Another trade-off is between economic growth and negative externalities as increased output can produce spill-over effects on third-parties such as increased noise/air pollution (from road congestion etc.). For example, increased production and consumer spending will...
There are four main instruments used to influence the economy which are fiscal policy, monetary policy, supply-side policy and exchange rate policy. Fiscal and monetary policy are used to affect AD and can be contractionary (used when inflation is high) or...
The economy reaches a state of equilibrium when the rate of withdrawals = the rate of injections. Income, expenditure and output are considered to be the same in the circular flow of income. IMPACT OF INJECTIONS AND WITHDRAWALS An injection is money that enters the...
Inflation is a rise in the general price level and a consequent fall in the purchasing power of money. Deflation is a persistent fall in the general price level which causes the rate of inflation to become negative. Disinflation is a fall in the rate of inflation...
Employment – all people between 16 and 64 in work Underemployment – those in paid work that does not fully utilise their qualifications or forced into part-time employment Unemployment – the number of people able and willing to work, but unable to find a paying job....
The government has four main economic objectives: Stable economic growth Low unemployment Low and stable rate of inflation Balance of payments equilibrium (positive balance of payments) The overall intention behind these policies is to provide macroeconomic...
How businesses are affected by fluctuations in economic activity Each stage of the economic cycle will have different implications for a business and they may have to take action as a result. They will have to consider how a fall or rise in the average income level...
Specialisation – When each worker completes a specific task in the production process. This can be achieved by individuals, businesses, regions of countries or countries themselves. Countries can specialise in the production of certain goods and can exploit their...
Exchange rates are the value of one currency expressed in terms of another. Appreciation is the rise in value of a currency whilst depreciation is a fall in value; both of these occur in a floating exchange rate system. Floating exchange rate – when the exchange rate...
These emerging economies are the fastest growing economies and are characterised by their movement away from agriculture and recent industrialisation. The main countries are known as the BRICs, standing for Brazil, Russia, India, and China (sometimes South Africa is...
Globalisation – increasing integration of the world’s local, regional and national economies into a single international market. It involves the free trade of goods and services, the free movement of capital and labour and the free interchange of technology and...
Quality control is the traditional method of checking that products are of an adequate standard. This involves checking during and at the end of the production process. This is also known as batch testing which takes one product out of each batch and will accept or...
IMPACT ON AVERAGE COSTS Increasing productivity results in a fall in average costs for the firm. They can either lower prices for customers, which makes them more competitive in the market creating higher market share or keep increased profit margins. They can use...
Capacity – the maximum amount a firm can produce with existing resources. Full capacity was when all the resources available to the firm are being used to the fullest extent. Spare capacity is when some of the resources are not being used to the fullest extent...
If consumer income increases, then demand for luxury goods will rise e.g. holidays. If their income falls, then they will cut back on such goods. Goods that you buy more of when your income increases are known as normal goods. They can be split into two categories:...
Productivity – how efficiently resources are actually being used (output per unit of input e.g. worker). High productivity means more output with the same amount of input over the same period of time, this reduces average costs. On the other hand, lower productivity...
THE IMPACT OF MARKETING ON THE DEMAND CURVE PRODUCT DIFFERENTIATION Firms can differentiate themselves from rivals through strong branding. Differentiation can also include packaging and product placements. Packaging can make products seem better than alternatives...
Elasticity – a measure of how responsive demand is to a change in price or income Price elasticity can calculate by how much demand will fall/rise when prices change. Price elastic products are very responsive to price changes. This means when there is a small change...
STRATEGIES FEATURES ADVANTAGES DISADVANTAGES WHERE USED COMPETITIVE Pricing is based off what competitors charge to keep appeal There is a guarantee of some market share and sales if market price is accepted They may not be able to cover their costs if focused on...
E-business – any process using a digital network E-commerce – buying and selling goods and services online Features of the digital economy Use of social media for business purposes Easy access to buyers and sellers across the globe There is structural change, as when...
How do small businesses compete? Greater flexibility in responding to customer needs (customer service) USP/product differentiation By being niche providers as there will be little competition for niche markets Better stakeholder relationships (as there is a shorter...
Organic growth – when you grow your business internally, using: management, marketing/sales and strategic planning. This can be achieved through increasing production, opening more branches, new product development, R&D and widening the customer base. It...
Innovation – the process of using research and development to create new products or improve products. R&D is investment in research with the intention of improving goods and services, introducing new ones, or improving methods of production. This is vital to...
Many businesses consider growth as an important objective, as through growth they aim to achieve; increased sales, turnover and profit. However, different stakeholder groups will have their own opinion of business growth: Shareholders want higher dividends (through...