Markets, Consumers and Firms (1)

Scarce resource

Anything useful which is not available in unlimited quantities

1 of 146

Opportunity cost

Using a scarce resource in one way means we sacrifice alternative uses. the best alternative given up is to OC

2 of 146

Resources

Nearly always scarce, in relation to the use that we can make of them so choices must be made by businesses and governments

3 of 146

Trade off

Involves choice, use when looking at a balance between two choices, choosing more of one and less of the other rather than making a simple either/or.

4 of 146

Positive Statements

In economics are testable as factual or false, normally on the basis of observation and evidence

5 of 146

Normative Statements/Value judgements

Statements on the economy based on opinion and judgement - involve ideas on what should be done

6 of 146

Profit

A surplus of sales revenue over costs ( SR-Cost of production). Compensates the entrepreneur for carrying the risks associated with running a business.

7 of 146

Profit maximisation

a business objective ( short/long )

8 of 146

Entrepreneurs

individuals who set up in business, accepting risks, taking decisions on what to produce and how, working out how to market the product

9 of 146

Sales maximisation

alternative objective, ( short/long) sales revenue= price x quantity sold

10 of 146

Satisficing

reaching a good enough profit level, without maximising

11 of 146

Survival

Business objective ( personal achievement or keep family tradition )

12 of 146

Market share

Proportion of a specific market that is spplied by one business. A lare share can give some market power, a degree of security and reduced risk. ( total sales by the business/Total sales in a market = %)

13 of 146

Return on investment

Interest on loans or dividends for shareholders.

14 of 146

Cost efficiency

An objective for some businesses because it helps them to compete effectively. Greater efficiency in use of resources cuts costs.

15 of 146

Social Objectives

Includes employee welfare, especially where some emplyees are likely to be paid poorly. Businesses with environmental concerns; sustainability will be an objective. Ethical business takes in all stakeholders/

16 of 146

Customer Satisfaction

The objective that ensures repeat purchases, or an outcome of fair and responsible business behaviour that secures a good reputation for the business concerned. Can ensure good profits or may be pursued for concerns for the customer.

17 of 146

Economic agents

All groups of people and organisations that are involved in economic activity and take decisions that affect how resources are used.

18 of 146

Stakeholder

Anyone with an interest in a business or receives an impact from it.

19 of 146

Share holders

Legal owners of a business. Help to set up the business or have bought shares on the stock exchange.

20 of 146

Suppliers

Firms from which the business can buy the material inputs or services that are needed in the production process.

21 of 146

Creditors

Those to whom the business owes them money.

22 of 146

Corporate social responsibility (CSR)

Involves a busiess behaving in an ethical way and accepting responsibility for its effects on all its stakeholders, including the wider community and the environment

23 of 146

tax evasion

Illegally failing to pay taxes that are due

24 of 146

Tax avoidance

Legal ways to reduce tax liability

25 of 146

TNCs/MNCs

Businesses with operations in more than 1 country

26 of 146

Zero- hours contract

Emplyees only work when needed, often at short notice. Pay depends on hours worked. Some contracts obliged workers to take shifts that are offered, others dont.

27 of 146

Creative destruction

Way in which quality improving innovation lead to economic growth. customers switch to new products and old products become obsolete. innovations that cut costs and eventually, prices, will have the same effect.

28 of 146

Innovation

Developing an idea that will generate new/improved products or production techniques.

29 of 146

Added value

Represents the difference between the cost of material inputs and the eventual value of the product in terms of the price that can be charged for it.

30 of 146

Costs of production

All payments made in order to get a product into the market place. ( wages, premises, raw materials, component etc)

31 of 146

Sales revenue

Prices X Quantity sold

32 of 146

Profit

Sales revue - costs of production. Compensates the entrepreneur for carrying the risks associated with running a business.

33 of 146

Investment

Spending now in order to generate income in the future (investing in premises, capital equipment, researching and developing the product, and training key employees.

34 of 146

Incentives

Financial and other rewards that can induce people to behave in a certain way. Profit acts as an incentive that encourages increase productivity/develop new product

35 of 146

Social entrepreneurs

Use business methods and strategies to achieve social objectives. They seek innovations to tackle difficult social problems

36 of 146

Non financial motives

Reasons for setting up in business that are not linked to profit

37 of 146

Ethical motives

Lie behind firms' efforts to do what is right. Eg contributing towards projects that benefit the local community, ethical employment, inputs for sustainable sources.

38 of 146

Factors of production

Land(space where production can be located+natural resources used for inputs) Labour ( human effort contributing to production) Capital ( Premises/equipment uses repeatedly in production) Enterprise ( organisation of business+willing to take risks)

39 of 146

Specialisation

People make the most of their skills by concentration their expertise in a particular field. Skilled people produce more - output per head increases, standards of living improves.

40 of 146

Exchange

Allows us to trade our own products for those of others; giving us a range of G/S that we want/need. Money makes exchange of products easy, enabling us each to specialise and become more productive.)

41 of 146

Division of labour

Organising employees so that individuals specialise in one part of the production process. = quicker + more proficient, output increases.

42 of 146

Efficiency

Using resources in the most economical way. Efficiency increases, output per person increases. Specialises involves acquiring skills and understanding that speed up production process = better quality products. Value may be added.

43 of 146

Working capital

Finance needed by a business to cover production costs - rent, wages and costs of other inputs needed - until payment is recieved.

44 of 146

Interest rates

The amount that has to be paid by the borrower to the lender. Where there is a risk that the lender will not be repaid, interest rate will be higher.

45 of 146

Exchange rate

Rate at which once currency is exchanged for another . The usually fluctuate. Struggling economy = exchange rate falling.

46 of 146

Income tax

Levied on the incomes of individuals . There is a personal allowance which is tax free, generally increase by at least the rate of inflation in the Budget each year.

47 of 146

Corporate tax

Level will be a % of the profit made. Business making < £300,000 it is currently 20%

48 of 146

VAT

Value added tax. Collected by businesses and takes 20% of the value of the sales, less that cost of all inputs bought from other businesses.

49 of 146

Skills shortages

When people available for work do not have the skills that employers are seeking. Particularly likely to happen if he economy is growing, unemployment is low and new technologies being developed.

50 of 146

Effective demand

Quantity of consumers who have a combination of the desire for a G/S with the ability and readiness to pay at the current market price

51 of 146

Consumer sovereignty

Consumers control resource use by deciding what to buy

52 of 146

Determinants of demand

P(population) I (income) R(related goods) A ( advertising) T(Tastes) E(expected price changes S ( seasons ) + Complementary goods.

53 of 146

Contraction of demand

Move up and left on demand curve - when price rises

54 of 146

Extension of demand

Move down and right on a demand curve - when price decreases

55 of 146

A shift in demand curve

When quantity demand changes for reasons other than price.

56 of 146

Short run

Time period in which the quantity of at least one component in production cannot be changed.

57 of 146

Long run

Time period in which quantities of all factors of production can be changed

58 of 146

Determinants of supply

Price, State of technology, Costs of production, Entry and exit of firms, Taxes/subsidies.

59 of 146

Excess supply

When quantity supplied is > quantity demanded. This disequilibrium is caused by setting a price that is too high to attract enough customers to buy the quantity suppliers are offering.

60 of 146

Excess demand

Occurs when quantity demanded outstrips the quantity supplied, there is a shortage of the product. raising the price will cause customers to buy less and so restore equilibrium.

61 of 146

Equilibrium price

Price at which quantity supplied and demanded are equal in a market.

62 of 146

Market clearing

Obtaining a balance between Q supplied and demanded, normally by arriving at the equilibrium price.

63 of 146

Profit signalling mechanism

Way that potential profit will attract entrepreneurs to a growing market, losses will lead business to consider leaving a market. Shifts resource use towards products that in the most demand. Functions; Signalling, rationing, incentives.

64 of 146

Ceteris Paribus ( other things being equal) assumption

freezes all variables other than the one being studied, avoiding complication and allowing us to examine individual changes.

65 of 146

Economic models

Use simplified assumptions to describe economic relationships. These allow us to isolate individuals changes and analyse their consequences, avoiding complications that occur when several thing are changing at once.

66 of 146

Allocation of resources

Reflects the way in which economic agents take decisions about what to buy, what to produce and how best to use available land, labour and capital

67 of 146

Homogeneous products

Uniform, whatever their origin.

68 of 146

Differentiated products

distinctive, with different design features/brands

69 of 146

Mass markets

Products supplied in significant quantities to all types of customers

70 of 146

Oligopoly

Market structure with a few large firms dominating the market. There are often smaller firms competing as well.

71 of 146

Market power

obtained by differentiation and controlling the amount produced and price changes

72 of 146

Niche market

A small segment of a market with distinctive requirements, may be associated with sub cultures.

73 of 146

Primary market research

Obtained by the business that is interest in the results, involves fieldwork and be directly related to business' needs .

74 of 146

Secondary market research

Data that has been gathered previously by another organisation, often freely available

75 of 146

Quantitative market research

Conducted where results are numerical and can be analysed statistically

76 of 146

Qualitative Market research

Market research to examine opinions and feelings

77 of 146

Sampling

Collecting data from a proportion of the population

78 of 146

Bias

When information collected does not accurately reflect variations in population.

79 of 146

Stratified sample

selecting participants within the target groups on a random basis to get a greater accuracy.

80 of 146

Market segmentation

Identifying different groups of consumers in a market where each group has distinctive preferences. Products and market strategies can be differentiated to suit individual segments.

81 of 146

Market positioning

Way in which a product is seen in comparison with rival products. Market research helps to position products so that business can match customer preferences.

82 of 146

Repositioning

Targeting a different market segment ( more sales revenue or profit )

83 of 146

Market map

Tool that plots brands according to how they meet customers needs.

84 of 146

Competitive advantage

Having an edge over rival products. There are many ways of making the perception of a product positive, depending on the nature of the market and it consumers

85 of 146

Product differentiation

Entails unique features which distinguish a product from its rivals. May be based on special characteristics/ distinct image which has been developed

86 of 146

Adding value

When factors of production are used to make material inputs more valuable to potential customers. It is the difference between the price paid and the total cost of the other inputs needed to create the product.

87 of 146

Competitive pricing

Takes account of prices charged for similar products competing in the same market. Prices will usually be the same or little below closest rival.

88 of 146

Banks

Take deposits form people and businesses that wish to save and lend to people, businesses and governments that wish to borrow. Operating on a large scale, Banks can expand their lending over and above the total amount they receive from savers.

89 of 146

Working capital

Finance needed to keep the company's day to day business going. There must be enough working capital to cover short term debts.

90 of 146

Collateral

Collateral on a loan means there is no risk to the lender. if they cannot be repaid, the collateral assets will be sold to pay off debt.

91 of 146

Risk

Possibility that events will not turn out as expected. The probability of some risks can be calculated.

92 of 146

Financial intermediaries

Include retail and investment banks, building societies and pension funds and insurance companies. Offer a link between investors and savers.

93 of 146

Unlimited liability

An individual has no legal separation from their business and is therefore personally responsible for the debts of the business. Personal assets can be used as collateral.

94 of 146

Limited liability

Protects shareholders in that they are legally separate from the business. They will only pay off the amount of original capital in buying shares when paying off debt.

95 of 146

Private limited companies

Have limited liability for business debts but cannot raise finance from the general public.

96 of 146

Public limited companies

Owned by shareholders + have limited liability. Companies raise finance by selling shares to the general public and large organisations such as pension funds.

97 of 146

Internal sources of finance

Personal savings, retained profit, Sale of assets, Working capital

98 of 146

External sources of finance

Ordinare share capital ( selling shares ), Venture capital

99 of 146

Equities

Another name for shares

100 of 146

Stock exchange

Where shares in PLCs can be bought and sold.

101 of 146

Venture capital

Money invested in a new business by one or more individuals who believe the business will succeed and therefore increase in value, but are willing to accept the risk the the business idea may fail. may be provided in exchange for a share of the busin

102 of 146

Loan

Money borrowed for a fixed period at a fixed interest rate. Loan is paid back in regular instalments until the total amount plus interest is repaid.

103 of 146

Overdraft

short term fixed loan where a bank allows a business to operate with a negative bank balance. Interest is paid on the amount overdrawn (usually higher than loan ) .

104 of 146

Leasing

Used by businesses that need land, buildings/ equipment which they are unable or unwilling to buy outright ( renting an asset ). Regular payments to owner to renter

105 of 146

Trade credit

Short term finance - when suppliers all a time period before payment for supplies must be made.

106 of 146

Externalities

Costs/benefits that affect anyone other than the buyer or seller

107 of 146

Social costs/benefits

Private + external costs/Private + external benefits

108 of 146

Overproduction/overconsumption

When prices reflect only the private costs of production, ignoring external costs

109 of 146

Underproduction/underconsumption

When less is produced than would be optimal for society as a whole given the external benefit of the product

110 of 146

Market failure

Occurs when markets allocate resources inefficiently, because market prices are distorted.

111 of 146

A command economy

Relies predominantly on public sector provision of G/S

112 of 146

Mixed economies

Have a private and public sectors. Decision are based on public interests.

113 of 146

Government failure

When a public sector activity or government intervention, intended to correct market failure makes the situation worse.

114 of 146

Regulation

Applying rules to business. Imposed by governments or by trade associations that want to maintain the reputation of the industry ( price caps, vehicle emission )

115 of 146

Subsidy

Payment per unit sold, shift supple curve downwards ( price falls and quantity increases)

116 of 146

Capital spending

When a business invests in premises or equipment or something long term benefit to the business

117 of 146

Investment

Spending now in order to generate income in the future .

118 of 146

operating costs

are paid regularly by a business in the course of operating. (fixed+variable and correspond to total costs)

119 of 146

Fixed costs

Not directly linked to the level of output of a business. They do not change when output increases or decreases. Also called overheads or indirect costs.

120 of 146

Variable cost/ Costs of goods sold (COGS)

Directly linked to the level of output of the business. They change as output increases/decreases. Also called direct costs. ( materials, production costs )

121 of 146

Depreciation

loss in value of capital equipment over time, often due to wear and tear or technology becoming dated.

122 of 146

Law of diminishing returns

If one + factors of production is fixed adding more and more of a variable factor will eventually add less to output.

123 of 146

Adding variable costs

total of variable costs divided by output

124 of 146

Profit

Money remaining from sales revenue after all costs have been paid. it is entrepreneurs reward for investing their personal resources (time,enterprise,assets)in a business and taking risks

125 of 146

Sales revenue / turnover

Money earned by selling goods and services. ( sales volume X unit selling price )

126 of 146

Sales volume

no, goods sold by a business in a period of time

127 of 146

Selling price

amount charged to a customer for the purchase of good/service

128 of 146

Loss

when revenue is less than total costs.

129 of 146

Contribution

Amount each sale raises towards fixed costs or profits. Selling price - variable costs

130 of 146

Break even revenue

Fixed costs/contribution

131 of 146

Break even point

volume of sales at which a business breaks even, so total revenue matches total costs exactly

132 of 146

Break-even analysis

Calculation of interpretation of information about the breakeven sales level

133 of 146

Margin of safety

Volume by which sales are above the breakeven point . Expected/actual sales - Breakeven sales level

134 of 146

Barriers to entry

Obstacles to new entrants which affect some industries, particularly where competing businesses are very large

135 of 146

Sunk costs

Heavy start up costs which cannot be recovered. They increase the risks of entry, acting as a deterrent or barrier

136 of 146

Market entry

Refers to businesses that set up in or move into a new market. exit occurs if they cannot make a profit and find no way of competing effectively

137 of 146

statement of comprehensive income/ profit and loss account

Starts with a figure for sales revenue and deducts each different group of costs to arrive at measures of profit

138 of 146

Gross profit

Sales revenue less the immediate variable costs of producing the goods sold

139 of 146

Net profit

What remains from sales revenue after the deduction of all operating costs ( overheads +taxes ) A loss is shown in brackets (), Net profit is a revealing measure of performance which can be used to make comparisons over a number of years.

140 of 146

Gross profit margin( operating profit margin + net profit margin)

(Gross profit X 100)/sales revenue. Replace GP with OP/NP

141 of 146

Insolvency

Occurs when a business fails because a lack of working capital means that debt cannot be paid

142 of 146

Cash flow forecast

a month by month prediction of the the timing of expected cash inflows and outflows for a business

143 of 146

Cash inflows

revenue, investment and borrowing

144 of 146

Cash outflows

Fixed, variable costs + cash withdrawals

145 of 146

Liquidity

Having sufficient cash available, sometimes also having assets which can quickly be converted to cash.

146 of 146

Get Revising

Markets, Consumers and Firms (1)

Other cards in this set

Card 2

Front

Back

Card 3

Front

Back

Card 4

Front

Back

Card 5

Front

Back

Comments

Similar Economics resources:

Other cards in this set

Card 2

Front

Back

Card 3

Front

Back

Card 4

Front

Back

Card 5

Front

Back

Comments

Related discussions on The Student Room

Similar Economics resources: