Economics Chapter 4: Factors of Production
174 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What are the four main factors of production?

Land, Labor, Capital, and Enterprise.

How does labor contribute to production?

Labor involves physical and mental human effort that is essential for producing goods and services.

Define opportunity cost in the context of production.

Opportunity cost is the value of the next best alternative foregone when making a decision on resource allocation.

Explain the concept of division of labor and its advantages.

<p>Division of labor splits production into different tasks, allowing workers to specialize, which increases efficiency and output.</p> Signup and view all the answers

What role does added value play in production?

<p>Added value is the difference between the selling price of a product and the cost of its materials.</p> Signup and view all the answers

What are the pros and cons of privatization?

<p>Pros of privatization include increased efficiency; cons may involve oversights on total societal costs and benefits.</p> Signup and view all the answers

Identify two types of capital and their functions in production.

<p>Working capital is used for day-to-day operations, while fixed capital is for long-term production needs.</p> Signup and view all the answers

How does employee training influence a company's value?

<p>Employee training enhances skills and productivity, thereby increasing the overall value of the company.</p> Signup and view all the answers

What are two potential downsides of a monopoly in terms of product quality?

<p>Lower quality products and higher prices.</p> Signup and view all the answers

Name two characteristics of a successful entrepreneur.

<p>Creative and principled.</p> Signup and view all the answers

What is the purpose of a business plan regarding financial information?

<p>To estimate how much profit is expected.</p> Signup and view all the answers

How do governments typically support entrepreneurs?

<p>By offering training and providing low-interest loans.</p> Signup and view all the answers

List one way a firm's size can be measured.

<p>Value of output.</p> Signup and view all the answers

What is a horizontal merger?

<p>When two firms in the same industry and at the same production stage join together.</p> Signup and view all the answers

What does the marketing mix encompass?

<p>All activities involved in marketing a product or service.</p> Signup and view all the answers

Why is it important to define the type of product a business is producing?

<p>It helps determine how the product will be developed and marketed.</p> Signup and view all the answers

What is a unique selling point (USP) in product development?

<p>A feature that makes a product distinct from competitors.</p> Signup and view all the answers

What are two pros of developing new products?

<p>Achieving diversification and entering new markets.</p> Signup and view all the answers

What is brand loyalty?

<p>When consumers repeatedly choose the same brand over competitors.</p> Signup and view all the answers

What is vertical backwards integration?

<p>When a firm merges with a supplier of its resources.</p> Signup and view all the answers

How can the value of capital employed be misleading?

<p>Because it does not account for differences in production methods.</p> Signup and view all the answers

What advantage do economies of scale provide during business expansion?

<p>Lower average costs.</p> Signup and view all the answers

What are three benefits of branding?

<p>It encourages consumer loyalty, assures quality, and allows for higher pricing compared to unbranded products.</p> Signup and view all the answers

How can packaging contribute to a product's marketing?

<p>Packaging protects the product, provides vital information, and promotes the brand.</p> Signup and view all the answers

What is the main goal during the introduction stage of the product life cycle?

<p>To launch the product and create market awareness through significant promotional spending.</p> Signup and view all the answers

What characterizes the growth stage of the product life cycle?

<p>Sales increase rapidly as the product gains market acceptance and brand loyalty is established.</p> Signup and view all the answers

During the maturity stage, what pricing strategy is commonly used?

<p>Competitive or promotional pricing is typically used to maintain sales amidst high competition.</p> Signup and view all the answers

What happens during the decline phase of the product life cycle?

<p>Sales decrease as consumer interest wanes, leading to reduced advertising and potential discontinuation.</p> Signup and view all the answers

List two ways to extend a product's life cycle.

<p>Introduce new variations of the product and sell into new markets.</p> Signup and view all the answers

Why must a business consider pricing decisions carefully within the marketing mix?

<p>Pricing must align with other marketing strategies and reflect supply and demand dynamics.</p> Signup and view all the answers

Define cost plus pricing.

<p>Cost plus pricing involves adding a profit markup to the total cost of manufacturing a product.</p> Signup and view all the answers

What is competitive pricing?

<p>Competitive pricing sets product prices in line with or just below competitors to capture market share.</p> Signup and view all the answers

What are the pros of using cost plus pricing?

<p>It's easy to apply and ensures profit for each sold unit.</p> Signup and view all the answers

What is a limitation of competitive pricing?

<p>It requires extensive market research and may not suit high-quality products with few competitors.</p> Signup and view all the answers

Why is brand awareness significant in marketing?

<p>Brand awareness can lead to consumers confusing a brand with the product itself, enhancing recognition.</p> Signup and view all the answers

What role does persuasive advertising play in the growth stage?

<p>It encourages brand loyalty and further increases product demand.</p> Signup and view all the answers

What is the primary goal of persuasive advertising?

<p>To convince consumers that they need to buy the product.</p> Signup and view all the answers

How does informative advertising differ from persuasive advertising?

<p>Informative advertising provides full information about a product, while persuasive advertising tries to convince consumers to buy it.</p> Signup and view all the answers

What role does product placement play in marketing?

<p>It subtly promotes products through appearances in media.</p> Signup and view all the answers

List one advantage of sales promotion for businesses.

<p>It can lead to short-term increases in sales.</p> Signup and view all the answers

Which factors should be considered when determining the type of promotion to use?

<p>The stage of the product life cycle and the nature of the target market.</p> Signup and view all the answers

What is one disadvantage of advertising on a business's own website?

<p>Potential customers may not see the website.</p> Signup and view all the answers

Define e-commerce in simple terms.

<p>It is the online buying and selling of goods and services.</p> Signup and view all the answers

Identify one advantage of e-commerce for consumers.

<p>It offers competitive prices and convenience.</p> Signup and view all the answers

What is the marketing mix?

<p>It is the combination of the four elements of marketing to achieve specific objectives.</p> Signup and view all the answers

What is the purpose of a marketing budget?

<p>To outline how much money can be spent on marketing activities.</p> Signup and view all the answers

Describe viral marketing.

<p>It's a strategy where consumers share information about products online.</p> Signup and view all the answers

Why is it important to adapt the marketing mix throughout the product life cycle?

<p>To ensure positive influence on consumer decisions.</p> Signup and view all the answers

What phase of the product life cycle typically experiences low sales?

<p>The introduction phase.</p> Signup and view all the answers

What is price skimming?

<p>It is a pricing strategy where products are sold at high prices initially before being lowered.</p> Signup and view all the answers

What can be a key consideration for firms when utilizing technology in marketing?

<p>It can create new opportunities for product promotion.</p> Signup and view all the answers

What is the significance of competitive pricing in marketing a new product?

<p>Competitive pricing is significant because it attracts customers by creating a sense of scarcity, encouraging them to purchase the product.</p> Signup and view all the answers

How does informative advertising aid in promoting new products?

<p>Informative advertising aids promotion by educating consumers about the product and often includes free samples to encourage trial.</p> Signup and view all the answers

What problems do businesses face when entering new international markets?

<p>Businesses face problems such as cultural differences, lack of knowledge, and increased transportation costs.</p> Signup and view all the answers

What is a joint venture and how does it benefit businesses entering a new market?

<p>A joint venture is a partnership between businesses to gain important local knowledge, which helps in adapting to the culture of the new market.</p> Signup and view all the answers

How does adding value to a product affect its selling price?

<p>Adding value allows a business to sell its products at a higher price than the cost of inputs, increasing profitability.</p> Signup and view all the answers

What role do consumer protection laws play in marketing?

<p>Consumer protection laws ensure that businesses do not mislead consumers and that products meet required standards.</p> Signup and view all the answers

In what way can licensing benefit a business when entering a new market?

<p>Licensing allows a business to permit local companies to produce its goods, reducing transportation costs and adapting to local demand.</p> Signup and view all the answers

What is the purpose of localized branding?

<p>Localized branding adapts products to meet local tastes while still maintaining a common brand image.</p> Signup and view all the answers

What factors contribute to the productivity of a business?

<p>Productivity is influenced by the quality of goods, employee efficiency, and technological advancements.</p> Signup and view all the answers

Why might a business reduce advertising expenditures?

<p>A business may reduce advertising expenditures when sales have fallen and the product is declining in the market.</p> Signup and view all the answers

What is the significance of persuasive advertising in a competitive market?

<p>Persuasive advertising is significant as it encourages brand loyalty among consumers, promoting repeat purchases.</p> Signup and view all the answers

How can automation impact productivity in manufacturing?

<p>Automation can increase productivity by replacing manual labor with machines, thus improving efficiency and reducing costs.</p> Signup and view all the answers

What are the risks associated with international franchising?

<p>Risks include quality control issues and potential damage to the brand if franchisees do not meet service standards.</p> Signup and view all the answers

What adjustments might a company need to make to localize its existing brand?

<p>A company may need to change packaging, promotions, and even product formulation to suit local markets.</p> Signup and view all the answers

What is penetration pricing and how does it benefit new products entering a market?

<p>Penetration pricing involves setting a lower price than competitors to attract customers. This strategy helps new products create an impact and builds market share.</p> Signup and view all the answers

What are the main advantages and disadvantages of price skimming?

<p>Advantages include higher initial profits and establishing a high-quality brand image. Disadvantages are potential consumer discouragement due to the high price and increased competition.</p> Signup and view all the answers

How does promotional pricing help a business increase market share?

<p>Promotional pricing lowers the price of a product temporarily, attracting more customers and encouraging repeat sales. This can generate brand loyalty and help clear excess stock.</p> Signup and view all the answers

What psychological factors influence customers during psychological pricing?

<p>Psychological pricing appeals to emotions, often by emphasizing certain digits in a price that make it appear more attractive. Customers may also associate higher prices with better quality.</p> Signup and view all the answers

Explain dynamic pricing and when it is typically used.

<p>Dynamic pricing adjusts prices based on different consumer demand levels, often used in situations like airline ticket sales during peak travel seasons. It maximizes revenue based on varying price sensitivity.</p> Signup and view all the answers

What are the four P's of marketing, and why are they significant?

<p>The four P's are Product, Price, Place, and Promotion. They are significant because they form the foundation of marketing strategy, helping businesses define their offerings and market positioning.</p> Signup and view all the answers

What role does packaging play in marketing a product?

<p>Packaging protects the product and serves as a marketing tool that promotes the brand and communicates product information. It can be instrumental in attracting consumer attention.</p> Signup and view all the answers

Describe the stages of the product life cycle.

<p>The product life cycle includes Development, Introduction, Growth, Maturity, Saturation, and Decline. Each stage requires different strategies to manage sales and marketing effectively.</p> Signup and view all the answers

What are extension strategies in the context of the product life cycle?

<p>Extension strategies are actions taken during the maturity stage to prolong the product's market presence, such as targeting new markets or introducing product improvements.</p> Signup and view all the answers

How does promotion aid in creating brand loyalty?

<p>Promotion raises customer awareness of a brand, which can lead to stronger connections and repeat purchases. It is crucial for differentiating products in competitive markets.</p> Signup and view all the answers

Why might penetration pricing lead to lower profits in the short term?

<p>Penetration pricing often results in lower profit margins per unit sold as the focus is on increasing market share rather than immediate profits. Selling at lower prices can initially reduce overall profitability.</p> Signup and view all the answers

What impact does competition have on the pricing strategies of new products?

<p>Competition influences pricing strategies significantly, as firms may need to adjust prices to remain attractive to consumers or maintain market share. This could mean employing penetration or skimming strategies.</p> Signup and view all the answers

What is the rationale behind promotional activities in marketing?

<p>Promotional activities aim to generate awareness, drive sales, and foster brand loyalty among consumers. They are essential for establishing a strong brand image and differentiating products.</p> Signup and view all the answers

What challenges might arise from using low prices to compete?

<p>Challenges include lower profit margins and the potential for a price war, which can devalue the brand over time. Additionally, low prices might lead consumers to perceive lower quality.</p> Signup and view all the answers

How do pricing strategies affect consumer behavior?

<p>Pricing strategies can significantly influence consumer perceptions and purchasing decisions, with tactics like psychological pricing appealing to emotions and perceived value. Competitive pricing can attract price-sensitive consumers.</p> Signup and view all the answers

What is a key disadvantage of job production?

<p>It requires skilled labor, making it labor-intensive and often time-consuming.</p> Signup and view all the answers

How does batch production provide flexibility for workers?

<p>Batch production offers variety in tasks as workers switch between different products made in batches.</p> Signup and view all the answers

What major advantage does flow production have in terms of costs?

<p>Flow production has lower unit costs, which allows for lower prices for consumers.</p> Signup and view all the answers

What is the concept of lean production aimed at improving?

<p>Lean production aims to cut down on waste and increase efficiency in manufacturing processes.</p> Signup and view all the answers

Why is Kaizen beneficial for companies?

<p>Kaizen encourages continuous improvement through employee input, leading to increased productivity and morale.</p> Signup and view all the answers

How does Just in Time (JIT) production methodology affect inventory management?

<p>JIT minimizes or eliminates the need to hold inventory, reducing costs and freeing up cash flow.</p> Signup and view all the answers

What are the three types of stock that businesses typically hold?

<p>Raw materials, partly finished products, and finished products.</p> Signup and view all the answers

In what way does seasonal demand influence stock levels for businesses?

<p>Seasonal businesses build up stock in anticipation of high demand during specific times of the year.</p> Signup and view all the answers

What is one significant disadvantage of using technology in the workplace?

<p>One significant disadvantage is the potential for increased unemployment as machines replace routine jobs.</p> Signup and view all the answers

How can the reliance on machinery in flow production be detrimental?

<p>Heavy reliance on machinery can lead to significant production downtime if machines break down.</p> Signup and view all the answers

What is the main focus of finance departments in businesses?

<p>The main focus is to record transactions, forecast cash flow, and prepare financial accounts for decision-making.</p> Signup and view all the answers

What is meant by the term 'lead time' in inventory management?

<p>Lead time refers to the duration between when stock is ordered and when it is received.</p> Signup and view all the answers

What are two major advantages of implementing lean production?

<p>Lean production leads to cost savings and quicker production of goods or services.</p> Signup and view all the answers

What role does worker training play in technology adoption within businesses?

<p>Worker training helps employees become skilled in new technologies, enhancing overall output quality.</p> Signup and view all the answers

What are two common policies that governments use to engage in protectionism?

<p>Tariffs and import quotas.</p> Signup and view all the answers

Name one benefit of multinational corporations (MNCs) for their home country.

<p>Increased tax revenue.</p> Signup and view all the answers

How can becoming a multinational corporation help a business avoid trade barriers?

<p>By establishing operations in multiple countries to reduce the impact of import restrictions.</p> Signup and view all the answers

What does it mean for a currency to appreciate against another currency?

<p>It means the value of the currency rises, allowing it to buy more of the other currency.</p> Signup and view all the answers

What is a potential drawback for a local economy when an MNC operates in that country?

<p>Creation of unskilled assembly-line jobs.</p> Signup and view all the answers

Explain the impact of tariffs on government revenue.

<p>Tariffs raise tax revenue for governments by taxing imported goods.</p> Signup and view all the answers

What is one major influence of MNCs on local governments?

<p>Powerful influence over government policies.</p> Signup and view all the answers

How does the depreciation of a currency affect its purchasing power?

<p>Depreciation decreases the currency's value, meaning it buys less of another currency.</p> Signup and view all the answers

What is start-up capital and why is it important for new businesses?

<p>Start-up capital is the finance needed by a new business to cover essential assets and expenses before launching. It is crucial for ensuring that the business can operate from the outset without financial hindrance.</p> Signup and view all the answers

How does working capital benefit day-to-day operations in a business?

<p>Working capital ensures that a business can meet its short-term obligations and continue day-to-day operations. It covers immediate expenses such as salaries, rent, and utility bills.</p> Signup and view all the answers

What is the difference between revenue expenditure and capital expenditure?

<p>Revenue expenditure refers to funds used for day-to-day operational costs, while capital expenditure is money spent on long-term assets that will benefit the business for over a year.</p> Signup and view all the answers

What are retained profits and what is one advantage of using them as a source of finance?

<p>Retained profits are the profits kept in a business after distributing dividends. An advantage is that they do not require repayment, making them a cost-effective source for funding.</p> Signup and view all the answers

What is the purpose of issuing shares in a limited company?

<p>Issuing shares raises external finance by selling ownership stakes in the company. It provides access to capital without having to repay it with interest.</p> Signup and view all the answers

What is a disadvantage of using bank loans for business finance?

<p>A disadvantage of bank loans is that they must be repaid with interest, which adds financial burden to the business. Additionally, collateral may be required.</p> Signup and view all the answers

How can trade credit assist a business’s cash flow?

<p>Trade credit allows businesses to delay payments to suppliers, which improves cash flow by giving them time to collect funds from customers first.</p> Signup and view all the answers

Explain the concept of hire purchase and one of its advantages.

<p>Hire purchase is an agreement where a business pays for an asset in installments while using it. An advantage is that the business does not need a large sum upfront to acquire needed equipment.</p> Signup and view all the answers

What role does crowdfunding play in obtaining business finance?

<p>Crowdfunding allows entrepreneurs to raise capital from a large number of individuals, typically through online platforms, by pooling small contributions. It's beneficial for projects that may be too small for traditional banks.</p> Signup and view all the answers

What is factoring of debts and how does it benefit businesses?

<p>Factoring of debts involves selling claims on debtors to a third-party agency for immediate cash. This provides businesses with instant liquidity while transferring the risk of debt collection.</p> Signup and view all the answers

What is a disadvantage associated with using microfinance for business funding?

<p>A disadvantage of microfinance is that the loan amounts are typically small, which may deter businesses from significant growth opportunities. Additionally, terms can be less favorable than traditional loans.</p> Signup and view all the answers

Why might a business choose to sell existing assets as a source of finance?

<p>Selling existing assets can provide quick capital without ongoing maintenance costs, freeing up resources for investment in new opportunities. However, it may take time to find buyers.</p> Signup and view all the answers

Identify one advantage and one disadvantage of leasing equipment instead of buying it.

<p>An advantage of leasing is that it allows access to the latest equipment without a large upfront cost. A disadvantage is that over time, leasing can become more expensive than outright purchasing.</p> Signup and view all the answers

Explain how government grants can impact a business’s financing strategy.

<p>Government grants provide financial assistance that does not usually need to be repaid, which can significantly reduce startup costs. However, these grants often come with restrictions and conditions.</p> Signup and view all the answers

What is one major advantage of leasing instead of purchasing a product?

<p>Leasing does not require a large upfront payment for maintenance.</p> Signup and view all the answers

What is a primary disadvantage of raising finance through issuing shares?

<p>Ownership can change, which may affect control of the business.</p> Signup and view all the answers

Why might a bank loan be considered a disadvantage for some businesses?

<p>A bank loan must be repaid with interest, which increases overall costs.</p> Signup and view all the answers

What key factor do managers consider regarding the purpose of finance?

<p>Managers evaluate whether the needed finance is for short-term or long-term requirements.</p> Signup and view all the answers

What is the primary reason businesses need to maintain a steady cash flow?

<p>To pay essential debts like wages and creditors consistently.</p> Signup and view all the answers

How is insolvency defined in a business context?

<p>Insolvency occurs when a business cannot meet its financial obligations as debts become due.</p> Signup and view all the answers

What does net cash flow represent for a business?

<p>Net cash flow is the difference between cash inflows and cash outflows for a given period.</p> Signup and view all the answers

What is the significance of a cash flow forecast for businesses?

<p>A cash flow forecast estimates future cash inflows and outflows, aiding in financial planning.</p> Signup and view all the answers

What is the formula for calculating profit?

<p>Profit is calculated as revenue minus costs.</p> Signup and view all the answers

What does a trading account show and how is it relevant?

<p>A trading account shows how gross profit is calculated, impacting business financial health.</p> Signup and view all the answers

What does retained profit signify for a business?

<p>Retained profit is the portion of net profit reinvested back into the company.</p> Signup and view all the answers

What forms of working capital are essential for business operations?

<p>Working capital includes cash, firms' debtors, and the value of inventories.</p> Signup and view all the answers

How can a business reduce its cash flow problems?

<p>By controlling spending, improving credit collection, and avoiding overtrading.</p> Signup and view all the answers

What is 'gearing' in financial terms?

<p>Gearing is the proportion of total capital raised from long-term loans.</p> Signup and view all the answers

What does the cash flow cycle illustrate for a business?

<p>It depicts the stages between cash expenses and cash received from sales.</p> Signup and view all the answers

What is the purpose of a statement of financial position in a business?

<p>It shows the value of a business's assets and liabilities at a specific point in time.</p> Signup and view all the answers

What are current assets and give two examples?

<p>Current assets are assets owned by a business and used within a year; examples include cash and inventories.</p> Signup and view all the answers

How do you calculate the current ratio and what does it indicate?

<p>The current ratio is calculated as current assets divided by current liabilities; it indicates a company's liquidity.</p> Signup and view all the answers

What does ROCE measure and how is it calculated?

<p>Return on Capital Employed (ROCE) measures a company's profitability; it is calculated as net profit divided by capital employed multiplied by 100.</p> Signup and view all the answers

Explain why a high liquidity ratio might not always be beneficial for a business.

<p>A high liquidity ratio may indicate that too much money is tied up in current assets, potentially leading to missed investment opportunities.</p> Signup and view all the answers

Why is it important to evaluate long vs short-term decisions in a business context?

<p>It's crucial to ensure decisions align with long-term goals and market trends while also addressing immediate operational needs.</p> Signup and view all the answers

What are liabilities and how can they be categorized?

<p>Liabilities are debts owed by a business and can be categorized into current (short-term) and non-current (long-term) liabilities.</p> Signup and view all the answers

What does a gross profit margin indicate about a business?

<p>The gross profit margin indicates the percentage of revenue that exceeds the cost of goods sold, signifying profitability.</p> Signup and view all the answers

What is one strength and one limitation of ratio analysis?

<p>One strength is the ability to quickly assess a business's financial performance, while a limitation is that historical performance may not predict future outcomes.</p> Signup and view all the answers

How does a company's shareholders' equity reflect its financial health?

<p>Shareholders' equity reflects the total money invested by owners and retained profits, indicating the business's net worth.</p> Signup and view all the answers

What is working capital and how is it calculated?

<p>Working capital is the difference between current assets and current liabilities, representing the liquidity available for daily operations.</p> Signup and view all the answers

What role do market trends play in evaluating business decisions?

<p>Market trends help assess whether a decision aligns with current consumer behavior and industry standards.</p> Signup and view all the answers

Define the acid test ratio and explain its significance.

<p>The acid test ratio, calculated as (current assets - stock) / current liabilities, measures a firm's ability to pay short-term debts without relying on inventory sales.</p> Signup and view all the answers

What is the importance of capital employed in a business?

<p>Capital employed indicates the total funds used in the business to generate profits and is crucial for assessing operational efficiency.</p> Signup and view all the answers

What occurs during a boom phase in the economy?

<p>During a boom, there is excessive spending, leading to rising prices and potentially a shortage of skilled workers.</p> Signup and view all the answers

How does high inflation negatively impact businesses?

<p>High inflation reduces business profit margins because the cost of goods sold increases and real incomes fall.</p> Signup and view all the answers

What are two common government responses to high unemployment?

<p>Governments typically open up more jobs and provide unemployment benefits.</p> Signup and view all the answers

Why is economic growth important for a country?

<p>Economic growth creates more jobs, increases standards of living, and leads to higher government tax revenues.</p> Signup and view all the answers

What is the balance of payments and why is it significant?

<p>The balance of payments records the difference between a country’s exports and imports, indicating economic health.</p> Signup and view all the answers

What are the two main types of fiscal policies?

<p>The two main types are changing taxes and government spending.</p> Signup and view all the answers

How do indirect taxes affect consumer behavior?

<p>Indirect taxes typically increase the prices of goods, leading to a decrease in demand, especially for luxury items.</p> Signup and view all the answers

What impact do import tariffs have on domestic firms?

<p>Import tariffs reduce competition for domestic firms, but can also lead to higher costs for businesses needing imported materials.</p> Signup and view all the answers

What role does privatization play in supply-side policies?

<p>Privatization is aimed at increasing efficiency and competitiveness within industries.</p> Signup and view all the answers

How could a hike in interest rates affect firms?

<p>Higher interest rates generally lead to increased borrowing costs, which can reduce investment and consumer spending.</p> Signup and view all the answers

What is one consequence of low unemployment on GDP?

<p>Low unemployment can boost GDP as more individuals earn income, increasing overall spending power.</p> Signup and view all the answers

Describe the condition of an economy during a slump.

<p>During a slump, many businesses close, factors of production are underutilized, and unemployment is high.</p> Signup and view all the answers

How do taxes affect businesses' retained earnings?

<p>Increased profit taxes reduce retained earnings, which in turn lowers investment and the incentive to start new businesses.</p> Signup and view all the answers

What does a trade deficit indicate about a country's economy?

<p>A trade deficit implies that imports exceed exports, suggesting the nation may be living beyond its means.</p> Signup and view all the answers

How can increased borrowing costs affect business expansion?

<p>Increased borrowing costs can lead businesses to delay or scale back investments, hindering their growth initiatives.</p> Signup and view all the answers

What is a potential effect of higher interest rates on consumer spending?

<p>Higher interest rates can reduce disposable income by increasing loan payments, leading to lower consumer spending.</p> Signup and view all the answers

What might businesses do in response to increased competition from government spending?

<p>Businesses may choose to innovate or enhance production in the sectors where the government increases spending.</p> Signup and view all the answers

How can pressure groups influence business practices?

<p>Pressure groups can influence businesses by organizing consumer boycotts and generating bad publicity to change business decisions.</p> Signup and view all the answers

What are 'external costs' in a business context?

<p>External costs are costs incurred by society as a result of business activities, which are not borne by the business itself.</p> Signup and view all the answers

What does sustainable development aim to achieve?

<p>Sustainable development aims to meet current needs without compromising the ability of future generations to meet theirs.</p> Signup and view all the answers

How can businesses respond to ethical issues?

<p>Businesses can respond to ethical issues by making decisions based on a moral code, ensuring actions align with social responsibility.</p> Signup and view all the answers

What impact can higher interest rates have on profit margins?

<p>Higher interest rates can squeeze profit margins due to increased borrowing costs and potential decreases in sales.</p> Signup and view all the answers

How might globalization threaten local businesses?

<p>Globalization can threaten local businesses by introducing increased competition from foreign imports and multinational corporations.</p> Signup and view all the answers

What is the role of cost-benefit analysis in business decisions?

<p>Cost-benefit analysis helps businesses assess the overall costs and benefits of a decision, considering both financial and non-financial factors.</p> Signup and view all the answers

What may occur when a pressure group successfully organizes a consumer boycott?

<p>A successful consumer boycott can lead to reduced sales for the targeted business, prompting them to reconsider their practices.</p> Signup and view all the answers

How does increased government spending affect competition?

<p>Increased government spending can result in more competition as firms may enter sectors where the government is investing.</p> Signup and view all the answers

What strategies can businesses adopt when facing high interest rates?

<p>Businesses can lower prices on expensive products, reduce dependence on loans, or cut back on investments and expansion.</p> Signup and view all the answers

What can be a consequence of social responsibility in business?

<p>Being socially responsible can enhance a company's image, but it may involve costs that impact profitability.</p> Signup and view all the answers

Why might some businesses resist changing practices suggested by pressure groups?

<p>Businesses may resist changes if the suggested alterations would significantly increase their costs or disrupt their operations.</p> Signup and view all the answers

Flashcards

Factors of Production

The resources used to produce goods and services. Includes land, labor, capital, and enterprise.

Land (factor of production)

Natural resources used in production. Can be renewable or non-renewable.

Labor (factor of production)

Human effort (physical and mental) used in production.

Capital (factor of production)

Man-made resources used in production (e.g., tools, machinery).

Signup and view all the flashcards

Enterprise (factor of production)

The willingness and ability to take risks and make decisions in business.

Signup and view all the flashcards

Specialization

Dividing the production process into smaller tasks, allowing workers to become experts in their specific roles.

Signup and view all the flashcards

Added Value

The difference between a product's selling price and the cost of its components.

Signup and view all the flashcards

Opportunity Cost

The value of the next best alternative forgone when making a choice.

Signup and view all the flashcards

Monopoly characteristics

A market structure with one dominant seller. Lack of competition often leads to lower quality and higher prices.

Signup and view all the flashcards

Entrepreneur Characteristics

Key attributes of successful entrepreneurs: problem-solving, continuous learning, self-belief, creativity, integrity, and independence.

Signup and view all the flashcards

Business Plan Components

A comprehensive document outlining the business: description, products, market analysis, location, management, financials, and strategy.

Signup and view all the flashcards

Government Support for Entrepreneurs

Various forms of assistance provided by governments to encourage business growth, such as training, premises, loans, grants, and research facility access.

Signup and view all the flashcards

Firm Size Measurement

Different ways to measure company size: number of employees, output value, sales value, and capital employed.

Signup and view all the flashcards

Capital Intensive Firms

Businesses heavily reliant on machinery and technology, often producing large volumes with fewer employees.

Signup and view all the flashcards

Labor Intensive Firms

Businesses relying heavily on human labor, typically with more employees in comparison to capital-intensive firms.

Signup and view all the flashcards

Business Expansion Pros

Advantages of expanding a business: higher profits, increased prestige, lower average costs (economies of scale), and greater market share.

Signup and view all the flashcards

Horizontal Merger

Two companies in the same industry and stage of production merging.

Signup and view all the flashcards

Vertical Integration

A company acquiring or merging with a company in a different stage of resource or product production.

Signup and view all the flashcards

Conglomerate Merger

Two firms producing different products combining.

Signup and view all the flashcards

Marketing Mix

All actions involved in marketing a product/service. Includes product, pricing, promotion, and place (distribution).

Signup and view all the flashcards

Developing new products

Creating new products to achieve a unique selling point, diversification, or expanding into new markets.

Signup and view all the flashcards

Brand Image

The identity and personality given to a product, distinguishing it from competitors.

Signup and view all the flashcards

Brand Loyalty

Consumers consistently purchasing the same brand over others.

Signup and view all the flashcards

Brand Benefits

Brands encourage repeat purchases, assure quality, and allow for higher pricing compared to unbranded products.

Signup and view all the flashcards

Brand Awareness

Brands are so recognizable they are often mistaken for the product itself (e.g., Kleenex for tissues).

Signup and view all the flashcards

Packaging Role

Packaging protects and preserves products, enhances their appeal, and provides vital product information.

Signup and view all the flashcards

Product Life Cycle

A product's lifespan, from development to decline, impacted by market response and technology.

Signup and view all the flashcards

Development Stage

Product/prototype development and testing in specific markets (test markets).

Signup and view all the flashcards

Introduction Stage

Product launch to a broader market; high promotion spending needed.

Signup and view all the flashcards

Growth Stage

Rapid sales growth, persuasive advertising for brand loyalty, slight price reductions due to competition.

Signup and view all the flashcards

Maturity Stage

Slow sales growth, intense competition, competitive pricing, persuasive advertising for sale maintenance.

Signup and view all the flashcards

Saturation Stage

Maximum sales; high competition, falling profits due to static sales and reduced prices.

Signup and view all the flashcards

Decline Stage

Falling sales, reduced advertising, product discontinuation if necessary.

Signup and view all the flashcards

Extension Strategies

Methods to extend a product's life cycle, often by introducing new variations, entering new markets, and improving old products.

Signup and view all the flashcards

Cost-Plus Pricing

Pricing method that adds a markup to the cost of manufacturing a product.

Signup and view all the flashcards

Competitive Pricing

Pricing products at or slightly below competitors' prices.

Signup and view all the flashcards

Pricing Strategies

Methods businesses use to adjust prices to achieve business goals (enter new markets, increase profits).

Signup and view all the flashcards

Penetration Pricing

Setting a lower price than competitors to attract customers and gain market share. Used to enter a new market or launch a new product.

Signup and view all the flashcards

Price Skimming

Setting a high price for a new, desirable product to maximize profits from early adopters. Often used for innovative or premium products.

Signup and view all the flashcards

Promotional Pricing

Temporarily lowering prices to boost sales or clear stock. Creates a sense of urgency and scarcity.

Signup and view all the flashcards

Psychological Pricing

Using prices that appeal to customers' emotions or perception. Often involves rounding or specific price points.

Signup and view all the flashcards

Dynamic Pricing

Adjusting prices based on demand, customer segments, or time of purchase. Airlines often use this for different ticket prices during peak seasons.

Signup and view all the flashcards

Product Differentiation

Making your product stand out from competitors by offering unique features, benefits, or branding.

Signup and view all the flashcards

Promotion

Marketing activities to raise customer awareness, drive sales, and build brand loyalty. Includes advertising, sales promotions, and public relations.

Signup and view all the flashcards

Above the Line Promotion

Mass-media advertising, such as TV, radio, and print.

Signup and view all the flashcards

Below the Line Promotion

Direct marketing, sales promotions, and public relations.

Signup and view all the flashcards

What is persuasive advertising?

A type of advertising that aims to convince consumers they need the product and should buy it. It often appeals to emotions, aspirations, and fears.

Signup and view all the flashcards

What is informative advertising?

Advertising that focuses on providing detailed information about a product. It highlights key features and often appears during the early stages of a product's life cycle.

Signup and view all the flashcards

What is sales promotion?

Short-term incentives like special offers or deals designed to increase sales. Examples include discounts, competitions, and free samples.

Signup and view all the flashcards

What is product placement?

Companies subtly promote their products in media like movies, video games, or books, hoping viewers will notice and potentially buy the product.

Signup and view all the flashcards

What are the factors to consider when choosing a promotion type?

Businesses must consider the product's life cycle, target market, cultural factors, budget, and the nature of the product when deciding which type of promotion to use.

Signup and view all the flashcards

What is the importance of a marketing budget?

A financial plan that outlines the marketing expenses for a certain period. It helps businesses allocate resources effectively.

Signup and view all the flashcards

What is social media marketing?

Using social media platforms to achieve marketing and branding goals. It involves posting content, engaging with users, and sometimes paid advertising.

Signup and view all the flashcards

What is viral marketing?

Encouraging consumers to share information about a product online, often through social media. It can reach large audiences quickly.

Signup and view all the flashcards

What are the advantages of advertising on a business's website?

Control over content, flexibility in making changes, can provide more information, and attract investment from companies.

Signup and view all the flashcards

What are drawbacks of advertising on a business's website?

Potential customers might not find the website, relies on customer discovery, and website design can be expensive.

Signup and view all the flashcards

What is e-commerce?

Buying and selling goods and services online using computer systems and smartphones. Not every product is suitable for e-commerce.

Signup and view all the flashcards

What are the advantages of e-commerce for businesses?

Low-cost promotion, reaching a large audience globally, reduced need for physical shops, easier B2B and dynamic pricing.

Signup and view all the flashcards

What are the disadvantages of e-commerce for businesses?

Lack of direct customer contact, competition from other websites, setup costs, and transportation costs.

Signup and view all the flashcards

What are the advantages of e-commerce for consumers?

Competitive prices, easy product comparison, convenient payment, wider product selection, and convenience.

Signup and view all the flashcards

What are the disadvantages of e-commerce for consumers?

Requires internet access, inability to see or try products, risk of identity theft, technical issues, and lack of personal interaction.

Signup and view all the flashcards

Informative advertising

Providing detailed information about a new product or service to educate potential customers.

Signup and view all the flashcards

Persuasive advertising

Using emotional appeals or persuasive techniques to encourage customers to buy a product or service.

Signup and view all the flashcards

Image creation

Developing a strong brand identity and image to appeal to target customers and create a sense of loyalty.

Signup and view all the flashcards

Product development

Creating variations or improved versions of existing products to keep customers interested and create excitement.

Signup and view all the flashcards

Productivity

The output of a business measured against the resources (inputs) used to create it. Higher productivity means more output with the same or fewer inputs.

Signup and view all the flashcards

Job production

Making a single, unique item or product according to a customer's specific order.

Signup and view all the flashcards

Joint venture

Two businesses working together in a new market, combining their strengths and resources.

Signup and view all the flashcards

Licensing

A business giving permission to another company to produce and sell its products in a new market.

Signup and view all the flashcards

International franchising

A business using foreign franchisees to operate its franchises in new markets.

Signup and view all the flashcards

Localizing brands

Adapting existing products or marketing to suit local tastes and cultures in a new market.

Signup and view all the flashcards

Trade barriers

Restrictions or obstacles that make it harder for businesses to trade goods and services across international borders.

Signup and view all the flashcards

Batch Production

Making multiple units of the same product in batches, allowing for some flexibility in quantity and variety.

Signup and view all the flashcards

Lead Time

The time gap between ordering stock and receiving it, crucial for ensuring timely production.

Signup and view all the flashcards

Lean Production

A manufacturing approach that emphasizes eliminating waste and maximizing efficiency, reducing time-to-market and costs.

Signup and view all the flashcards

8 Wastes of Lean Production

Defects, overproduction, waiting, unused talent, transportation, inventory, motion, extra-processing: Activities that add no value for customers.

Signup and view all the flashcards

Kaizen

Continuous improvement through the elimination of waste, driven by worker suggestions and collaboration.

Signup and view all the flashcards

Just-in-Time (JIT)

A production method focused on minimizing inventory by delivering materials and producing parts only when needed.

Signup and view all the flashcards

Raw Materials

Basic inputs used in the production process, such as wood, metal, or cotton.

Signup and view all the flashcards

Finished Products

Completed goods ready for sale to customers, such as cars, phones, or clothes.

Signup and view all the flashcards

Partly Finished Products

Items that are still undergoing production, in progress towards becoming a finished product.

Signup and view all the flashcards

Seasonal Stock

Inventory built up during a specific time period to meet the demands of a seasonal peak.

Signup and view all the flashcards

Buffer Stock

Extra inventory held in reserve to deal with unexpected demand fluctuations or supply disruptions.

Signup and view all the flashcards

Technology's Advantage: Productivity

Technology boosts output and efficiency, enabling more production with fewer resources.

Signup and view all the flashcards

Technology's Disadvantage: Investment

Technology requires significant upfront investment, which can be costly for businesses.

Signup and view all the flashcards

Tariffs

A national sales tax imposed on imported goods, making foreign products more expensive for domestic consumers.

Signup and view all the flashcards

Protectionism

Government policies that restrict foreign competition to protect domestic businesses.

Signup and view all the flashcards

Import Quota

A limit on the quantity of a specific product that can be imported into a country.

Signup and view all the flashcards

Multinational Corporation (MNC)

A company with production, service, or business operations in multiple countries.

Signup and view all the flashcards

Benefits of being an MNC

Lower production costs, access to new markets, global reach, diversification, risk minimization, avoidance of trade barriers, and competitiveness against rivals expanding abroad.

Signup and view all the flashcards

Exchange Rate

The price of one currency expressed in terms of another currency.

Signup and view all the flashcards

Currency Appreciation

A rise in the value of a currency, meaning it can buy more of another currency.

Signup and view all the flashcards

Currency Depreciation

A fall in the value of a currency, meaning it buys less of another currency.

Signup and view all the flashcards

What is finance needed for?

Finance is essential for various business activities, including starting up, managing day-to-day operations, expanding, and purchasing assets. It allows businesses to acquire resources needed for growth and success.

Signup and view all the flashcards

Start-up Capital

The initial funds needed to launch a new business, covering essential fixed and current assets before operations begin.

Signup and view all the flashcards

Working Capital

Funds needed to cover ongoing daily expenses, such as wages, rent, and supplies.

Signup and view all the flashcards

Expanding an Existing Business

Financial resources needed to grow an existing business, such as developing new products, acquiring other businesses, or purchasing more assets.

Signup and view all the flashcards

Revenue Expenditure

Money spent on everyday expenses that do not involve long-term assets, such as wages, rent, and utilities.

Signup and view all the flashcards

Capital Expenditure

Money spent on non-current assets with a lifespan exceeding a year, such as buildings, machinery, and equipment.

Signup and view all the flashcards

Internal Finance

Capital obtained from within the business itself, not from outside sources.

Signup and view all the flashcards

Retained Profits

Profits kept within the business after owners have taken their portion.

Signup and view all the flashcards

Sales of Existing Assets

Selling unused assets, such as obsolete equipment, to generate funds.

Signup and view all the flashcards

Sale of Inventories

Selling stored products to generate funds, freeing up space for new inventory.

Signup and view all the flashcards

Owners' Savings

Personal funds contributed by business owners, often used in sole proprietorships or partnerships.

Signup and view all the flashcards

External Finance

Capital obtained from sources outside of the business.

Signup and view all the flashcards

Issue of Shares

Selling ownership stakes (shares) to raise capital, available only to limited companies.

Signup and view all the flashcards

Bank Loans

Borrowing money from a bank, which must be repaid with interest.

Signup and view all the flashcards

Grants and Subsidies

Financial assistance from government or other agencies, often with conditions.

Signup and view all the flashcards

What are the factors managers consider when choosing finance?

Purpose and time period, amount needed, legal form and size, control of business, risk and gearing.

Signup and view all the flashcards

Importance of cash for businesses

Cash is readily available for spending and crucial for daily operations. Without it, businesses struggle to pay bills and creditors.

Signup and view all the flashcards

Cash flow problems

A shortage of cash can happen when spending is high, debtors don't pay quickly, sales are low, or a company overtrades.

Signup and view all the flashcards

Insolvency

When a business can't pay its debts as they're due. This often leads to bankruptcy.

Signup and view all the flashcards

Cash flow

The movement of cash into and out of a business during a period of time.

Signup and view all the flashcards

Cash flow cycle

The process from paying out cash to buying supplies, to selling goods, to receiving cash from customers.

Signup and view all the flashcards

Cash flow forecast

A prediction of future cash inflows and outflows, usually on a monthly basis.

Signup and view all the flashcards

Net cash flow

The difference between total cash inflows and total cash outflows in a period.

Signup and view all the flashcards

Profit

The difference between revenue and cost, it's important for businesses to survive, grow, and reward those who invest in the business.

Signup and view all the flashcards

Trading Account

Shows how a business calculates its gross profit. Different calculations for manufacturing and retail.

Signup and view all the flashcards

Net profit

Profit left after all costs are subtracted from revenue.

Signup and view all the flashcards

Economic Growth

When a country's GDP (gross domestic product) increases, meaning more goods and services are produced than the previous year.

Signup and view all the flashcards

Low Inflation

A gradual increase in the average price level of goods and services over time. It's measured by the inflation rate.

Signup and view all the flashcards

Low Unemployment

A situation where there are fewer people willing and able to work than available job opportunities.

Signup and view all the flashcards

Balance of Payments

A record of the difference between a country's exports (goods sold to other countries) and imports (goods bought from other countries).

Signup and view all the flashcards

What are the four main economic objectives of governments?

The four main economic objectives are: low inflation, low unemployment, economic growth, and a balanced balance of payments.

Signup and view all the flashcards

Fiscal Policy

Government actions that involve changing tax rates or government spending to influence the economy.

Signup and view all the flashcards

Monetary Policy

Actions taken by the central bank (like setting interest rates) to control the money supply and influence inflation.

Signup and view all the flashcards

Supply-side Policies

Government actions aimed at boosting the competitiveness of a country's businesses by making them more efficient and productive.

Signup and view all the flashcards

Direct Tax

A tax paid directly by individuals or businesses on their income or profits.

Signup and view all the flashcards

Indirect Tax

A tax levied on the expenditure of goods and services.

Signup and view all the flashcards

Import Tariff

A tax imposed on goods imported from another country.

Signup and view all the flashcards

Privatization

The transfer of ownership of a government-owned company or asset to a private company.

Signup and view all the flashcards

How does an increase in interest rates affect firms?

Higher interest rates make borrowing more expensive for businesses, leading to decreased investment, potentially lower profits, and less expansion or hiring.

Signup and view all the flashcards

What are the main areas of supply-side policies?

Three main areas of supply-side policies are privatization, improving training and education, and increasing competitiveness in all industries.

Signup and view all the flashcards

What does 'evaluate' mean in a justify question?

Evaluate means to assess the pros and cons of a decision, considering factors like long-term impact, business objectives, market trends, and costs. This involves weighing the arguments for and against a choice to determine its overall effectiveness.

Signup and view all the flashcards

What are the key factors to consider in 'evaluate' for justify questions?

When evaluating a decision, consider its long-term effects, how well it aligns with business goals, whether it's supported by market trends, and its associated costs.

Signup and view all the flashcards

What are stakeholders in the context of business decisions?

Stakeholders are individuals or groups with an interest in a business's decisions and outcomes. They can be internal (employees, managers) or external (customers, suppliers).

Signup and view all the flashcards

What is a Statement of Financial Position?

A Statement of Financial Position (also called a balance sheet) shows a company's assets, liabilities, and equity at a specific point in time. It's like a snapshot of the company's financial health.

Signup and view all the flashcards

What are assets?

Assets are items of value owned by a business. These can be things like equipment, cash, and receivables (money owed to the business).

Signup and view all the flashcards

What are liabilities?

Liabilities are debts owed by a business to others. These can be things like accounts payable (money owed to suppliers) and loans.

Signup and view all the flashcards

What is shareholders' equity?

Shareholders' equity represents the total amount of money invested in the business by its owners (shareholders). This includes the initial investment and any retained profits.

Signup and view all the flashcards

What is working capital?

Working capital is the difference between a company's current assets (like cash and inventory) and its current liabilities (like short-term debts).

Signup and view all the flashcards

What is ROCE?

ROCE (Return on Capital Employed) is a profitability ratio that measures how effectively a business uses its capital to generate profit. It shows how much profit is generated for every unit of capital invested.

Signup and view all the flashcards

Why is the Statement of Financial Position important?

The Statement of Financial Position helps stakeholders understand a company's financial health. It shows them how much the company is worth, if it has enough working capital, how it has financed its growth, and its overall financial stability.

Signup and view all the flashcards

What is the current ratio?

The current ratio measures a company's ability to pay its short-term debts. It compares current assets (like cash) to current liabilities (like short-term debts). A higher ratio means the company has more resources available to pay its debts.

Signup and view all the flashcards

What is the acid test ratio?

The acid test ratio (or quick ratio) is a more stringent measure of a company's liquidity. It excludes inventory from current assets, giving a more accurate picture of the ability to meet immediate obligations.

Signup and view all the flashcards

What are the strengths of ratio analysis?

Ratio analysis allows businesses to quickly assess their financial strengths and weaknesses, identify potential problems by comparing performance over time, and benchmark themselves against competitors.

Signup and view all the flashcards

What are the limitations of ratio analysis?

Ratio analysis can be misleading due to factors like inflation, historical data not reflecting future performance, and limited access to internal data. It's important to consider the context when interpreting ratios.

Signup and view all the flashcards

What is GDP?

GDP (Gross Domestic Product) measures the total value of all goods and services produced in a country's economy within a specific period, usually a year. It represents the overall size and health of an economy.

Signup and view all the flashcards

Higher interest rate impact

When interest rates rise, businesses face higher borrowing costs, leading to reduced consumer spending and decreased investment. This can affect profit margins and make it harder to raise funds.

Signup and view all the flashcards

Interest rate impact on profit margins

Increased borrowing costs and potential decreases in sales can squeeze profit margins, forcing businesses to raise prices to maintain profitability.

Signup and view all the flashcards

Government spending impact

Increased government spending in a specific industry can lead to more competition as more businesses are drawn to that sector.

Signup and view all the flashcards

Social responsibility

Social responsibility in business refers to making decisions that benefit not just shareholders but other stakeholders like the environment and communities.

Signup and view all the flashcards

External costs

Costs incurred by society as a result of business activities, such as pollution or environmental damage.

Signup and view all the flashcards

Private costs

Costs borne by a business or a consumer of a product, like the cost of materials or labor.

Signup and view all the flashcards

Sustainable development

Development that meets present needs without compromising the ability of future generations to meet their own needs.

Signup and view all the flashcards

Business response to ethical issues

Businesses facing ethical dilemmas must weigh the potential benefits against the ethical implications of their decisions, often navigating conflicting pressures from stakeholders.

Signup and view all the flashcards

Pressure group role

Pressure groups influence businesses by raising awareness about ethical or environmental issues, drawing public attention and putting pressure on companies to change practices.

Signup and view all the flashcards

When pressure groups are effective

Pressure groups are more likely to influence businesses when they have strong public support, media attention, and can cause significant financial losses through boycotts.

Signup and view all the flashcards

When pressure groups are less effective

Pressure group efforts may be less impactful if the business is involved in non-illegal but controversial practices, changing methods is costlier than potential losses, or the business sells to other businesses, not directly to consumers.

Signup and view all the flashcards

Globalization threats for businesses

Globalization poses several challenges for businesses, including heightened competition from foreign companies, increased investment from multinational corporations, and potential loss of employees to higher-paying international competitors.

Signup and view all the flashcards

MNC impact

Multinational corporations (MNCs) can increase investment in a country, leading to both opportunities and challenges for local businesses.

Signup and view all the flashcards

Globalization and employee movement

Employees may be lured away from a business by international competitors who offer better salaries or opportunities.

Signup and view all the flashcards

Ethical decision-making

Ethical decisions in business are based on a moral code and involve doing the right thing, even when facing difficult situations and potential conflicts of interest.

Signup and view all the flashcards

Study Notes

Factors of Production

  • Land: A factor of production; can be renewable or non-renewable; its supply can change.
  • Labour: Human effort (physical and mental) in production; measured by wages; also known as human capital. Employee training increases company value.
  • Capital: Man-made resources (tools, equipment); divided into working capital (goods not yet used) and fixed capital (used regularly). Consumer goods can be used repeatedly, depending on the consumer.
  • Enterprise: The willingness and ability to take risks and make decisions in a business; entrepreneurs are those who do this like Steve Jobs and Bill Gates.

The Economic Problem

  • Opportunity Cost: Limited resources mean choices must be made; each choice has a cost. Choosing to study late results in lost sleep, for example.

Specialization

  • Division of Labour: Breaking down production into separate tasks; increases efficiency and output.
  • Advantages: Training in one task leads to increased efficiency and reduced time wasted.
  • Disadvantages: Can be monotonous for workers; single worker absence can significantly impact output.

Added Value and Profit

  • Added Value: Selling price minus the cost of materials/components.
  • Increasing Added Value: Raising selling prices, reducing material costs, or both. The difference between the price of a product and the cost of materials. Profit = added value - cost of materials.

Privatization

  • Pros: Easier to raise funds; satisfies consumers; increased efficiency; adaptability to change; more choice.
  • Cons: May not consider total costs and benefits; possibility of monopolies; loss of competition can reduce quality and increase pricing.

Stakeholders

  • Stakeholders are interested in a company, including employees, customers, and owners.

Business Plans

  • Requirements: Description/details of the business; products/services; market analysis; location/distribution; organization/management; financial projections; business strategies.

Government Support for Businesses

  • Government support types: Training/support; low-cost premises; low-interest loans; grants for startups/training; university research facilities.

Types of Firms

  • Business size can be measured by number of employees, value of output, value of sales, and capital employed.
  • Capital-intensive firms (like Tesla) use more machinery; labor-intensive firms (opposite) use more workers.

Business Expansion

  • Pros: Increased profits, status, economies of scale, and market share.
  • Growth methods: Internal growth (mergers/takeovers) and International growth (new plants/branches).

Mergers

  • Horizontal Mergers: Firms in the same industry and stage of production merge.
  • Vertical Integration: Firms in different stages merge.
  • Vertical Backwards Integration: A firm merges with a supplier.
  • Conglomerate Merger: Firms making different products merge.

Marketing Mix

  • Four P's: Product, Price, Place, Promotion.
  • Packaging role: Protection, promotion, and vital product information.

Product Life Cycles

  • Stages: Development, Introduction, Growth, Maturity, Saturation, Decline.
  • Extension Strategies: Used in maturity/saturation to revive sales.

Pricing Strategies

  • Methods: Cost-plus, competitive, penetration, price skimming, and promotional pricing.
  • Cost-plus Pricing: Cost of production plus a profit margin; requires estimating cost estimates.
  • Competitive Pricing: Pricing at or slightly below competitor prices; monitors prices.
  • Penetration Pricing: Lower prices compared to competitors to enter new markets; short-term lower profits, long-term higher profits.
  • Price Skimming: High prices initially, for new or improved products; often high R&D cost recovery.
  • Promotional Pricing: Low prices for short periods for stock-clearing or sales boosts; high sales at lower revenue levels.

Psychological Pricing

  • Use: Based on ideas that certain prices encourage purchases; focusing on digits (leftmost) is key.

Dynamic Pricing

  • Use: Differing pricing based on different groups' demand sensitivities; often used during busy seasons by airlines.

Promotion (Marketing)

  • Activities: Advertising (above the line), sales promotion (below the line), and product placement.
  • Aims: Inform, introduce, compete, improve image, increase sales, create brand image.
  • Advertising types: Persuasive (appeals to emotions), informative (detailed product info).
  • Sales Promotion: Incentives like offers, competitions, and free samples; aims for short-term sales increases.

Marketing Budget

  • Importance: Financial plan for a product or product range; essential for marketing decisions; can impact the places advertisement appears.

Technology in Marketing

  • Opportunities: Social media, online advertising, and new sales strategies; impact businesses' marketing mixes.

E-commerce

  • Advantages (businesses): Low-cost promotion, global coverage.
  • Advantages (consumers): Competitive prices, wider choice, convenience.
  • Disadvantages (businesses): No direct contact, competition.
  • Disadvantages (consumers): Internet access required, no trial/trying products, security concerns, and tech problems.

Marketing Strategy

  • Importance: Combining the marketing mix for specific market objectives; adaptations throughout the product lifecycle; depending on competitor numbers and market size.
  • Consumer Protection Laws: Weights and measures, trade descriptions, sales of goods, and consumer contract regulations.

New Markets Abroad

  • Opportunities: Growth potential, market saturation in home market, production location options, wider consumer choice.
  • Problems: Lack of knowledge, cultural differences, exchange rates, import restrictions, risk of non-payment, and transportation costs.
  • Solutions: Joint ventures, licensing, international franchising, localizing existing brands.

Production of Goods and Services

  • Production Process: Providing products/services for consumer needs; adding value (selling price - input cost).
  • Productivity: Output relative to inputs; improved through quality improvements, automation, and training.

Production Methods

  • Job Production: Unique, custom-made items.
  • Batch Production: Making quantities of the same item.
  • Flow Production: Large productions of standardized items.

Inventories

  • Stockholding Reasons: Sufficient supply for demand; availability during lead time.
  • Lean Production: Techniques to reduce waste and increase efficiency.
  • Kaizen: Continuous improvement through worker ideas.
  • Just-in-Time (JIT): Minimizing inventory holding.

Business Finance

  • Importance: Essential for all business operations; covering expenses and expansion.
  • Needs: Start-up, working capital, operations maintenance, expansion needs.
  • Sources (Internal): Retained profits, sales of assets, and owners' savings.
  • Sources (External): Shares (limited companies), bank loans, debentures, grants/subsidies, factoring debts, and microfinance.

Cash Flow Forecasting

  • Importance: Estimate of future cash inflows and outflows; shows expected cash balances; useful to avoid insolvency.
  • Importance: Essential for day-to-day operations; allows anticipation of cash needs and borrowing requirements.
  • Cash Flow Cycle: Stages between paying expenses and receiving sales, working capital needs vary based on the cycle length.
  • Net Cash Flow: Difference between cash inflow and cash outflow in each period.

Income Statement

  • Profit Importance: Reward for risk-taking and investing; source of finance and indicator of business success.
  • Accounts: Financial records of a business.
  • Trading Account: Calculates gross profit; different for manufacturing and retail.
  • Gross Profit: Revenue minus cost of goods sold.
  • Net Profit: Gross profit less all other costs.
  • Retained Profit: Net profit reinvested in the company after taxes and owner payments.

Statement of Financial Position

  • Purpose: Shows the value of a business' assets and liabilities at a point in time; assets = liabilities + owner's equity.
  • Assets: Owned items; current (used within a year) and non-current (used for longer).
  • Liabilities: Debts owed; current (due within a year) and non-current (due after a year).
  • Shareholder's Equity: Owners' investments.
  • Working Capital: Current assets less current liabilities.
  • Importance: Shows business worth; assesses working capital sufficiency; analyzes funding methods.

Ratio Analysis

  • Profitability Ratios: Measure profitability, like gross profit margin and net profit margin.
  • Liquidity Ratios: Assess ability to pay short-term debts, like current ratio and acid-test ratio.
  • ROCE: Return on Capital Employed; measuring firm efficiency.

Business Cycles

  • GDP: Gross Domestic Product; total output of goods & services.
  • Growth (Expansion): GDP rising, unemployment decreasing, investment increasing.
  • Boom: Overspending, rising prices, shortages, and uncertain costs.
  • Recession: Falling spending, demand reduction, declining profits, rising unemployment.
  • Slump: Businesses closing, high unemployment, idle resources, and falling prices.

Government Economic Objectives

  • Low Inflation: Increase in average prices over time; harmful effects include reduced profit margins, reduced real incomes, and possible exchange rate effects.
  • Low Unemployment: People willing and able but not employed; can cause reduced GDP and lower tax revenue.
  • Economic Growth: GDP increase; leads to more production and increased living standards.
  • Balance of Payments: Difference between exports and imports; governments aim for balance or surplus.

Fiscal Policies

  • Policies: Government spending and tax changes affect the economy; aimed at achieving economic objectives.
  • Government Spending Areas: Transportation, education, healthcare, public services, military spending.
  • Taxation: Direct (income, profit) and indirect (sales, import tariffs).

Supply-Side Policies

  • Policies: Focus on increasing industry competitiveness and improving the economy's productive capacity: privatization, education/training improvements, and measures to increase overall competitiveness.

Interest Rates and Businesses

  • Interest Rate Increase Effects: Increased borrowing costs, reduced consumer spending, slower investment, decreased profit margins, financial market volatility, and higher default risks.

Environmental and Ethical Issues

  • Social Responsibility: Business decisions' impact on stakeholders; benefits those beyond shareholders. Cost/benefit analysis considers external costs.
  • Sustainable Development: Meets current needs without harming future generations.
  • Environmental Pressures: Consumers, pressure groups, and government policies.
  • Pressure Groups: Organize boycotts and protests to influence businesses' actions; impact varies based on factors like public support, cost of change for businesses, and business customer base.
  • Globalization: Increasing international competition, investment, and potential employment/profit impacts.
  • Protectionism: Government policies (tariffs/quotas) to protect domestic businesses from foreign competition (national sales taxes).
  • Multinational Corporations (MNCs): Businesses with operations across nations; benefits/drawbacks for their home and host countries.

Exchange Rates

  • Exchange Rates: Price of one currency relative to another; can appreciate or depreciate.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Description

Explore key concepts related to production in this quiz on Economics Chapter 4. Discover the main factors of production, the role of labor, and the significance of added value. Test your knowledge on concepts like opportunity cost and the marketing mix.

More Like This

Economics Chapter 1: Factors of Production
5 questions

Economics Chapter 1: Factors of Production

FreedRhyme avatar
FreedRhyme
Factors of Production Quiz
5 questions

Factors of Production Quiz

SupremeGulf avatar
SupremeGulf
Economics Key Concepts and Theories
8 questions

Economics Key Concepts and Theories

BalancedTechnetium9822 avatar
BalancedTechnetium9822
Economics Overview and Key Concepts
50 questions

Economics Overview and Key Concepts

AwestruckGoblin avatar
AwestruckGoblin
Use Quizgecko on...
Browser
Open
Browser
Browser