Flashcards in Section B Deck (103):
What is production?
A process which involves converting resources into goods or services.
What are the four factors affecting production?
Land, Labour, Capital and Enterprise.
What are the two meanings of land?
A 'plot of land' where a business locates and natural resources.
What is labour?
The workforce in the economy.
Human Capital is...
the value of an individual worker to a business.
How can you increase human capital?
Through training and education.
What are the two types of capital?
Fixed (factories and machinery) and Working (stocks of raw materials/finished goods) Capital.
What is used in the production of goods and services.
Name four things that define the role of entrepreneurs
Organisers, Risk-Takers, Owners and Creators of the business idea.
Give an example of labour intensive production
(The provision of services/tertiary sector:) Healthcare and Education.
Where is capital intensive production more visible?
(The secondary sector) Manufacturing and Construction.
Where is capital intensive production more visible?
(The secondary sector) Manufacturing and Construction.
What is needed to increase production?
An increased use of the factors of production.
What is productivity?
The more efficient use of the factors of production.
The output per unit of input.
Why do firms try to increase productivity?
To lower costs and increase profits.
What is the Primary sector?
The sector involving industries that extract raw materials from the earth.
Give two examples of primary sector industries
Agriculture and Mining.
What is the Secondary sector?
The sector involving industries that convert raw materials into finished or semi-finished goods.
Give two examples of secondary sector industries
Manufacturing and Construction.
What is the Tertiary sector?
The sector involving industries that provide services.
Give two examples of tertiary sector industries
Healthcare and Teaching.
What is de-industrialisation?
The growth in the tertiary sector at the expense of manufacturing.
What are the four reasons for de-industrialisation?
Changes in consumer demand, growth in public sector employment, advances in technology and competition from overseas.
What is a fixed cost?
A cost that remains unchanged at all levels of output.
What is a variable cost?
A cost that changes when output changes.
Give two examples of a fixed cost
Rent and Interest.
Give two examples of a variable cost
Packaging and Raw materials.
What is total cost?
All the costs of production over a period of time.
FC + VC
What is average cost?
The cost of producing a single unit.
TC / Q (output)
What is price?
The amount of money customers pay for a product.
What is total revenue?
The money that a firm receives from selling its products.
P x Q (quantity)
What is profit/loss?
The difference between total revenue and total costs.
TR - TC
What is an economy of scale?
A big firm that can produce goods more cheaply than smaller firms because as firms expand, average costs fall.
What are internal economies of scale?
Benefits enjoyed by a single firm when it expands.
Give three examples of internal economies of scale
Discounts when bulk buying raw materials, fixed marketing costs spread over more units of output and wider product ranges that help to reduce business risk.
What are external economies of scale?
Benefits enjoyed by the public/nearby industry when a firm expands.
Give four examples of external economies of scale
Skilled labour(reduced training costs), infrastructure(roads, railways etc), commercial services(attracts different suppliers) and cooperation(help gain knowledge, improving efficiency).
What is a diseconomy of scale?
When a firm expands too much causing average costs to rise.
Give three causes of diseconomies of scale
Bureaucracy(extra form-filling and report-writing), labour relations(needs of individuals may be neglected and motivation may suffer) and control and coordination.
Give three ways of increasing land productivity
Use of pesticides and fertilisers, drainage of flooded land can allow farming, growth of disease-resistant and high-yielding genetically modified crops.
Define labour productivity
The output per worker.
LP (Labour Productivity) =
TQ (total output) / NoW (number of workers)
Give three ways to increase productivity
Education and training; improvements to worker motivation; improvements to working practises.
Give two examples of improving capital productivity
Online shopping and Irrigation (diverting water from lakes and rivers for farming use).
What is a social cost?
A cost to society as a whole.
SC (Social Cost) =
PC (private cost) + NE (negative externalities)
What is a private cost?
Costs that are met by those who produce or consume a good.
What is a negative externality?
Costs that are not met by those who impose them.
What is a social benefit?
A benefit to society as a whole.
SB (Social Benefit) =
PB (private benefit) + PE (positive externalities)
What is a private benefit?
Benefits enjoyed by those who produce or consume a good.
What is a positive externality?
Benefits enjoyed by a third party.
Give three examples of positive externalities
Research and development, training and education and job creation.
Give four examples of negative externalities
Traffic congestion, Air/Water/Noise pollution.
Give 4 policies governments use to deal with externalities
Taxation, subsidies, fines and government regulation.
What is competition?
The rivalry between firms trying to sell goods in a market.
What is one very important feature of competitive markets?
No/Low barriers to entry.
What four things must firms do to survive in competitive markets?
Minimise their costs through efficiency, provide good quality products, charge fair prices, innovate by constant reviewing and improving of products.
What is the advantage of competitive markets for firms?
Greater efficiency and ability to compete in overseas markets.
What is the disadvantage of competitive markets for firms?
What are the three advantages for consumers of competitive markets?
Lower prices, more choice and better quality.
What are the two disadvantages for consumers of competitive markets?
Uncertainty and less innovation.
What are the advantages of competitive markets for the economy?
Efficient resource allocation and more innovation.
What is the disadvantage of competitive markets for the economy?
Some resources might be wasted due to the immobility of some production factors. (when firms shut down, it takes time to transfer resources to other uses)
What three things are used to measure a firm's size?
Turnover, Number of employees and Capital employed.
Name 3 advantages of small firms
Flexibility, Innovation and Lower wages.
Name 3 disadvantages of small firms
Recruitment problems, Higher costs and Lack of finance.
Name 3 advantages of large firms
Lower costs, Market domination and Bigger contracts.
Name 3 disadvantages of large firms
Too bureaucratic, demotivated workers and loss of control/communication.
What are firms motives for growth?
Survival, Economies of scale, Increased profits, Increased market share and reduced risk.
What is internal/organic growth?
Growth involving a firm increasing its output and selling more.
What is external growth?
Growth that involves joining with another firm through a takeover or merger.
Identify the 6 methods of integration
Forward vertical(next stage of production), Backward vertical(previous stage of production), Horizontal(same line of business), Lateral(similar production techniques) and Diversifying/Conglomerate(different line of business).
State 5 limitations to growth
Limited market, Low barriers to entry, Lack of finance, Diseconomies of scale and the aim of the entrepreneur.
Define a monopoly
A market dominated by a single firm.
Identify four features of a monopoly
Economies of scale, barriers to entry, price control and a unique product.
What are the advantages of a monopoly to firms/consumers?
Lower costs/prices and more research and development/innovative products.
State four disadvantages of monopolies
Higher prices, less choice, less innovation and inefficiency.
Identify 6 features of an oligopoly
High barriers to entry, price rigidity, collusion, economies of scale, non-price competition and interdependence.
What are the 3 advantages of an oligopoly?
Economies of scale; Price stability and Choice.
What are the 2 disadvantages of an oligopoly?
A cartel might exist-fixing prices or output levels and firms may be tempted to collude-fixing prices.
What is the common ownership and control in the public sector?
The public sector is owned and controlled by local or central governments. They are mainly funded by tax revenue.
What is the common ownership and control in the private sector?
The private sector is owned and controlled by individuals or groups of shareholders.
Identify 4 private sector aims
Survival, Profit maximisation, Growth and Social responsibility.
State 3 public sector aims
Improve the quality of services, Minimise costs and allow for social costs and benefits.
Why may governments use regulation?
To prevent restrictive practices, control monopolies and merger activity.
Identify four features of restrictive practices
Higher prices, restricted consumer choice, higher barriers to entry and collusion.
How can a government promote competition?
Encourage the growth of small firms, lower barriers to entry and introduce anti-competitive legislation.
What is regional policy used for?
To encourage/discourage business location in particular areas.
What 3 things does regional policy tackle?
Unemployment, Congestion and Income inequality.
Identify 4 measures used to influence the location of firms
Grants for investment, money for training, government investment in infrastructure and employment subsidies.
What is privatisation?
Breaking up state monopolies, promoting competition which raises efficiency, quality and lowers prices.
State the four motives for privatisation
To generate income, deregulation, inefficient nationalised industries and to reduce political interference.
What are the effects of privatisation on consumers?
Some prices rise, some fall. Also, new products and services have been introduced due to more innovation.
What are the effects of privatisation on workers?
Some businesses have to let go of workers and some workers have been forced to adopt more flexible working practices.
What are the effects of privatisation on firms?
Change in objectives-profit orientated, increased investment and merger and takeover activity often involves newly privatised businesses.
What are the effects of privatisation on the government?
Loss-making nationalised industries are removed, privatisation may be expensive due to the advertisement of state assets and less time focusing on state-run businesses.