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Economics > Economics Theme 1 > Flashcards

Economics Theme 1 Flashcards

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

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2
Q

What is ‘scarcity’?

A

Limited availability

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3
Q

What is ‘opportunity cost’?

A

The cost and sacrifice of the unchosen option(s).

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4
Q

What is ‘trade off’?

A

The balancing of factors which aren’t attainable at once

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5
Q

What are ‘economic agents’?

A

Economic agents are the key groups of people involved in the economic problem.

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6
Q

What are ‘Business Objectives’?

A

Specific, measurable results firms hope to achieve in a timed goal

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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—

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8
Q

What’s a ‘stakeholder’?

A

Entities that are affected or can affect a business.

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9
Q

What are ‘Stakeholder Conflicts’?

A

This occurs when stakeholders’ objectives clash.

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10
Q

Name 5 stakeholders

A
  • Consumers
  • Shareholder
  • Employees
  • Community
  • Pressure groups
  • Suppliers
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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

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12
Q

What’s a ‘Shareholder’?

A

Someone that owns shares in a company

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13
Q

Name an objective for a shareholder

A
  • Profit Maximise
  • Expand the business
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14
Q

Name an objective for a manager

A
  • Good salary
  • job security
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15
Q

Name an objective for an employee

A
  • Good salary
  • Job security
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16
Q

Name an objective for a consumer

A
  • Lower prices
  • Ethical business practices
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17
Q

Name 2 costs of CSR

A
  • Not working to full efficiency
  • Unrealistic standards
  • High costs
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18
Q

What’s an ‘Entrepreneur’?

A

Someone who sets up a business, accepts the risks and controls aspects of a business

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19
Q

What is ‘Creative Destruction’?

A

When innovation in an industry leads to the obsoletion of of products

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20
Q

What is ‘Adding Value’?

A

Making a product/service more desirable to customers

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21
Q

Name 2 ways of adding value

A
  • Increase quality
  • Lowering prices
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22
Q

Name the 4 factors of production

A
  • Land
  • Labour
  • Capital
  • Entrepreneurship
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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.

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24
Q

What is a ‘Shareholder Model’?

A

When a business prioritizes the objectives of shareholders.

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25
Q

What is ‘Profit’?

A

Total Revenue - Total Costs

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26
Q

What are ‘Entrepreneurial Motives’?

A

The drive within an entrepreneur that affects the direction of their actions

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27
Q

Name 3 non financial motivators for entrepreneurs

A

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

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28
Q

What are the ‘factors of production’?

A

Factors of production are the inputs needed for creating a good or service

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29
Q

Name and explain the 4 factors of production

A

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

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30
Q

What is ‘Specialization’?

A

People making the most out of their skills by concentrating their expertise in a particular field

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31
Q

What is ‘Division of Labour’?

A

Involves organizing employees sop that each employee specializes in one part of the production process

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32
Q

What is ‘Efficiency’?

A

Using resources in the most economical way possible.

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33
Q

Name 2 advantages of specialization

A
  • Increase in efficiency
  • more productivity
  • Economies of scale
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34
Q

Name 2 disadvantages of specialization

A
  • Employee could get bored due to repetition
  • Can lead to structural unemployment for the employee
  • Decreased productivity in the long run
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35
Q

What are ‘interest rates’?

A

The sum put on top of loans

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36
Q

What are ‘exchange rates’?

A

The value of a currency when converted to another

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37
Q

What is ‘Taxation’?

A

The financial obligation the government puts onto its citizens

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38
Q

What is ‘Unemployment’?

A

People who don’t have a job, who are looking for one

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39
Q

What is ‘Inflation’?

A

The general prices of goods and services rising, for a sustained period of time

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40
Q

What is ‘Demand’?

A

The incentive to purchase a product/service

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41
Q

Name 2 consumer objectives

A
  • Good value
  • Good quality
  • Low price
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42
Q

What happens in the demand curve diagram if price changes

A

Movement along the curve

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43
Q

What happens in the demand curve diagram if the factors change

A

Shift in the curve

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44
Q

Name all 6 factors which cause a shift in the demand curve

hint: PIRATE

A

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

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45
Q

What is Supply’’?

A

The willingness for a producer to supply a good or service

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46
Q

Name 2 supplier objectives

A
  • Maximising profits
  • Minimising costs of production
  • Improve customer relationship
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47
Q

Name 2 factors which cause a shift in the supply curve

hint: PINTSWC

A
  • Productivity (economies of scale)
  • Indirect taxes
  • Number of Firms
  • Technology changes
  • Subsidies
  • Weather (may destroy crops)
  • Costs of production
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48
Q

What is ‘Equilibrium’?

A

Where supply and demand balance

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49
Q

What are ‘Market Forces’?

A

An economic factor affecting things such as price

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50
Q

Where will the the supply curve move if costs in production were to rise

A

Left

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51
Q

Name 2 limitations to the supply and demand diagram

A

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
Q

What is the ‘Price Mechanism’?

A

Prices perform a signalling function, demonstrating where resources are required

53
Q

What is the ‘Rationing Function’?

A

Prices ration scarce resources when demand outstrips supply;

When prices increase, it only leaves those with the willingness and ability to buy it

54
Q

What is the ‘Incentives Function’?

A

Through choices, consumers send information to producers about their changing needs and wants.

55
Q

What is the ‘Signalling Function’?

A

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
Q

What is a ‘Mass Market’?

A

A mass market is a large group of consumers with similar needs and wants for a particular product or service.

57
Q

What is a ‘Niche Market’?

A

A niche market is a small and specialized segment of the market for a particular product or service.

58
Q

What is ‘Market Research’?

A

The collection of data in order to learn about the needs and wants of consumers

59
Q

What is ‘Market Segmentation’?

A

The action of dividing the market depending on consumer wants and needs.

60
Q

Name 2 uses of market research

A
  • Identifying consumer wants and needs
  • Make decisions about pricing
  • Identify new opportunities
61
Q

Name 2 limitations of market research

A
  • Costly
  • Timing; wants and needs change rapidly
  • Sample size
62
Q

What is ‘Market Positioning’?

A

The ability to influence consumer perception

63
Q

What is ‘Competitive Advantage’?

A

When a firm’s products are deemed to be
better than its competitors by customers

64
Q

What is ‘Product Differentiation’?

A

When a business attempts to gain a competitive advantage by increasing value of product

65
Q

What is ‘Added Value’?

A

Difference between costs of production and selling price of product

66
Q

What is ‘Limited Liability’?

A

Business owners’ personal liability is limited to the amount invested

67
Q

What is ‘Unlimited Liability’?

A

The business owner has unlimited personal liability for the businesses obligations

68
Q

What is ‘Credit’?

A

The ability to obtain goods before payment, with an agreement payment will be made in the future

69
Q

Name and explain the 3 types of credit

A

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
Q

Where is the only source of credit

A

Banks

71
Q

Name and explain the 3 types of finance

A

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
Q

Name and explain 4 sources of finance

and name a pro and con of each one

A

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
Q

What’s an externality

A

This occurs when production or consumption inflicts third party costs or benefits on others without it being reflected in the price

74
Q

Distinguish between Private, External and Social costs/benefits

A

Private only affects1st parties
External affect 3rd parties
Social = Private + Benefit

75
Q

What is ‘Government Intervention’?

A

Action taken by the government that seek to change the decisions made by organisations

76
Q

What is ‘Government Failure’?

A

When the costs of government intervention are greater than the benefits provided

77
Q

What are ‘Fixed Costs’?

A

Costs that remain the same regardless of production levels

78
Q

What are ‘Variable Costs’?

A

Costs that vary depending on output sold

79
Q

What is ‘Break-even analysis’?

A

The calculation and information about the break-even sales level

79
Q

What is ‘Break-even analysis’?

A

The calculation and information about the break-even sales level

80
Q

What is ‘Margin of safety’?

A

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
Q

What is ‘Contribution’?

A

The amount of revenue that remains after variable costs have been deducted.

82
Q

3 uses of break even analysis

A
  • 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
Q

What is a ‘Statement of comprehensive income’?

A

A financial statement that summarizes both net incomes and other incomes

84
Q

What is ‘Profitability’?

A

A way to measure to what degree a business profits

85
Q

Why are profit margins are better than profit

A

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
Q

What is ‘Cash Flow’?

A

The money going in or out a business

87
Q

What is ‘Cash Flow Forecast’?

A

The prediction of when and how much money will be leaving and entering a business

88
Q

What is a ‘Normative Statement’?

A

Subjective based statements which can not be tested to be valid or invalid

89
Q

What is a ‘Positive Statement’?

A

Statements that can be tested to be true or false

90
Q

What is ‘Capital’ in factors of production?

A

Physical goods which can be used in the production
process such as machines

91
Q

What is ‘Entrepreneurship’ in factors of production?

A

someone who takes risks, innovates, and uses the
factors of production

92
Q

What is ‘Land’ in factors of production?

A

Natural resources such as oil, coal, wheat, water or It
can also be the physical space for fixed capital.

93
Q

What is ‘Labour’ in factors of production?

A

The workforce of the economy/ employees

94
Q

What would happen if interest rates were to increase

A

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
Q

What would happen if exchange rates were to increase

A

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
Q

What are ‘indirect taxes’?

A

Imposed by the government and they increase production
costs for producers, thus producers supply less and this increases market price.

97
Q

What would happen if unemployment were to increase

A

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
Q

What would happen if inflation were to increase

A

Interest rates would be higher to encourage less spending. - Workers might demand higher wages, which could increase the costs of production for firms

99
Q

What is ‘Effective demand’?

A

The quantity that consumers are willing to buy at the current market price

100
Q

What is ‘Individual demand’?

A

the demand of an individual or firm, measured by the quantity bought at a certain price at one point in time

101
Q

What is ‘Market demand’?

A

the sum of all individual demands in a market

102
Q

What is ‘Individual Supply’?

A

The supply that a producer is willing and able to sell at a given price in a given period of time

103
Q

What is ‘Market Supply’?

A

Sum of all supply in a given market

104
Q

What is a ‘Shortage’?

A

When there is more demand than supply

105
Q

What is a ‘Excess’?

A

More supply than demand

106
Q

What is a ‘Market Map’?

A

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
Q

When is competitive advantage achieved

A

When a firms average cost is at a minimum, and value for consumers is at a maximum

108
Q

What is a ‘Stable Market’?

A

A market where any changes that occur are slow and predictable.

109
Q

What is a ‘Dynamic Market’?

A

A market which changes constantly and rapidly

110
Q

How do banks create credit

A

using deposited funds as loans.

111
Q

What is ‘collateral’?

A

Property pledged against a loan, if the loan is not fully paid out, the house will be repossessed.

112
Q

What is ‘Risk’?

A

The probability of loss occurring

113
Q

Name and explain the 3 types of market failure

A

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
Q

Name 2 types of government intervention

A
  • Regulations and laws
  • Indirect taxation; discourages supply and consumption
  • Subsides; encourages supply and consumption
115
Q

Name and explain 3 causes of government failure

A

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
Q

Name the 4 stages in the economic cycle

A
  • Boom
  • Recession
  • Slump
  • Recovery
117
Q

In the economic cycle, what is boom?
- and name 3 characteristics

A

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
Q

In the economic cycle, what is a recession?
- and name 3 characteristics

A

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
Q

Name the 2 things that influence consumer spending

A
  • Interest rates
  • Consumer confidence
120
Q

Name 3 things that influence capital investment

A
  • Rate of economic growth
  • Business expectation
  • Demand for exports
  • Interest rates
  • influence of government regulation
121
Q

Name one thing that influences government spending

A
  • Economic growth
  • Fiscal policy
122
Q

Name 3 things that influence Exports - Imports

A
  • Income
  • Exchange rates
  • State of world economies
  • Protectionism
  • Competitivity of a countries goods and services
123
Q

What is ‘break even analysis’?

A

Determines the point of no profit or loss in a business by analysing the balance between costs and revenue.

124
Q

Name 2 limitations of break even analysis

A
  • Assumes variable cost per unit will remain the same
  • Assumes everything produced is sold
  • Assumes fixed costs do not change with output
125
Q

What is the ‘statement of comprehensive income’?

A

The statement of comprehensive income shows the
revenue and expenses of a firm, It giving an overview of the firm’s financial position.

Economics (7 decks)

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