Topic 2 - Consumers and Business

Question 1

What is consumer sovereignty ?

Answer 1

Consumer sovereignty is an economic concept where the consumer has some controlling power over goods that are produced, and the idea that the consumer is the best judge of their own welfare.

Question 2

After consumers have received income and paid their tax they make a choice to either spend or save; this produces the following equation …

Answer 2

Y=C+S
Y- Disposable (after tax) income
C- Consumption
S-Saving

Question 3

The proportion of total income that is spent on consumption formula

Answer 3

C/Y=APC
C-Consumption
Y-Disposable income (after tax)
APC- Average Propensity to consume

Question 4

The proportion of total income that is spent on savings formula

Answer 4

S/Y= APS
C-Consumption
Y-Disposable income
APS Average Propensity to save

Question 5

What are the factors that influence consumer choice

Answer 5

1. Level of income
2. Price of the good or service itself
3. Price of substitute or complementary goods
4. Consumer taste and preferences
5. Advertising

Question 6

Price of substitute and complement good

Answer 6

Price of one good will be affected by the price of other goods.
Consumers consider some goods to be close substitutes such as butter and margarine or tea and coffee. If the price of one goes up then consumers will increase their demand for the other good.

Question 7

What does Utility mean ?

Answer 7

The satisfaction or pleasure that individuals derive from the consumption of goods and services

Question 8

What does a substitute mean ?

Answer 8

A good that consumers may choose to buy in place of another good, such as butter and margarine or tea and coffee

Question 9

What does complement mean ?

Answer 9

A good that is used in conjunction with another good. For example, petrol would be complement of cars.

Question 10

What are sources of consumer income ?

Answer 10

• Wages of labour
• Rent from Land
• Interest on Capital
• Profit from entrepreneurial skills

Question 11

Wages from Labour

Answer 11

Main source of income for consumers

Question 12

Rent from Land

Answer 12

Investment properties can generate rental income for the owner

Question 13

Invest on Capital

Answer 13

People with greater wealth tend to enjoy a much higher income level, because wealth creates ongoing income. They may earn interest on cash savings or receive dividends through the ownership of shares

Question 14

Profit from entrepreneurial skills

Answer 14

If the business makes profit then that is a direct result of their entrepreneurial skill

Question 15

Social welfare

Answer 15

Assistance to the aged
Family payments
Disability support payments
Unemployment benefits

Question 16

What is the aim of social welfare

Answer 16

To provide a minimum income safety net, allowing consumers to purchase the basic necessities of life.

Question 17

Define firm?

Answer 17

A for-profit organisation, such as a corporation, limited liability company or partnership

Question 18

Define industry?

Answer 18

The collection of firms involved in making a similar range of items that are usually compete with each other, such as the financial services industry or the car industry

Question 19

How much to produce?

Answer 19

How much do consumers demand of a particular good or service and how can the business convert that demand in to sales of a particular item.

Question 20

How much to produce?

Answer 20

How much consumers demand of a particular good or service.

Question 21

How to produce ?

Answer 21

A business must combine a range of resources (inputs) in order to create goods and services (outputs)

Question 22

Goals of the firm

Answer 22

Maximising Profits
Meeting shareholders expectation 
Increasing market share
Maximising growth 
Satisficing behaviour

Question 23

What are the benefits of productivity to our living standards?

Answer 23

Less wastage of our scarce resources.
Lower production costs and higher profits fot the business
A lower inflation rate (lower production costs)
Higher incomes
Improved international competitiveness

Question 24

What is the division of Labour ?

Answer 24

Businesses break down their production process in to a number of sub-processes, allowing labour to specialise in a particular part of the process

Question 25

Internal economies of scale?

Answer 25

The cost saving advantages that result from a firm expanding it scale of operations. This occurs when the output level is below the technical optimum.

Question 26

Internal diseconomies of scales?

Answer 26

The cost disadvantages faced by a firm as a result of the the firm expanding its scale of operations beyond a certain point.

Question 27

PLEASE REFER TO PAGE 35 IN THE POWERPOINT TO GAIN MORE INFO

Answer 27

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Question 28

External economies of scale?

Answer 28

External economies of scale are business-enhancing factors that occur outside a company but within the same industry.

Question 29

External diseconomies of scale?

Answer 29

External diseconomies refer to costs that increase due to factors outside of the company but impact the whole industry. In other words, as the industry grows, diseconomies impact the firm as well as the wider industry.

Question 30

Ethical decision making

Answer 30

When business decisions about production methods, employment and other matters are made taking into consideration the impacts on broader society and the environment.

Question 31

Globalisation

Answer 31

Globalisation is the word used to describe the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.