Theme 2 Flashcards
(131 cards)
1
Q
Economies of scale
A
Many ways in which long run increases in capacity and output can reduce average cost
2
Q
Internal economies of Scale
A
Aries when a business invests in larger-scale production
3
Q
Technical internal economies of scale
A
Manufacturing, construction and transport. Expensive specialist machines only worthwhile if kept busy
4
Q
Marketing internal economies of scale
A
Advertising and promotion activities, fixed costs. Companies will use the same ad with voiceovers
5
Q
Managerial economies of scale
A
Focus on having specialists in management roles. Specialist input should improve performance
6
Q
Financial internal economies of scale
A
Banks see larger firms as more secure, so charge lower interest rates
7
Q
Bulk-buying
A
Buying large quantities of inputs, able to negotiate cheaper input costs
8
Q
Risk-bearing
A
When firms diversify, failed innovations can be offset against profits from successful projects
9
Q
External economies of scale
A
Involve unit cost reductions that are shared by a whole industry, rather than a singe firm. External economies are common where firms are concentrated in one location
10
Q
Minimum efficient scale
A
The lowest level of output at which average or unit costs are minimised because the firm can make full use of economies of scale
11
Q
Monopsony
A
Refers to a market with a single buyer. If supplier insist on higher prices they may lose their contracts
12
Q
Brand recognition
A
Measures the percentage of consumers who recognise a specific brand and associate it with product features, a high percentage makes branding a valuable marketing tool
13
Q
Diseconomies of scale
A
Increase unit costs as a business grows. They are often associated with communication issues or costs of co-ordination
14
Q
Corporate culture
A
Refers to the shared values, attitudes, standards and beliefs that characterise members of an organisation and define its nature
15
Q
Organic growth
A
Expansion of a single business by extending its own operations rather than by merger or takeover. Likely to be slower but more secure
16
Q
Inorganic growth
A
Expansion by merger or takeover, bringing sudden increase in business size
17
Q
Horizontal integration
A
When firms with similar products at the same stage of production come together
18
Q
Vertical integration
A
When a firm merges with or takes over another firm in the same industry, but at a different stage of production
19
Q
Forward vertical integration
A
Might take a producer into consumer sales , either way the business achieves control and continuity
20
Q
Backward vertical integration
A
Occurs when a business expands towards the supply of raw materials, for example Starbucks buying a coffee farm in China
21
Q
Conglomerate integration
A
When two unrelated business merge
22
Q
Research and development
A
Leads to innovative and attractive new products for the marketplace. It can also be applied to innovation in the production process
23
Q
Product innovation
A
Leads to the creation of new goods and services, or improvements to a previously version
24
Q
Process innovation
A
Means changing the way something is produced, normally to reduce average costs
25
Product life cycle
A series of five stages which typical products go through between their first introduction and the eventual decline in sales
26
Extension strategy
A way in which a business attempts to prolong the mature phase of a products life cycle
27
Price elasticity of demand
Measures the response of quantity demanded to changes in price. Where quantity demanded changes by a higher percentage than price, demand is price elastic. Demand is price inelastic if quantity changes by les than the percentage change in price
28
Price elasticity of demand equation
%change in quantity demanded / %change in price
29
Asymmetric information
Occurs when one party to a transaction knows more than the other party
30
Viral marketing
Encourages the spread of information and opinions about a product or service from person to person, can be particularly effective using online media
31
E-commerce
Is an umbrella term for any online selling, retailing specifies sales to consumers
32
Micro marketing
Is a customised marketing strategy in which advertising efforts are focused on a small, well defined group of consumers
33
The long tail
Refers to a proliferation of choices, with increasing ability to match the precise niche market needs of individuals and small groups, reducing the dominance of standard hits
34
USPS
Unique selling points are distinctive features that no competing product can match precisely
35
Big Data
Is high-volume, high-velocity and high-variety information that combines with cost effective, innovative information processing for better insight and decision making
36
Income elasticity of demand
Measures the change in quantity demanded when incomes change
37
YED formula
% change in quantity demanded / % change in income
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Normal goods
Have positive income elasticity of demand. A rise in income will lead to an increase in quantity demanded
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Inferior goods
Negative income elasticity of demand, demand rises as income falls
40
Recession
Defined as two quarters of falling output in the economy as a whole. Some recessions involve a longer period of very slow growth after that
41
Boom
Conditions mean that incomes are rising strongly across the economy
42
Productivity
Measures efficiency in the use of resource inputs. Labour productivity is usually calculated as output per head worked. Capital productivity can be measured by output per unit of capital. Most newspaper and textbook references apply to labour productivity
43
Efficiency
Involves using scarce resources in the best economically achievable way. Costs can then be minimised and best possible use can be made of both capital equipment and labour
44
Infrastructure
Includes all the publicly available services such as transport, communications facilities, basic services such as water, drains and energy supplies and also telephone systems, bridges, ports and airports
45
Human capital
Refers to the skills, experience, and knowledge acquired by individuals. Human capital is created through education, on-the-job training, apprenticeships, vocational training courses and relevant experience
46
Net investment
Involves spending on new capital equipment over and above the level of spending on replacement of worn out equipment. This increases productive capcity
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Net investment
Involves spending on new capital equipment over and above the level of spending on replacement of worn out equipment. This increases productive capacity
48
Capital intensive
Production uses large amounts of capital equipment and relatively little labour. Productivity will usually be high
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Labour intensive
Production use large amounts of labour and relatively little capital. Many services are labour intensive, eg hairdressing
50
Capacity utilisation formula
Current output / full potential output x 100
51
Capacity utilisation
Measures the extent to which the capacity of the business is in use, taking actual output as a percentage of total capacity
52
Under-utilised capacity
Raises unit costs because the fixed costs are spread across a lower level of production
53
Over-utilised capacity
Means that the total business is trying to produce more than its capacity will allow. May encounter rising costs
54
Quality control
Involves checking finished products for any sign of a defect or poor quality
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Quality assurance
Involves designing the production process so as to eliminate waste and ensure that defects do not happen
56
Cell production
Involves small teams of employees taking responsibility for a significant part of the total production process. Team members will perform a range of different tasks including repairs to equipment and maintaining quality standards
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Total quality management
Places the emphasis on meeting customer requirements and continuous improvement in all aspects of the business
58
Kaizen
The Japanese term for continuous improvement, finding new and better ways of organising production and designing products
59
Employee Participation
Means that employees contribute ideas that lead to greater efficiency, new or better quality products and higher productivity
60
Just in time
Stock control systems involve scheduling the delivery of inputs in a precisely co-ordinated way that minimises the quantity of stock required. Just in time production means producing to order only
61
Lean production
Refers to a number of strategies for minimising waste, reducing costs and saving time. It include just-in-time, Kaizen, cell production, emphasis on quality and shortened lead times
62
Lead times
Are the time it takes to go from a decision to produce to the arrival of the product, model Orr style on the market
63
Economic cycle
The tendency of national or global economic activity to fluctuate between boom, downturn, recession and recovery
64
Boom
A time of rapid economic growth, typically lined with rising demand, lower unemployment and rising inflation
65
Soft landing
Occurs when the economy moves to a gradual downturn in growth after a boom, rather than into a recession
66
Recession
The phase in the economic cycle in which GDP is falling, strictly for two or more successive quarters. Recessions are typically linked with rising unemployment and low levels of business confidence
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Stagflation
An unattractive combination of stagnant ( or falling ) GDP with prices rising at uncomfortable rates
68
Social Capital
Refers to capital assets which are publicly owned, such as most roads, schools and hospitals
69
Leading indicators
Early signals of the direction of economic activity, such as the state of confidence or capital goods orders
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Lagging indicators
Measures which are slow to reflect the current state of economic activity. Unemployment levels are often a lagging indicator
71
Dividends
Income received by the owners businesses and shares
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Leakages
Ways in which income escapes from the circular flow between households and firms. We use S M T to represent the major leakages
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Injections
Additions to the circular flow of income from sources other than households, the major injections are represented by I G X
74
Aggregate demand
Measures the total demand from all sources in the economy
75
Capital goods
Productive assets, acquired by investment, which are expected to make a contribution to future output
76
Aggregate demand curve
A diagram representing the total level of demand in the economy at different price levels
77
Aggregate supply curve
A diagram showing total quantities of output in the economy at different price levels
78
Supply constraints
Occur when demand for scarce resources increases, forcing prices upwards. These include people with scarce skills (labour), natural resources that have a finite supply (land and commodities), and financial resources
79
Inflation
A rise in the general level of prices and a fall in the purchasing power of money
80
Deflation
A fall in the general level of prices and a rise in the purchasing power of money
81
Disinflation
When the rate of inflation falls, technically referred to as disinflation
82
Index numbers
Take data for a period of time (called time series data) for each year, the index gives the percentage change from the base year
83
Weights
Allow us to adjust raw data to allow for the relative importance of items, such as those items brought frequently in the case of a price index
84
Main UK measures of inflation
CPI and RPI
85
Real and nominal values
Real values have the effect of inflation/deflation removed so they show actual quantity changes. Using current prices without modifying for inflation gives us nominal values
86
Employment
Being economically active, normally in a paid role. Includes self-employment
87
Unemployed
someone of working age and available for work but doesn't have a job
88
Underemployment
When people who want full-time work can only find part-time or skilled and qualified people can only find unskilled work
89
Measures of unemployment
Claimant count - people claiming Job seeker's allowance
Labour force survey - estimates on answers from people out of work and actively seeking work
90
Structural unemployment
Occurs when demand for the product is falling because of changing consumer preferences or competition from imports or newer products
91
Technological unemployment
Occurs when labour saving equipment and other new techniques reduce the need for labour
92
Geographical immobility
Refers to the ability of workers to move from one area to another
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Occupational ability
Refers to the ability of workers to move from one type of work to another
94
Seasonal unemployment
Varies through the year
95
Frictional unemployment
Occurs when people have left one job and take a short time to find the next one
96
Balance of payments equilibrium on current account
Situation where current outflows are exactly equal to current inflows. Visible and invisible exports plus investment income paid abroad and current transfers abroad = visible and invisible imports plus investment income coming from abroad and current transfers coming from abroad
97
Disposable income
Personal income after tax, amount available for household spending
98
Net injection
Positive amount by which total injections exceed total leakages. A net leakage means the amount by which leakages exceed injections
99
Expansionary policy
One that uses fiscal measures to increase spending within the economy, to encourage economic growth
100
Contractionary policy
Aims to reduce spending in the economy in order to avoid overheating and high inflation rates
101
Direct taxation
Paid directly by individuals and firms to government from their income or profits
102
Indirect taxes
Taxes on goods and services, collected from the retailer or other intermediary
103
National debt
cumulative total of public sector debt outstanding
104
Austerity policies
Involve spending cuts and tax increases, which reduce government borrowing. They are contractionary, they will tend to reduce economic activity
105
Base rate
Also known as bank rate, is set by the MPC, being its main tool for controlling the level of lending in the economy
106
Monetary policy committee (MPC)
The bank of England MPC meets monthly to set the base rate. Main target is 2% CPI, but also consider other economic objectives
107
Deregulation
Means reducing rules and regulations which might inhibit private enterprise
108
Privatisation
Means selling public sector bodies to private sector shareholders in the hope that competition and the profit motive will make them more efficient
109
Globalisation
Arises from growing world markets and increasing international trade. Often associated with strong economic growth. Increases interdependence as individual businesses make profits in foreign markets and look abroad for finance for investment
110
Open economies
Export a relatively high proportion of total production and import a relatively high proportion of goods and services they use. The smallest economies are often the most open
111
Structural change
Reallocation of resources. Less is produced of goods and services that face falling demand, output rises for things with increased demand. Technological change and international competition play a part in this
112
Foreign direct investment
When businesses set up production or distribution facilities in other countries. Much FDI flows from one developed country to another. But, increasing, FDI is flowing into developing countries as businesses seek locations with lower wage rates. Alternatively, FDI may be aimed at production for foreign markets
113
Outsourcing
Shifting the product process to other businesses in order to reduce input costs
114
Trade liberalisation
The process of limiting and reducing barriers to trade so that the economies involved move closer to free trade
115
International capital flows
Large sums of money that are moved from one economy to another. These include FDI and the activities of wealthy individuals and businesses that move bank deposits around or buy shares in foreign business in order to get higher interest rates or dividends
116
Multinational corporations
Businesses with active interest in more than one economy. Also known as transnational corporations. Some are relatively small but others have grown into powerful organisations that can dominate the markets in which they operate
117
Developed Economies
High per capita incomes, literacy rates and life expectancy. Typically, they have large service sectors. Other important indicators relate to healthcare and welfare provision
118
Developing economies
Characterised by generally low incomes, weak education and welfare systems , abundant cheap labour and relatively little capital investment. Setting up new businesses may be both risky and difficult. Where there is manufacturing, it may be mainly of clothing and footwear
119
Emerging economies
Rising levels of capital investment and growing increasingly productive secondary sector. International trade is growing rapidly. They diversify into new lines of production, often in collaboration with multinational corporations (Mncs)
120
Unsustainable growth
May relate to economic growth that is unsustainably fast. It cannot continue indefinitely because there will be insufficient resources to maintain the momentum. Skill shortages will develop and inflation will accelerate. Alternatively, it may relate to environmental issues, with excessive use of resources that are finite
121
Free market policies
Associated with smaller government, minimal government intervention, incentives to work and allowing markets to function freely
122
Interventionists
Policies are associated with measures to reduce market failure and, for example, with policies that address income inequality
123
Absolute advantage
This exists if the real resource cost of product is lower in one country than another
124
Comparative advantage
If two countries each specialise in the product with the lowest opportunity cost, and then trade, real incomes will increase for both countries
125
Free trade areas
groups of countries that trade freely with each other, with few or no trade barriers. Each member country retains its own independent trade policies in relation to the rest of the world. Customs unions are similar but include a common trade policy
126
Common markets
Completely free trade internally and a single unified trade policy covering all member countries' trade with the rest of the world. Besides free movement of goods and services, there is also free movement of people and capital. Individuals in all member countries can work in any other member country. Businesses based within the common market can invest in any member country
127
European single market
More than just a common market. Member countries agree to harmonise their regulations so that all businesses are competing on a level playing field
128
Floating exchange rate
The level of a floating exchange rate is determined by market forces. It reflects the demand for the currency, to buy its products or invest there, and the supply of the currency, which arises from buying imports and capital flows abroad
129
Appreciation
Refers to using value. When the exchange rate appreciates, we get more for our pounds. If house prices rise, their value appreciates
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Depreciation
Means falling value. Exchange rate depreciation means that a unit of currency buys less. There will be a gain in competitiveness as export prices fall
131
Eurozone
20 EU member countries have adopted the Euro as their currency. There is a monetary union, which means that the European central bank (ECB) sets monetary policy for the whole area.
