards
What is the economy?
A system that exists to resolve key economic problems such as what to produce, how to produce, and how goods and services will be distributed between members of society.
Can be at a local, national or international level.
What is the market?
A system through which buyers and sellers come into contact to trade goods, services, commodities or financial instruments.
In the modern day world, trades are carried out virtually through computer and communication links.
Who are decision makers?
Governments, suppliers (firms), consumers
What is macroeconomics
It is concerned with the workings of the whole economy
What is microeconomics
It is concerned with analysing the behaviour of individual consumers and producers and how households and firms make decision.
Important part of this analysis is concerned with how prices are set and alter over time.
What are risks and uncertainties?
They are a fact of basic business life.
They are the change of damage or loss resulting from an event or activity.
Risks are taken in order to secure benefits
Where do risks and uncertainties come from?
The economic environment. (Eg, Brexit)
What are the roles of business managers when it comes to risks and uncertainties?
To mitigate risk (likelihood of the risk and the impact that results)
To balance risk and return (minimise risk, maximise return)
What are businesses affected by?
- Changes in the economy (Eg, recession)
- Changes in consumers income and spending
- Changes in interest rates
- Changes in tax rates
What is a business strategy?
The means through which organisations achieve their objectives
What are the ingredients of a strategy?
- Long term planning (3-5 years or longer)
- Major resource decisions
- Deciding on the scope of an organisation
- Planning that needs to be overseen by senior executives in the company
- Flexible planning
What is the criteria of an effective strategy?
- They should be suitable to the environment in which a business is operating
- They should be acceptable to stakeholders including shareholders
- They should be feasible given the resources and capability of an organisation at a particular time
What is an opportunity cost?
The next best alternative you are sacrificing when you make a particular choice.
How to do a cost benefit analysis?
Compare the costs involved in any action and its benefits
Quantifies the costs and benefits
Often requests estimation
What are incentives?
A reward that encourages an economic individual to take a particular course of action.
