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Economics > Key Terms Theme 1 > Flashcards

Key Terms Theme 1 Flashcards

1
Q

Economic Problem

A

Unlimited Wants, Finite Resources. Choices have to be made where to allocate resources

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2
Q

Scarcity

A

Not enough resources to satisfy all wants

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3
Q

Need

A

Essential for survival

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4
Q

Want

A

Desired but not essential

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5
Q

Economic activity

A

To satisfy the wants and needs of society

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6
Q

Renewable Resources

A

Can be replenished
E.g trees

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7
Q

Non-Renewable Resources

A

Finite therefore will run out
E.g Oil

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8
Q

Opportunity cost

A

Cost of the next best opportunity foregone

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9
Q

Trade-Offs

A

Range of alternatives that have been given up

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10
Q

Economic Agents

A

Individuals, firms, government that partake in the economic activity

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11
Q

Free Market Economy

A

Where firms decide what goods and services to produce with limited intervention from the government

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12
Q

Business Objectives

A

Quantifiable targets or goals to be achieved within specific time

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13
Q

Business Objectives Include

A
  • Profit maximization
  • Sales maximization
  • Profit satisficing
  • Survival
  • Market Share
  • Cost effective
  • Employee welfare
  • ROI
  • Customer satisfaction
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14
Q

SMART objectives

A
  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Timed
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15
Q

Stakeholders

A

Anyone with an interest in the actions of business
Customers
Employees
Shareholders
Government
Community
Suppliers
Financial institutions

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16
Q

Entrepreneur

A

Someone who sports an opportunity and is willing to take risks to benefit from it

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17
Q

Creative Destruction

A

When something new kills something old

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18
Q

4 factors of production

A

Capital - equipment
Enterprise - ideas
Land - space to produce
Labour - right people to produce

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19
Q

Added value

A

Value of the output is higher than the input

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20
Q

Entrepreneurial motives

A

Fulfilling a dream
Making money
Be own boss
To prove you can
Work-Life balance
Providing a service

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21
Q

Financial Motives

A

Profit Maximization
- To make as much profit
- Profit = Sales revenue - total costs

Profit Satisficing
- To make enough profit to be satisfied but not purely motivated

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22
Q

Non-Financial motives

A
  • Ethical stance
    To behave in a manner deemed to be morally correct
  • Independence
    Be own boss
  • Home-working
    Work life balance
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23
Q

Specialization

A

Occurs when economic units such as individuals, firms, governments focus on producing specific goods or services

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24
Q

Division of labor

A

Specialized use of workers within an organization

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25
Q

Wider Economic Environment

A

Key economics factors that influence the behavior of the business

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26
Q

Interest Rates

A

The price of money.Cost of borrowing or reward for saving

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27
Q

Exchange rates

A

Price of one currently in terms of the other.

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28
Q

Appreciation

A

Increase in the value of currency

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29
Q

Depreciation

A

Decrease in the value of the currency

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30
Q

Taxation

A

Charge placed on individuals. Government use it to finance their spending.

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31
Q

Specific Tax

A

Set amount per unit.
E.g 50p

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32
Q

Valorem Tax

A

Percentage of the price of the unit

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33
Q

Unemployment

A

Number of people that are looking for a job but can’t find a job at a point in time

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34
Q

Inflation

A

General rise in prices or fall in the value of money

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35
Q

Business Cycle

A

Boom
Recession
Slump
Recovery

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36
Q

Demand

A

Amount of good or service that consumers are willing and able to buy at any given price

37
Q

Normal good

A

If price rises demand will fall
E.g negative correlation

38
Q

Substitute good

A

Act as alternative for customers

39
Q

Complementary products

A

Often bought together
E.g tennis racket and balls

40
Q

Inferior good

A

Income increases demand decreases

41
Q

Supply

A

Amount of good or service that producers are willing and able to sell at any given price

42
Q

Subsidies

A

Finance provided to producers to encourage them to produce goods and services

43
Q

Indirect taxes

A

Placed on goods and services produced by firms and individuals

44
Q

External shocks

A

Unexpected events that are outside of business control but have a direct impact on the level of supply
E.g natural disaster

45
Q

Market Equilibrium

A

Point at which demand is equal to supply

46
Q

Economic Incentives

A

Provide reasons for economic agents to provide goods and services

47
Q

Price Mechanism

A

Method by which prices for goods and services are achieved

48
Q

Rationing Function

A

Occurs because increased demand or reduced supply of a product will lead to a price rise

49
Q

Signaling Function

A

Occurs because changing prices give a signal to consumers and producers to whether to leave or enter the market
E.g higher prices suggest that consumers should buy less

50
Q

Incentive Function

A

Occurs because consumer or a producer is motivated to a course of action
E.g higher prices will incentivize a producer to supply more

51
Q

Mass Market

A

Targets all customers

52
Q

Niche Market

A

Targets specific segment of the market

53
Q

Market Research

A

Collection and analysis of data and information to inform a business about its market

54
Q

Market Segmentation

A

Market is split into subgroups of customers with similar characteristics

55
Q

Positioning

A

Where a product is placed in the market relative to its competitors

56
Q

Market Mapping

A

Diagrammatic technique that enables businesses to display the perceptions of the customers

57
Q

Competitive Advantage

A

A feature that allows a business to perform more successfully than others in the market

58
Q

Product Differentiation

A

Having a unique feature that makes a product stand out from other products in the marketplace

59
Q

Unique Selling Point (USP)

A

A feature that distinguishes a firm’s product from those of its competitors

60
Q

Market

A

Any place that buyers and sellers will come together to exchange goods and services

61
Q

Interest Rates

A

Price of money
- Cost of borrowing
- Reward for saving

62
Q

Risk

A

Measurable

63
Q

Uncertainty

A

Not measurable

64
Q

Limited Liability

A

An investors financial commitment is limited to total amount invested or promised in share capital

65
Q

Unlimited Liability

A
  • Owner in of the business is responsible for the total amount of debt of the business
  • Owner may lose their personal belongings
66
Q

Credit

A

Legal agreement between a borrower and a lender

67
Q

Types of Credit: Loans

A

A set amount of money provided for a specific purpose to be repaired with interest over a set period of time

68
Q

Types of Credit: Overdraft

A

A facility to overspend on a current account up to an agreed sum

69
Q

Types of Credit: Trade Credit

A

Paying the suppliers a period of time after the goods and services have been delivered

70
Q

Other types of finance: Venture capital

A

Investment from an established business into another business in a return for a percentage equity in the business

71
Q

Other types of finance:
Share Capital

A

Finances raised from the sale of shares

72
Q

Other types of finance:
Leasing

A

Allows the business to benefit from the use of an asset without owning it or buying it outright

73
Q

Other types of finance: Owners Capital

A

When an entrepreneur invests his own money in a business
E.g from personal savings

74
Q

Other types of finance: Retained Profit

A

Profit is kept within the business from profit for the year to help finance future activities

75
Q

Other types of finance: Sale of assets

A

Assets are items of value owned by a business.
- Current Assets are items owned that will change a value in a short run.
E.g stocks
- Fixed Assets will stay in a business for more than a year.
E.g machinery

76
Q

Market Failure

A

Occurs when the market is unable to efficiently allocate scarce resources to meet the needs of society

77
Q

Government intervention

A

Occurs when the government takes actions to solve allocative inefficient markets

78
Q

Externalities

A

Costs and benefits to a third party created by economic agents when undertaking their activities

79
Q

Negative Externalities

A

Those costs to a third party that are not included in the price of the economic activity

Private costs - paid by a third party
Social costs - cost of consuming or producing a good that are paid by society

80
Q

Positive Externalities

A

Those benefits to a third party that are not included in the price of the economic activity

Private benefits- received by a third party
Social benefits - benefits of consuming or producing a good that are received by society

81
Q

Regulation

A

Occurs when the government seeks to provide effective competition within markets

82
Q

Legislation

A

Creating and enacting laws in order to protect individuals firms and society as a whole

83
Q

Price Controls

A

When government sets maximum or minimum price for a good or service

84
Q

Direct Tax

A

Tax on a individual or organization

85
Q

Sales Revenue

A

Selling Price * Sales Volume

86
Q

Fixed Costs

A

Stay the same regardless of output
E.g rent

87
Q

Variable Cost

A

Change in relation to the number of items produced
E.g raw materials

88
Q

Profit

A

Surplus of revenue over costs
Profit = Total Revenue - Total Cost

Economics (2 decks)

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