Theme 1:
1.1.1 Economic Problem 1
1.1.2 - Business Objectives: 2
1.1.3 - Stakeholders ( economic agents) and Objectives 3
1.2.1 - Role of an entrepreneur in the economy: 3
1.2.2 - Entrepreneurial Motives: 5
1.2.3 Factors of production: 5
1.2.4 Specialisation 5
1.3.1 Demand 9
1.3.2 Supply: 10
1.3.3 Price Determination 10
1.3.4 Price Mechanism: 11
1.3.5 - Understanding the consumer: 11
1.3.6 - Competition: 13
1.4.1 - Role of Banks in the economy 15
1.4.2 Risk and liability: 15
1.4.3 - Types of sources of credit and the impact of credit within the economy: 15
1.5.1 + 1.5.2 - Market Failure 16
1.6.1 Sales revenue and Costs 16
1.6.2 relationship between revenue and costs ( break even ) 17
1.6.3 - Profit and Loss: 18
1.6.4 - Business survival and Cash Flow: 19
1.1.1 Economic Problem
- Scarcity = limited supply of a resource
- System for allocating scarce resources - economic problem
- When there is competition in society for limited amounts of resources we have to
make choices
- The economic problem exists are there are too many people and not enough
resources - not enough to go around - choices have to be made to distribute these
resources
Economic Activity:
- The purpose of economic activity is to satisfy the wants and needs of society
- Need = survival, Want = luxury
- This problem is faced by consumers, producers and the government - what to
produce, how to produce and who to produce for?
- Economic activity done well makes society happy - improves economic welfare
Opportunity Cost:
- Losing the benefit of the thing you gave up when making a choice
- Eg choose to study over having free time - lose the benefit of having free time
- Scarcity means we face choices - when we make a choice we miss out on something
else
, - You have to make a final choice
- Important for all niche and mass markets - everyone because we all make choices -
economic agents
Importance to consumers: Might have to choose between buying a holiday and buying a
new car
Importance to Producers: Might have to choose between hiring extra staff and investing in
a new machine
Importance to Government: choose between spending more on the NHS compared to
education - can’t do both finite resources
Trade Off:
- Occurs when two or more things cannot be fully achieved
- Use the term when looking at a balance between two choices
- You may have to choose to have more of one thing than another - one thing
increases another must decrease
- Eg rather than buying a bag of chocolates instead of coke you could buy a smaller
bag of chocolates and coke - get a bit of both - no final decision
Positive Statement:
- Something you test to see if its true - see if they are testbale as factual or false
referring to evidence
- Eg increasing congestion charge to £35 will reduce the amount of traffic entering
London
Normative Statement:
- About the economy are based on judgements and opinion ( subjective ) can’t test to
see if it’s true
- Eg congestion charge for drivers of petrol - guzzling cars should increase to £35 per
day
1.1.2 - Business Objectives:
Profit maximisation:
- Entrepreneurs motivated by a desire to get as rich as possible
- Define success by wealth
- Profit provides security
- Desire to be top earner
- A firm profit maximises when they are operating at the price and output which
derives the greatest profit.
- Profit maximisation occurs where marginal cost (MC) = marginal revenue (MR). In
other words, each extra unit produced gives no extra loss or no extra revenue.
, Some firms choose to profit maximise because:
- It provides greater wages and dividends for entrepreneurs
- Retained profits are a cheap source of finance, which saves paying high interest
rates on loans
- In the short run, the interests of the owners or shareholders are most important,
since they aim to maximise their gain from the company
PLCs
- Are particularly keen to profit maximise, because they could lose their shareholders
if they do not receive a high dividend.
- They are more likely to have short run profit maximisation as an objective, because
they need to keep their shareholders happy.
Sales maximisation:
- Growth can bring some stability and survival
- Building up customer base - stronger competitive position - more powerful
- Short term objective - good market share obtained - shift to probability
- This is when the firm aims to sell as much of their goods and services as possible
without making a loss.
- Not-for-profit organisations might work at this output and price.
- This is where average costs (AC) = average revenue (AR).
Satisficing:
- Reaching a ‘ good enough’ profit level without maximising
- Work life balance
- Trade off
- Pursue hobbies and have a good interest
- A firm is profit satisficing when it is earning just enough profits to keep its
shareholders happy.
- Shareholders want profits since they earn dividends from them.
- Managers might not aim for high profits, because their personal reward from them
is small compared to shareholders.
- Therefore, managers might choose to earn enough profits to keep shareholders
happy, whilst still meeting their other objectives.
- This occurs where there is a divorce of ownership and control.
Other objectives:
Market Share:
- Short term or long term
- Stability and security > profit
- Top of the market
Return on investment
- Money has an opportunity cost - banked on deposit - important in terms of loans
Survival:
- Represents personal achievement or continued family tradition
- More important in tough times
, Social Objectives:
- Employee welfare
- Customer satisfaction
- Ethical business
- Sustainability
Cost efficiency:
- Ensuring that all resources are being used effectively and used appropriately
- Using all the FOPS - cost effective - limited wastage of resources and money
- Gives a firm competitive advantage
1.1.3 - Stakeholders ( economic agents) and Objectives
Stakeholders:
- The interest does not matter - anyone with an interest in the actions of a business -
stakeholders eg, customers, employees, suppliers, shareholders
- Shareholders want the firm to make a large profit, so the share price increases and
the value of their dividend goes up
Categories them into: Primary, Secondary, Internal and External
Primary:
- Direct relationship with business
Secondary:
- Although affected by the actions of a business are not directly related to the
business
Internal:
- Those who don’t work there eg, employees, managers and owners
External:
- Those who don't work eg customers, creditors, shareholders
Economic agents - FIG
- F- firms
- I-individuals
- G-government
Stakeholder concept
- Business have responsibility to make sure that all stakeholders are happy and that
their requirements are met
- Help and support welfare of people and their stakeholders
- Stakeholder influences should be seen as a genuine concern and not just a public
relationship exercise
- Business must consider all of its stakeholders in its decisions and objectives
- Stakeholders v stakeholder concept underpins business ethical approach,
suggesting who is more important
Stakeholder conflict
- Difficult to meet all needs of stakeholders
1.1.1 Economic Problem 1
1.1.2 - Business Objectives: 2
1.1.3 - Stakeholders ( economic agents) and Objectives 3
1.2.1 - Role of an entrepreneur in the economy: 3
1.2.2 - Entrepreneurial Motives: 5
1.2.3 Factors of production: 5
1.2.4 Specialisation 5
1.3.1 Demand 9
1.3.2 Supply: 10
1.3.3 Price Determination 10
1.3.4 Price Mechanism: 11
1.3.5 - Understanding the consumer: 11
1.3.6 - Competition: 13
1.4.1 - Role of Banks in the economy 15
1.4.2 Risk and liability: 15
1.4.3 - Types of sources of credit and the impact of credit within the economy: 15
1.5.1 + 1.5.2 - Market Failure 16
1.6.1 Sales revenue and Costs 16
1.6.2 relationship between revenue and costs ( break even ) 17
1.6.3 - Profit and Loss: 18
1.6.4 - Business survival and Cash Flow: 19
1.1.1 Economic Problem
- Scarcity = limited supply of a resource
- System for allocating scarce resources - economic problem
- When there is competition in society for limited amounts of resources we have to
make choices
- The economic problem exists are there are too many people and not enough
resources - not enough to go around - choices have to be made to distribute these
resources
Economic Activity:
- The purpose of economic activity is to satisfy the wants and needs of society
- Need = survival, Want = luxury
- This problem is faced by consumers, producers and the government - what to
produce, how to produce and who to produce for?
- Economic activity done well makes society happy - improves economic welfare
Opportunity Cost:
- Losing the benefit of the thing you gave up when making a choice
- Eg choose to study over having free time - lose the benefit of having free time
- Scarcity means we face choices - when we make a choice we miss out on something
else
, - You have to make a final choice
- Important for all niche and mass markets - everyone because we all make choices -
economic agents
Importance to consumers: Might have to choose between buying a holiday and buying a
new car
Importance to Producers: Might have to choose between hiring extra staff and investing in
a new machine
Importance to Government: choose between spending more on the NHS compared to
education - can’t do both finite resources
Trade Off:
- Occurs when two or more things cannot be fully achieved
- Use the term when looking at a balance between two choices
- You may have to choose to have more of one thing than another - one thing
increases another must decrease
- Eg rather than buying a bag of chocolates instead of coke you could buy a smaller
bag of chocolates and coke - get a bit of both - no final decision
Positive Statement:
- Something you test to see if its true - see if they are testbale as factual or false
referring to evidence
- Eg increasing congestion charge to £35 will reduce the amount of traffic entering
London
Normative Statement:
- About the economy are based on judgements and opinion ( subjective ) can’t test to
see if it’s true
- Eg congestion charge for drivers of petrol - guzzling cars should increase to £35 per
day
1.1.2 - Business Objectives:
Profit maximisation:
- Entrepreneurs motivated by a desire to get as rich as possible
- Define success by wealth
- Profit provides security
- Desire to be top earner
- A firm profit maximises when they are operating at the price and output which
derives the greatest profit.
- Profit maximisation occurs where marginal cost (MC) = marginal revenue (MR). In
other words, each extra unit produced gives no extra loss or no extra revenue.
, Some firms choose to profit maximise because:
- It provides greater wages and dividends for entrepreneurs
- Retained profits are a cheap source of finance, which saves paying high interest
rates on loans
- In the short run, the interests of the owners or shareholders are most important,
since they aim to maximise their gain from the company
PLCs
- Are particularly keen to profit maximise, because they could lose their shareholders
if they do not receive a high dividend.
- They are more likely to have short run profit maximisation as an objective, because
they need to keep their shareholders happy.
Sales maximisation:
- Growth can bring some stability and survival
- Building up customer base - stronger competitive position - more powerful
- Short term objective - good market share obtained - shift to probability
- This is when the firm aims to sell as much of their goods and services as possible
without making a loss.
- Not-for-profit organisations might work at this output and price.
- This is where average costs (AC) = average revenue (AR).
Satisficing:
- Reaching a ‘ good enough’ profit level without maximising
- Work life balance
- Trade off
- Pursue hobbies and have a good interest
- A firm is profit satisficing when it is earning just enough profits to keep its
shareholders happy.
- Shareholders want profits since they earn dividends from them.
- Managers might not aim for high profits, because their personal reward from them
is small compared to shareholders.
- Therefore, managers might choose to earn enough profits to keep shareholders
happy, whilst still meeting their other objectives.
- This occurs where there is a divorce of ownership and control.
Other objectives:
Market Share:
- Short term or long term
- Stability and security > profit
- Top of the market
Return on investment
- Money has an opportunity cost - banked on deposit - important in terms of loans
Survival:
- Represents personal achievement or continued family tradition
- More important in tough times
, Social Objectives:
- Employee welfare
- Customer satisfaction
- Ethical business
- Sustainability
Cost efficiency:
- Ensuring that all resources are being used effectively and used appropriately
- Using all the FOPS - cost effective - limited wastage of resources and money
- Gives a firm competitive advantage
1.1.3 - Stakeholders ( economic agents) and Objectives
Stakeholders:
- The interest does not matter - anyone with an interest in the actions of a business -
stakeholders eg, customers, employees, suppliers, shareholders
- Shareholders want the firm to make a large profit, so the share price increases and
the value of their dividend goes up
Categories them into: Primary, Secondary, Internal and External
Primary:
- Direct relationship with business
Secondary:
- Although affected by the actions of a business are not directly related to the
business
Internal:
- Those who don’t work there eg, employees, managers and owners
External:
- Those who don't work eg customers, creditors, shareholders
Economic agents - FIG
- F- firms
- I-individuals
- G-government
Stakeholder concept
- Business have responsibility to make sure that all stakeholders are happy and that
their requirements are met
- Help and support welfare of people and their stakeholders
- Stakeholder influences should be seen as a genuine concern and not just a public
relationship exercise
- Business must consider all of its stakeholders in its decisions and objectives
- Stakeholders v stakeholder concept underpins business ethical approach,
suggesting who is more important
Stakeholder conflict
- Difficult to meet all needs of stakeholders
