Businesses in the Economy Flashcards
(48 cards)
What is a business?
An organisation involved in using entrepreneurial skills to combine factors of production to produce a good or service for sale.
What is an industry?
An industry consists of a group of firms involved in making a similar range of items, usually compete with each other.
What factors influence a business’s decision on what to produce?
- Skills and experience of the business operator
- areas of strong consumer demand
- Specific business opportunities (eg, niche markets)
- Amount of capital required to start business
What factors influence a business’s decision in how much to produce?
- assessment of current, past and future level of consumer demand
- its production capacity, in turning that demand into sales
- the stage of the business (eg. harder to know best quantity to produce when first putting product on market.)
- capacity of business to adapt to changes in demand
What factors influence a business’s decision in how to produce?
A firm’s decision about how to produce depends on the relative efficiency of the four factors of production. This efficiency can change over time, especially due to the business cycle. Ethical and environmentally sustainable perspectives are also considered in light of consumer awareness and regulations.
How does the private sector contribute to the economy?
Stronger economic growth
Reduce unemployment
Add to regional development
Increase productive capacity
Describe how firms contribute to economic growth.
A healthy, growing private sector will generate a higher rate of aggregate demand and a stronger revenue base to fund services provided by the government. (eg. during mining boom of 2000’s, mining businesses thrived and drove significant Australian economic growth).
Describe how firms contribute to reducing unemployment
Growing businesses employ more people and reduce unemployment. (eg. growth in financial services and technology industries has created job growth in Sydney
Describe how firms contribute to regional development.
Food processing, tourism, manufacturing and creative industries are significant employers of regional economies and are important drivers of economic growth in these regions.
Describe the effect increased productive capacity on an economy.
Increased productive capacity as a result of a strong private sector increases living standards, and shift the PPF of goods and services outwards.
Describe a firm’s goal of maximising profits.
Maximising profit, or minimising losses, are the main objectives of firms. Profit is different between sales and production costs.
Describe a firm’s goal meeting shareholder expectations.
Meeting shareholder expectations is the main responsibility of company directors. It is a legal responsibility governing firms in Australia, Often focused on maximising short term returns on issued shares.
Describe firms’ goal of increasing market share
Market share is the percentage of sales businesses have in the total market. It is a measure of consumer preferences for a business’s product over its competitors. A higher market share is linked to more sales.
Describe the goal of firms to maximise growth.
This refers to maximising the growth of the firm’s assets. In the long run, a large asset base allows a business to achieve higher profits, and can increase employee incomes.
Describe the decision of firms to engage in satisficing behaviour
Satisficing behaviour means that a firm does not attempt to maximise any particular objective, but rather seeks a moderate level of attainment in all areas. This may be in the firm’s interest in the long run, as excessive profits may attract competition or provoke government regulation (could also include the situation where a business operates as a social enterprise, with the goal of positive social impact - eg, hiring the disabled).
How does a business minimise production costs?
Firms minimise production costs by being efficient as possible.
What is productivity?
The quantity of goods and services the economy (or firm) can produce with a given amount of inputs, per unit of time.
How can an increase in productivity be described?
An increase in output per factor of production per unit of time.
How is productivity increased?
Production is increased proportionally more than the increase in inputs.
What is a key impact of increasing firm productivity?
Living standards increase (the economy is able to satisfy more wants)
How does productivity contribute to improved living standards?
Less wastage of resources Lower production costs and higher firm profits Lower inflation - due to lower prices Higher incomes International competitiveness
What is a specific way that productivity is increased?
Through specialisation, where the factors of production are used more intensely for a smaller number of production processes
How is labour specialised?
A division of labour occurs when businesses break down production into sub-processes, allowing labour to specialise in a specific process.
How are natural resources specialised?
Also called ‘location of industry’, this occurs when a large number of business in an industry congregate in the same area to share common infrastructure requirements.
