1.1 Scarcity, choice and potential conflicts

• what is the basic economic problem

  resources are finite and needs/wants are infinite, so resources must be used optimally
• define "scarcity"

  shortage of resources in relation to the quantity of needs/wants
• opportunity cost

  value of the next best alternative foregone
• 3 things we must consider when producing a good

  • what to produce
  • how to produce it
  • who to produce it for
• name some business objectives

  • profit maximising
  • sales maximising
  • survival
  • market share maximising
  • customer satisfaction
• what is profit satisficing and when might a firm choose to advocate this

  occurs when a firm earns just enough profit to keep shareholders happy.

  occurs when there is a divorce of ownership and control, whereby managers will make enough profits to keep shareholders happy, whilst maintaining their own objectives
• equation for profit maximising and sales maximising

  Profit max: marginal cost = marginal revenue

  Sales max: average cost = average revenue
• what is corporate social responsibility

  a form of self regulation, whereby firms take responsibility for their actions that harm the environment, and to aim to maximise social welfare
• example of CSR

  Firms attempt to reduce their carbon footprint by investing in green energy
• name the different types of stakeholders (economic agents)

  • shareholders
  • employees
  • consumers
  • managers
  • government
  • suppliers