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What is opportunity cost?
next best alternative foregone
What are the reasons why the supply of a product may be price-inelastic?
- It may take time to produce the product. this means that it will take time to adjust supply in response to a change in price / example of a product that it takes time to produce
- It may not be possible to store the product. this means that it cannot be taken out of storage when price rises / products cannot be put into storage when price falls
- It may be costly to adjust supply e.g. it might be necessary to build new factories and this may discourage firms from adjusting supply
- The supply of a natural resource may become limited e.g. gold maybe close to depletion
What are the causes of market failure?
- Failure to take into account all costs and benefits/ external costs and benefits/ under-consumed/ underproduced/ over-consumption/ over-production
- information failure
- public goods are not produced in a market system
- abuse of market power
- lack of mobility of resource
What are the function of money?
- Store of value
- Unit of account
- Medium of exchange
- Standard for deferred payment
What are the functions of the central bank?
- Lender of last resort
- Printing notes and minting coins
- Setting interest rates
- Supervising monetary policy
- Banker for commercial banks and government
- Manage international financial system
Define ‘stock exchange’
An organisation/ market for the sale and purchase of shares
What are the functions of trade unions?
- Negotiating wages and other non-wage benefits
- Defending employee rights and jobs
- Improving pay and other benefits
- Improving working conditions
- Increase worker participation in business decisions
- Develop skills of union members
What are the economies of scale?
- Financial economies
- Technical economies
- Risk-bearing economies
- Marketing economies
What are the internal diseconomies of scale that a large firm may experience?
- Difficulties controlling/ managing the firm/ managerial diseconomies as there are more layers of management in a large firm so ti may take longer to make decisions
- communication problems as there are more layers of communication and communication may be indirect. messages may be misinterpreted and it takes time to reach recipients
- labour diseconomies: workers may feel less appreciated/ have low morale so may become demotivated which could reduce labour productivity/ efficiency
- poor industrial relations: there may be industrial action such as strikes
What are the advantages that firms may gain from a horizontal merger?
- Take advantages of economies of scale, reduce average costs
- Increased market share as a direct competitor is eliminated
- exchange ideas and gain technology so that to increase innovation and produce with better quality
What are the advantages of a sole proprietor?
- Profit incentive/all profits go to the sole proprietor, do not have to share with partners
- and/or shareholders
- Flexible as no one else to consult/quick to make decisions
- Provides personal services/has personal contact with consumers (1) can pick up changes in
- demand/target products
- Low start up costs/easy to set up, eases entry into the market/limited legal requirements
- Own boss, no-one to take orders from
What is multinational company?
a company that has its headquarters/is based in a country but produces in a number of countries
What are the characteristics of perfect competition?
- many buyers and sellers, making each firm a price taker
- free entry and exit, absence of barriers to entry and exit/ results in only normal profits being earned in the long run
- homogeneous product, demand for one firm’s product will be perfectly elastic
- perfect knowledge, firms and buyers aware of profits
A market with one seller/ single supplier
A price maker/ a firm with market power/ dominant firm/ has barriers to entry
What are the aims of government?
- ull employment
- price stability
- economic growth
- redistribution of income
- stability of balance of payment
What are the types of direct taxes?
- income tax
- corporation tax
- capital gains tax
- inheritance tax
What are the types of indirect taxes?
- sale tax/ value added tax
- excise duties
- customs duties/ tariff
How supply-side policy measures could increase productivity?
- improved education/training, may raise workers’ skills, increase output per worker hour
- privatisation may increase competitive pressure on firms to keep costs low, encourage more investment, and increase output per factor hour
- reforming trade unions may reduce restrictive practices, this may allow firms to use their workers more efficiently increase output per worker hour
- cutting corporation tax may increase profit, increase investment and increase output per factor hour
- giving subsidies to encourage firms to invest in advanced technology, engage in research and development and/or train workers
What are the types of unemployment?
- Seasonal/ Casual
What are the causes of inflation
What are the indicators of living standards?
- GDP per capita
- HDI takes into account income, education and life expectancy
What is absolute poverty?
- A lack of access to basic necessities e.g. food/clothing/housing
- Living on less than e.g. US$1.25 a day
What are the characteristics of a rapidly developing economy?
- high increase in real GDP per head will increase living standards by investment
- significant improvements in healthcare will increase life expectancy cause by increased spending on hospitals
- significant improvements in education will raise workers skills
- high proportion of workers employed in the tertiary sector . as countries develops, workers tent to move from primary and secondary sectors to the tertiary sector
- low rates of population growth. as countries develop, the birth rate tends to fall faster than the death rate
- high spending on luxury products
- encouragement of MNCs to set up as it may reduce unemployment
- more use of advanced technology due to more research and development and invest
What are the benefits of specialisation?
- A country can specialise in what it is best at producing/increase efficiency/increase productivity so leading to higher output/higher income
- A country can gain a good reputation in producing the product/produce a high quality product, this may increase demand for the product
What is ‘balance of payments’
- Record of economic transactions with other countries, which includes current account, capital account and financial account
What are the reasons why an economy may have a high foreign exchange rate?
- a high demand for the currency. this may arise from e.g. good quality/lower price of exports/speculation that the currency will rise in the future
- a low supply of the currency due to, for instance, a low demand for imports/a low level of investment abroad
- government setting a high exchange rate by buying the currency/raising the exchange rate