Economics

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Economies of scale
Average unit costs fall as output is increase
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Internal economies of scale examples
Technical, managerial, financial, purchasing, risk bearing
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Technical economies of scale
Increased capacity allows use of cheaper capital equipment. Doubling size is less than doubling costs.
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Managerial economies of scale
Specialist managers can be employed, increasing productivity per pound spent
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Financial economies of scale
You can negotiate lower interest rates with banks
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Purchasing economies of scale
The larger you are the more power you have to negotiate lower prices with suppliers, as you buy in bulk.
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Risk bearing economies of scale
Size allows you to diversify and spread the risks of failure across a wider product range
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External economies of scale examples
Labour, commercial, co-operation, dis-integration
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Labour economies of scale
A large number of firms in the same area may leas to local investment in educating/training people
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Commercial services economies of scale
Smal specialist firms set up near to supply you, reducing sourcing costs
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Co-operation economies of scale
Competitors co-operate to share the costs of research and development
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Dis-integration
Out sourcing specialist firms to provide services so that you don't have to e.g. Cleaners, canteens
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Diseconomies of scale
Where the unit costs rise as the business gets bigger
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Control diseconomies of scale
Bigger firms are more difficulty to control and manage
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Bureaucracy diseconomies of scale
There is increased paperwork and record keeping so money and time is wasted
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Employee loyalty diseconomies of scale
Employees don't identify with the company, increased absenteeism and increased labour turnover.
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Communications diseconomies of scale
Large firms can't communicate quickly, this leads to misunderstandings, poor and slow decision making. Have to spend more money on communications so costs increase.
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Labour relations diseconomies of scale
Employees or larger companies are more likely to join unions, there will be increased strikes/industrial action so unit costs increase
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Market failure
Markets don't allocate resources properly
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Government failure
Government action creates a mis-allocation of resources, doesn't solve the market failure.
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Indirect taxation
Paid by businesses, not consumers
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Flat rate tax
A fixed amount of tax per unit.
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Ad valorem
A percentage of the price of the unit.
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Subsidies
Payments made by the government to encourage the production or use of a product
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Producer subsidies
Paying firms to reduce their costs
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Consumer subsidies
Paying consumers to reduce the proportion of their income spent on a product
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Minimum prices
Price floor for a market, suppliers cannot sell the product legally at a lower price
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Maximum prices
Price ceilings for a market, suppliers cannot sell the product legally at a higher price
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Wealth
The value of all of factors of production that you own at one point in time
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Income
The flow of money earned over a period of time from selling your wealth/factors of production
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3 types of wealth
Physical, financial, human
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4 types of income
Wages (labour), Rent (land), Interest (capital), Profit (enterprise)
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Other cards in this set

Card 2

Front

Internal economies of scale examples

Back

Technical, managerial, financial, purchasing, risk bearing

Card 3

Front

Technical economies of scale

Back

Preview of the front of card 3

Card 4

Front

Managerial economies of scale

Back

Preview of the front of card 4

Card 5

Front

Financial economies of scale

Back

Preview of the front of card 5
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