Unit 1- The Economic Problem Flashcards
What is a value judgement?
Statements and opinions expressed that are not testable or cannot be justified
Depends on the views on the individual
What are normative statements?
Opinions that require value judgements to be made
What are positive statements?
Statements that can be tested against real world data
What is the fundamental economic problem?
Scarcity
How best to make decisions about the allocation of scare resources among competing uses so as to improve and maximise human welfare
What is a command economy?
The planning mechanism allocates resources between competing uses
What is a market economy?
Markets and prices allocate resources between competing uses
In what ways do businesses seek to solve the economic problem?
What is to be produced?
How should it be produced?
Form whom should it be produced?
What is the division of labour?
Breaking the production process down into a sequence of tasks with workers assigned to particular tasks
What are the technical economies of scale?
Cost savings enjoyed through investing in technology and capital
Indivisibilities, spreading of research and development costs, volume economies and economies and vertically linked processes
What are the reasons for diseconomies of scale?
Managerial economies of scale- loss of control by management
Communication failure- too many levels of the hierarchy will slow down communication
Motivational diseconomies- harder to understand and meet needs of a larger group of individuals
What are marketing economies of scale?
Occurs when larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media
What are economies of scope?
Spreading product portfolio to decrease unit cost as the same machinery can be used to make many types of products with one piece of machinery so it lowers unit costs
What are financial economies of scale?
A company/ business has cheaper access to financial capital due to their better credit rate
What are managerial economies of scale?
Highly qualified managerial leaders as business can afford to employ them
What are risk bearing economies of scale?
Large firms spread the cost of uncertainty over more products as it decreases du to more products available
