Chapter 1

Question 1

Economics

Answer 1

“Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”

Question 2

Economic Production System

Answer 2

Inputs are transformed into outputs to attain a certain goal

Question 3

Capital

Answer 3

an economic term for wealth that is used to produce more wealth

Question 4

What is the relationship between labour and capital?

Answer 4

Inversely proportional.
Large capital (machinery) —> less labour force

Question 5

What is cashflow?

Answer 5

Inflow-> income
Outflow-> expenses

Question 6

Fixed assets

Answer 6

Assets that are kept for a long period of time.
E.g. land and buildings, machinery, vehicles

Question 7

Current assets

Answer 7

Kept for a short period of time.
E.g. materials, trading stock, cash and cash equivalents, cash float

Question 8

The business entity concept

Answer 8

The business is separate from the owner(s) of the business. Therefore the accounting records for even the simplest business, the sole trader, must be kept separate from the personal affairs of the owner or owners.

Question 9

Accounting equation

Answer 9

Assets = Owners Equity + Liabilities

Question 10

Command economy

Answer 10

RULERS make all decisions about production and consumption

Question 11

Market economy

Answer 11

HOUSEHOLDS make all decisions about production and consumption.
— individuals are favoured over groups

Question 12

Capitalism

Answer 12

INDIVIDUALS/FIRMS develop, own and control the country’s capital.
— individuals are favoured over groups

Question 13

Communism

Answer 13

PUBLIC owns all important means of production (restricted number of
participants e.g. a family). Capital belongs to all, becomes difficult to maintain as the number of people increases.
— rulers take decisions and communism places the rights of the group
above those of the individual

Question 14

Markets

Answer 14

Firms sell their product in a market which allows for exchanges, transactions and trades between buyers and sellers

Question 15

Diminishing utility

Answer 15

The more one has of a product, the lower its marginal personal use is

Question 16

Demand depends on (6):

Answer 16

1. The type of product
2. Popularity
3. The quality
4. Satisfies choice
5. Availability
6. Price

(Doo Doo Toilet Paper Products Quickly Soothe Caca And Poo)

Question 17

Supply factors

Answer 17

1. ease of making
2. material costs
3. labour
4. machines
5. capital
6. price

Question 18

Price elasticity of demand

Answer 18

(% change in quantity) divided by (% change in price)

Question 19

Price elasticity

Answer 19

• p (1 + 1/price elasticity of demand)
• increase in market revenue for an extra unit sold

Question 20

Income elasticity of demand

Answer 20

(% change in quantity) divided by (% change in income)

Question 21

Cross price elasticity

Answer 21

• measures a products’ complement and substitute
• e(q-a), (p-b) = (% change in quantity of a) divided by (% change in price of b)
• If cross price elasticity is positive —> substitute product
• If cross price elasticity is negative —> complementary product
• If product form becomes less competitive, the cross elasticity tends to zero (can expect increasing market size with increasing demand)

Question 22

Monopoly

Answer 22

One supplier in the market (may exist by legalities which exclude others trading)

Question 23

Monopsony

Answer 23

A single demander in the market

Question 24

Perfect competition

Answer 24

— Many suppliers and demanders, produce/consume homogenous products, have free mobility of resources and have complete knowledge of resources concerning price and cost.
— perfect competitor produces small outputs relative to the market
— A perfectly competitive firm sets the output/quantity so marginal revenue equals margina costs, to maximise profits

Question 25

Cartel

Answer 25

-many suppliers who think they are monopolies

Question 26

Oligopoly

Answer 26

- a few suppliers in the market

Question 27

Profit

Answer 27

• the residual cash between input (L,K,M) and output (goods and services) after having paid for all input factors. • Accountants exclude payments to shareholders and value items differently when defining profit • Profits of the firm belong to the owners or shareholders • profit= revenue - costs • Profit is made where revenue exceeds costs and marginal revenue = marginal costs

Question 28

Shareholders

Answer 28

- partial ownership of the firm → bear financial risks (uncertainty in investmeht

Question 29

Formula for Total revenue

Answer 29

Price x Quantity

Question 30

Fixed costs

Answer 30

costs which do not vary over a certain range (time) e.g. rent

Question 31

Variable costs

Answer 31

- costs which vary over a certain range (time) e.g. materials

Question 32

Marginal cost

Answer 32

- cost obtained from making an extra unit

Question 33

Marginal revenue

Answer 33

- revenue obtained from making an extra unit

Question 34

Neo-classical theory

Answer 34

- analysis of the market, monopolist and perfect competitor

Question 35

Schumpeter's Theory

Answer 35

— purposes of firms — places emphasis on the creative ability of people whereby firms arise when people make new products and processes, which can monopolise markets for a certain period. New products creatively destroy older approaches

Question 36

Resource Based Theory

Answer 36

— purposes of firms — emphasises unique resources that firms have to monopolise markets. A firm should make what it can monopolise and buy what is available in competitive markets

Question 37

Transaction Cost Economics

Answer 37

— mechanics of firms — see firm as a way of escaping the costs of dealing with the market as market transactional costs are high. It assumes people act rationally, but have limited abilities to process info and are self-seeking with

Question 38

Structure-Conduct-Performance (SCP)

Answer 38

— mechanics of firms — Theory - links various parts of the market to decisions * made by people in a particular firm, these include technology, capital requirements, profit, growth, efficiency, management, objectives and diversification amongst other factors

Question 39

A business model

Answer 39

used to decide if an idea should be carried out

Question 40

Business plans

Answer 40

used to estimate economic viability and risks of the idea, to interest people to support the idea, and to provide documentation against which to monitor progress of making the idea into a reality.

Question 41

Key Considerations for the Transformation Stage: (6)

Answer 41

1. Business Model 2. Operations 3. Human Resources 4. Marketing and Sales 5. Financial Management 6. Risk Management (**B**ig **M**onkeys **O**nly **H**unt **R**ats **M**ice and **S**nakes **F**or **M**aking **R**ank **M**eals)

Question 42

Decisions for Business Model:

Answer 42

Decide on the 1. target market 2. product offerings 3. pricing 4. distribution 5. differentiation factors (**T**oo **M**any **P**eople **O**nly **P**ick **D**ouble **D** **F**emales)

Question 43

Decisions for Operations (5):

Answer 43

Make decisions on 1. production 2. suppliers 3. inventory 4. quality control 5. resource allocation. (**D**on’t **O**pen **P**ea **S**ized **Q**uails **I**n a **R**ush)

Question 44

Decisions for Human Resources:

Answer 44

Determine 1. hiring 2. training 3. employee development strategies 4. establish communication channels

Question 45

Decisions for Marketing and Sales

Answer 45

Make decisions on 1. target audience 2. branding 3. advertising channels 4. pricing 5. sales techniques.

Question 46

Decisions on Financial Management

Answer 46

Decide on 1. budgeting 2. forecasting 3. pricing 4. financing options 5. financial reporting. (**F**ucku **M**ean **B**iden **F**or **P**resident? **F**uck **O**ff **F**or **R**eal)

Question 47

Decisions on Risk Management

Answer 47

Identify 1. risks 2. assess their impact 3. develop mitigation strategies.

Question 48

Useful Tools for the Transformation Stage:

Answer 48

- SWOT Analysis: Evaluate internal strengths, weaknesses, external opportunities, and threats to make informed decisions. - Business Plan: Develop a comprehensive document outlining goals, strategies, operational details, and financial projections.