Scarcity, Choice, Potential (Topic 1.1)

Scarcity

When there’s finite resources to meet unlimited wants

Economic problem

Managing and allocating scarce resources distributing them to satisfy people’s unlimited wants

Opportunity cost

Making a decision that could give up value or benefit from an alternative choice (the best next alternative foregone)

Need

basic requirement that is essential for human survival

Want

Non-essential desire or aspiration for goods and services that individuals would like to consume to improve their quality of life, comfort, or satisfaction.

Social Welfare

Wellbeing and happiness of society as a whole including distribution of resources to meet people’s needs and wants.

Incentive

A reward or penalty that motives economic agents to behave in a certain way or to change their choices

Economic Agents

Firms

Consumers

Government

Free Market

Economic system where all resources are allocated by private individuals and firms through price mechanism, with zero government intervention

Trade-off

Giving up one option to gain another

Profit Maximisation

Seeking the highest possible profit

Sales maximisation

Selling as many units as possible without making a loss to gain market share

Satisficing

Earning just enough to satisfy shareholder, while satisfying other business goals

Stakeholder

Any person with a interest in the actions of a business

Principal Agent Problem

Specific conflict where shareholders (owners) want profit maximisation but employees/agents prioritise their own bonuses, leisure and demand for increased wages.

Corporate Social Responsibility (CSR)

When a business prioritises ethical, social and environmental goals over pure profit

Market share

The proportion of total sales in a market that is made by one specific business. It is used as a measure of a firm's competitiveness and dominance.

Survival

Short term objective where a business focuses on purely generating enough cash to cover its costs and to not go in debt or bankrupt.

Cost Efficiency

Minimising the waste of resources and rescuing production costs per unit (Average cost) to increase profit margins or lower prices for consumers

Employee Welfare

non-financial business objective centered on looking after the physical and mental well-being of staff (Fair wages, treatment and working conditions) leading to higher productivity

Customer satisfaction

Ensuring that good or services meet or exceed customer expectations to build loyalty.

Internal stakeholders

Groups inside the business (employees higher wages, shareholders profit maximisation, managers bonuses)

External stakeholders

Groups outside the business

(customers wanting low prices, suppliers wanting reliable prices, local community wanting low pollution, government wanting tax, banks handing out loans.)

Stakeholder conflict

When objectives of 2 stakeholders clash, making it impossible to satisfy both sides.

Return on investment

Financial gain of an investment compared to its cost