A trade-off is where the selection of one choice results in the loss of another. Making the choice between the two can be a very important decision, as cost is more than giving up money.
Businesses make lots of decisions everyday for example: Whether it is worth continuing to sell a product. Every decision results in a trade-off and opportunity cost.
Like businesses and civilians, the governments have to make difficult choices due to the scarcity of raw materials. If they are stuggling for money they have to raise more through taxation.
Opportunity Cost is the loss of the next most desired alternative when choosing a particular course of action.
Price Sensitivity and Insenitivity
When price lowers, demand increases. And when price strengthens, demands lowers. Businesses often lower their prices to get a competitive advantage over their competitors which can increase revenue.
Price Sensitivity is where changing the price by a certain amount results in a bigger change in demand.
Price Insensitivity is where changing the price of a product by a certain amount leads to a smaller change in demand.
A Necessity is a good or service that a consumer views as essential.
A Substitute is a good or service which is a possible alternative to another good or service.
Share and Stake Holders
Stakeholders are a group which are interested in the performance of a business.
Shareholders are the owners of a limited company. They buy shares which represent part ownership of a business.
Examples of Stakeholders:
- Employees - Hoping the company does well so that they get raises.
- Suppliers - Hoping the company sells well so that they order more.
- Customers - Hoping for the company to do well so that they reduce prices.
- Competitors - Hoping for bad performance, for a competitive advantage.
The competition commission is a body which investigates cases where firms merge or are taken over to decide whether such activity is in the public interest. It has the power to prevent mergers or take-overs where these are seen to reduce the level of competition.
Dividends are payments made to shareholders from the profits of a company.
Externalities are the effects of an economic decision on individuals and groups outside who are not directly involved in the decision.
Negative Externalities are those costs arising frrom business activity activity which are paid by people or organisations outside the firm.
Positive Externalities are those benefits which arise from business activity which are experienced by people or organisations outside the firm. The firm receives no payments for the benefits received.
Success - based on quality, for example starting a restaurant employing a professional chef. This means that your business would have a good quality and people would eat at the restaurant more. Increasing your profit and market share.
Success - based on price, for example selling things at low prices so that when a recession hits an economy, people choose your cheap products. This means that your profit and market share increase because so many people buy your products.
Profits are the rewards for risk taking. It is the difference between costs and revenue. It is the primary way to measure success.
Market Share is how much of the market your firm has power over. It is calculated by making a percentage of how much of the sales in the market, have been made by your company. If your firm has over 25% you have a monopoly power.
Social Success - The perfomance of a business when it takes account of social, environmental and ethical factors.