DEFINITIONS

factors of production

land

labour

capital

enterprise

factors of production: the resources we have available to produce goods and services.

land: any natural resource

labour: human imput to production ie workers.

capital: machinery, any man-made item which makes production easier.

enterprise: having ideas and taking risks in setting up or running a business

opportunity cost

primary sector

secondary sector

tertiary sector

opportunity cost: the benefits of the next best alternative which is foregone when making a production or consumption decision.

primary: where the extraction of raw materials takes place

secondary: where raw materials are manufactured into goods

tertiary: the service sector

market

market economy

command/planned economy

mixed economy

public sector

private sector

market: where buyers and sellers meet to exchange goods and services. this doesn't have to be a face-to-face meeting.

market economy: where all resources are allocated by private individuals and groups.

command/planned: where all resources are allocated by the government

mixed: where some resources are allocated by the government and others by private individuals and groups.

public sector: the sector of the economy owned and run by the gov't. it exists to provide a service not to make a profit.

private sector: the sector of the economy where firms are owned and run by private individuals and groups. their main aim is profit maximisation or another business objective.

specialisation

surplus

specialisation: when a worker, firm, region or country focuses on producing one stage of production or one product.

surplus: when more is produced than is required. the surplus can be exchanged for money or other goods'services.

competitive market

competitive market: a market situation where there are a large number of buyers and sellers.

monopoly

monopoly power

monopoly: where there is only one firm selling in a market

monopoly power: when a firm has more than 25% of the market share.

demand

effective demand

contraction of demand

extension of demand

demand: the quantity buyers are willing and able to buy at a give price in a given time period.

effective: for demand to be effective a consumer must be willing and able to buy a good/service

contraction: the fall in the quantity demanded due to a rise in price

extension:the increase in the quantity demanded due to a fall in price.

inferior goods

inferior goods: goods for which the demand falls when income rises. eg) bus journeys.

price elasticity of demand

elastic demand

inelastic demand

PED: this measures the responsiveness of the quantity demanded to a change in the price of a good.

elastic: when demand changes a great deal in response to a change in price

inelastic: when demand changes very little in response to a change in price.

supply

contraction of supply

extension of supply

supply: the amount of a particular product which firms are willing to produce at a given price level

contraction: the fall in supply due to a fall in price for a product

extension: the increase in supply due to a rise on price for a product

price elasticity of supply

elastic supply

inelastic supply

PES: this measures the responsiveness of the supply of a product to a change in it's price

elastic: when supply changes a great deal in response to a change in price.

inelastic: when supply changes very little in response to a change in price

equilibrium

market forces

equilibrium: the point where demand and supply meet

market forces: supply and demand

specific tax

ad valorem tax

subsidy

maximum price

minimum price

specific tax: a tax placed on a good/service which is a specific amount of money per unit bought.

ad valorem tax: a tax placed on a good/service which is as a percentage of the price

subsidy: a payment given to a firm, usually by the gov't.

maximum price:a price ceiling to stop prices rising above a certain level

minimum price: a price floor below which prices are not legally allowed to go.

output

fixed costs

variable costs

total costs

average costs

total revenue

profit

output: the number of goods/services produced by a firm

fixed costs: costs that do not vary with output

variable costs: costs that very directly with output

total costs: fixed costs + variable costs

average costs: total costs / output

total revenue: the amount a firm recieves from selling it's product - price x quantity sold

profit: total revenue - total costs

production

produtivity

total production

production: the process of combining scarce resources to make an output

productivity: output per worker per time period

total production:the total output possible from the scarce resources we have

merger

takeover

integration

internal growth

external growth

merger: agreed coming together of two firms

takeover: when one firm seeks to take control of another (it can be friendly or hostile)

integration: this occurs when two firms come together through either a merger or takeover

internal growth: this is generated through increased sales. The firm reinvests its profit back into itself - it can buy new equipment, outlets or factories, buy in new labour or market it's problems in a more effective way.

external: achieved through a merger or takeover.

economies of scale

diseconomies

internal

external

economies of scale: the factors which explain why, as output rises, average costs fall

diseconomies of scale: the factors which explain why, as output rises, average costs rise

internal: when one firm grows in size and so benefits from lower average costs

external: when a whole industry grows in size, so a firm in that industry benefits from lower average costs.

gross income

net income

nominal

real

gross: income before tax/deductions have been deducted

net: income after all deductions have been taken off

nominal: the monetry sum of your income quoted on your payslip

real: nominal income which had been adjusted to take into account inflation.

national minimum wage

NMW: a pay floor introduced by the government, which sets a wage level, below which producers cannot legally go.