Econs - 3.5, 3.6, 3.7

Question 1

3 types of sectors

Answer 1

1. primary
2. secondary
3. tertiary

• interdependent on each other

Question 2

primary sector

Answer 2

• contains firms that extract raw materials
  eg. fishing, mining, agricultural farming

Question 3

secondary sector

Answer 3

• manufacturing goods
• construction
  eg. factories

Question 4

tertiary sector

Answer 4

• provide services to the public and other firms
  eg. retail, hospitals, agencies

Question 5

public sector

Answer 5

• economic activity directly involving the government
• main aim to provide a service
  eg. education, healthcare

Question 6

private sector

Answer 6

• economic activity of private individuals and firms
• main aim is to earn profits
  eg. sole trader, partnership, private limited company, public limited company

Question 7

sizing of firms (4)

Answer 7

1. no of employees
2. market shares (% of market the company controls)
3. market capitalisation (value of shares)
4. sales revenue

Question 8

small firms - purpose (4)

Answer 8

• niche market
• only available store
• can provide personal shopping experience
• can adapt quickly to consumers tastes (flexible

Question 9

small firms - advantages (4)

Answer 9

• few legal formalities
• all profits (sole trader)
• full control and easier management
• personal relationship

Question 10

small firms - disadvantages

Answer 10

• limited start-up capital
• larger risk at business failure
• very dependent (sole trader got no free time)
• lack of continuity if owner isnt there
• higher production costs

Question 11

2 types of growth

Answer 11

1. internal growth : expanding using own resources
2. external growth : involves another organisation during expansion

Question 12

3 types of external growth

Answer 12

1. mergers : two firms agree to for one new company
2. takeovers : a firm takes over another firm
3. franchise : a firm buying another firms license / name

Question 13

3 types of mergers

Answer 13

1. horizontal merger : same industry
2. vertical merger : diff sectors (backward & forward)
3. conglomerate merger : diff sector and unrelated

Question 14

economies of scale - definition

Answer 14

cost-saving benefits of large-scale operations, which reduce avg cost of production

Question 15

5 types economies of scale

Answer 15

1. purchasing : bulk buying
2. financial : more trust (investments)
3. managerial : more money to hire (specialists)
4. marketing : larger advertising budgets
5. technical : machinery & automated equipment

Question 16

diseconomies of scale - definition

Answer 16

occurs when avg costs of production increase along with the size of firm

Question 17

5 types of diseconomies of scale

Answer 17

1. communication
2. clash of cultures
3. bigger area / land
4. lack of motivation
5. reduced control

Question 18

factors of production (4)

Answer 18

1. land
2. labour
3. capital
4. enterprise

Question 19

labour-intensive production

Answer 19

• cost of labour is higher than other FOP
• can be expensive (eg. hospitals, schools)
• tend to produce personalised products

Question 20

capital-intensive production

Answer 20

• firm spends more on capital costs than any other FOP
• need money to fund for activities
• can increase output and productivity levels

Question 21

production - definition

Answer 21

total output of goods and services in the production process

Question 22

productivity - definition

Answer 22

measure of efficiency found by calculating the amount of output per unit

Question 23

difference of productivity and production

Answer 23

• productivity = degree of efficiency (intangible)
• production = total output (tangible)

Question 24

factors that affect productivity (5)

Answer 24

1. investment : better machines
2. innovation : new ideas
3. skills and experience : workers are faster & less mistakes
4. entrepreneurial spirit : willing to take risks
5. competition

Question 25

cost of production - definition

Answer 25

firms expenditure in the process of producing goods & services

Question 26

cost of production - examples

Answer 26

- wages - rent - advertising - utility bills - raw materials

Question 27

fixed costs - definition

Answer 27

costs a firm has to pay regardless of how much it sells / produces *straight line (graph)

Question 28

variable costs - definition

Answer 28

costs that change as the lvl of output changes *the more produced = higher variable costs *left to right, increasing (graph)

Question 29

total cost - formula

Answer 29

fixed cost + variable costs

Question 30

avg fixed OR variable OR total costs - formula

Answer 30

fixed or variable or total costs / output lvl

Question 31

avg revenue - formula

Answer 31

total revenue / quantity sold

Question 32

total revenue - formula

Answer 32

price x quantity sold

Question 33

objective of firms (4)

Answer 33

1. survival 2. social welfare 3. growth / expansion 4. profit maximisation