Topic 2 - Consumers and Business Flashcards
(31 cards)
What is consumer sovereignty ?
Consumer sovereignty is an economic concept where the consumer has some controlling power over goods that are produced, and the idea that the consumer is the best judge of their own welfare.
After consumers have received income and paid their tax they make a choice to either spend or save; this produces the following equation …
Y=C+S
Y- Disposable (after tax) income
C- Consumption
S-Saving
The proportion of total income that is spent on consumption formula
C/Y=APC
C-Consumption
Y-Disposable income (after tax)
APC- Average Propensity to consume
The proportion of total income that is spent on savings formula
S/Y= APS
C-Consumption
Y-Disposable income
APS Average Propensity to save
What are the factors that influence consumer choice
- Level of income
- Price of the good or service itself
- Price of substitute or complementary goods
- Consumer taste and preferences
- Advertising
Price of substitute and complement good
Price of one good will be affected by the price of other goods.
Consumers consider some goods to be close substitutes such as butter and margarine or tea and coffee. If the price of one goes up then consumers will increase their demand for the other good.
What does Utility mean ?
The satisfaction or pleasure that individuals derive from the consumption of goods and services
What does a substitute mean ?
A good that consumers may choose to buy in place of another good, such as butter and margarine or tea and coffee
What does complement mean ?
A good that is used in conjunction with another good. For example, petrol would be complement of cars.
What are sources of consumer income ?
- Wages of labour
- Rent from Land
- Interest on Capital
- Profit from entrepreneurial skills
Wages from Labour
Main source of income for consumers
Rent from Land
Investment properties can generate rental income for the owner
Invest on Capital
People with greater wealth tend to enjoy a much higher income level, because wealth creates ongoing income. They may earn interest on cash savings or receive dividends through the ownership of shares
Profit from entrepreneurial skills
If the business makes profit then that is a direct result of their entrepreneurial skill
Social welfare
Assistance to the aged
Family payments
Disability support payments
Unemployment benefits
What is the aim of social welfare
To provide a minimum income safety net, allowing consumers to purchase the basic necessities of life.
Define firm?
A for-profit organisation, such as a corporation, limited liability company or partnership
Define industry?
The collection of firms involved in making a similar range of items that are usually compete with each other, such as the financial services industry or the car industry
How much to produce?
How much do consumers demand of a particular good or service and how can the business convert that demand in to sales of a particular item.
How much to produce?
How much consumers demand of a particular good or service.
How to produce ?
A business must combine a range of resources (inputs) in order to create goods and services (outputs)
Goals of the firm
Maximising Profits Meeting shareholders expectation Increasing market share Maximising growth Satisficing behaviour
What are the benefits of productivity to our living standards?
Less wastage of our scarce resources.
Lower production costs and higher profits fot the business
A lower inflation rate (lower production costs)
Higher incomes
Improved international competitiveness
What is the division of Labour ?
Businesses break down their production process in to a number of sub-processes, allowing labour to specialise in a particular part of the process
