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Economics > Unit 3b firms as microeconomic decision makers > Flashcards

Unit 3b firms as microeconomic decision makers Flashcards

1
Q

What are the 4 sectors of economy

A

primary, secondary, tertiary, and quaternary

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2
Q

what industries are in the primary sector

A

industry involved in the production or extraction of raw materials

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3
Q

examples of industries in the primary sector

A

agriculture, fishing and hunting, and mining and extraction

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4
Q

what industries are in the secondary sector

A

manufacturing and construction

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5
Q

what industry is in the tertiary sector

A

any industry that all economic activity that is aimed at providing services

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6
Q

examples of tertiary industry

A

retail and wholesale, finance and insurance, and transportation and communication

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7
Q

what industries is the quaternary sectory

A

an industry based on human knowledge involving technology, information, financial planning, research and development

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8
Q

examples of industries in the quaternary sector

A

research and development, information technology, and. profressional services, education

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9
Q

in what sort of countries would you see more of a primary sector industry focus

A

less developed traditional economies but essential basis for any economy

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10
Q

what improves the secondary sector

A

improvements of manufacturing equipment, technology, and techniques

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10
Q

Why has the tertiary sector grown so large

A

as the population has had a higher productivity and disposable income which enable more spending on luxury service items

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11
Q

what would happen if there was no quaternary sector

A

bc. its the sector where innovations which speed up and improve manufacturing processes economic development would be slow or non-existent

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12
Q

what sector makes countries more developed

A

the quaternary sector

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13
Q

What is the signifiance of small firms

A

they hire workers, buy supplies and offer g/s that larger firms may not choose to do

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14
Q

what are the advantages of small firm

A

they have a personal relationship with customars, creating loyalty within their customar and word to mouth advertising

they can create highly personalised products and services

they can can build a more environmentally friendly business unlike large firms increasing employee motivation and engagement

they can recieve and respond to changes or feedback fast

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15
Q

what are the disadvantages of small firm

A

difficult to take a loan to expand the business or to purchase capital

difficult to create economies of scale as the volume of output would be smaller than larger firms creating lower profit margin

they are more vulneruable to changes in the economy due to less financial resources

difficult to compete with wage and non wage benefits offered to larger firms making the human capital of their workers lower

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16
Q

why do small firms exist

A

they can’t scale up as it relies on owners expertise or knowledge

owner is satisfied with the level of profit and feel no need to grow

the market size of their product is small so they can’t grow

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17
Q

what’s the difference between public corporations and public companies

A

public corporations are the one in the public sector and public companies are actually in the private sector

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18
Q

what are public corporations

A

organizations that are fully owned by the government

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19
Q

why do public corporations exist

A

so the public has acesses to neccesity goods

to avoid wasteful compeition in basic services

to reduce employment as gov. are more likely to hire lots of people

to protect citizens and businesses with the police court systmes

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20
Q

what are the advantages of public corporations

A

there’s no financial worry to make profit as they’re funded by government tax money

related to the above company will continue to run even if total costs outweight total revennue

managed with a social goal not a strict focus on profits

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21
Q

disadvantages of public corporations

A

bc. there’s not a strict goal to make profit resource allocation may not be the most efficient

governments could interfere in business for political reasons

they’re heavily dependant on governement funding

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22
Q

what occurs in privatisation

A

a public sector organization is sold to a private sector. they will earn more money, but governments do create a body that monitor the performance of the business and the conduct of it as they will still have a large share.

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23
Q

what 4 organizations are in the private sector

A

sole traders, parternerships, private limited companies, and public limited companies

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24
Q

what’s a incorporated business

A

one where business and the owner are treated as two legal entities which create limited liability, taxes on business and not on owner,

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25
Q

what’s unincorporated business

A

where the owner and business are treated as the same legal entity, unlimited liability, taxes are done as personal income

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25
Q

what companies are considered incorporated

A

public limited company, private limited company, and ngos

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26
Q

examples of unincorporated businesses

A

sole traders and partnerships

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27
Q

what is unlimited liability

A

the ownersare responsible for all debt the business creates if their busiiness fails their property are at risk

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28
Q

whats limited liability

A

shareholders personal assets are not at risk of the business is in debt, their loss is limited to how much they invested in the company

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29
Q

what is profit margin

A

The ratio of profit over revenue, expressed as a percentage. Mainly an indication of the ability of a company to control costs.

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29
Q

how does a sole trader structure for a business work

A

they are unincorporated and have unlimited liability

it’s owned and operated by one person

they can employ others

they’re the most common form of business organizations

their owner and business are considered one legal identity so income tax can be put on sole traders

they control and manage the business and treat the profits gained for themselves

ability to borrow money is limited to the owners credit

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29
Q

advantages of sole trader structure

A

owner retains all profits

its easy to establish

they are their own boss

they have flexible hours

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30
Q

disadvantages of sole trader business structure

A

they have unlimited liability

they have less acesss to financial resources to grow and purchase capital

income tax is higher than corporation taxes

they have competition with larger firms

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31
Q

what is a partnership

A

when two to 20 people own and operate a business organization. it’s ulimited liability and unincorporation

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31
Q

what is the deeds of partnership

A

a legal document for partners in a partnership about how profits will be distributed, note that profits may not be distributed equally, how capital is invested by partner, their rights and responsibilities.

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32
Q

advantages to partnership

A

business losses are shared

capital investment from all partners income

they can be specialized in different areas

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33
Q

disadvantages of partnerships

A

all partners are bound to decisions made by one partner

profits are shared

threr’s unlimited libaility

and imporsibble to raise capital from selling shares

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33
Q

what’s a private limited company

A

a company owned by shared holders but managed by a director who could be a share holder. owner and busniess are 2 legal entitiess so limited liability. also incorporated

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34
Q

what happens with company shares in private limited companies

A

they are not sold on the open market they are sold on a more personal basis friends family

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34
Q

what are the advantages of a private limited company

A

they’re able to raise capital from sale of shares to family, friends, and employees

they have limited liability

and taxes are corporation taxes on profits

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35
Q

what are the disadvatnages of private limited companies

A

there’s a extensive legal process to undergo when setting up

shares may not be sold without agreement of other shareholders

can’t sell shares on open market reducing the capital possible for expansion

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36
Q

what is public limited companies

A

they’re owned by private individuals not government owns their stocks are sold publically on open markets. they are incorporated llimited liability

37
Q

what are the advanttages of public limited companies

A

limited liability

no restriction on buying, selling, and transfer of shares encouraging investors

opportunity to raise high sums of capital bc. of shares

37
Q

what are the disadvantages of public limited companies

A

share prices fluctuate without control fo the owner

shareholds have minimal control over the running of companies

more government regulations and controls

complicated legal process of setting up

37
Q

aims of nationalisation

A

to benefit public

protect employment

improve economic conditgions

to maximise social benefit by charging lower prices

37
Q

why would small firms have desire to expand

A

to meet growing demand from customars as they want to maximise profits

desire to achieve economies of scale to lower costs per unit increasing profit margins

to become a monopoly or increase market power

38
Q

what are the 2 forms of growth for firms

A

internal and external

39
Q

what is internal growth for firms

A

when firms grow slowly using previous profits to expand and increase market share over time

39
Q

what is external growth

A

where firms takeover competion merge with other industries which under a short period of time increase their size and market share

39
Q

advantages of internal growth

A

using retained profits reduce the external debt

workers are more commited and motivated if they see the growth process

growing slowly allows owners to understand the strength adn weakness of the firm

40
Q

disadvantages of internal growth

A

there could be limited resources to grow the firm

bc. the long time it takes to grow it could give compeitition opportunities to exploit their weakness

workers could become demotivated as chance of promotion is smaller

40
Q

advantages of external growth

A

when merging with another company their assets, market share, and inome are inherited

they gain the intellectual knowledge and human capital from the other firm

41
Q

disadvantages of external growth

A

the mergin with another company may be in a industry which the owner has little to no experience over

they may have different working cultures that create a clash

it requires greater mangagemnet skills from the owner now managing more people and assets

42
Q

what is merging in economics

A

when firms come together voluntarily to form a new firm each firms directors agreeing on it they will transfer money or shares to each other depending on value of each firm, if they are a public limited company they will issue new shares in the name of another firm or one firm will buy shares to incoroporate

43
Q

what is a takeover

A

a much more agressive form where one firm buys up the shares of another firm as soon as they hit 50% they have taken over the management of that firm

43
Q

what’s horizontal integration

A

when two firms in the same industry merge or same stage of production

44
Q

advanatanges of horizontal integration

A

increases market share with gain the customar loyalty of another firm

they icnrease assets intellectual property

they have a higher chance of economies of scale

45
Q

disadvantages of horizontal inegration

A

there could be people being fired due to duplications of jobs

communication could slow leading to diseconomies of scale

cultural clash between workers

46
Q

what’s vertical integration

A

when a firm merges with naother industryustry but a different stage of production

46
Q

what’s vertical backward integration

A

where a firm merges with another firm at a earlier stage in the production process

47
Q

what’s vertical forward integration

A

where firms merge with a firm at a later stage in production process

48
Q

advantages of vertical integration

A

back integration reduces cost of production as profits from that firm also belong to them

forward integration profit increase as profit are highest in retail

they have more control over their business as they’re now less reliant on other firms

they have more control over their g/s’s quality

49
Q

disadvantages of vertical integration

A

there still be a lack of knowledge on how to operate it sucesfully

it doesn’t make economies of scale as production process at each stage is different

difficult to mangage the different business activites

expensive as firms could need to ask for loans for this merge and thus puts presure on management

50
Q

what is conglomerate integration

A

when firms merge with another firm in a unrelated industry

51
Q

advantages of conglomerate integration

A

risk diversification, by having different markets as one market doing poorly and the other will be doing well reducing business failure

cross subsidisation if one business isn’t doing well the firm can use profits from the other section to subsidise the business

the firm gains sygergies where they benefit each other

it’s also a form of investment

52
Q

disadvantages of conglomerate integration

A

lack of knowledge on the new industry the firm enters

its difficult to focus as it will tend to allocate resources based on the business that needs it the most

if it becomes too large they will squeeze competition in different industries creating monopolies a negative for consumers as prices will increase

53
Q

what’s economies of scale

A

situations where as businesses expand you will experience a lower cost per unit produced. or cost advantages from increased production resulting lower per unit costs

54
Q

why does economies of scale occur

A

commonly due to fixed costs,

55
Q

what are fixed costs

A

is costs that producers still have to pay even if they halt production

56
Q

why do firms want to achieve economies of scale

A

as production volume increases the cost, production efficiency increases creating economies of scale, as businesses expand they can negotiate better prices from suppliers saving costs and FOP costs, a firm that achieves economies of scale are able to grow and expeand market share

57
Q

what is internal economies of scale

A

internal changes in the firm such as specialisation of labor or investments in capital which lead to cost savings

57
Q

what are the 2 types of economies of scale

A

internal and external economies of scale

58
Q

what;’s external economies of scale

A

changes firms have no control over like government subsideis or improved supply transport which lead to cost savings

59
Q

what are 5 ways firms can achieve internal economies of scale

A

buying in bulk the more firms purchase the more likely suppliers are willing to offer discount

specialisation of labor better division of labor allows specialisation which makes employees more efficient and increase productivity

technological economies the more techonologically advanced capital they use they become more efficent

selling economies the more output or the more firms sell the cheaper it is to sell in terms of marketing, packaging, and transport as they can negotiate the price

managerial economiels hiring experienced and specialised managers increase efficency

finanical economies the larger the company the easier and cheaper it is to raise finance as banks are more likely to lend as they have more credit

60
Q

what are examples of how external economies of scale occur

A

infrastructure improvements

increases in human capital of labor force

also reputation if it has a better reputation they can achieve economies of scale

61
Q

what diseconomies of scale

A

an increase in the average cost per unit as firms increase its scale of production

62
Q

whatt is internal diseconomies of scale

A

the inefficiencies and increased costs that arise within a firm as it grows and expands its production scale.

63
Q

what are causes of internal diseconomies of scale

A

as employees increase managers may become ineffective leading to poor decisions being made and reduced produtivity

communications break down With more employees and departments, communication can become slower and less effective, leading to mistakes and inefficiencies.

increased transport and storage costs

64
Q

what is external disinconomies of scale

A

when a whole industry grows larger causes negative externalities

65
Q

causes of diseconomies of scale

A

if there’s an overly industrial concentration in one area increases the strain on infrastructure leading to congestion and a loss of man hours

higher factor prices if a industry is up and rising there will be a rising demand for a g/s causing prices to go up. which increases facotr prices and average costs of production

66
Q

how is demand for factors of production determined

A

What FOPS are required

if demand for the g/s is increasing FOP demand will increase

combining FOP if there’s 10 capital and not enough land you will equlize it

demand for capital goods

demand for land

67
Q

what determines demand for capital goods for.a frim

A

price of capital goods

profit margins

corporaton tax increase or decrease

confidence levels in future economy

interest rates if they’re low more capital goods are purchased

advances in tech

68
Q

what demand is demand for factors of production

A

a derived demand it will increase in demand bc. of the increase of demand for something else

69
Q

derived demand def

A

Derived demand refers to the demand for a particular product or resource that is driven by the demand for another product or resource. In other words, the demand for one item is derived from the demand for another item that is connected in the production or distribution process.

70
Q

what two types of production can a firm have

A

labour intensive and capital intensive

70
Q

whyy would demand for fops shift

A

if the prices of substitue factors of production change as firms are looking to minimise price as much as possible they will have high demand

71
Q

what does labour intensive production suggest

A

requires repetitive technical skills that can’t be easily automated or require high levels of customar interactions

72
Q

advantages of labour intensive production

A

workers can connect to customars and build customar loyalty

workers are responsive to feedback and modify fast

workers hired also change with demand saving costs

73
Q

disadvantages of labor intensive production

A

producitivity varies with worker health and energy

shortages of skilled labour that is required

workers require a wage and a non wage benefit which make labour technically more expensive than capital

74
Q

what is a capital intensive poroduction

A

where there’s a replacement of labour with capital

75
Q

advantages of capital intensive production

A

there’s the creation of technical economies of scale and thus reduce the total cost

human error is avoided and quality of g/s is consistent

production can be long term and there will no longer be shortages of skilled workers

75
Q

disdvantages of capital intensive

A

the cost to purchase and install are high

unresponsive to feedback as theres a low level of customisation

76
Q

whats productivity

A

a measure of efficiency that calculates the amountof outputs produced per unit of input

77
Q

what are the objectives of a firm

A

profit maximisation by producing new products
merging with a compeititor
or economies of scale

social welfare focus on social oriented goals these are goals of public corporations

growth, they want increase size of business expand sales and increase production by economies of scale ocean a new outlet

survival if they’re in a highly compeititve market or having short term difficulty they will focus on cost reduction, creating sales making sure there is money flowing in and less money flowing out they might reduce selling price use cheaper FOPS

78
Q

what is a fixed cost

A

a cost which firms must pay which remains the same even if there’s no output

78
Q

what is a vvariable cost

A

a cost that varies when level output changes

78
Q

examples of fixed costs

A

factory rent staff salaries

79
Q

examples of variabel costs

A

delivery costs, raw materials, e.t.c

80
Q

how to find average total cost

A

it’s total cost of production divided by the quanitity of output it’s the cost per unit of g/s

81
Q

how to find average revenue

A

total revenue divided by total quanitty sold

82
Q

how to find revenue

A

price multiplied by quanitty sold

83
Q

what is total revenue

A

Total Revenue (TR) is the total amount of money earned by a firm from the sale of its goods or services during a specific period of time, such as a month, quarter, or year. It represents the total amount of revenue generated by a firm’s sales.

84
Q

what’s sale revenue

A

money firm recieves from selling g/s

85
Q

how to find average revenue

A

totalrevenue divided by quanitty sold

86
Q

define average revenue

A

Average Revenue (AR) is the total revenue earned by a firm divided by the total quantity of goods or services sold. It represents the average amount of revenue generated per unit sold.

Economics (5 decks)

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