Business and consumers

Consumer sovereignty

consumers control the market through their demand

Average propensity to consume

proportion of income spent on consumption

Average propensity to save

proportion of income saved

Factors that affect to save or to spend

Personality, Culture, Future plans, income, government policies, credit availability, age

Utility

satisfaction/pleasure that consumers want when they spend their money.

Substitute good

A good you may buy in place of another good. E.g nuggets and tenders.

Complement good

A good used with another good.

Business firm

an organisation that produces goods and services for profit.

Industry

a group of firms making similar products.

Productive capacity

Potential output when using all resources

Labour specialisation

When a business breaks down production into smaller units and hiring for expertise in these units instead of the whole process

Location specialisation

Occurs when a large number of businesses from the same industry are in the same area, allowing them to share infrastructure and rescue costs.

Capital specialisation

Using specifically designed equipment, like the sifting machines at kfc.

External diseconomies of scale

Factors outside of business control that increase costs.

External economies of scale

cost savings due to factors outside of business control.

Internal economies of scale

cost advantages that a firm achieves through its own growth and expansion

Internal economies of scale

cost saving advantages due to expansion

Economies of scale

cost advantages as you expand production.

Technical optimum

The best of cost savings and max production in economies of scale

List factors influencing consumer choice

• Level of income:

• Price of the good or service itself:

• Price of substitute products:

• Price of complement goods:

• Taste and preferences:

• Advertising:

List sources of consumer income for labour

wages, salary, fringe benefits(stuff on top of main salary such as staff discounts)

List sources of income from land

rent

List sources of income from enterprise

profit

List forms of social welfare

Age pension:

Parenting payment:

Disability:

Job seeker:

What are the 3 questions business ask before producing

What to produce?

How much to produce?

How to produce?

Examples of internal econ scal

efficient equipment, buying in bulk,

Examples of internal disecon of scale

admin inefficiency and bureaucracy

Examples of external econs of scale

better transport and comms, new policies

Examples of disecon of scale

pollution, industrial growth = + compeition = more demand for materials = + price of materials

How do you move along an LRAC

internal econs/disecons of scale

How do you move an LRAC

external econs/disecons of scale