Topic 2: The role of business in the economy

Question 1

define industry

Answer 1

the collection of firms involved in making similar range of items that usually compete with each other

Question 2

What are the factors that may influence a business operator’s decisions?

Answer 2

• The skills and experience of the business operator
• industries where there is strong consumer demand
• specific business opportunities
• the amount of capital required to start the business

Question 3

how does the skills and experience of a business operator influence their decisions?

Answer 3

the operator is more likely to be successful if they are very familiar with the industry they are trying to enter

Question 4

how does strong consumer demand influence business operators’ decisions

Answer 4

a business operator will be more attracted to an industry that is experiencing rapid growth since there is a lot of room to expand business.

Question 5

how does specific business opportunities influence business operators’ decisions?

Answer 5

An individual may find gaps in businesses (business opportunities) that seem appealing since there is room for improvement and expansion of business

They may also find a niche market to expand business in.

Question 6

what is a niche market?

Answer 6

a segment of the mass market for a G or S that can be defined by the specific tastes or characteristics of the target customers.

Question 7

how does the amount of capital required to start a business influence an operator’s decisions

Answer 7

an entrepreneur will be more attracted to starting up a business that has cheaper capital due to its lower risk.

Question 8

negative side effect of land

Answer 8

natural resources can diminish if its overused and not properly replaced.

Question 9

negative side effect of labour

Answer 9

labour may decline if there is a decline in birth rate, a reduction in migration will reduce the Q of people available to work, therefore decreasing labour

Question 10

negative side effect of capital

Answer 10

capital will wear out over time and become obsolete (out of date/no longer in use). the discarded component of capital is called ‘depreciation’

Question 11

negative side effect of enterprise

Answer 11

an uncertain environment will generally reduce entrepreneurship due to the increase risk it has to start a business

Question 12

what do businesses contribute to the economy?

Answer 12

a growing private sector generates higher economic growth and stronger revenue (total amount of income generated by the sale of G&S) base for the government to fund it provided services

growing businesses decreases unemployment

contributes to regional development - which includes better infrastructure, improved liveability, and population attraction and retention

growth in businesses increase productive capacity over time, resulting in greater economic output –> lower inflation and improved living standards

Question 13

what is the private sector?

Answer 13

the part of the economy that is not owned by the government
privately owned businesses and firms

Question 14

How do government support the growth of new businesses?

Answer 14

they fund them to help them get international recognition so that they may create brand recognition and form relationships with potential customers

Question 15

define profit motive

Answer 15

the process by which a business strives to maximise profit by producing products at its lowest possible price and selling those products at the highest possible price

Question 16

What are firms’ other objectives other than maximising profit?

Answer 16

• meeting shareholder expectations: a legal responsibility - firms need to meet the interests of their shareholders (represented by the company director) despite the conflict in interests between them and the business manager
• increasing mkt share: this means that businesses may want to focus on increasing the percentage of sales that business has in the overall mkt
• maximising growth: maximise growth of business assets for the long run as it would lead to higher profits. (change of leading to business failure)
• satisficing behaviour: when a business would rather strive for satisfactory outcomes in all areas rather than just prioritising maximising profits

Question 17

define production

Answer 17

The Q of G&S produced with a given Q or resources, per unit of time

Question 18

what are the benefits of increased productivity?

Answer 18

increased productivity allows a firm to satisfy a greater number of wants using the same amount of resources

it also increases living standards since firms are able to satisfy more wants than before :))

Question 19

how does productivity contribute to the improvement of our standard of living?

Answer 19

• less wastage of scarce resources: efficient use of resources allows for more production for the same amount of resources
• lower prod’n costs and higher profit for the business firms: because each factor of prod’n can produce more in any given time period, it costs firms LESS to produce the same amount of G&S
• a lower inflation rate: since there is an increase of prod’n of G&S, firms dont need to increase prices (may even make stuff cheaper)
• higher incomes: since labour is more productive, firms are able to provide better wages without the need to increase prices (crazy)
• improved international competitiveness: compared with foreign businesses, this will make Aust’n goods more competitive on local and international mkts

Question 20

What is the specialisation of labour?

Answer 20

DIVISION OF LABOUR
when businesses break down the prod’n process into sub-processes, allowing for workers to become a pro (specialise) in a particular part of prod’n leading to less time and effort wasted on moving from one process of prod’n to another.

Question 21

what is the specialisation of natural resources?

Answer 21

LOCATION OF INDUSTRY
(sharing is caring) when multiple businesses that are producing similar G&S congregate in the same area to reduce prod’n cost by sharing common infrastructure requirements

Question 22

what is the specialisation of capital?

Answer 22

LARGE-SCALE PRODUCTION
when businesses get so large, they can use capital that is highly specialised for whatever G&S they produce (like damn)

Question 23

What are internal economies of scale?

Answer 23

the COST SAVING ADVANTAGES that come from a firm expanding its scale of operations

when the firm’s output level is BELOW the technical optimum

Question 24

What are internal diseconomies of scale?

Answer 24

the COST DISADVANTAGES (specifically the increased marginal cost) that come from a firm expanding its scale of operations beyond a certain point (basically, their plan just backfired on them lol)

Question 25

define average cost

Answer 25

the per-unit cost of prod’n

divide the total cost of producing a certain level of output by the quantity produced

Question 26

What is the long-run average cost curve (LRAC)?

Answer 26

the relationship between costs and internal economies and diseconomies of scale

Question 27

define technical optimum

Answer 27

the most efficient level of prod’n for a firm. avrg cost of prod’n are at its lowest possible level

Question 28

What causes a downward shift in the LRAC curve?

Answer 28

LEARNING BY DOING
as a firm continuously repeats the prod’n process, they will be able to become more efficient at completing the same task over time

Question 29

what are external economies of scale?

Answer 29

the advantages that a firm gains because of the industry in which they operate in

Question 30

what are external diseconomies of scale?

Answer 30

the disadvantages that a firm gain because of the industry in which they operate in
(that sad bro like damn, its not even their fault yet they get absolutely trashed)

Question 31

what is ethical decision making?

Answer 31

decisions that take into account the impacts on broader society and the environment, and not simply to maximize profits