Unit 3 business Flashcards
Depreciation calculation
original cost - residual value (divide) by expected life of assets
Why is it important for firms to depreciate assets
True value of assets wouldn’t be reflected correctly
Puts business in a better position by appreciating true value to put money aside for replacements
Legal requirement
PED formula
Percentage change in quantity demanded
DIVIDE
Percentage change in price
What is PED
it measures the sensitivity of demand to a change in price
Price elastic
Number greater than 1
Change in price causes more than proportional change
Price inelastic
Number less than 1
Causes less than proportional change than demanded
Unitary Inelastic
Equal
change is proportional to demand
Examples of inelastic products
essential goods
or addictive items e.g cigarettes
Examples of elastic goods
Items that have many competitors
Expensive, luxury goods
Income elasticity formula
Percentage change in quantity demanded
DIVIDE
Percentage change in income
Rationalisation
Rationalisation is the reorganisation of
a business in order to increase its efficiency.
Outsourcing
When businesses hire external workers in order to carry out work that could’ve been done internally
