Econ unit 3

• What factors affect the demand for factors of production?

  Price, productivity, and availability
• How does the price of hiring a worker affect demand for labor?

  If higher than capital costs, demand decreases
• What happens to labor demand if productivity of labor is higher than capital?

  Labor will be hired more than capital
• What effect does the availability of labor have on hiring decisions?

  More available labor increases its demand
• What is derived demand in the context of production factors?

  Demand based on demands of goods and service
• What are the advantages of labor-intensive production?

  • Lower short-run costs
  • Quick response to consumer demands
  • Creativity in product development
  • Suitable for small firms
• What are the disadvantages of capital-intensive production?

  • Higher short-run costs
  • Inflexibility to meet demand changes
  • Requires heavy investment
  • Lacks creativity
• What are the advantages of capital-intensive production?

  • Lower average costs in the long run
  • Ability to produce standardized products
  • No need for breaks or holidays
  • No risk of industrial action
• What are the disadvantages of labor-intensive production?

  • Higher long-run costs due to training
  • Cannot produce standardized products
  • Affected by personal issues
  • Risk of industrial action
• What is labor-intensive production?

  Production relying more on labor than capital
• What is capital-intensive production?

  Production relying more on capital than labor
• Why might a firm adopt capital-intensive production methods?

  Due to lack of skilled labor and need for standardization
• What is factor substitution?

  • Replacing capital with labor or vice versa
  • Influenced by costs and productivity changes
• When might a firm substitute labor for capital?

  When hiring labor costs fall or productivity rises
• When might a firm substitute capital for labor?

  When hiring capital costs fall or productivity rises
• What strategies can improve productivity?

  • Division of labor and specialization
  • Employee training
  • Better working conditions
  • Upgrading equipment
  • Factor substitution
• What factors influence production and productivity?

  • Technology
  • Education
  • Quality and quantity of natural resources
  • Effective management
• How is productivity measured?

  Output per unit of input
• What is the definition of production?

  Total output of goods and services over time
• What roles do entrepreneurs play in production?

  • Organize resources
  • Determine what and how to produce
• What is an advantage of vertical forward integration for a firm like Zara?

  Better quality customer feedback
• What is the impact of better customer feedback on a firm?

  Increases customer loyalty and brand image
• What is an advantage of vertical forward integration for Zara?

  Better quality control of clothes
• What does less dependency on retailers allow Zara to do?

  Meet customer demands quickly
• What are the types of external growth in business?

  • Horizontal Integration
  • Forward Vertical Integration
  • Backward Vertical Integration
  • Conglomerate Integration
• What is horizontal integration?

  Merging with a firm in the same industry
• What is forward vertical integration?

  Merging at a later stage of production
• What is backward vertical integration?

  Merging at an earlier stage of production
• What is conglomerate integration?

  Merging with a business in a different industry
• What is a disadvantage of being a large firm?

  Extra expenses can pressure the business
• What management problem can arise in large businesses?

  Lack of clarity in decision-making
• What communication issue do large firms face?

  Difficulty in effective and clear communication
• How can cultural differences affect large firms?

  They may lead to demotivated employees
• What can result from mergers and acquisitions in terms of employment?

  Increase in unemployment
• What are the pros and cons of conglomerate integration?

  Benefits:

  • Spreads risks across industries
  • Transfer of ideas and resources
  • Large economies of scale

  
  

  Harms:

  • Rising costs if mismanaged
  • Decline in overall profits
• What is a conglomerate merger?

  Merging with a business in a different industry
• What is a disadvantage of vertical backward integration?

  Decreased flexibility for the business
• How can vertical backward integration create barriers to entry?

  By monopolizing supply of raw materials
• What is an advantage of vertical backward integration?

  Control costs of raw materials efficiently
• What is one benefit of R&D in Starbucks' farm?

  Can innovate and create unique products