Business edexcel unit 5 GCSE

Trade-offs

The planets resources are SCARCE. There is only LIMITED amount of resources such as raw materials, fuel and time. But people usually have UNLIMITED needs or wants. For example they might want:

• A bigger house or better car
• More meals out
• A better education or better healthcare
• A cleaner environment

Because resources are scarce, people have to make CHOICES. They cannot have everything.

Spending decisions often involve sacrifices or trade-offs. Someone has £20 to spend and would like to buy 4 things.

• New make-up bag £20
• Two CD's £10 each
• Night out £20
• Charity donation £20

By buying the make-up bag, they have sacrificed the benefits from the other three items on the list. This is their TRADE-OFF.

OPPORTUNITY COST

• Describes the benefit lost from the next best alternative when making a choice. So the opportunity cost to the person in the previous example of buying a make-up bag is the benefit lost from not buying the CD's.

Raising and Lowering Prices

PRICE AND REVENUE

The PRICE is the amount of money consumers need to pay to buy a product.

REVENUE is the amount of money a business gets from selling its products in a period of time.

Revenue = Price x Quantity Sold

PRICE SENSITIVITY

• Demand is INSENSITIVE to price changes if:

-there are few or no substitutes

-the product is essential / a neccessity

• Demand is SENSITIVE to price changes if:

-there are many substitutes

-the product is a luxury item or not a neccessity

Changing the price might increase or decrease revenues depending on how PRICE SENSITIVE demand for that product or service is.

 For most products, demand is PRICE SENSITIVE. This means that demand will change more when price changes. So increasing price will decrease demand, meaning that revenue could decrease.

If demand for a product is PRICE INSENSITIVE it means that demand will not change very much whn price changes. So increasing the price will not impact on demand, meaning that revenue will increase.

Stakeholders

BUSINESS STAKEHOLERS

 Stakeholders are groups that have an interest in the performance of the business. Different stakeholders have different interests:

• Shareholders - profit, dividends and growth
• Workers - wages, job security and good conditions
• Customers - fair price, choice and good quality
• Managers/directors - pay, growth and power
• Government - competition and tax revenues
• Local communities - jobs and clean environment

STAKEHOLDER CONFLICT

• CONFLICTS are likely to occur between stakeholders if they have different interests

STAKEHOLDER POWER

• In some cases, certain groups will be in a STRONGR POSITION than others and have more influence on decision making.

Hidden costs or benefits

Economic decisions may have an impact on THIRD PARTIES. This means that stakeholders who have nothing to do with the decision are affected. These impacts are called EXTERNALITIES and may be positive or negative.

POSITIVE EXTERNALITIES

• Job creation
• Site development
• Training and education
• New technology
• Research and development

NEGATIVE EXTERNALITIES

• Traffic congestion
• Noise pollution
• Air pollution
• Water pollution
• Overcrowding
• Resource depletion

Measuring success

PROFIT AND REVENUE

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