This means a worker performing one task or a narrow range of tasks.
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Division of Labour
It means different workers performing different tasks in the course of producing a good/service. Different workers may also produce different goods/services.
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Why is specialisation good?
A worker does not need to switch between tasks, workers may become better at a task the more they do it, allows workers to "do" what they are "best" at, more variety of goods and potential to gain economies of scale.
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What are the negatives of Specialisation?
Alienation =Demotivation, Over dependence on key worker in the chain of production, diseconomies of scales, skill may no longer be needed, lack of flexibility and could be replaced by machines.
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Trade
The buying and selling go goods & services.
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Exchange
To give something for something else received. Money is a medium of exchange.
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Barter
This means to exchange some combination of goods/ services for another combination of goods/services.
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What are the issues with barter?
Not always easy to split up goods, not always easy to carry, not always easy to set an exchange rate and need a double coincidence of wants.
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Production
Converts inputs or factor services into outputs of good & services.
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Short- run Production
Occurs when a firm adds variable factors of production to fixed factors of production.
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Long-run Production
Occurs when a firm changes the scale of all the factors of production.
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Productivity
Output per unit of input.
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Labour Productivity
Output per worker.
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Capital Productivity
Output per unit of capital
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Productivity Gap
The difference between labour productivity in the UK and in other developed economies.
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Total Factor Productivity (TFP)
Measures the change in total productivity when more than one factor is changed
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Cost
The value of inputs.
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What are the costs of the factors of production?
Land- Rent, Labour- Wages, Capital- Interest & Entrepreneurship- Normal profit.
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Short run
Is the time period in which at least one factor of production is fixed and cannot be varied.
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Long run
Is the time period in which no factors of production are fixed and all can be varied.
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Fixed Costs (FC)
Costs that are independent of output produced.
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Variable Cost (VC)
Costs that are directly related to the level of output.
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Total Costs (TC)
The total costs of production = VC + FC
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Average Total Cost
The unit cost of production= total cost/ qty or output.
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Average Variable Cost
The unit variable cost of production= variable cost/ qty or output
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Marginal Cost (MC)
The change in total cost when one more unit of output is produced = total cost/ change in qty or output
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Economies of scale
The benefits gained through production on a large scale.
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What are technical economies of scale?
Increase capacity ir technological development that lowers long run average costs.
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What are marketing economies of scale?
Bulk buying which reduces unit costs, bulk marketing and cost savings from being able to use more sophisticated marketing techniques.
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What are managerial economies of scale?
Saving in the long run average costs due to specialisation on management.
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What are financial economies of scale?
Cost saving that large firms may receive when borrowing money and easier access to finance.
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Why is economies of scale good?
You can sell at the same price and increase profits or you can lower your price therefore increasing market share and revenue. Or both.
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Diseconomies of scale
The causes of an increase in long run average costs beyond the point of minimum efficient scale.
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What are the diseconomies of scales?
Communication problems, Motivational, Managerial becomes increasingly difficult for managers to work effectively.
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Internal costs
Costs saving resulting from the growth of the firm itself.
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External costs
Cost saving resulting from the growth of the industry/ the market of which the firm is part of.
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Revenue
The receipts from sales
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What is the equation for revenue?
Price x No. of sales
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Total Revenue (TR)
Price of goods multiplied by quantity sold.
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Average Revenue (AR)
Revenue received per unit at that output: total revenue/ by output
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Marginal Revenue (MR)
Addition to total revenue from one additional sale: change in total revenue / change in qty
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What does a graph for Revenue look like?
MR is twice as steep as AR and Mr becomes negative. TR is a curve, the top is where you maximise revenue, this is the point where MR goes through the X axis.
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Profit
This is the difference between a firms total revenue minus total cost at that output
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Other cards in this set
Card 2
Front
Division of Labour
Back
It means different workers performing different tasks in the course of producing a good/service. Different workers may also produce different goods/services.
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