Cash flow – the movement of money in and out of a business A company can be profitable and have negative cash flow and vice versa. If a company is selling a profitable product but if suppliers want payment within 15 to 30 days whereas wholesale buyers only pay...
Contribution is the profit made on each product, it does not consider fixed costs. Fixed costs do not vary with output, so they are simply subtracted from total contribution. This gives the firm’s total profit or loss. Contribution = selling price - variable cost per...
Profit can act as a signal for firms, giving them an incentive to enter or leave the market. If a market has highly profitable products, then it makes firms more likely to enter that market as they see potential to make profits themselves. However, this signals...
Private costs – costs internal to a business (raw materials, equipment etc.) and the price/income given up by consumers – people involved in transactions. Private benefits – sales revenue for the firm and the pleasure/ease gained for consumer through the product...
Purpose of government intervention Reducing impact of external costs such as pollution. Ensuring that under-produced products are available to all. Ensuring that over-consumed products such as tobacco are discouraged and prevented. Reduce anti-competitive behaviour to...
Competitive advantage – any feature of a business that allows it to compete effectively with rival products as the have an ‘edge’ over competitors.] Competitive advantage can be gained in the following ways: Lower prices will...
Banks play a large role in the economy in many ways listed here: Providing mortgages for house purchases (in exchange for interest) Provide loans for businesses to expand (in return for interest) Provide accounts for savers who earn interest and keep their money safe....
Banks will charge higher rates of interest to people who are more at risk of not repaying in order to get as much back of their money before they default on payments. Banks assess creditworthiness before giving out loans, those who have unpaid loans in their past will...
Credit – a contractual agreement in which a borrower receives money and agrees to repay the lender at some date in the future with interest. The importance of credit Businesses need loans for upfront costs, before they can set up or get money from buyers. For...
Price mechanism – an economic model that helps to explain the allocation of resources between different possible uses. The invisible hand guides resources towards goods/services that consumers want. The invisible hand is an...
Market research – gathering and interpreting of information about customer needs and preferences. Process of gathering data to understand current and future needs and the market Market research can be used to...
When the demand and supply curves are brought together on the same diagram, there is a point at which the curves cross each other. This is known as equilibrium. Equilibrium – the point at which consumers will demand the exact amount that is ...
Supply – the amount of a good or service that producers are willing and able to provide, at a given price, at a given time. Individual supply – supply of a single producer of a certain good or service. Market supply – the total output of all individual...
Businesses are affected by what goes on in the economy and by the actions of the government: Interest rates Unemployment Inflation Exchange rates Taxation Interest rates – the percentage rate charged on a loan and paid on savings (price ...
Demand – the quantity of a good or service that people are willing and able to buy at a given price, at a given time. Market demand – the sum of all individual demands for a particular good or service. Effective demand – the intent of...
Entrepreneur – Someone who has a business idea and develops it. They take the risks m and the profits that come with success and the losses that come with m failure Entrepreneurs organise the factors of...
There are two main types of incentive as an entrepreneur: profit and non-financial motives In a business, the main motivation is likely to be profit, and entrepreneurs will bring together the factors of production in order to make a profit. NON-FINANCIAL...
Economic resources are the factors of production which entrepreneurs bring together to make a profit. The factors of production are: capital, enterprise, land and labour which can be remembered as CELL. There are three types of capital: physical, fixed and working:...
Division of labour – Employees are organised so that they specialise in one part of the production process Specialisation is when each worker is given a specific task in the production process. It makes individual...
Stakeholders – Someone who has an interest or concern or is affected by the operations m and objectives of a business Possible stakeholders include: Employees - want high wages and good working condition...
The problem of scarcity is when there are finite resources but unlimited demand. This means that choices have to be made and resources have to be distributed and used optimally. Scarcity – The shortage of resources in relation to the quantity of human...
Business Objectives – a goal or target that a business does its best to achieve Business objectives give businesses a purpose and/or a direction It also allows businesses to measure their progress. There are many different objectives and different...