Theme 2 definitions

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Internal economies of scale
arise when a business invests in larger scale production
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External economies of scale
Involve unit cost reductions that are shared by a whole industry rather than a single firm. External economies are common when firms are all concentrated in one area.
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Minimum efficient scale
The lowest level of output at which average costs are minimised because the firm can make full use of economies of scale
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Organic growth
means expansion of a single business by extending its own operations rather than by merger or takeover
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Inorganic growth
refers to expansion by merger or takeover, bringing sudden increases in business size
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Horizontal integration
Two or more businesses in the same activity
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Forward Vertical
Adding firms closer to final consumer in supply chain
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Backward vertical
Adding firms closer to raw materials or other inputs
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Conglomerate integration
Businesses in unrelated activities
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Extension strategy
A way a business attempts to prolong the mature phase of a products life cycle
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The long tail
refers to a proliferation of choices, with increasing ability to match the precise niche market needs of individuals and small groups, reducing the dominance of standard hits
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Cost plus pricing
A business wanting to make 20% profit with an average cost of £10 per unit would set the price at £12 (the 20% is referred to as a mark up)
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Price skimming
Very high initial price to make as much profit as possible whilst the product has a lot of hype in the market
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Penetration pricing
Used to break into new markets, or increase market share. A low introductory price is used to gain demand and the price is increased when demand is high enough
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Predatory pricing
Large firms sell their product at an extremely low price (often at a loss) to get rid of competition who cannot compete with the low prices. Once the competitor is gone, the price goes back up.
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Normal goods
Have positive income elasticity of demand. A rise in income will lead to an increase in quantity demanded.
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Inferior goods
Have negative income elasticity of demand, demand rises as incomes fall
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Quality control
Involves checking finished products for any sign of a defect or poor quality
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Quality assurance
Involves designing the production process so as to eliminate waste and ensure the defects don't happen
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Cell production
Involves small teams of employees taking responsibility for a significant part of the total production process. Team members will perform a range of different tasks ie repairs and maintaining quality standards
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Total quality management
Places emphasis on meeting customer requirements and continuous improvement in all aspects of the business
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Kaizen
Continuous improvement, finding a better way of organising production and designing products
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Just-in-time
Stock control systems involve scheduling the delivery of inputs in a precisely co-ordinated way that minimises the quality of stock required.
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Lean production
Includes just-in-time, Kaizen, cell production emphasis on quality and shortened lead times
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Lead times
the time it takes to go from a decision to produce the arrival of the product, model, or style on the market
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Open economies
Export a relatively high proportion of total production and import a relatively high proportion of goods and services they use.
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International capital flows
large sums of money that are moved from one economy to another. These include FDI and the activities of wealthy individuals and businesses that move banks deposits around or buy foreign shares.
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The theory of comparative advantage
If two countries each specialise in the product with the lowest opportunity cost, and then trade, real incomes will increase for both countries
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Recession
The phase of the economic cycle in which GDP is falling (strictly for 2 or more quarters)
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Stagflation
Stagnant or falling GDP with prices rising at uncomfortable rates
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Dividends
Income received by he owners of a business and shares
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Leakages
Ways income escapes from the circular flow between households and firms
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Injections
Addictions to the circular flow from sources other than households; main injections are investment, government spending and exports.
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Supply constraints
occur when demand for scarce resources increases, forcing prices upwards. These include people with scarce skills, natural resources that have a finite supply and financial resources
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Inflation
A rise in the general price levels and a fall in the purchasing power of money
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Deflation
A fall in the general level of prices and a rise in the purchasing power of money
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Disinflation
When the rate of inflation falls
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Real values
real value of a good or other entity has been adjusted for inflation, enabling comparison of quantities as if prices had not changed
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Nominal values
a nominal value has not been adjusted for inflation, and so changes in nominal value reflect at least in part the effect of inflation.
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Underemployment
When people want to work full time but can only find part-time work, or skilled people can only find unskilled work, there is underemployment
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Other cards in this set

Card 2

Front

External economies of scale

Back

Involve unit cost reductions that are shared by a whole industry rather than a single firm. External economies are common when firms are all concentrated in one area.

Card 3

Front

Minimum efficient scale

Back

Preview of the front of card 3

Card 4

Front

Organic growth

Back

Preview of the front of card 4

Card 5

Front

Inorganic growth

Back

Preview of the front of card 5
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