3 Microeconomic decision makers Flashcards
(81 cards)
1
Q
Bartering
A
System of exchange where people trade non money items between each other.
2
Q
The functions of money
A
Medium of exchange- Widely accepted value
Unit of account- Able to assign a value to each amount
Store of value- Always keeps the same value
Money acts as a standard for deferred (delayed) payments.
3
Q
Central bank and what does it do
A
The government’s bank. It is responsible for setting up and maintaining the financial system in an economy, and carrying out the monetary policy.
4
Q
Monetary policy
A
Controlling the money supply in an economy by changing interest rates and the amount of currency in circulation.
5
Q
Central banks job
A
Currency stability
Controlled inflation
6
Q
Responsibilities of Central banks
A
Controlling the money supply
Managing foreign exchange and gold reserves
7
Q
How does the bank do its job
A
Managing interest rates
Setting reserve requirements
Lending to the banking sector
8
Q
Interest rate hikes
leads to what
A
Lower Economic growth and slower inflation
9
Q
Interest rate cut
Helps do what
A
Higher economic growth and faster inflation
10
Q
Required reserves
A
The minimum amount of deposit that banks might hold by law
11
Q
Excess reserves
A
Back reserves over and above their required reserves. This is the amount they can loan out.
12
Q
What do commercial banks do
A
A commercial bank is an institution that offers financial services to firms and households in the economy.
13
Q
Bad debts
A
Occur when people and businesses cannot repay a loan.
14
Q
Borrowing
A
Occurs when an individual, firm or government takes out a loan from a financial institution, paying back the debt with interest over a period of time.
15
Q
Collateral
A
This means security for a loan.
e.g. property in the case of a mortgage
16
Q
Conspicuous consumption
A
Occurs people purchase highly expensive goods and services due to status or desired image.
17
Q
Consumer spending
A
Refers to earning of an individual after income tax and other charges have been deducted.
18
Q
Disposable income
A
Refers to the earnings of an individual after income tax and other charges have been deducted.
19
Q
Aggregate demand (GDP)
A
C + I+ G + (x-m)
Consumer spending
Business investment
Government spending
Export
Import
20
Q
Dissaving
A
occurs when people spend their savings.
21
Q
Income
A
Is the total amount of earnings an individual receives in a period of time. It may consist of wages, interest, dividends, profits and rental income.
22
Q
Mortgage
A
Is a secured loan for the purchase of a property.
23
Q
Saving
A
Occurs when a person puts aside some of their current income for future spending.
24
Q
Saving ratio
A
Refers to the proportion of household income which is saved instead of consumed in an economy.
25
Wealth
Is measured by the value of assets a person owns minus their liabilities (the amount they owe to others).
26
Why do women earn 80% of what men do
Women choose lower-earning college majors
Women are more likely to have unpaid family responsibilities
Women are less likely to negotiate wages
Gender discrimination
27
Monopsony
A market situation in which there is only one buyer.
28
Monopoly
The exclusive possession or control of supply of or trade in a commodity or service.
29
Trade union
Is an organisation that aims to protect the interests of its members. mainly the terms of pay and conditions of employment.
30
Collective bargaining
Occurs when a trade union representative negotiates on behalf of the union's members with the employer to reach an agreement that both sides find acceptable.
31
A go slow
Occurs when workers decide to complete their work in a leisurely way and therefore productivity falls .
32
Industrial action
Industrial action is any deliberate act to disrupt the operations of a firm in order to force the management to negotiate better terms and conditions of employment, e.g. strike
33
A sit-in
This is when union members go to their place of work, and occupy the premises but do not undertake their normal work.
34
A strike
Occurs when union members withdraw their labour services by refusing to work.
35
Work to rule
This means that workers literally work to fulfil the minimum requirements of their job and do nothing outside what is written in their contract of employment.
36
Types of unions
Craft Unions- specialized
General Unions- Low skilled jobs
White Collar Unions- Social services
37
Different types of economies of scale
Internal economies of scale
Internal diseconomies of scale
External economies of scale
External diseconomies of scale
38
Economies of scale
As the scale of production increases the average cost per unit decreases
39
Economies of scale
These lower average costs:
Purchasing: Bulk buying discounts
Marketing: Transparent advertising
Financial: Lower interest rates
Managerial: Specialists in all departments
Technical: Specialists and the latest equipment
40
Diseconomies of scale
These raise average costs:
Poorer communication
Slower decision making
Low morale
41
Internal economies of scale
Internal economies of scale are the benefits which a firm can gain from increasing its size (in the form of lower average costs)
Risk barring
technical economies
Financial economies
Managerial economies
Marketing economies
More innovative research and devlopment
42
Internal diseconomies of scale
Internal diseconomies of scale refer to possible cost disadvantages a firm can experience if it grows too large.
Loss of control
Loss of coordination
Industrial relations
Resource price
43
External economies of scale
External economies of scale are benefits that firms gain from being in a growing industry.
Infrastructure
Skilled labour
Specialist market
Reputation
44
External diseconomies of scale
Any industry-wide effects that make it more difficult or more costly to perform a business operations from external factors.
Cost goes up
scarcity of materials
lack of skilled labour
infatrucure
45
Three business sectors
Primary
Secondary
Tertiary
46
Size of a buisness can be measured by
Number of employees
Value of output
Value of sales
Value of capital employed
Market share
47
People interested in the size of a business
5
Investors
Governments
Competitors
Workers
Banks
48
Internal growth
Through investing with capital goods
49
External growth
Through integration (merging or takeover)
50
Profit maximation
An objective, held by many firms, aims to increase the gap between total revenue and total costs to its maximum possible point in order to deliver profit to its owner, partners or shareholders.
51
Market structure
Refers to the nature and degree of competition that exists in a market and is examined by analysing the characteristics of the relationship that exists between buyers and sellers in the market.
52
Competitive market
A market in which there are many sellers of a product engaged in fierce competition.
53
Characteristics of market structures
Homogenous products (all perfect substitutes)
All firms have access to F.P
Large numbers of buyers and sellers
Free entry/exit to market
Perfectly elastic demand curve
Perfect knowledge
Perfect maximisation
54
Market share
The percentage of sales of a total market that a particular firm has. For example, Apple has 52% of the smartphone market in the USA.
55
Pure monopoly
When there is a single seller of a product.
56
Monopolies have the power of
Firms with some ability to set the market price. Their market power means they can raise prices without losing too much demand.
57
HORIZONTAL integration
This occurs when firms in the same industry and at the same stage of the production process combine to form a larger business.
For example a merger between two banks - Westpac and Trustbank =WestpacTrust
58
VERTICAL integration
This occurs when a firm expands by combining with an existing business in the same industry but at a different stage of the production process.
59
Forward Vertical Integration
Where a firm buys into another in a later stage of production.
For example, a group of farmers buys the local milk processing plant.
60
Backward Vertical Integration
Where a firm buys into another firm in an earlier stage of production. For example, when KFC (takeaways) buys the country’s biggest poultry processing plant.
61
Diversification
This involves a takeover or merger with another firm in an unrelated industry.
62
Risk barring
This is when having or sharing responsibility for accepting the losses if the project goes wrong.
63
Characteristics of a Pure monopoly
Single supplier
High barrier to entry
Imperfect knowledge
Price maker
64
Equity
The condition of being fair and just.
65
Sole trader
A firm that has a single owner who makes all the decisions and gets to keep all of the profits. The owner is legally responsible for all debts of the business.
66
Partnership
A firm where two or more people have joined together to form a business. Decision-making and profits are shared between the partners. Good examples of this type of business include lawyers and accountants.
67
Private limited company
As a sole trader grows, they will often convert into a private limited company. This is a firm that breaks its ownership into shares, which can be sold by the owner privately, usually to friends and family. Profits are distributed according to the shares people own. Decision-making often rests with a person appointed to run the company, often called the Managing Director. The owners (shareholders) are not personally responsible for the debts of the company (as with a sole trader). Examples of this type of business include those in construction and building services.
68
Public limited company
As a private limited company grows, it will often decide to convert to a public limited company. The firm will sell ownership shares in its company to the general public. Shares are sold on a stock exchange, such as the New York Stock Exchange. This has the benefit of being able to raise a lot of money very quickly. For example, Alibaba raised 25 billion USD in one day in 2014 when it offered its shares to the public. Shareholders in these companies are owners but have no liability for the debts of the company, other than possibly losing the money they paid for their shares. The firm will appoint a Chief Executive Officer (CEO) to make decisions and some of the profits will be distributed annually to shareholders.
69
Indicators of market failure
Shortage
Surplus
High prices
Poor quality
Lack of innovation
70
Influences on Spending, Saving and Borrowing
Increase in… Spending Saving Borrowing
Real income ↑ ↑ ↑
Direct tax ↓ ↓ ↕
Wealth ↑ ↓ ↑
Interest rates ↓ ↑ ↓
Availability of saving scheme↓ ↑ ↓
Availability of credit ↑ ↓ ↑
Consumer confidence ↑ ↓ ↑
71
Why firms change demand for labour
Changes in consumer demand for products
Changes in the productivity of labour
Changes in price and productivity of capital
Changes in non-wage employment costs
72
Why labour supply might change
Changes in net advantages of an occupation
Changes in provision and quality of education and training
Demographic changes
73
Factors that Cause Occupational Wage Differentials
Different abilities and qualifications
‘Dirty jobs’ and unsociable hours
Job satisfaction
Lack of information about jobs and wages
Labour immobility
Fringe benefits
74
Factors that cause wage differentials in the same job
Regional differences in supply and demand of labour
Length of service
Local pay agreements
Non-monetary agreements
Discrimination
75
Demand for goods & services by consumers: What effect on companies
higher demand = more labour/capital firms will need
76
Price of labour & capital: What effect on companies
higher cost = less labour & capital demanded
77
Productivity of labour & capital: What effect on companies
more output/revenue labour & capital help to produce, more profit they will generate over & above cost of employing them
78
Capital-intensive Production: What effect on companies
requires heavy capital investment to buy assets relative to sales or profits that assets can generate
79
Labour-intensive Production: What effect of companies
main cost is labour; cost is high compared to sales or value added by additional manpower
80
Advantages of Monopolies
Avoids duplication &wastage of resources
Economics of scale; benefits can be passed to consumers
High profits can be used for research &development
Monopolies may use price discrimination which benefits the economically weaker sections of the society
Monopolies can afford to invest in latest technology & machinery to be efficient & avoid competition
81
Disadvantages of Monopolies
May supply less & charge higher prices
May offer less consumer choice and lower quality products than if they had to compete with other firms
May have higher production costs because they are poorly managed
Restrict competition using barriers to entry
