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53 Cards in this Set
- Front
- Back
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What is economies of scale? |
E of S occurs when long run average costs fall within increasing output.(the more you make the cheaper it becomes to produce) |
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What is internal economies of scale? |
Internal E of S occurs within the individual firm as it expands. |
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Give examples of internal economies of scale. |
Financial Purchasing Marketing Technical Managerial Balanced team of machines/ principle of multiples |
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Explain financial E of S. |
Bigger firms= more reliable & financially stable so get better rates on loans Smaller firms= less reliable so get higher rates on loans |
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Explain purchasing E of S. |
As a business expands it needs more raw materials from suppliers, allowing negotiation for cheaper prices. |
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Explain marketing E of S. |
•advertisements are set at specific times on certain channels to target a specific audience. •leaflets to show offers that can be passed onto others. •prime times on tv cost more as they are more effective and are most likely to be paid by bigger firms. |
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Explain technical E of S. |
Bigger business can afford to invest in expensive, up to date capital. Smaller businesses would not find this cost effective. |
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Explain managerial E of S. |
This is a form of division of labour. Larger firms can afford trained, specialist managers. |
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Explain the principle of multiples for E of S. |
Working together saves money. |
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What is external economies of scale? |
It occurs within an industry as it expands in a specific area. |
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Give examples of external E of S. |
Infrastructure Government incentives Ancillary firms |
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Explain infrastructure E of S. |
Access to customers and suppliers. |
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Explain government incentives E of S. |
Subsidies in taxes help to recruit staff. Government saves firms money and reduces the average cost of the product Subsidies to keep the business profitable and/or in the same area |
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Explain ancillary firms E of S. |
Companies working in the same industry located in one area makes work more efficient (short transport distances for spare parts). |
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What is diseconomies of scale? |
D of S occurs when the average costs of production rise as output increases. |
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Give examples of internal D of S. |
Morale Communication Coordination Control |
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Explain moral D of S. |
Demotivated staff - increased stress, depression an sickness leads to taking days off and increased costs for the firm. Low morale means less efficient labour and more mistakes. |
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Explain communication D of S. |
As a firm expands, it gets more difficult to communicate effectively with everyone in the firm. |
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Explain coordination D of S. |
The larger the firm gets, the more difficult it becomes to manage how it works. |
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Explain control D of S. |
A larger firm is more difficult to control the way the business is run, as others have to help run the business and they control things with different beliefs. |
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Give examples of external diseconomies of scale. |
Pressure on factors of production Pressure on infrastructure |
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Explain pressure on factors of production D of S. |
Limited resources. If there isn't people with a particular skill set needed then it puts pressure on the business. |
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Explain pressure on infrastructure D of S. |
For example how can infrastructure cope with extra cars on the road causing congestion. |
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What are fixed costs? |
Costs that relate to the fixed factor of production and do not vary directly with the level of output. |
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What are variable costs? |
Costs that vary directly with output. |
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What is supply? |
Supply is the quantity of a good or service that a producer is willing and able to supply onto the market in a given time. |
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What are the factors which determine supply? |
The profit motive Production and costs New entrants to the market |
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Explain the profit motive for supply. |
Higher profits provide an incentive to expand production and increase supply. |
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Explain how production and costs influence supply. |
This may be due to diminishing returns as more factor inputs are added to production. |
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What is the law of diminishing returns? |
If one variable factor of production is increased, while the others stay fixed, eventually the marginal returns from the variable factor will begin to decrease. |
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How does new entrants to the market influence supply? |
Higher prices may lead to new entrants to the market leading to and increase in supply. Increased prices also mean that it becomes more profitable for marginal firms to supply to the market - increasing market supply. |
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What are marginal firms? |
Firms that just break even. |
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What are the factors that shift the supply curve? |
Prices of raw materials Technology improvements Changes in labour productivity Regulation and bureaucracy Wage rates Subsidies Indirect taxes Future expectations The number of sellers in the market Objectives of firms |
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What is planned supply? |
The amount that producers plan to produce at each price level. |
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Why might actual supply differ to planned supply? |
Because consumers might change the amount that they demand. This means that producers must consider costs of production and the price they think they will receive for each individual unit sold. |
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What is market supply? |
It's the sum of all individual firm's supply curves at each given price. |
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What is actual supply? |
The amount of which the producers in fact produce - the real supply produced. |
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What is joint supply? |
Joint supply occurs when production of one good RESULTS in the production of another good, when a by-product is consequently made. |
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What is the price mechanism? |
The price mechanism refers to the manner in which the price of commodities affect the demand and supply of goods and services. |
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What is elasticity terms of elasticity of supply? |
An increase in price leads to an increase in supply by a lot. PES>1 is elastic PES=infinity is perfectly elastic |
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What is inelasticity in therms of elasticity of supply? |
An increase in price leads to an increase in supply by a little. PES<1 is inelastic PES=0 is perfectly inelastic |
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Do firms aim to be price elastic or inelastic? |
They aim to be as elastic as possible (to have a PES as high as possible). |
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What are the factors that influence elasticity of supply ? |
-Spare production capacity -Stocks of finished products and components -The ease and cost of factor substitution/ mobility -Time period and production speed |
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What is demand? |
The quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time. |
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What is effective demand? |
The desire for a good or service backed by an ability to pay for it. |
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What is market demand? |
The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices. |
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What is composite demand? |
A good that is demanded for more than one purpose, so that an increase in demand for one purpose reduces the available supply for the other purpose. |
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What is derived demand? |
When the demand for one good or service COMES FROM the demand for another good or service. (High demand for cars so high demand for steel ) |
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What are the factors that cause a shift in the demand curve? |
Changes in tastes and fashion Changes to real income The price of other goods/services Expectations of future prices Advertising Population Interest rates and credit conditions |
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What is price elasticity of demand? |
A measure of how the quantity demanded of a good responds to a change in its price. |
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What is income elasticity of demand? |
A measure of how much the demand for a good changes with a change in real income. |
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What is cross elasticity of demand? |
A measure of how the quantity demanded of one good responds to a change in the price of another good. |
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What are the factors that influence elasticity of demand? |
Substitutability (many=elastic , few=inelastic) Time horizon (immediately=inelastic , over time=elastic) Categorisation of goods (broad=inelastic , narrow=elastic) |
