Trade-off and opportunity cost
A trade-off describes what you sacrificed to get something else and an opportunity cost is what you could have done
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Purpose of economic ativity
Choice, wants, needs, economic welfare, free market economy
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Reasons for business objectives
Profit maximisation, satisficing, survival, market share
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Added value
Enhancing the customer experience, unique selling point or product differentiation
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Characteristics of an entrepreneur
Creative, self motivated, enthusiastic, showing initiative
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Non-financial motives for entrepreneur
Independance, homeworking
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Likely to lead to increased output per worker (productivity)
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Division of labour (positive)
Cuts down production costs, improves workforce
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Division of labour (negative)
The work can become boring (monotonous), workers become more absent
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Strong Pound Imports Cheap Exports Dear -- firms that import will be able to buy cheaper raw materials and finished goods
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Weak Pound Imports Dear Exports Cheap -- there will be a greater demand from abroad for UK goods
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Businesses are charged corporation tax on profits, consumers are charged VAT on goods
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There may be a mismatch between the skills of those people unemployed and the skills required for job vacancies
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Increased costs due to higher inflation. If a firm exports then it will see customers move to companies abroad when prices are not rising as fast
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Demand curve
As price falls quantity demanded rises, whereas as price rises quantity demanded falls
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External shocks
Natural disasters, terrorist attacks, disease
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Relationship between price and quantity
As the price of a product rises the quantity supplied will increase, whereas as the price of a product falls the quantity supplied will fall also
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Supply curve shift
Changes to the cost of production, introduction of new technology
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Market equilibrium
All buyers can get the exact amount they want to buy at this price and all sellers provide exactly the amount that they want to sell at this price
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A change in price will lead to a movement along the supply or demand curve
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Limitations of the curve
Supply and demand looks at competitive markets. In the real world the degree of competition in the market varies
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Rationing function
Excess demand for a good or service will lead to a rise in the price of a good or service. This is due to the scarcity of the product
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Incentive function
Higher prices act as a motivator for producers to increase the supply of a good or service, due to greater contribution per unit
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Signalling function
An increase in price will give an indication to producers that they should increase supply, for consumers it means they should reduce demand
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Allocative efficiency
When demand increases prices rise signalling to firms that they should increase supply to maximise profit
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Niche market
This form of specialism means that the firm can often charge higher prices
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Market research
Used to identify and anticipate needs and wants, gain insight to customer behaviour
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Primary research
Surveys and questionnaires, telephone, online
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Secondary research
Newspapers or magazines, trade unions, professional bodies
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Quantitative research
Statistics, numbers
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Qualitative research
Non-statistical, opinions
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Market segmentation methods
Demographic, geographic, income, behavioural
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Benefits of segmentation
Target advertising, the most profitable and least profitable customers are identified
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Market map positioning
Is influenced by market conditions (degree of competition) and also external environment eg. state of economy
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Competitive advantage
Product differentiation, ability to add value, operational efficiency
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Sole trader
One owner, very risky, and limited ideas
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2-20, less risky, multiple ideas
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The government intervene to reduce market failure to...
Reduce or eliminate negative externalities, to increase positive externalities
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The ways government intervene...
regulation, indirect taxation, grants and subsidies
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government failure can occur through...
conflicting objectives, inadequate information
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equation for sales revenue
selling price x quantity sold
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equation for sales volume
sales revenue / selling price
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equation for revenue
revenue = selling price x quantity sold
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increases with the amount of units sold
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average cost
total cost / output
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percentage change is calculated by...
original - new / original x 100
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contribution equation
selling price - variable costs
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break-even point equation
fixed costs / contribution
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contribution example
selling shirts at 11.50, each one costs 4.00 to make, when one is sold a contribution of 7.50 is made ( SP 11.50 - VC 4.00)
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profit equation
total revenue - total costs
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3 types of profit
gross profit, operating profit, net profit
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gross profit is the relationship between...?
gross profit and sales revenue
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operating profit is the relationship between...?
net profit and sales revenue
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net profit the relationship between...?
net profit and sales revenue
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organic growth occurs when...
a business expands in size by opening new stores, branches. (no risk of losing control)
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inorganic growth occurs when...
a business takes over another one (inorganic is difficult to control because of so many stores
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price elasticity of demand
PED is price inelastic as the fall in demand is less than the fall in price
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price elasticity of demand
PED is price elastic as the fall of demand is greater than the fall in price
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PED equation
%change in quantity demanded / %change in price
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cost plus equation
variable cost per unit + fixed cost per unit + a percentage mark-up
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increased productivity will reduce unit costs
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trade liberalisation - the WTO assisted on making greater trade agreements across the world
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capital market liberalisation - rules and regulations surrounding the movement of capital which can move either freely or very low cost quickkly around the world
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equation for GDP per capita
national income / population
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specialisation (in countries)
if a country specialises in one thing trading would be much easier
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world economy
a strong economy will import goods and services in order to meet it's needs, this might lead to an increase in domestic consumption
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impact of cheap imports on living standards
low wage economies have produced goods such as textiles and cheaper electronics that have undercut UK based firms and led to a decline in these industries in the UK
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strong pound imports cheap exports dear
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weak pound imports dear exports cheap
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aggregate demand equation
consumption + investment + gov spending (imports - exports)
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a boom is characterised by...
high rate of economic growth, low unemployment, high demand
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recession is characterised by...
demand falls, unemployment falls, inflation starts to rise
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slump is characterised by...
low or negative growth, unemployment is high, demand is low
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recovery is characterised by...
demand increases, unemployment falls, inflation starts to rise
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for buildings
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for output
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for investment
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for land
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for labour
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for capital
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for entrepreneurship
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equation for real national output
nominal national output / average price level
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caused by excessive demand in the economy for goods and services
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cost push
when firms respond to rising costs of production by increasing by increasing prices
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structural unemployment
when long term shifts to the structure of the economy impact upon the job markets
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technological unemployment
when improved capital which may be more productive and efficient than labour replaces labour as a factor of production
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cyclical unemployment
when economic growth is below the trend rate of growth
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effects of unemployment on consumers and firms
reduced demand for goods, reduced profitability, increased government spending
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economic growth
rate of changes in a country's output
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represents rate of resources
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rate of change of average prices in an economy
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balance of payments
measures the UK's record of economic activities with other countries
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government spending
more government spending means more employment, however may cause high inflation (high aggregate demand)
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higher tax - less disposable income - lower aggregate demand - keeps inflation at same rate
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Other cards in this set

Card 2


Choice, wants, needs, economic welfare, free market economy


Purpose of economic ativity

Card 3


Profit maximisation, satisficing, survival, market share


Preview of the back of card 3

Card 4




Preview of the back of card 4

Card 5


Enhancing the customer experience, unique selling point or product differentiation


Preview of the back of card 5
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