Topics 2 - Consumers and Business Flashcards
What is Consumer Sovereignty?
Consumers sending signals to producers through their demand for goods and services.
Outline a few of the sources of income.
Sources of income could include salary & wages, property income, business income, income from government, pensions, disabilities, family payments and unemployment benefits.
Whatβs disposable income?
The money remaining from consumers receiving their income and paid their taxes.
What are the two most important factors that influence the decision about whether to spend or to save?
The consumers level of income & the consumers age
Outline the role of a business in an economy.
Businesses are commercial enterprise, a company, that buys and sells products and/or services to consumers, in the aim of making a profit. Combine factors of production to produce goods and services.
what factors reduce consumer sovereignty
- Marketing - e.g Coca Cola adverts
- Planned obsolescence (businesses produce products that purposely donβt last - e.g Apple products
3.False and misleading representation - e.g Nurefon advanced advertising - Market abuse (firms decide together on prices encouraging anti competitive behaviour - petrol prices.
What is the formula for APC (average propensity to consume) ?
APC = πΆ/π
What is the formula for APS (average propensity to save) ?
APS = π/π
What is the formula for MPC (marginal propensity to consume)?
MPC = βπΆ/βπ
Distinguish the difference between internal and external economies of scale.
Internal economics of scale: cost saving advantages result from firms expanding their scale of operations.
External economics of scale: advantages that benefit ($) a firm because of growth of industry.
What is the formula for MPS (marginal propensity to save)?
MPC = βS/βπ
How does globalisation benefit businesses?
It enables international capital formation, ease of sourcing labour from overseas and improve access to overseas markets.
What are the factors of production and their sources of income
Land β rent
Labour β wages
Capital β interest
Entrepreneurship β profit
What are the production decisions for a business
Remember: Businesses do
not determine who to distribute to
- What to produce?
- How much to produce?
- How to produce?
What is an internal dis-economy
When a business increases too much passed technical optimum, cost of production tends to increase
what is an internal economy of scale?
As a business increases, cost of production tends per unit tends to decrease
External economies of scale
Factors outside of control of business that leads to a decrease of cost per unit
Business are a source of economic growth and increased productive capacity, what are the goals of a firm?
Firms aim:
- to maximise profits (Profit = revenue β sales, Revenue = price * quantity)
- to maximise growth
(Increase profits, Increasing market share, Business share of the total industry sales for a particular product)
- Meeting shareholder expectations (Max short term returns on their investments)
- Satisficing
(Pursue a satisfactory level in all goals rather than maximising any single goal)
What is the definition of efficiency in terms of the production of firms?
Efficiency = max output and min costs
What is the definition of productivity in terms of the production of firms?
Productivity refers to how much output can be produced with a given set of inputs.
Why do firms increase productivity?
Increased productivity allows a firm to satisfy a greater number of wants using the same
amount of recourses.
How do firms increase productivity and efficiency? (hint: specialisation)
- division of labour
- βlearning by doing more of the same thingβ
- sub processes
