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Economics: AQA 2015 > Chapter 4 > Flashcards

Chapter 4 Flashcards

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1
Q

What is production?

A

The total output of goods and services produced by an individual, firm or country

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2
Q

What is productivity?

A

A measurement of the rate of production by one or more factors of production

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3
Q

What is labour productivity?

A

Output per worker per unit of time

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4
Q

What are some examples that can improve labour productivity?

A
  • Better education
  • Better training
  • Increased motivation
  • Advances in technology
  • Specialisation and division of labour
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5
Q

What is specialisation?

A

Where a worker, firm, region or country produces a limited range of goods and services

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6
Q

What is division of labour?

A

Specialisation at the level of an individual worker

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7
Q

What is exchange?

A

Where one thing is traded for something else e.g an hour’s work given in return for a set rate of pay

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8
Q

What are the benefits of specialisation and the division of labour?

A
  • Repetition increases skill, leading to a worker becoming an expert
  • Reduced time moving between workstations
  • More efficient to use specialist machinery
  • Allows people to work to their strengths
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9
Q

What is the short run?

A

A period of time in which the availability of at least one factor of production is fixed

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10
Q

What is the long run?

A

A period of time in which all factors of production can be varied

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11
Q

What are fixed costs?

A

Costs of production that do not vary with the level of output in the short run

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12
Q

What are variable costs?

A

Costs of production that do vary with the level of output

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13
Q

What are some examples of fixed costs?

A
  • Rents on business premises
  • Buildings insurance
  • Quarterly heating and lighting bills
  • Salaries of senior staff
  • Annual marketing and advertising budget
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14
Q

What are some examples of variable costs?

A
  • Raw materials
  • Packaging
  • Wages of casual staff
  • Fuel for delivery vehicles
  • Distribution costs
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15
Q

How would you calculate average fixed costs?

A

AFC =

total fixed costs / output

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16
Q

What are total costs?

A

TFC + TVC at a given level of output

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17
Q

How would you calculate average total costs?

A

ATC =

TC / output

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18
Q

What are marginal costs?

A

The addition to a firms total costs from making an additional unit of output

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19
Q

What is the law of diminishing returns?

A

When additional units of variable factors of production are added to a fixed factor, marginal product will eventually decrease

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20
Q

What is returns to scale?

A

The relationship between increases in the quantity of a firms inputs and the proportional change in outputs

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21
Q

What is an increasing returns to scale?

A

Where an increase in the quantity of a firm’s inputs leads to a proportional great increase to its outputs

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22
Q

What is meant by a constant returns to scale?

A

Where an increase in the quantity of a firm’s inputs leads to a proportionally identical increase in its outputs

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23
Q

What is a decreasing returns to scale?

A

Where an increase in the quantity of a firm’s inputs leads to a proportionally lower change in output

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24
Q

What is meant by economies of scale?

A

The reduced average total costs that firm’s experience by increasing output in the long run

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25
What are the types of internal economies of scale?
* Financial * Technical * Marketing * Managerial
26
What is internal economies of scale?
Reductions in long run average total costs arising from growth of the firm
27
What is external economies of scale?
Reductions in the long-run average total costs arising from the growth of the industry in which the firm operates
28
What is meant by diseconomies of scale?
Increases in average total costs that firms may experience by increasing output in the long run
29
What are the types of diseconomies of scale?
* Coordination and control | * Communication
30
What is the minimum efficient scale?
The lowest level of output at which average total costs of production are minimised
31
Why is producing at MES good for a firm?
Once achieved, this can act as a significant barrier to entry for any potential competitors in an industry
32
What is total revenue?
The money a firm receives from selling its output, calculated by (P x Q)
33
What is average revenue?
Average revenue is total revenue divided by output. This is equal to price in a firm that sells one product at a fixed price.
34
What is marginal revenue?
The addition to a firm's total revenue from selling an additional unit of output
35
What are the characteristics of perfect competition?
* large number of buyers and sellers * no firm is large enough to influence price * perfect knowledge of a market * each firm sells an identical product
36
What is profit?
The difference between total revenue and total costs
37
What is normal profit?
The minimum level of profit required to reward the entrepreneur for taking a risk and therefore to stay in a particular line of business
38
What is supernormal profit?
Profit over and above normal profit
39
What are the two types of technological change?
Invention and innovation
40
What is invention?
The creation of a product or process
41
What is innovation?
New products or production processes that are developed into marketable goods or services
42
If there's an improvement in technology, what are the affects on long run average costs?
LRACs are reduced
43
What is a benefit to consumers of technological change?
It can make some markets more competitive and so a lower price could be offered
44
What is creative destruction?
Where technological change leads to the development of new, "disruptive" products that render existing products obsolete
45
What is the market structure?
The number and size of firms within a market for a particular good or service
46
What is perfect competition?
A market structure that has a large number of buyers and sellers who have perfect information about the market, identical products and few, if any barriers to entry
47
What is imperfect competition?
Any other market structure that is not perfect competition
48
What is a pure monopoly?
When only one firm supplies the market
49
What are the objectives for firms?
* Profit maximisation * Sales maximisation * Survival * Growth * Increasing market share * Shareholders objectives
50
What is profit maximisation?
When a firm seeks to make the largest possible difference between total revenue and total costs
51
Why do some firms aim to maximise profit?
* Enable firms to re-invest funds into developing new products that lead to them gaining more customers * Pay out higher returns to shareholders which may encourage more people to buy shares in the company, or help boost the share price
52
Where on a graph is profit maximised?
Where MC=MR
53
What is sales maximisation?
Where sales revenue is at a maximum
54
When does sales maximisation occur?
When the sale of one more unit of output would not add to overall income
55
What is survival?
Firms aim for survival in a critical period before it establishes a customer base and repeat sales and is able to cover its costs
56
What is growth as an objective for firms?
Involves a firm increasing its output and scale of operations, possibly in terms of expanding its productive base and size of its workforce
57
Why is growth of a firm important?
Obtaining growth allows firms to take advantage of economies of scale. Also prevents businesses from being taken over by rivals
58
What is increasing market share as a firm objective?
When a firm seeks to maximise its share of the market in terms of sales value or number of units sold
59
Why is increasing market share important to a firm?
Having significantly higher market share than the rest of the market can give a firm monopoly power. However, this could attract attention from the government.
60
What are stakeholder objectives?
Non-financial objectives such as looking after the needs of employees
61
What is the divorce of ownership and control?
The separation that exists between owners of the firm and directors in a large public limited company
62
What is the assumed objective of stakeholders of a firm
To maximise profits
63
What are some objectives of directors at a firm?
* Growth maximisation * Sales revenue maximisation * Satisficing
64
Why would growth maximisation be an objective of a director of a firm?
* Boost profile and CV of senior managers | * Reduce threat of takeover which could lead to "easy life" for senior executives
65
Why would sales revenue maximisation be an objective of a director of a firm?
Executives pay and bonuses may be dependent on sales revenue rather than profit
66
Why would satisficing be an objective of a director at a firm?
Producing at a precise output where MC=MR is difficult and so leads to senior staff "making do" with less satisfactory, sub-optimal profit

Economics: AQA 2015 (4 decks)

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