Economics Theme 1 Flashcards
(126 cards)
1
Q
What is ‘The Basic Economic Problem’?
A
The fact that humans have unlimited wants but there are finite resources to fulfill these unlimited wants
2
Q
What is ‘scarcity’?
A
Limited availability
3
Q
What is ‘opportunity cost’?
A
The cost and sacrifice of the unchosen option(s).
4
Q
What is ‘trade off’?
A
The balancing of factors which aren’t attainable at once
5
Q
What are ‘economic agents’?
A
Economic agents are the key groups of people involved in the economic problem.
6
Q
What are ‘Business Objectives’?
A
Specific, measurable results firms hope to achieve in a timed goal
7
Q
Name and explain at least 3 business objectives
A
Survival
- Normally a small firm, their main objective is to survive and keep the business running
Market Share
- The goal of having a high percentage of the total market share
Cost Efficiency
- Operating efficiently with minimum waste and lowest possible unit costs
Profit Maximisation
- Ensures profit is at main priority
Sales Maximisation
- Sales maximisation involves supplying the largest possible output, with at least making a profit
Satisficing
- Ensuring shareholders are happy. by making enough profits but not maximising—
8
Q
What’s a ‘stakeholder’?
A
Entities that are affected or can affect a business.
9
Q
What are ‘Stakeholder Conflicts’?
A
This occurs when stakeholders’ objectives clash.
10
Q
Name 5 stakeholders
A
- Consumers
- Shareholder
- Employees
- Community
- Pressure groups
- Suppliers
11
Q
What’s is ‘CSR’?
A
Corporate Social Responsibility is when a business acts in a ethical way and takes responsibility for their actions
12
Q
What’s a ‘Shareholder’?
A
Someone that owns shares in a company
13
Q
Name an objective for a shareholder
A
- Profit Maximise
- Expand the business
14
Q
Name an objective for a manager
A
- Good salary
- job security
15
Q
Name an objective for an employee
A
- Good salary
- Job security
16
Q
Name an objective for a consumer
A
- Lower prices
- Ethical business practices
17
Q
Name 2 costs of CSR
A
- Not working to full efficiency
- Unrealistic standards
- High costs
18
Q
What’s an ‘Entrepreneur’?
A
Someone who sets up a business, accepts the risks and controls aspects of a business
19
Q
What is ‘Creative Destruction’?
A
When innovation in an industry leads to the obsoletion of of products
20
Q
What is ‘Adding Value’?
A
Making a product/service more desirable to customers
21
Q
Name 2 ways of adding value
A
- Increase quality
- Lowering prices
22
Q
Name the 4 factors of production
A
- Land
- Labour
- Capital
- Entrepreneurship
23
Q
What is a ‘Stakeholder Model’?
A
A business model that prioritizes the objectives around stakeholders. Taking all stakeholder wants in to account when making any decisions.
24
Q
What is a ‘Shareholder Model’?
A
When a business prioritizes the objectives of shareholders.
25
What is 'Profit'?
Total Revenue - Total Costs
26
What are 'Entrepreneurial Motives'?
The drive within an entrepreneur that affects the direction of their actions
27
Name 3 non financial motivators for entrepreneurs
Personal gain
- The satisfaction of growing a business creates joy
Independence
- The fact that you can be your own boss
Challenge
- Challenge may satisfy them
28
What are the 'factors of production'?
Factors of production are the inputs needed for creating a good or service
29
Name and explain the 4 factors of production
Land -The natural resources used to create a good or service
Entrepreneur - They use land, labor, and capital in order to produce a good or service for consumers
Capital - Factor of production that has been produced for use in the production of other goods and services.
Labour - The effort that people contribute to the production of goods and services
30
What is 'Specialization'?
People making the most out of their skills by concentrating their expertise in a particular field
31
What is 'Division of Labour'?
Involves organizing employees sop that each employee specializes in one part of the production process
32
What is 'Efficiency'?
Using resources in the most economical way possible.
33
Name 2 advantages of specialization
- Increase in efficiency
- more productivity
- Economies of scale
34
Name 2 disadvantages of specialization
- Employee could get bored due to repetition
- Can lead to structural unemployment for the employee
- Decreased productivity in the long run
35
What are 'interest rates'?
The sum put on top of loans
36
What are 'exchange rates'?
The value of a currency when converted to another
37
What is 'Taxation'?
The financial obligation the government puts onto its citizens
38
What is 'Unemployment'?
People who don't have a job, who are looking for one
39
What is 'Inflation'?
The general prices of goods and services rising, for a sustained period of time
40
What is 'Demand'?
The incentive to purchase a product/service
41
Name 2 consumer objectives
- Good value
- Good quality
- Low price
42
What happens in the demand curve diagram if price changes
Movement along the curve
43
What happens in the demand curve diagram if the factors change
Shift in the curve
44
Name all 6 factors which cause a shift in the demand curve
hint: PIRATE
Population changes (higher population = higher demand)
Income change (i.e. having more disposable income)
Related goods (substitutes and complimentary goods)
Advertising can increase consumer loyalty to the good
Tastes and fashions changes = demand changes
Expectation changes in how big the company will be
45
What is Supply''?
The willingness for a producer to supply a good or service
46
Name 2 supplier objectives
- Maximising profits
- Minimising costs of production
- Improve customer relationship
47
Name 2 factors which cause a shift in the supply curve
hint: PINTSWC
- Productivity (economies of scale)
- Indirect taxes
- Number of Firms
- Technology changes
- Subsidies
- Weather (may destroy crops)
- Costs of production
48
What is 'Equilibrium'?
Where supply and demand balance
49
What are 'Market Forces'?
An economic factor affecting things such as price
50
Where will the the supply curve move if costs in production were to rise
Left
51
Name 2 limitations to the supply and demand diagram
Assumptions
- Assumes that consumers always act rationally and have perfect information, which may not be the case.
Time Lag
- the model assumes that supply and demand are always in equilibrium, but in reality, it may take time for prices to adjust to changes in supply and demand.
Market power
- in reality, some firms may have market power and be able to set prices above the competitive level.
52
What is the 'Price Mechanism'?
Prices perform a signalling function, demonstrating where resources are required
53
What is the 'Rationing Function'?
Prices ration scarce resources when demand outstrips supply;
When prices increase, it only leaves those with the willingness and ability to buy it
54
What is the 'Incentives Function'?
Through choices, consumers send information to producers about their changing needs and wants.
55
What is the 'Signalling Function'?
The price acts as a signal to consumers and new firms entering the market. The price changes show where resources are needed in the market.
- A high price signals firms to enter the market because it is profitable. However, this encourages consumers to reduce demand and therefore leave the market.
56
What is a 'Mass Market'?
A mass market is a large group of consumers with similar needs and wants for a particular product or service.
57
What is a 'Niche Market'?
A niche market is a small and specialized segment of the market for a particular product or service.
58
What is 'Market Research'?
The collection of data in order to learn about the needs and wants of consumers
59
What is 'Market Segmentation'?
The action of dividing the market depending on consumer wants and needs.
60
Name 2 uses of market research
- Identifying consumer wants and needs
- Make decisions about pricing
- Identify new opportunities
61
Name 2 limitations of market research
- Costly
- Timing; wants and needs change rapidly
- Sample size
62
What is 'Market Positioning'?
The ability to influence consumer perception
63
What is 'Competitive Advantage'?
When a firm's products are deemed to be
better than its competitors by customers
64
What is 'Product Differentiation'?
When a business attempts to gain a competitive advantage by increasing value of product
65
What is 'Added Value'?
Difference between costs of production and selling price of product
66
What is 'Limited Liability'?
Business owners' personal liability is limited to the amount invested
67
What is 'Unlimited Liability'?
The business owner has unlimited personal liability for the businesses obligations
68
What is 'Credit'?
The ability to obtain goods before payment, with an agreement payment will be made in the future
69
Name and explain the 3 types of credit
Loan
- Borrowing money from elsewhere, with it being repaid
in the future, typically with interest.
Overdrafts
- Allows a consumer or firm to temporarily borrow from the
bank by spending more than is saved in the account.
Trade credit
- Trade credit is the credit which is extended to a firm by suppliers, so a good can be bought immediately and paid later.
- It is especially useful for small firms to finance their growth.
70
Where is the only source of credit
Banks
71
Name and explain the 3 types of finance
Venture capital
- This is funding in return for a share in a company.
- The investor receives a return on their investment in the form of dividends.
Share capital
- This can be raised by selling shares to investors
- like when Elon Musk sold Tesla stock to buy Twitter
Leasing
- A lease is a long term agreement for rent that allows firms to use an asset without paying the full amount up front.
72
Name and explain 4 sources of finance
and name a pro and con of each one
Personal savings
- This is the amount of money that an owner has available to put into the firm.
- an advantage is that It saves the firm from borrowing potentially expensive credit from a bank.
- The major disadvantage of this is that if the capital is lost, the owner loses it. if its your retirement funds for e.g., your retirement funds are gone
Retained profit
- Total Revenue - Total Costs
- An advantage is that it is a cheap source of finance, which saves paying high interest rates on loans, great for investment in the company when bank interest rates are high
- A disadvantage is that it could be both slow to receive that profit and result in firms missing out on other opportunities.
Sale of assets
- A firm could sell its assets, such as buildings, vehicles and land, to raise money.
- An advantage is that it is a quick source of finance, especially if the capital is unused
- the firm might have to accept a lower price for their assets. Moreover, not all firms have access to unused capital
Individual investors
- Friends and family can make up the individual investors which help finance the business.
- An advantage is that it spreads risks to all shareholders, rather than just you
- A disadvantage is that you now have to give up some control over the firm, also conflict between stakeholders could occur
Online collaborative funding
- crowd funding (GoFundMe, Kickstarter)
- One of the advantages of this is that firms can raise finance quickly and at a low cost
- A disadvantage is that firms have to raise funds to a certain target. Otherwise, they do not get to receive
- Another disadvantage is that the firm risks having their ideas stolen, if they are not protected with a copyright.
73
What's an externality
This occurs when production or consumption inflicts third party costs or benefits on others without it being reflected in the price
74
Distinguish between Private, External and Social costs/benefits
Private only affects1st parties
External affect 3rd parties
Social = Private + Benefit
75
What is 'Government Intervention'?
Action taken by the government that seek to change the decisions made by organisations
76
What is 'Government Failure'?
When the costs of government intervention are greater than the benefits provided
77
What are 'Fixed Costs'?
Costs that remain the same regardless of production levels
78
What are 'Variable Costs'?
Costs that vary depending on output sold
79
What is 'Break-even analysis'?
The calculation and information about the break-even sales level
79
What is 'Break-even analysis'?
The calculation and information about the break-even sales level
80
What is 'Margin of safety'?
The margin of safety is the amount sales can fall before the break-even point (BEP) is reached
Margin of safety = actual sales − break-even sales
81
What is 'Contribution'?
The amount of revenue that remains after variable costs have been deducted.
82
3 uses of break even analysis
- To know the maximum amount needed to be sold
- Helps to set optimal pricing strategies
- Helps to make informed business decisions
- Helps to assess the risk and viability of a business
83
What is a 'Statement of comprehensive income'?
A financial statement that summarizes both net incomes and other incomes
84
What is 'Profitability'?
A way to measure to what degree a business profits
85
Why are profit margins are better than profit
Due to profit margins being in percentages, they can be used to compare the financial performance of different businesses or products, regardless of their size or scale
86
What is 'Cash Flow'?
The money going in or out a business
87
What is 'Cash Flow Forecast'?
The prediction of when and how much money will be leaving and entering a business
88
What is a 'Normative Statement'?
Subjective based statements which can not be tested to be valid or invalid
89
What is a 'Positive Statement'?
Statements that can be tested to be true or false
90
What is 'Capital' in factors of production?
Physical goods which can be used in the production
process such as machines
91
What is 'Entrepreneurship' in factors of production?
someone who takes risks, innovates, and uses the
factors of production
92
What is 'Land' in factors of production?
Natural resources such as oil, coal, wheat, water or It
can also be the physical space for fixed capital.
93
What is 'Labour' in factors of production?
The workforce of the economy/ employees
94
What would happen if interest rates were to increase
Due to it costing more to borrow money, people are less likely to borrow money and rather save their money, thus firms could experience a fall in sales.
95
What would happen if exchange rates were to increase
Imports will become cheaper, thus there may be less spending on domestic goods. Firms who import a lot will benefit as cost of production will decrease
96
What are 'indirect taxes'?
Imposed by the government and they increase production
costs for producers, thus producers supply less and this increases market price.
97
What would happen if unemployment were to increase
Less people working would mean firms have a larger supply of labour, thus wages fall as firms can lower the minimum pay.
But firms will experience a loss in sales as high unemployment means less consumption in the economy
98
What would happen if inflation were to increase
Interest rates would be higher to encourage less spending. - Workers might demand higher wages, which could increase the costs of production for firms
99
What is 'Effective demand'?
The quantity that consumers are willing to buy at the current market price
100
What is 'Individual demand'?
the demand of an individual or firm, measured by the quantity bought at a certain price at one point in time
101
What is 'Market demand'?
the sum of all individual demands in a market
102
What is 'Individual Supply'?
The supply that a producer is willing and able to sell at a given price in a given period of time
103
What is 'Market Supply'?
Sum of all supply in a given market
104
What is a 'Shortage'?
When there is more demand than supply
105
What is a 'Excess'?
More supply than demand
106
What is a 'Market Map'?
An illustration of the positions a product can take based upon qualities which are significant for consumers.
Gaps can then be identified to create USPs
107
When is competitive advantage achieved
When a firms average cost is at a minimum, and value for consumers is at a maximum
108
What is a 'Stable Market'?
A market where any changes that occur are slow and predictable.
109
What is a 'Dynamic Market'?
A market which changes constantly and rapidly
110
How do banks create credit
using deposited funds as loans.
111
What is 'collateral'?
Property pledged against a loan, if the loan is not fully paid out, the house will be repossessed.
112
What is 'Risk'?
The probability of loss occurring
113
Name and explain the 3 types of market failure
Externalities
- it is the spill over effect of the production or consumption of a good or service, which may not reflected in the prices
The under-provision of public goods
- Private firms will have little incentive to provide public goods, as they can't profit off of public goods.
Information gaps
- Consumers will make uninformed decisions and may overpay for a product
114
Name 2 types of government intervention
- Regulations and laws
- Indirect taxation; discourages supply and consumption
- Subsides; encourages supply and consumption
115
Name and explain 3 causes of government failure
Distortions of price signals
- the government reduces the free market element and may be subsidising a falling industry
Unintended consequences
- Banning something could make people commit more crime
Excessive costs
- Unexpected costs of implementing a policy
Information gaps
- Some policies are made without perfect information
116
Name the 4 stages in the economic cycle
- Boom
- Recession
- Slump
- Recovery
117
In the economic cycle, what is boom?
- and name 3 characteristics
When economic growth is fast and unsustainable (inflationary)
- High rates of economic growth
- Near full capacity
- (Near) full employment
- Demand-pull inflation
- High confidence (high investment)
- High gov funds due to tax and less spent on
118
In the economic cycle, what is a recession?
- and name 3 characteristics
Negative economic growth over two consecutive
quarters:
- Negative economic growth
- Lots of spare capacity
- Demand-deficient unemployment
- Low inflation rates
- Government budgets worsen due to more spending on welfare payments and lower tax revenues
- Less confidence amongst consumers and firms, which leads to less spending and investment
119
Name the 2 things that influence consumer spending
- Interest rates
- Consumer confidence
120
Name 3 things that influence capital investment
- Rate of economic growth
- Business expectation
- Demand for exports
- Interest rates
- influence of government regulation
121
Name one thing that influences government spending
- Economic growth
- Fiscal policy
122
Name 3 things that influence Exports - Imports
- Income
- Exchange rates
- State of world economies
- Protectionism
- Competitivity of a countries goods and services
123
What is 'break even analysis'?
Determines the point of no profit or loss in a business by analysing the balance between costs and revenue.
124
Name 2 limitations of break even analysis
- Assumes variable cost per unit will remain the same
- Assumes everything produced is sold
- Assumes fixed costs do not change with output
125
What is the 'statement of comprehensive income'?
The statement of comprehensive income shows the
revenue and expenses of a firm, It giving an overview of the firm’s financial position.
