Igcse Economics Study Chapter 4

Front 1

how is the average product produced calculated

Back 1

average product=total product/units of labour

Hint 1

total..../units....

Front 2

Define the three stages of production.

Back 2

Primary Industry: where raw materials are obtained, farming mostly. Secondary industry: where materials are processed into goods and services, in factories. Tertiary industry: when goods and services are then sold, shops etc.

Front 3

What does specialization refer to?

Back 3

Specialization refers to when a country is good at producing a certain good/service.

Front 4

Division of Labour refers to..?

Back 4

Division of labour refers to when a workforce is separated for each to do a specific task only in for producing a good or service.

Front 5

How is the marginal product calculated??

Back 5

Marginal Product = Change in total product / change in total labour.

Front 6

What is the law of diminishing returns?

Back 6

The law of diminishing returns refers to when a fixed factor of production is the supplier and that total product increases as more factors of production are deployed until a certain point where adding more units of factors of production give diminishing results to total product.

Front 7

What are the increasing returns?

Back 7

The period before diminishing returns, when added factors of production increase total output.

Front 8

Define fixed costs, variable costs, total costs, average costs, total revenue and average revenue.

Back 8

Fixed costs are costs that do not change, ie rent, lighting. Variable costs are costs that increase per increasing output. Total costs are both fixed and variable costs. Average costs are total costs/ output. Total revenue is the price of goods multiplied by the quantity of goods. Average revenue is total revenue / output.

Front 9

How is the Break Even point of production determined?

Back 9

The break even point of production is determined when total costs are equal to total revenue, therefore there is no profit or diminishing funds.

Front 10

What is depreciation and how does it occur?

Back 10

Depreciation is a cost calculated of when capital equipment used in a firm wears out and needs to be replaced.

Front 11

What is the optimum point of production?

Back 11

The optimum point of production is the best level of production where the average cost of producing a good/service is at its lowest level possible.

Front 12

Define the cases of Increasing returns to Scale, Diminishing returns to Scale and Constant returns to Scale.

Back 12

Increasing returns to scale is when a company doubles its inputs and more than doubles its outputs. Decreasing returns refer to when a company doubles its inputs and less than doubles its outputs. Constant returns to scale refer to when a company both doubles its inputs and outputs.

Front 13

Define economies and diseconomies of scale.

Back 13

Economies of scale occur when the average cost of producing a good/service decreases as output increases. Diseconomies of scale occur when the average cost of producing a good/service increases from a firm being inefficient.

Front 14

Give and describe the four types of economies of scale.

Back 14

– Financial Economies of scale: Allow firms to take huge loans and sell shares on stock exchange. They are low-risk borrowers (more chance of paying back loans) and have more trust from investors.
- Marketing Economies of scale: Firms can buy items in bulk for discount. Can employ special experts on buying the best quality materials. Can also advertise for more demand.
- Technical Economies: Firms can be specialized, employing specialist workers and machineries. Can afford research and development, can have larger transport.
- Risk-Bearing Economies: Have many suppliers. Are also diversified, meaning that they produce a large number of products and therefore do not rely on only one, therefore if the demand for one fell, they would not lose much revenue.