iGCSE - Microeconomics (The Market System & Business Economics)

4 factors of production

capital, enterprise, land, labour

3 sectors of the economy

primary, secondary, teritary 

what does primary sector do?

extracting raw materials from earth 

examples of the primary sector (4)

1. agriculture
2. forestry
3. mining 
4. fishing

what does the secondary sector do? 

converting raw materials to finished / semi-finished goods.

what does the teritary sector do?

provide a wide variety of services

define de-industrialisation

the decline in manufacturing 

in developed countries, what sector contributes the most to the economy?

teritary

define productivity

rate at which goods are produced, and the amount produced in relation to work, time and money needed to produce them

factors affecting productivity (for land) - 5 

1. use of fertiliser
2. drainage
3. irrigation
4. land reclamation
5. GM crops 

factors affecting productivity (for labour) - 3

1. training
2. improved motivation and work practises
3. migration 

factors affecting productivity (for capital) - 2

1. increased quantitiy
2. technological advancedment 

define division of labour

the break down of the production process into small parts with each part allocated to specific task

define specialisation

producted of a limted range of goods by individuals, firms, regions and countries

DOB advantages for workers (3)

1. Worker becomes more skilled
2. More skilled leads to higher wage
3. More job satisfication

DOB disadvantages for workers (3)

1 Boring as job is respetitive
2. boredom may lead to job dissatisifcation 
3. too specialised may risk unemployment

DOB advantages for business (3)

1. improved efficiency
2. greater use on tools
3. reduced production time

DOB disadvantages for business (4)

1. poor quality of work due to boredom
2. loss of flexibility in workplace
3. may lead to staff turnover
3. production chain is dependent on previous stages

define fixed costs 

costs that do not vary with the level of output 

define variable costs

costs that change when output levels change 

define average cost

the cost it takes to produce a single unit of output 

define total revenue

the total amount of money a firm makes by selling its output 

define profit

the amount of money a firm makes after paying its cost

formula for total cost

variable costs + fixed costs = total costs 

formula for average cost

total cost / quantitiy produced 

formula for total revenue

price x quantity 

formula for profit

revenue - total costs 

define economies of scale

falling average costs due to expansion

define diseconomies of scale

rising average costs when a firm becomes too big

define internal economies of scale

cost benefits that an individual firm can enjoy when it expands

types of internal economies of scale (6)

1. purchasing economies 
2. marketing economies 
3. technical economies 
4. financial economies 
5. managerial economies 
6. risk-bearing economies 

name a purchasing economies 

bulk buying

define external economies of scale 

cost benefits that all firms in an industry can enjoy when the industry expands

types of external economies of scale (4)

1. skilled labour
2. infrastructure
3. access to suppliers
4. similar businesses in the area 

types of diseconomies of scale (4)

1. bureaucracy 
2. communication problems
3. lack of control
4. distance between top managements and workers at the bottom of the organisation

advantages of competition to consumers (3)

1. lower prices
2. better quality
3. more choices

disadvantages of competition to consumers (2)

1. market uncertainty
2. lack of innovation

affect of competition on firms 

more pressure to become efficient and innovative.

5 advantages of small firms

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

4 disadvantages of small firms

1. difficulty to attract quality staffs
2. higher costs
3. lack of finance
4. vulnerability 

3 advantages of large firms

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

3 disadvantages of large firms

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

5 factors influencing growth of firm

1. government regulaion
2. access to finance
3. economies of scale
4. desire to spread risk
5. desire to takeover competitors

4 reasons firms stay small

size of market
nature of market
lack of finance
aims of entrepreneur 

define monopoly

situation where there is one dominant seller in a market 

4 main features of monopoly

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

5 barriers to entry

1. high start-up costs
2. legal barriers
3. patents
4. technology 
5. marketing budgets 

3 advantages of monopoly

1. efficiency
2. innovation
3. economies of scale 

4 disadvantages of monopoly

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

define oligopoly 

a market dominated by a few firms

6 main feautres of oligopoly

1. price competition
2. non-price competition
3. few large firms dominating a market
4. collusion
5. barriers of entry
6. different products

define collusion

informal agreements to restrict competition

5 advantages of oligopoly

1. more choice
2. better quality
3. economies of scale 
4. more innovation
5. price wars between oligopoly 

2 disadvantages of oligopoly

1. no competition in the market
2. collusion

3 factors affecting demand for labour

demand for final product (derived demand)
avalibility for subsitutes
productivity of workfroce

8 facotrs affecting supply of labour

1. population
2. retirement age
3. school leaving age
4. ability to move geographic location
5. migration
6. skills and qualification
7. female participation
8. age distrubition of population

4 aims of trade unions

"

- negotiate pay and working conditions

- provide legal protection

- put pressure on government to pas legislation that improves the right of workers

- provide financial benefits 

"

5 government policies to deal with externalities

1. taxation
2. subsidies
3. fines
4. regulation
5. pollution permits

advantages for  taxation

can reduce external costs of production and consumption

advantages for subsidies

encourage households and firms to generate external benefits

advantages for fines

reduce external costs

advantages of regulation

protects the environment

advantages for pollution permits

reduces pollution

disadvantages for taxation

may not impact those with addiction

disadvantages for subsidies

opportunity costs

disadvantages for government regulation

may not be easy for people to obey law

disadvantages for permits

governments have to decide how many permits to give out

4 reasons government regulate competition

- promote competition
- limit monopolies
- protect consumer interest
- control mergers and takeovers 

benefits of minimum wage

- benefits disadvantages workers

- save government money as they are no longer entitled to claim welfare benefits

- motivate workers

- more productivity