1.5 Business and the internal Economy Flashcards
(15 cards)
What is meant by the internal economy?
The part of the economy that relates to a single business or country, focusing on internal factors like efficiency and cost control.
What are economies of scale?
Cost advantages that a business can exploit as it grows in size.
Name two types of economies of scale.
Internal economies of scale and external economies of scale.
What are internal economies of scale?
Cost savings that arise from the growth of the business itself.
Give an example of an internal economy of scale.
Purchasing economies – buying in bulk reduces costs per unit.
What are external economies of scale?
Cost savings that result from the growth of the industry or market.
Give an example of an external economy of scale.
Improved infrastructure or supplier networks due to industry growth.
What are diseconomies of scale?
The disadvantages or rising costs experienced when a business becomes too large.
Give an example of a diseconomy of scale.
Communication problems or lack of coordination in large organisations.
Why do businesses aim for economies of scale?
To reduce average costs and improve competitiveness.
How do financial economies of scale benefit large firms?
They gain access to cheaper loans and better financial terms.
What are managerial economies of scale?
Specialisation of managers increases efficiency as the business grows.
What are technical economies of scale?
Larger firms can afford more advanced machinery and technology.
What is meant by average cost?
Total cost divided by the number of units produced.
How can internal growth benefit a business?
It allows expansion using retained profits, avoiding external ownership or debt.
