Econ Revision For Midterms

• What is the basic economic problem?

  Human wants are infinite and resources are finite.
• What does scarcity mean?

  Wants exceed the available resources.
• How are resources allocated in the free market?

  By demand and supply interacting.
• What is opportunity cost?

  The next best alternative forgone.
• What is a trade-off?

  More of one thing leads to less of another.
• What is the basic economic problem?

  Human wants are infinite and resources are finite
• What is meant by scarcity?

  People's wants and needs always exceed the resources available to satisfy them
• What allocates resources in the free market?

  Demand and supply interacting
• What is opportunity cost?

  The next best alternative forgone when a decision is made
• What is meant by a trade-off?

  A situation where having more of one thing leads to having less of another
• What is meant by a business objective?

  The goals that a business sets out to achieve
• What is the main objective of most businesses?

  Profit maximisation
• What is meant by sales maximisation?

  When a business aims to make as many sales as possible without making a loss
• What is meant by satisficing?

  When an entrepreneur aims to make enough sales to achieve a good enough level of profit that will ensure survival
• When would a business pursue 'market share' as its main objective?

  In order to expand and gain enough market share to have market power, or to maintain their market share in the face of new competition
• When would a business pursue 'survival' as its main objective?

  When they are facing particularly difficult conditions in the market, e.g. during Covid or intense competition, and are simply aiming to cover their costs
• When do businesses pursue 'employee welfare' as a business objective?

  When ensuring that workers have adequate pay and working conditions is the main objective, either due to ethical reasons or to boost worker productivity
• Why may 'customer satisfaction' be the main objective of a business?

  When businesses gain their competitive advantage from having quality customer service or this is their USP, allowing them to charge higher prices
• Why may 'social objectives' be the main objectives of a business?

  When a business is set up with the main objective of creating benefits for society by pursuing social, environmental or ethical goals
• What is meant by a 'stakeholder'?

  Individuals or groups with an interest in the actions of a business
• What is an economic agent?

  All those who take decisions to buy, spend, produce, sell, or in any way affect how resources are used
• What are the nine main stakeholders in most businesses?

  Employees, owners and shareholders, customers, suppliers, the local community, pressure groups, creditors, the government and the environment
• What does it mean if a business is operating with the 'stakeholder model'?

  It means that managers have to take account of the impacts that their decisions will have on all stakeholders
• What does it mean if a business is operating with the 'shareholder model'?

  This is the traditional way to run a business where all decisions are made only in the interests of shareholders as they are considered most important
• What are the main benefits of the 'stakeholder model'?

  Improved public image, improved staff motivation and retention, better supplier relationships, more finance opportunities, and less risk of pressure group damage
• What is a stakeholder conflict?

  When meeting the needs of one stakeholder leads to the needs of another stakeholder not being met
• What is corporate culture?

  The set of important assumptions that are shared by people working in a particular business and influence the ways in which decisions are taken there
• What is a corporate culture clash?

  When the assumptions and influences made in one business conflict with the assumptions and influences in another, so the businesses cannot work together effectively
• What is Corporate social responsibility?

  Means taking decisions that take into account all stakeholders' interests, treating employees, customers and suppliers fairly, avoiding polluting activities and contributing positively to the local community
• Why do businesses choose to have a CSR policy?

  A genuine desire to behave responsibly, to show a positive public image, to keep up with competitors, and to improve relationships with stakeholders
• What is meant by creative destruction?

  When businesses innovate to produce new, cheaper, or better products, introducing strong competition that threatens established producers
• What are the benefits of creative destruction to consumers?

  Wider choice, improved living standards, and cheaper and better products due to businesses being forced to innovate
• Why may creative destruction not benefit business owners and employees?

  If they are not able to respond quickly and effectively to disruptors in the market, they will be outcompeted, leading to declining sales, profits and job losses
• What is meant by an entrepreneur?

  Someone who organises a business venture and is responsible for the risks involved, deciding what will be produced, how it will be created, obtaining finance, and setting the price
• What is meant by 'added value'?

  The difference between the price of the finished good or service and the cost of the material inputs involved in making it
• What are five ways that value can be added to inputs?

  Turning factors of production into a good or service, providing quality customer service, using luxury branding and packaging, improving accessibility and location, and increasing convenience
• What is the main incentive for all entrepreneurs?

  To make a profit
• What are the three main risks that entrepreneurs run?

  Customers may not want to buy their product, tastes/fashions may have changed by the time the product is available, and new/competing products may be better and brought out at the same time
• What are five other reasons for being an entrepreneur, other than making lots of profit?

  Independence, social entrepreneurship, ethical stance, homeworking/lifestyle, and using entrepreneurial skills to achieve benefits for society
• What are the four factors of production?

  Land, labour, capital, and enterprise