Economics - 1.2 Business Economics

scale

size of a business

fixed costs

(also known as overheads) costs that do not vary with the level of output. examples include rent, advertising, research and development costs. these costs will not increase even if a firm produced more output. however, fixed costs will still have to be met if the firm produces nothing

anti-competitive practices

(or restrictive trade practices) attempts by firms to prevent or restrict competition

THE FACTORS OF PRODUCTION AND SECTORS OF THE ECONOMY

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advantages of oligopoly

1. choice 2. quality 3. economies of scale 4. innovation 5. price wars

advantages of large firms

1. economies of scale 2. market domination 3. large-scale contracts

the advantages of monopoly

1. efficiency 2. innovation 3. economies of scale

division of labor and businesses advantages

1. efficiency is improved because, through specialization, workers can perform tasks more quickly and more accurately. there are fewer mistakes and productivity will rise. people who try to perform a wide range of tasks may find it difficult to develop the skills needed to be excellent at each one. therefore their productivity will be lower 2. a greater use of specialist tools, machinery, and equipment is possible when workers specialize, e.g. specialist CAD software is available for production designers, which they can use to improve efficiency 3. production time is reduced because workers do not have to waste time moving from one task to another. this often involves moving around the workplace, collecting tools, changing workstations, and resetting machinery. specialists are likely to remain at the same workstation repeating their task without the need to move around 4. the organization of production becomes easier. this is because specialist workers can fit more easily into a structured system of production, such as a production line

features of oligopoly

1. few firms 2. large firms dominate 3. different products 4. barriers to entry 5. collusion 6. non-price competition 7. price competition

advantages of small firms

1. flexibility 2. personal service 3. lower wage costs 4. better communication 5. innovation

factors influencing the growth of firms

1. government regulation 2. access to finance 3. economies of scale 4. the desire to spread risk 5. the desire to take over competitors

disadvantages of small firms

1. higher costs 2. lack of finance 3. difficult attracting quality staff 4. vulnerability

the disadvantages of monopoly

1. higher prices 2. restricted choice 3. lack of innovation 4. inefficiency

division of labor and businesses disadvantages

1. if tasks are too repetitive and boring, people becomes dissatisfied and poorly motivated. this might result in poor-quality work, staff arriving at work late, increased rates of absence, and high staff turnover. in the worst cases, people become detached and try to avoid work. this will obviously reduce productivity and have an impact on profitability 2. problems can also occur if one stage of production depends on another stage. if one stage breaks down, all the other stages may also have to be stopped. this is called interdependence 3. specialization may result in a loss of flexibility in the workplace. e.g. if a highly skilled and specialist worker is absent, and there is no one else with those skills, production may be disrupted

trade union aims

1. negotiate pay and working conditions with employers 2. provide legal protection for members, such as representation in court if an employee is fighting a case against an employer (discrimination in the workplace, e.g.) 3. put pressure on the government to pass legislation that improves the right of workers 4. provide financial benefits, such as strike pay whenever necessary

features of monopoly

1. one business dominates the market 2. unique product 3. price-maker 4. barriers to entry

why has manufacturing declined in developed countries while services have grown?

1. people may prefer to spend more of their income on services than manufactured goods. there has also been a decline in demand for the goods produced by some of the traditional industries in manufacturing, such as textiles 2. there is fierce competition in the production of manufactured goods from developing countries such as Brazil 3. as countries develop, their public sector grows. since the public sector mainly provides services, this adds to the growth of the tertiary sector 4. advances in technology mean that employment in manufacturing falls because machines replace people

fair trade issues covered by legislation

1. prices 2. information about products 3. trading and age restrictions 4. customer payment methods 5. consumer rights 6. promotion of products 7. product quality 8. product safety

government regulation of competition

1. promoting competition 2. limit monopoly power 3. protect consumer interests

laws introduced by the UK government to limit the power of trade unions

1. required trade unions to have a secret ballot before a strike; a strike could only go ahead if the majority of members voted in the favor 2. allowed businesses to sue for compensation if trade unions did not obey the law 3. banned secondary picketing 4. made closed shops illegal

advantages of competition to the economy

1. resources will be allocated more effectively. this is because firms have to operate efficiently to survive. they are also under pressure to keep their costs down to survive. 2. is also argued that firms in competitive markets are more innovative. this is because innovative firms get a competitive edge over their rivals. this means that firms will develop new products, new production techniques, and new technologies. the economy will benefit from this because people will have a better standard of living

reasons firms stay small

1. size of the market 2. nature of the market 3. lack of finance 4. aims of the entrepreneur 5. diseconomies of scale

features of a competitive market

1. there is a large number of buyers and sellers 2. the products sold by each firm are close substitutes for each other 3. low barriers to entry, which means that it is fairly easy to break into the market e.g. not technically difficult or require too much capital 4. each firm has almost no control over the price charged. e.g. if a firm tries to charge more than its rivals it is likely to lose business 5. there is a free flow of information about the nature of products, availability at different outlets, prices, and cost

reasons for training

1. to provide workers with the skills and knowledge needed to do their jobs effectively. as a result, their productivity will increase 2. workers will need training if there are changes that might affect their jobs. some examples might include new health and safety procedures, new technology, pr new working practices 3. some businesses train their workers in a range of different jobs so they are multi-skilled. this provides businesses with added flexibility. also, workers will feel secure if they have been trained to do their job effectively. not being able to do a job properly will be a source of anxiety, frustration, and dissatisfaction for workers. it is also argued that training can be used to motivate staff

disadvantages of large firms

1. too bureaucratic 2. coordination and control 3. poor motivation

how is the size of a firm measured?

1. turnover: firms with high turnovers will tend to be larger than those with small turnovers 2. number of employees: large firms tend to employ larger numbers of employees than smaller firms 3. balance sheet total: this measure is based on the amount of money invested in the business by the owners. generally, more money will be invested in larger firms

"higher prices" as a disadvantage of monopoly

a firm that dominates a market is able to charge more for its products. monopolists will tend to restrict output in order to force up the price

marketing economies

a number of marketing economies exist. e.g. it may be cost effective for a large firm to run its own delivery vehicles. for a large firm, with lots of deliveries to make, this would be cheaper than paying a distributor. marketing economies can occur because some marketing costs, such as producing a television advert, are fixed. these costs can be spread over more units of output for a larger firm. therefore, the average cost of the advert is smaller for a large firm

"patents" as one of the main barriers to entry in a monopoly

a patent is a license that prevents firms from copying the design of a new product or new piece of technology. the new product developer can be the sole supplier in the market for a period of up to 20 years. this allows the firm to charge a higher price and recover the costs of research and development (R&D). patents are common in the pharmaceutical industry where firms are allowed to sell new drugs or medicines without competition. therefore patents encourage R&D

what is monopoly?

a pure monopoly exists when just one producer supplies a market. however, there is also a legal monopoly. in some countries, if a firm has 25% or more of a market it is said to be a monopolist. pure monopolies are not common but they do exist. e.g. in some countries pure monopolies operate in water and rail industries. in some markets, there might be local monopoly. this is where one firm supplies an entire local market in the way a village shop might be the only shop in the village

effect of trade unions on wages and employment

a strong trade union may be able to force wages up in some labor markets. if a union has the full support of its members, it can put pressure on employers during wage negotiations. when this happens, unions are able to affect wages and employment levels one of the effects of trade union interference is that the higher wages might result in fewer workers being employed. this is because the demand for labor falls when wages increase. therefore, it could be argued that trade union interference has increased wages at the expense of jobs for some of its members. however, job losses might be avoided: - if labor productivity rises at the same time - if employers are able to pass on wage increases to customers in the form of price rises - if profit margins are reduced

lack of control as a part of diseconomies of scale

a very large business may be difficult to control and coordinate. thousands of employees, billions of pounds, and dozens of plants all over the world can make running a large organization demanding. there may be a need for more supervision and more layers of management, which will raise costs

"coordination and control" as a disadvantage of large firms

a very large business may be difficult to control and coordinate. thousands of employees, billions of pounds, and dozens of plants all over the world can make running a very large organization demanding. there may also be a need for more supervision that will raise costs

competition and the consumer

advantages of competition to the consumer include: 1. lower prices 2. more choice 3. better quality disadvantages of competition to the consumer include: 1. market uncertainty 2. lack of innovation

secondary sector

all of manufacturing, processing, and construction lie within this sector. secondary sector business activities include car production, textile production, engineering, and construction. some businesses focus on the production of semi-finished goods (sometimes called intermediate goods or producer goods). these goods are sold to other businesses and used as inputs for the production of final goods, which are then sold to consumers. examples of semi-finished foods might include parts used in assembly plants to make motor cars such as steering wheels, engines, and brakes. in many developed countries, the secondary sector has declined in recent years

"innovation" as an advantage of small firms

although all firms often lack resources for research and development, they may be surprisingly innovative. one reason for this is that small firms face competitive pressure to innovate. e.g. if they fail to come up with new ideas for products, they will lose their market share. it may also be because small firms are more prepared to take a risk. perhaps they have less to lose than large firms

"price-maker" as a feature of monopoly

although monopolists face a downward sloping demand curve, they are able to control the prices they charge. monopolists are sometimes called price makers. they can force prices up by restricting the quantity supplied in the market. however, they cannot fix both price and quantity. if they try to sell larger quantities, the price will be forced down

piece rate

amount of money that is paid for each item a worker produces, rather than for the time taken to make it

access to suppliers as a part of external economies of scale

an established industry in a region will encourage suppliers in that industry to set up close by. specialist marketing, cleaning, banking, and maintenance suppliers are likely to be attracted to the area. all firms in the industry will benefit from their services

"the desire to spread risk" as a factor influencing the growth of firms

another motivation for growth is to spread business risk. risks can be reduced by diversifying. selling into new markets and developing new products means that if one venture fails, success in others can keep the firm going. if business risk increases, perhaps because of growing uncertainty in certain sectors, firms are likely to diversify and grow as a result. events like the UK's decision to leave the EU and sharp falls in commodity prices like oil are likely to result in this behavior

managerial economies

as firms expand, they can afford specialist managers. a small business may employ a general manager responsible for finance, human resources, marketing, and production. the manager may find this role demanding and may be weak in some areas of the job. a large firm can employ specialists and, as a result, efficiency is likely to improve and average costs fall

"personal service" as an advantage of small firms

as firms get bigger, it often becomes too difficult to offer customers an individual personal service. some people prefer to deal with the owner of a firm directly and are prepared to pay a higher price for this benefit. owners are far more accessible in small firms than larger ones

division of labor

breaking down of the production process into smaller parts with each worker allocated to a specific task

"access to finance" as a factor influencing the growth of firms

businesses need finance to grow. they may need money to make acquisitions, build new factories, open new stores, or develop new products, e.g. firms that can persuade money lenders and other investors to provide finance are in a better position to grow. consequently, access to finance can have an important influence on growth

land as a factor of production

businesses often require a plot of land on which to locate or operate their premises. land resources also include natural resources, such as oil, rainwater, forests, and rivers - some of the land resources are non-renewable e.g. diamonds and oil - some of the land resources are renewable, which are replaced by nature, e.g. fish, forests, water. these resources should not run out but there is a risk that if some of them are not protected or over exploited they could disappear

bulk buying

buying goods in large quantities, which is usually cheaper than buying in small quantities

capital as a factor of production

capital is often said to be an artificial resource because it is made by labor. there are two types of capital: - working capital or circulating capital, which refers to stocks of raw materials and components that will be used up in production. it also includes stocks of finished goods that are waiting to be sold - fixed capital, which refers to the factories, offices, shops, machines, tools, equipment, and furniture used in production. it is fixed because it will not be converted into a final product. fixed capital is used in production to convert working capital into goods and services

innovative

commercial exploitation of a new invention

subsidiaries

companies that are at least half-owned by another company

closed shop

company or factory where all the workers must belong to a particular trade union

new entrant

company that starts to sell goods or services in a market where they have not sold them before, or one of these goods or services

"choice" as an advantage of oligopoly

competition in oligopolistic markets ensures that consumers are provided with some choice. one of the ways in which oligopolies compete is by launching new brands. these new brands provide consumers with new products, and often, an every-growing choice in the market. small producers can also provide choice by supplying a niche market. however, in other markets there may be little real choice. e.g. in many countries, a few large companies dominate the supply of petrol. it might be argued that there is little if any difference between the quality of the petrol sold by each supplier

"more choice" as an advantage of competition to the consumer

competition means there are many alternative suppliers to choose from. where possible, each supplier is likely to differentiate its products from those of rivals. this helps to widen choice even more. competitive markets will also have a constant stream of new entrants offering fresh ideas and even more choice

disadvantages of oligopoly

consumers are not likely to benefit from oligopoly if there is no competition in the market. the main disadvantage is the temptation among firms to collude. if firms agree to restrict competition, by price fixing, for example, consumers will end up paying higher prices. consumers will also suffer if a market is shared out geographically. there will be a lack of choice because only one firm will supply each area in a minority of oligopolistic markets, a cartel might exist. if cartels are successful, they are able to act as a monopoly. in the USA and EU, cartels and collusion are illegal if there is genuine competition between the dominant firms in an oligopolistic market, then consumers might benefit. there may be more innovation, genuine product development, increasing choice, and lower costs. there may even be price wars where prices are cut dramatically. however, if there is collusion, too much spending on advertising and a lack of innovation, consumers will be worse off. consumers will also lose out if a fierce price wars eliminates one or more of the firms. there will be less competition between the remaining, and smaller group, of dominant firms

external economies of scale

cost benefits that all firms in an industry can enjoy when the industry expands. external economies of scale are more likely to occur if an industry is concentrated in a particular region 1. skilled labor 2. infrastructure 3. access to suppliers 4. similar businesses in the area

internal economies of scale

cost benefits that an individual firm can enjoy when it expands. the reasons why costs fall are: 1. marketing economies 2. technical economies 3. financial economies 4. risk-bearing economies 5. managerial economies 6. purchasing economies

de-industrialization

decline in manufacturing

trade union membership rates

declining

derived demand

demand that arises because there is demand for another good

labor mobility

ease with which workers can move geographically and occupationally between different jobs

enterprise as a factor of production

entrepreneurs are responsible for setting up and running businesses. without them production would not take place. entrepreneurs: 1. come up with a business idea: an entrepreneur might feel that there is a gap in the market for a slightly different, or that it is possible to supply exactly the same product more effectively 2. are business owners 3. are risk-takers 4. are responsible for organizing the other three factors of production: they have to buy and hire other resources such as raw materials, tools, equipment, and labor. entrepreneurs need to use a range of skills such as decision making, people management, time management, and financial judgement to organize production factors effectively

costs

expenses that must be met when setting up and running a business

assembly parts

factory where parts are put together to make a final product

economies of scale

falling average costs due to expansion

fertilizers and pesticides as a part of land

fertilizers are chemicals given to plants to improve their health and appearance, and raise crop yields. pesticides are used to kill pests. however, pesticides and some fertilizers can harm people, wildlife, and the environment. this is why there are strict controls in place over their sale and use

"better quality" as an advantage of competition to the consumer

firms that offer poor goods or services in a competitive market will lose business. consumers are rational and will look for value for money. this means they consider both the price and the quality of products when deciding what to buy. modern consumers are more aware and better informed than ever before

total cost

fixed costs and variable costs added together

division of labor and the worker advantage

focusing on the same task allows the worker to become more skilled at doing that task. it is often said that "practice makes perfect" and constant repetition of the same task will usually mean a worker will get better and better. therefore, workers with well practiced skills will be able to find employment more easily. also, the more highly skilled they are, the more they are likely to get paid. workers can also learn new skills or improve their existing ones. finally, workers may enjoy more job satisfaction if they are highly skilled in a specialist task

competition and the firm

generally, firms do not welcome competition. most firms would prefer to dominate the market and operate without the threat of rivals. if there is no threat from competition, a firm can usually charge a higher price. there is always less pressure to be efficient and innovative. this reduces the effort needed to survive and be successful. when faced with competition, firms have to offer products that give consumers value for money. this involves: 1. operating efficiently by keeping costs as low as possible 2. providing good quality products with high levels of customer service 3. charging prices that are acceptable to customers 4. innovating by constantly reviewing and improving the product

magnet segments

groups of customers that share similar characteristics, such as age, income, interests, and social class

distance between senior staff and shop floor workers as a part of diseconomies of scale

if a firm becomes too big, relations between workers and managers may worsen. there may be many layers of management between the chairperson at the top and and the shop floor workers in a factory. as a result, senior managers might be so far removed from those at the bottom of the organization that may not be aware of their needs. this lack of understanding may occur and resources may be wasted resolving them

infrastructure as a part of external economies of scale

if a particular industry dominates a region, the roads, railways, buildings, and other facilities will be shaped to suit that industry's needs. e.g. a specialized industrial estate may be developed to help a local IT industry

"technology" as one of the main barriers to entry in a monopoly

if an established and dominant firm has access to complex or up-to-date technology, this can act as a barrier to entry. unless rivals can copy the technology, or buy it at a fair price, they might be forced to leave the market

skilled labor as a part of external economies of scale

if an industry is concentrated in one area, there may be a build-up of labor with the skills and work experience required by that industry. as a result, training costs will be lower when workers are recruited. it is also likely that local schools and colleges will provide vocational courses that are required by local industry

role of the government in limiting monopoly power

if monopolies exist in markets, they need to be carefully monitored. without government intervention, the temptation to exploit consumers may be too great for some consumers. in some countries, there is an appointed body that is responsible for overseeing monopolies. in some countries, where a whole industry is dominated by just one, or a few very powerful firms, a special industry "watchdog" is set up to monitor their activities. such bodies often control the prices charged by monopolies and issue fines if quality standards are not met

improved motivation as a part of labor

if people are motivated at work they will be more productive. one way of motivating staff is to use a financial inventive scheme such as piece rates, which involves paying workers according to how much they produce. however, some workers are not motivated by money so non-financial incentives might be needed. e.g. a firm might use job rotation so their time at work may be more interesting because there is more variety. they may be less bored and therefore better motivated

"economies of scale" as an advantage of oligopoly

if the dominant firms are able to exploit economies of scale, their average costs will be lower. therefore, it is possible that some of the cost savings will be passed on to consumers in the form of lower prices. the smaller rivals in the market cannot exploit economies of scale. they often survive because they do not compete directly with the dominant firms

factors affecting productivity with regards to labor

if the quality of human capital can be improved, there will be gains in labor productivity - training - improved motivation - improved working practices - migration

"restricted choice" as a disadvantage of monopoly

if there is just one supplier in a market, consumer choice is obviously restricted. if they are unhappy with the quality, price, or the level of customer service of a product or service, they cannot switch to another provider

factors affecting productivity with regards to capital

improvements in productivity often rise because of the introduction to new technology. improvements may occur because more capital is employed, possibly at the expense of labor, or because new technology is more efficient than existing technology. advances in technology have helped improve productivity in all three sectors of the economy - primary sector - secondary sector - tertiary sector

"lower prices" as an advantage of competition to the consumer

in a competitive market, firms cannot overcharge consumers. if one firm tries to raise its prices, it will lose a lot of its business. this is because the market is full of good substitutes and consumers can easily switch from one supplier to another

factors affecting the supply of labor

in addition to wages, a number of other factors will affect the supply of labor: 1. population size 2. migration 3. age distribution of the population 4. retirement age 5. school leaving age 6. female participation 7. skills and qualifications 8. labor mobility

primary sector as a part of capital

in agriculture, e.g., the use of machinery such as tractors, combine harvesters, lifting equipment, and irrigation systems have helped to increase output, reduce waste, and improve working conditions. chemicals and pesticides have raised crop yields and biological research has developed plants that are less likely to suffer from diseases

"retirement age" as a factor affecting the supply of labor

in many countries, once people reach a certain age they are entitled to a state pension. this is called the retirement age. if the retirement age is increased, people will have to work for longer before they are entitled to any state benefit. therefore, the supply of labor will increase

"price competition" as a feature of oligopolistic markets

in many oligopolistic markets, prices stay the same for quite long periods of time. the market leader often sets the price and others follow. one reason for this pattern is because firms are afraid of a price war. if one firm cuts price, others in the market have to do the same or they will lose sales. as a result, revenue and profits would be lower for all firms. however, price wars do occur but tend to last for quite short periods of time. firms in oligopolies are said to have interdependence. e.g. if one firm decides to cut its price, this has an impact on the other firms in the industry. they will have to make changes of their own - perhaps match the price cut or invest in some sort of promotion. they will need to do this or risk losing market share to rivals

"one business dominates the market" as a feature of monopoly

in markets dominated by one seller, a monopoly is said to exist. however, a monopoly can exist when one firm dominates the market even though there may be others operating alongside

"population size" as a factor affecting the supply of labor

in most countries in the world, the size of the population is growing. as the population grows, there will be more people available for work. therefore, the supply of labor will tend to increase over time

"school leaving age" as a factor affecting the supply of labor

in most countries, children must attend school until they reach a certain age. once this age is reached, children are allowed to work. consequently, any changes to the school leaving age can affect the supply of labor. for example, in Ireland, the government announced that it would raise the school leaving age from 16 to 17 in 2016. this means that the supply of labor will be reduced because children will not be allowed to work until they are 17

"different products" as a feature of oligopolistic markets

in most oligopolistic markets, the products sold by each of the large firms will be very close substitutes for each other. however, there are likely to be some differences e.g. in style, shape. also, each manufacturer produces a wide product range where each product is different and aimed at a slightly different market segment. firms in an oligopolistic market usually make a deliberate effort to differentiate its products from those of rivals

control merges and takeovers

in order to ensure that markets remain competitive, governments often monitor merges and takeovers. merges and takeovers usually result in a reduction of competition in a market. consequently, large mergers or takeovers are likely to be investigated by government bodies. they may be blocked or allowed to go ahead if certain conditions are met

reclamation as a part of land

in some circumstances, it is possible to create new land from oceans, riverbeds, or lakebeds. clearly, if more fertile land can be found to grow crops, the productivity of the earth's land will rise. to reclaim land water is drained from wetlands

"legal barriers" as one of the main barriers to entry in a monopoly

in some markets, it is possible to exclude competition legally. this might happen when a government awards a contract to a single firm to provide a particular service. two common examples are in the provision of rail travel and water supply. governments often award contracts to a single supplier to provide rail travel on a particular route or water in a particular district. these contracts may run for between 10 and 30 years. once a firm has a government contract to provide a service, competition is legally forbidden

"efficiency" as an advantage of monopoly

in some markets, natural monopolies might exist. these are markets where it is actually more efficient if just one firm supplies all consumers. in these markets, it is often the case that the sole supplier is unable to exploit all economies of scale. examples of such markets are those with very high fixed costs such as the utilities and rail travel. it would be highly inefficient if two or more railway operators tried to supply rail travel between the same destinations using their own railway lines. there would be a huge duplication of resources, which is wasteful

"nature of the market" as one of the reasons firms stay small

in some markets, such as groceries, hairdressing, and painting, the set-up costs are relatively low. there is little to discourage new businesses joining the market. as a result, fierce competition stops any single firm from growing also, in some markets, businesses serve a particular market niche. customers in niche market have very particular needs, which are sometimes neglected by larger firms. consequently there is a gap in the market for a business that is prepared to tailor goods or services to this small customer group. such businesses are generally small

"high start-up costs" as one of the main barriers to entry in a monopoly

in some markets, the cost of setting up a firm to compete with the existing operators is too high. new competitors may find it difficult to match such financial commitment

"collusion" as a feature of oligopolistic markets

in some oligopolistic markets collusion might take place. this is where the dominant firms in the industry set up agreements to restrict competition. e.g. firms might agree to share a market geographically. this means that each firm agrees to supply a particular region and not compete in others. another form of collusion is price fixing, where all firms agree to charge the same (higher) price. finally, firms may agree to restrict output. by restricting output, supply is decreased and prices rise. in many countries, collusion is illegal because it exploits consumers

"price wars" as an advantage of oligopoly

in some oligopolistic markets, prices are fairly stable for quite long periods of time. this is helpful for consumers because it provides some certainty. however, consumers might benefit from a price war. once one firm cuts price aggressively, others in the market are forced to follow or they risk losing market share. as a result, consumers benefit from lower prices in the market. however, price wars do not normally last for very long and there is also the threat that one of the firms is squeezed out of the market. as a result, the market becomes less competitive and in the long term survivors might push prices even higher

"female participation" as a factor affecting the supply of labor

in the last 50 years, in many countries, there has been a change in the role of women. an increasing number of women have elected to work due to changes in society and more favorable equality legislation to work and pursue careers. this has increased the size of the working population

primary sector

in the primary sector, business activity involves extracting raw materials from the earth. examples include: 1. agriculture involves a range of farming activities. it is the most important primary sector activity for most countries. it's concerned with food production and exotic products like tropical fish 2. FISHING 3. FORESTRY involves protecting the natural environment and managing areas for wildlife 4. mining and quarrying: extraction of raw materials e.g. oil, copper, tin

"poor motivation" as a disadvantage of large firms

in very large organizations, people can become alienated. the organization may become so large that the effort made by a single employee seems insignificant. personal contact between employees in large organizations may be lacking and this can result in poor worker motivation

entrepreneurs

individuals who organize the other factors of production and risk their own money in a business venture

collusion

informal agreements between firms to restrict competition

competition

rivalry that exists between firms when trying to sell goods to the same group of customers

"lack of innovation" as a disadvantage to consumers of a highly competitive market

it could be argued that innovation in a competitive market might be lacking. this is because firms make less profit in competitive markets. as a result, they may not have enough profit to invest in product development

"market uncertainty" as a disadvantage to consumers of a highly competitive market

it could be argued that there may be some uncertainty of disruption in competitive markets. this is because unprofitable firms eventually leave the market. this means that some consumers might be inconvenienced

"government regulation" as a factor influencing the growth of firms

it is in the interests of consumers, and the economy in general, to have healthy competition between businesses. competition will encourage innovation, improve efficiency, and prevent consumer exploitation. consequently, governments will monitor business activity and ensure that individual markets are not dominated by one or a small number of firms. in this role, the government may sometimes prevent the growth of some firms to stop them becoming too big. they can do this by investigating each merger and takeover, and blocking those that threaten to reduce competition

"inefficiency" as a disadvantage of monopoly

it is possible to argue that monopolists may be inefficient. if a firm does not face any competition, there is no incentive to keep costs down. as a result, a monopolist might adopt a 'care-free' approach to business and incur unnecessary costs. if monopolies get too big, they might suffer from diseconomies of scale. as a result, their average costs will rise. finally, some monopolists have been criticized for offering poor customer services. e.g. because monopolists know that their customers cannot switch to another provider, they may operate call centers with too few staff

"lack of innovation" as a disadvantage of monopoly

it is sometimes argued that monopolists do not have enough incentive to spend money on product innovation. if they dominate the market and are able to prevent or restrict entry, there is no need to develop new products. this is because consumers are forced to buy the existing products. if monopolists are making higher profits without innovating, they may consider that resource invested in R&D are wasted

migration as a part of labor

it might be possible to improve the quality of human capital by attracting skilled workers from overseas. if immigrants are well trained and highly skilled then an economy is likely to become more productive as a result of their presence in the labor market. however, many immigrants are not skilled but still make a positive contribution to productivity. this may be because an untrained migrant childminder might release a highly skilled parent for work, e.g. many countries in the world openly attract large numbers of overseas workers

labor as a factor of production

labor is the workforce in the economy. manual workers, skilled workers, and managers are all members of a nation's workforce. the quality of individual workers will vary considerably. the value of an individual worker to a business is their human capital. it is possible to increase the value of human capital through education and training. this will help make workers more productive

"labor mobility" as a factor affecting the supply of labor

labor mobility can have an impact on the supply of labor in a particular labor market. for example, if workers are geographically mobile, it means that they can move easily from one region to another to find work. if workers are occupationally mobile, it means they can switch from one type of job to another more easily. as workers become increasingly mobile, the supply of labor in a particular market can be boosted. in recent years, improvements in the transport networks in many countries have improved the geographical mobility of labor

genetically modified crops as a part of land

land productivity has been increased recently by using genetically modified (GM) crops. producing GM plants involves transferring genes and DNA from one organism to another. this results in plants that are less likely to be affected by disease, may produce higher yields and, in some cases, more appealing to consumers. however, there has been some opposition to the development of GM crops because genetic engineering is unpredictable. by adding genes from organisms that have never been eaten as good, new proteins are introduced into food chains. there is concern that these could cause allergic reactions or other negative health effects

financial economies

large firms can get access to money more cheaply. they also have a wider variety of sources to choose from. e.g. a large limited company can raise money by selling shares. this option is not available to a sole trader. large firms can put pressure on banks when negotiating the price of loans. banks are often happier lending large amounts to large companies at lower interest rates

"market domination" as an advantage of large firms

large firms can often dominate a market. they have a higher profile in the public eye than small firms and benefit from such recognition. this may mean that they can charge higher prices that enable them to make higher profits

"too bureaucratic" as a disadvantage of large firms

large firms sometimes become overwhelmed by their administration systems. e.g. decision making can be very slow in large firms because so many different people have to be contacted before a decision can be taken. too many resources may be used up in administration. e.g. too much time may be spent filling in forms and writing reports. also, communication channels may be too long and too many managers may be employed

purchasing economies

large firms that buy lots of resources get cheaper rates. suppliers offer discounts to firms that buy raw materials and components in bulk. this is similar to consumers buying multi-packs in supermarkets - they are better value for money. bulk buying a purchasing economy

bureaucracy as a part of diseconomies of scale

larger businesses rely more on bureaucracy. if a business becomes too bureaucratic, it means that too many resources are used in administration. too much time may be spent filling in forms or writing reports. also, decision making may be too slow and communication channels too long. if resources are wasted in administration, average costs will start to rise

risk-bearing economies

larger firms are more likely to have wider product ranges and sell into a wide variety of markets. this reduces the risk in business. e.g. many supermarkets have extended their product ranges to include household goods, books, a café, and clothes

patent

license that grants permission to operate as a sole producer of a newly designed product

"migration" as a factor affecting the supply of labor

many countries welcome immigrants to help increase the working population. e.g. many countries in the Middle East have a history of welcoming foreign workers

"lower wage costs" as an advantage of small firms

many workers in small firms do not belong to trade unions. as a result, their negotiating power is weaker and the owners are often able to restrict pay to the legal minimum wage

oligopoly

market dominated by a few large firms. however, in common with most other oligopolies, a fraction of the market is often served by a number of much smaller firms. such small firms can often survive alongside huge firms because they supply a market niche - a very small part of the market that is not served by the dominant firms

niche market

market for a product or service, perhaps an expensive or unusual one, that does not have many buyers, but that may make good profits for companies that sell it

minimum wage

minimum amount per hour which most workers are legally entitled to be paid

reasons for a minimum wage

minimum wages will benefit disadvantaged workers. it is argued that people such as women, ethnic minorities, and low-income families benefit from minimum wages since they reduce inequality and increase fairness. in many countries, the gap between the rich and poor is rising and it is argued that minimum wages might help to close this gap in some countries, many workers on low incomes are entitled to claim welfare benefits from the state. however, if their incomes are increased by the minimum wage, the amount they are entitled to claim will fall. this will save the government money. also, as income rises, workers may pay more tax, which will benefit the government higher wages may serve to motivate many workers. if people know that their work is going to be rewarded with higher pay, they may work harder. this will help boost productivity in the economy if minimum wages are enforced, employers might respond by making their workers more productive to justify the higher wages. they may invest more in training, e.g. they may also replace inefficient labor with more efficient machinery. both of these responses would increase the productivity of the economy

"barriers to entry" as a feature of monopoly

monopolies often exist because competition is discouraged. in some markets, there are obstacles that prevent a new entrant from trying to compete. barriers to entry are a common feature in monopoly and the main ones are: 1. legal barriers 2. patents 3. marketing budgets 4. technology 5. high start-up costs

"marketing budgets" as one of the main barriers to entry in a monopoly

monopolists often have strong brand names. this makes it difficult for new entrants to compete because their products will be unfamiliar and may not be trusted by consumers. dominant firms often spend large amounts of money on advertising to strengthen their brand names. such high spending levels are very difficult for new entrants to match

secondary sector as a part of capital

new technology has featured significantly in manufacturing. many factories and production lines employ complex plant and equipment. this has led to huge increases in productivity. one example includes the use of robots that can handle a lot of repetitive work in factories. robots have reduced the need to employ people in jobs that were boring and demotivating. another example is the use of computer numerically controlled (CNC) machines. these computerized machines come in a variety of different forms. they may be involved in processes such as cutting, pressing, and sewing

barriers to entry

obstacles that might discourage a firm from entering a market

"diseconomies of scale" as one of the reasons firms stay small

once a firm reaches a certain size, any further growth results in diseconomies of scale. if a firm expands beyond the minimum efficient scale, average costs start to rise. a firm is not likely to grow any further if costs start to rise because it would have to charge more for its output

product differentiation

one aspect of innovation is product differentiation - this is an attempt by a firm to distinguish its product from that of a rival. e.g. in Italian towns, there are many restaurants offering authentic Italian food. even though they are all offering the same cuisine, there are likely to be differences in the service supplied by each restaurant. there may be differences in location, menus, food quality, atmosphere, etc.

causes for increase of labor supply

one of the main driving forces behind the growth in the supply of labor has been global population growth. naturally, if there are more people in the globe, there are more people available for work in some countries, governments have raised the retirement age. this means that people have to work longer before they can receive any state pension. therefore, raising the retirement age will increase the supply of labor. this causes wage rates to fall and the number of people employed to rise it could be said that there is little evidence to suggest that wages have fallen over the years as both the global population and the supply of labor have grown

"few firms" as a feature of oligopolistic markets

one of the main features of oligopoly is that the market often contains just a few firms. there is no exact number but it could be as few as three, four, five, or six, e.g. oligopoly is a common market structure and there are many examples in most countries around the world, e.g. Song BMG

"economies of scale" as a factor influencing the growth of firms

one of the main motives for growth is to reduce average costs. as a firm grows, average costs will fall because it is possible to exploit economies of scale. in some industries, such as car manufacturing, air transport, and power generation, costs can be lowered significantly by producing very large quantities of output. consequently, businesses are more likely to grow in such industries. however, in other markets it may be more difficult to exploit economies of scale. e.g. there are few examples of giant window cleaning operations and multinational hair salons. there are few opportunities to exploit economies of scale in these markets; therefore business growth will be limited

calculating profit

one of the main reasons why firms calculate their costs and revenue is to work out profit or loss. profit is the difference between total revenue and total costs profit = total revenue - total costs it is possible to calculate the profit for a firm at any level of output using this method. if total costs exceed total revenue, then a loss is made

role of the government in promoting competition

one of the roles of the government in the economy is to promote competition and prevent anti-competitive practices. they do this by: 1. encouraging the growth of small firms: there may be business services that provide information and advice on running a business and obtaining finance. taxes are also lower for small firms 2. lower barriers to entry: if barriers are lowered or removed, then more firms will join a market making it more competitive. in recent years, many countries have removed some of these legal barriers. 3. introduce anti-competitive legislation: in many countries legislation exists to prevent practices that result in reduced competition

government intervention in the labor market

one way in which governments intervene in the labor market is to set a minimum wage. this involves passing legislation that means no employer is allowed to pay their workers an hourly rate below the limit set. in some countries, governments appoint a body to review minimum wage levels every year. employers face a penalty if they pay wages that are lower than the national minimum wage. also, workers will be entitled to have money owed repaid at current rates

"the desire to take over competitors" as a factor influencing the growth of firms

one way to grow a business is to take over rivals in the market. this is a quick way of growing and helps to reduce competition. however, over time the amount of merge and acquisition (M&A) activity tends to very. if the desire to take over rivals falls, this can influence the growth of firms

training as a part of labor

one way to improve the quality of human capital is to invest in training. training involves increasing the knowledge and skills of workers so they can do their job more effectively. training is important because it allows employees to acquire new skills, improve existing ones, perform better, and be better leaders. it also helps to improve employee motivated so productivity will be higher. it is also important since training involves, in part, teaching new staff how to work safely in their new environment the government can help to improve the quality of human capital by investing in the education system. this might involve providing more equipment for schools and improving the quality of teaching. to equip young people with the skills needed in the workplace, a government might invest more in vocational education. firms can also improve the productivity of their workers by providing their own training

trade unions

organization repressing people working in a particular industry or profession that protects their rights

labor

people used on production

job rotation

practice of regularly changing the person who does a particular job

production

process that involves converting resources into goods or services

primary sector/industry

production involving the extraction of raw materials from the earth

secondary sector/industry

production involving the processing of raw materials into finished and semi-finished goods

specialization

production of a limited range of goods by individuals, firms, regions, or countries. it allows people to concentrate on the task or skill at which they are best. it is argued that specialization raises efficiency in firms and the economy

teritary sector/industry

production of services in the economy

labor intensive

production that relies more heavily on labor relative to machinery

capital intensive

production that relies more heavily on machinery relative to labor

factors affecting productivity

productivity can be improved if a business makes better use of its resources 1. land 2. labor 3. capital

value-added

products or services have an increased value because work has been done on them, they have been combined with other products and so on; this increase in value to the buyer is what the buyer pays for

productivity

rate at which goods are produced, and the amount produced in relation to the work, time, and money needed to produce them. raising productivity in an economy is highly desirable. it means that more goods and services can be produced with the same, or fewer, resources

inflation

rate at which prices rise, a general and continuing rise in prices

disadvantage of competition to economy

resources might be wasted. one of the reasons for this is that some factors of production are often immobile. when firms cease trading in a competitive market, resources are released for alternative uses. people are made redundant and resources like equipment, tools, land, and buildings come up for sale. however, it often takes time for these resources to be reallocated

factors of production

resources used to produce goods and services, which include land, labor, capital, and enterprise

working capital or circulating capital

resources used up in production such as raw materials and components

diseconomies of scale

rising average costs when a firm becomes too big. average costs start to rise because aspects of production become inefficient. the possible reasons why this might happen are: 1. bureaucracy 2. communication problems 3. lack of control 4. distance between senior staff and shop floor workers

"non-price competition" as a feature of oligopolistic markets

since firms are keen to avoid price wars, they compete using advertising and promotions such as coupons, loyalty cards, competitions, and free offers. branding is a common feature in some markets. this is where firms give products a name, term, sign or symbol, e.g. this helps consumers identify them more easily. firms then try to create brand loyalty through advertising, so that customers carry on buying the brand. product differentiation is also common. this is where the firm tries to persuade customers that their brands are different from those of competitors. imaginary differences can be created and reinforced by the work of marketing teams

"innovation" as an advantage of monopoly

since monopolies are often large and make high profits, they have the resources to invest in R&D. as a result they are able to develop new products and new technologies from which consumers will benefit

"economies of scale" as an advantage of monopoly

since most monopolies are large, they are able to exploit economies of scale. this means that their average costs are lower. as a result, they may be able to supply products to consumers at a lower price. this will obviously benefit consumers if the cost savings are passed on. it is argued by some that if a firm has a monopoly in the domestic market, it can build strength and compete more effectively with competition from overseas. this will help to increase employment and national income in the domestic economy

"quality" as an advantage of oligopoly

since non-price competition is common in oligopolistic markets, one method firms can use to differentiate their product is to make it better. consequently, the quality of products in some markets might be superior. e.g. the soft drink industry in the USA is an oligopoly dominated by the Coca-Cola Company, the Dr. Pepper Snapple Group, and PepsiCo. it might be argued that these companies are able to differentiate their products (e.g. by taste) and are therefore able to gain market power. however, sometimes the superior quality of products might only be a matter of perception. this means that consumers just think that the quality of certain products is better because the powerful forces exerted by advertising and promotion have shaped their views

"better communication" as an advantage of small firms

since small firms have fewer employees, communication tends to be informal and more rapid than in larger organizations. the owner will be in close contact with all staff and can exchange information quicker and more efficiently. as a result, decision making will be faster and workers may be better motivated

natural monopolies

situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many smaller firms

monopoly

situation where there is one dominant seller in a market

"flexibility" as an advantage of small firms

small firms can adapt to change more quickly. this is because the owners, who tend to be the main decision makers, are actively involved in the business and can react for change. e.g. a small baker can produce a personalized birthday cake for individual customers. a large national cake manufacturer may not be able to do this

"higher costs" as a disadvantage of small firms

small firms cannot exploit economies of scale because their output is limited. consequently, their average costs will be higher than their larger rivals. this means that small firms often lack a competitive edge

"difficult attracting quality staff" as a disadvantage of small firms

small firms may find it difficult to attract highly qualified and experienced staff. one reason for this is because they lack resources. e.g. they may not be able to afford the wages or the training that high-quality employees require

"lack of finance" as a disadvantage of small firms

small firms often struggle to raise finance. their choice of sources is limited. e.g. a sole trader cannot sell shares to raise more finance. they are also considered to be more risky than larger firms by financial institutions and other moneylenders

market niche

smaller market, usually within a large market or industry

drainage as a part of land

some areas of land are unproductive because they are flooded. drainage can be used to improve the flow of water off this land and thereby make it more productive

"aims of the entrepreneur" as one of the reasons firms stay small

some business owners do not want to grow their businesses. they may be happy running a small business. they may be making enough profit to satisfy their needs and do not want the responsibility of taking on more workers, expanding operations, and borrowing more money. also, some businesses are "lifestyle" businesses. this means the owners have interests other than their businesses and they need time and flexibility to pursue them. as a result, such businesses are likely to remain small

"other employment costs" as a factor affecting the demand for labor

the demand for labor may also be affected by other costs linked to employing labor. these include national insurance contributions (NICs), which are paid to the government when employing a worker in some countries; recruitment and selection costs; the costs of pensions; sick pay; and private health insurance and free meals

"lack of finance" as one of the reasons firms stay small

some businesses would like to grow by are not able to raise the finance needed to expand. growth usually requires investment in new resources, such as new machinery, equipment, and more labor. unfortunately, some businesses are not able to convince money lenders that if the company grows it will be more successful and the finance will be repaid. many small businesses that want to grow are still seen as too risky

how do some economies increase production?

some economies rely heavily on migrants when increasing production. e.g. in Germany, during the 2000s, large number of Eastern Europeans moved to Germany looking for work. many of them were employed in service industries to help increase production

labor and capital intensive production

some firms use relatively more labor than capital when producing goods and services. therefore, production is said to be labor intensive. e.g. in China, labor is very cheap and many firms choose labor-intensive production methods. the provision of services is also generally labor intensive. in contrast, if more capital is used than labor, production is said to be capital intensive. firms in Western economies often favor capital-intensive production methods because labor is more difficult to manage

do minimum wages cause job losses?

some have argued that minimum wages do not reduce the level of employment in the economy. there is some evidence to support this view. e.g. since the introduction of the minimum wage in the UK in 1999, the number of people employed has actually risen. there was a dip for a few years but this was almost certainly due to the global financial crisis when employment fell in many countries during a global recession furthermore, in the USA, a study by the EPI found that the 1996/97 minimum wage increases did not reduce employment in the economy. in fact, after the increase, the low-wage labor market performed better than it had in many years. however, it is important to note that both the UK and US economies grew strongly during this period, which means that demand for labor would have been increasing

"size of the market" as one of the reasons firms stay small

some markets are too small to sustain very large companies. e.g. the market for luxury yachts is limited. only a relatively small number of very wealthy people can afford to buy a luxury yacht. therefore, businesses in this market will struggle to grow into very large organizations

communication problems as a part of diseconomies of scale

some very large organizations employ hundreds of thousands of workers. they are likely to be spread all over the world. workers in different countries speak different languages and have different cultures. there are also time differences between different global operations. this can make communication in an organization challenging

fixed capital

stock of 'man-made' resources, such as machines and tools, used to help make goods and services

the impact of a minimum wage on wages and employment

supply and demand analysis can be used to show the effects of a minimum wage on wages and employment in labor markets. if the government imposed a higher minimum wage, by law all workers will receive at least that much. unfortunately though, economic theory suggests that the minimum wage will have a negative effect on the level of employment. therefore, in theory, a minimum wage will result in job losses

why does the supply of labor increase as wage rate rises?

supply of labor increases as the wage rate rises because an increasing number of people are prepared to work. work is more worthwhile at high wage rates

bureaucracy

system of administration that uses a large number of departments and officials

technical economies

technical economies occur because larger factories are often more efficient than smaller ones. there can be more specialization and more investment in machinery. one example of a technical economy is the way a large firm will make a better use of an essential resource than a smaller firm. for example, a small engineering company may buy some CAD (computer-aided design) software for US$1000. it is needed by the business but is only used for one day a week. a much larger engineering company may buy the same software but use it every day of the week. clearly, the larger company is making better use if the software and therefore it's average cost will fall

"age distribution of the population" as a factor affecting the supply of labor

the age distribution of the overall population of a country may have an effect. in most developed countries there is an aging population. this means that the number of people over the age of about 65 years as a proportion of the total population is increasing. this also means that the dependency ratio is rising. this is the proportion of dependents (non-workers) to workers in the population. as the population ages, the dependency ratio may increase and this places a financial burden on the rest of the population

total revenue

the amount of money a firm receives from selling its output is called total revenue. total revenue can be calculated by multiplying the price of each unit by the number of units sold: total revenue = price x quantity

wage rate

the amount of money paid to workers for their services over a period of time (that is, the price of labor)

disadvantage to a firm in a competitive market

the amount of profit made will be limited. in markets where competition is fierce, prices are likely to be lower and the potential for profit also lower. the total profit in the industry has to be shared between many firms

average costs

the average cost of production is the cost of producing a single unit of output. the formula for calculating average cost is: average cost = total cost / quantity produced

the average cost curve

the average costs for a business can be presented graphically. the average cost curve is U-shaped, which means that as output increases, average costs fall at first, reach a minimum and then start to rise

why does the demand for labor falls as wages rise?

the demand for labor falls as wages rise because higher wages lead to higher production costs. as a result, firms cut production and therefore need fewer workers

will demand for labor always be the same?

the demand for labor in a particular industry is not likely to remain constant over a long period of time. e.g. since the demand for labor is a derived demand, if there is a fall in the demand for a particular product, there will be a fall in demand for workers involved in the production and selling of that product

"demand for the product" as a factor affecting the demand for labor

the demand for labor is said to be a derived demand. this means that the demand for labor is derived from the demand for the goods and services supplied by firms and public sector organizations

"availability of substitutes" as a factor affecting the demand for labor

the demand for labor may be affected by the cost and availability of substitutes for labor. for example, in many organizations, it is possible to replace people with machines. if firms believe that machines are more efficient and cheaper than people, they will probably substitute people with machines

"barriers to entry" as a feature of oligopolistic markets

the firms that dominate the market are likely to benefit from barriers to entry. e.g. the set-up costs might be very high. the dominant firms are also likely to discourage entry by investing heavily in their brand. without barriers to entry, the high profits enjoyed by the dominant firms would attract new entrants. as a result, their dominance would be reduced

government intervention to deal with externalities

the government is likely to use a range of measures to reduce external costs and provide external benefits, e.g. these could include taxes, subsidies, pollution permits, fines

"innovation" as an advantage of oligopoly

the level of innovation in oligopolistic markets might vary. on one hand, since large and powerful firms dominate the market, it could be argued that they will have the resources to invest in R&D. it is true to say that competition can be resisted if an individual firm can develop a new model that is superior to those of rivals. on the other hand, it might be argued, from a consumer's point of view, that the large amounts of money many oligopolists spend on advertising and promotion would be better spent on innovation

"economies of scale" as an advantage of large firms

the main advantage to large firms is that their average costs are likely to be lower than those of smaller rivals. they can operate in large-scale plants and exploit economies of scale. e.g. they can get cheaper supplies of materials and components because they buy in bulk

changes in the importance of different sectors

the number of people employed in each sector does not stay constant over time. different sectors grow and decline according to economic and social changes in the last 60 years, the tertiary sector has started to expand at the expense of both agriculture and manufacturing. the decline in manufacturing is called de-industrialization

"unique product" as a feature of monopoly

the product supplied by a monopolist will be highly differentiated. there will not be another exactly like it. e.g. where a pure monopoly exists there will be no rivals at all. therefore, the product supplied is the only one available; there is no choice at all for the consumer. this is often the case with rail travel.

"productivity of labor" as a factor affecting the demand for labor

the productivity of labor may also affect demand. if every worker is able to produce more output, demand for workers is likely to increase. this is because production becomes more profitable, provided the extra output can be sold

tertiary sector as a part of capital

the provision of services has historically been labor intensive but the use of technology is becoming more widespread. e.g. in retailing there has been a huge growth in internet shopping in the last few years. in some supermarkets, there are unstaffed checkout systems. in healthcare, there have been dramatic technological advances in medicine and surgical techniques that have improved productivity. developments in new vaccines and drugs have reduced patients' suffering and cured some serious diseases

impact of education and training on the quality of human capital

the quality of human capital and the quality of labor can be improved through education and training. although the price of labor is important for businesses when making decisions about how many workers to hire, the quality of labor is also important. generally, employers will want to recruit people who can read and write and have good communication skills. they will also want to recruit people with specialist skills. if the labor supply is well educated and trained, it will be more productive.

factors affecting productivity with regards to land

the quality of land varies. some is fertile and can be used to grow crops or farm cattle. other land is dry or mountainous and is almost useless. however, measures can be used to make agricultural land more productive - fertilizers and pesticides - drainage - irrigation - reclamation - genetically modified crops

responsibility for education and training

the responsibility for education and training in most countries is divided between the state and firms. over time, a country will want to improve the quality of labor so that it is more productive. this will require investment by the state and firms in training and education

"skills and qualifications" as a factor affecting the supply of labor

the supply of labor will tend to increase if people become more employable. this can happen if people have good skills and are well qualified

tertiary sector

the tertiary sector involved the provision of a wide variety of services. some examples include: 1. commercial services: printing and employment agencies 2. financial services: banking, insurance 3. household services: decorating, gardening 4. leisure services: hotels, tourism 5. professional services: accountancy, medical care 6. transport: taxi, bus, air services

wage determination

the wage rate in any market is determined by the interaction of the supply and demand for labor. the equilibrium wage is determined where the supply and demand for labor is equal

factors affecting the demand for labor

the wage rate is not the only factor that affects the demand for labor. other factors include: 1. demand for the product 2. availability of substitutes 3. productivity of labor 4. other employment costs

improved working practices as a part of labor

the way labor is organized and managed can affect productivity. working practices are the methods and systems of work that employees are expected to adopt when taking on a job. labor productivity has been improved significantly by adopting new working practices. e.g. it may be possible to change the factory layout by moving workstations or reorganizing the flow of production. such changes can improve labor productivity because workers may not have to move around as much, e.g.

"large-scale contracts" as an advantage of large firms

there are both small and large firms in the construction industry. however, a small firm could not compete with a large firm for a contract to build a new motorway for the government. only large firms can win these large-scale, often highly profitable contracts because small firms do not have the resources to carry out the work

developed and developing countries

there are some significant differences in the structure of economies in developed and developing countries. in most developed countries, the primary sector is much less important than the tertiary sector. only a small percentage of the workforce is employed in the primary sector. in many developing countries, the secondary sector is now growing with some expansion of the tertiary sector

irrigation as a part of land

this involves redirecting water from natural sources, such as rivers, lakes, or streams, to land that needs more water to become more productive. in crop production, it is mainly used in dry areas and in periods of rainfall shortages but also to protect plants against frost. irrigation systems are used in many parts of the world

boom

time when business activity increases rapidly, so that the demand for goods increases, prices and wages go up, and unemployment falls

deregulation

to remove or reduce the number of government controls on a particular business activity, done to make companies work more effectively and to increase competition

compensate

to replace or balance the effect of something bad

fit for purpose

usable (by a consumer) for the purpose for which it was intended

human capital

value of the workforce or an individual worker

variable costs

variable costs are costs that change when output levels change. if a firm produces more output, variable costs will increase. similarly, if output levels are cut, variable costs will fall. examples of variable costs include raw materials, packaging, fuel, and labor. if a firm produces nothing, variable costs will be zero. if the variable cost per unit is multiplied by the number of units produced, this will give the total variable cost, i.e. TVC = VC x Q

secret ballots

way of voting in which people write their choices on a piece of paper in secret

the importance of the quantity and quality of labor to businesses

when a business is considering locations for its operations, it is not just the cost of labor that is important, it is also the quality and quantity of human capital. a business is not likely to locate a factory in a particular place just because labor is cheap. a business has to consider whether the labor available meets the skills required to maintain quality standards. businesses cannot afford the consequences of poor quality work. in some of the locations where labor is cheap, most of the workers are unskilled and often poorly educated. consequently, a business setting up an operation in that location may have to invest substantial sums of money in training unless all the work on offer is unskilled when choosing a location, businesses have to ensure that there are enough workers near to the site chosen. they will also have to consider whether there would be enough workers in the future if operations needed to expand. some businesses are beginning to find recruitment difficult in China. first, the availability of workers has been reduced due to China's one-child policy. but also, many do not want to work in factories, nor do they want to work for exporters. this is because the quality standards are more challenging than those for goods produced for the domestic market. businesses need access to sufficient numbers of skilled workers in order to minimize costs, operate efficiently, and make more profit

boom and bust

when an economy regularly becomes more active and successful and then suddenly fails

"large firms dominate" as a feature of oligopolistic markets

when an oligopoly exists in a market, a few large firms will dominate it. they will have a large proportion of the market to themselves. large firms will be highly influential in the market. e.g. they are likely to set the price that the majority of consumers will pay. smaller firms often just copy the price charged by the dominant firms

similar businesses in the area as a part of external economies of scale

when firms in the same industry are located close to each other, they are likely to cooperate with each other so that they can all gain. e.g. they might work together to share the cost and benefits of a research and development center, as high-tech businesses do in Silicon Valley, California, USA

"vulnerability" as a disadvantage of small firms

when trading conditions become challenging, small firms may find it more difficult to survive than their larger rivals. this is because they do not have the resources to draw on when economic conditions worsen. small firms might also be at risk of takeovers. owners may be forced to accept unattractive takeover terms

price maker

where a dominant business is able to set the price charged in the whole market

cartel

where a group of firms or countries join together and agree on pricing or output levels in the market

price war

where one firm in the industry reduces prices causing others to do the same

interdependence

where the actions of one country or large firm will have a direct effect on others

government intervention

where the government becomes involved in a situation in order to help deal with a problem

role of government intervention

without government intervention, some businesses might neglect the needs of certain stakeholders. e.g. the environment might be damaged, workers might be paid low wages, small businesses might be unduly pressurized or consumers might be overcharged. one of the roles of the government is to provide a legal system in which businesses can operate and a system of incentives and penalties to ensure that 'at-risk' groups are protected. however, it is important for the government to find the right balance. too much intervention will discourage enterprise and reduce foreign investment. this might restrain growth in national income, reduce job creation, decrease tax revenues, and reduce consumer choice

role of the government in protecting consumer interests

without government intervention, some firms may exploit consumers by using anti-competitive practices or restrictive practices. this may include: 1. increasing prices to higher levels than they would be in a competitive market 2. price-fixing 3. restricting consumer choice by market sharing 4. raising barriers to entry by spending huge amounts of money on advertising, which smaller companies could not match, e.g. in some countries, there is a lot of consumer legislation. such legislation covers a variety of consumer issues and aims to protect consumers from some of the practices mentioned above. legislation exists to prevent businesses from activities such as making false claims about the performance of their products and selling goods that are not fit for purpose. if businesses break consumer laws, they may be fined and have to compensate consumers for any loss

division of labor and the worker disadvantage

work can become boring because it is repetitive. this is most likely to happen if a particular task requires little skill. this boredom may lead to job dissatisfaction and affect motivation. repetitive tasks can also have health implications for workers, such as joint wear. another serious problem for workers that might be too specialized is the risk of unemployment

secondary picketing

workers in one workplace or company strike in a group at a particular location in order to support the striking workers in a different workplace or company