factors of production
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: 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: 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: 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: a market situation where there are a large number of buyers and sellers.
monopoly: where there is only one firm selling in a market
monopoly power: when a firm has more than 25% of the market share.
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: goods for which the demand falls when income rises. eg) bus journeys.
price elasticity of 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.
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
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: the point where demand and supply meet
market forces: supply and demand
ad valorem tax
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: 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: 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: 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
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 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.