Subject content What students need to learn:
1.1.1 The economic problem
a) The problem of scarcity (where there are unlimited wants and finite resources)
Wants are unlimited , resources are finite
Scarcity - shortages of resources relation to quantity of human wants
Choice has to be made with your products
b) Choices and potential trade-offs
Scarcity links to opportunity cost
Opportunity cost - cost of the next best alternative forgone when making a chioce
c) The importance of opportunity costs to consumers, producers and government
Opportunity costs important to economic agents:
Producers: choose hiring new staff between investing new machines
Government : spending NHS between spending education
Have finite resources , so chioce has be made where resources spent
Free market economy - an economic system where price is determined by unrestricted competition
Market forces - Factors influence the direction of the market , supply and demand
1.1.2 Business objectives
a) Different business objectives and reasons for them:
o profit maximisation
Total revenue - total costs
Profit maximise Profit increase when revenue >costs
Selling an item/product at the highest price possible
Reasons: Invest in R and D and technological advancement to produce innovate goods to gain
competitive advantage over their rivals and differentiated themselves from their competitors, gives
them a USP to charge premium prices therefore increase profitability as they can become more
dynamically efficient and gaining technical economies of scale, making demand price inelastic
Mooks
Trading for dummies
2nd reason
It allows firms to give more dividends for shareholders this will retain existing shareholders and
invest their dividends back into the company and it will attract new investors which will increase
demand for customers shares which will increase the share price , increasing the business valuation
o sales maximisation
Firm aims to sell as much as possible regardless of price to get rid of all their stock and increase
market share and sales
2nd reason : limit the threat of new entries by lowering their prices to restrict competitors, once
threat of competition is eliminated they can raise prices in the long run
E.g. Non -profit maximisation
Costs=revenue
May aim most sales gain market share
o satisficing
Earn just enough profit to keep stakeholders happy that allow them to purse other business
objectives
b) Other objectives:
,o survival
Breaking even short term allowing them to remain in the market so in the long run you reduce costs
and build profits in the long run
o market share
Have market power so in the long term able to attract more customers and also influent prices
o cost efficiency
More cost efficient, lower average costs
Lower their cost as price cannot be influenced any more so they get more profit and become
productivity effiecient they can focus on economies of scales
Gives firm competitive advantage , charge consumers lower prices
Firms cost efficient, not competed out market by competitive producers
o return on investment
Take risks to ensure profits
Higher return on investment , more attractive the investment
o employee welfare
Employees more motivated , more efficient , more productive , less labour takeover, greater
retention of workers good job
Increase loyalty between employer and employee = so less likely leave
o customer satisfaction
Increase competitiveness by improving quality and increasing customer satisfaction = continues
buying
May increase customer service or quality of good produced through innovation
Charge higher prices , consumers willing pay for them
o social objectives
Focus on social welfare and CSR
Take responsible consequences of environment + maximise social welfare = creating brand image
create demand price inelastic
1.1.3 Stakeholders (economic agents) and their objectives
a) Stakeholders (economic agents)
Anyone who has an interest on how business should run
The shareholder: want firm make a large profit,
Consumers: want goods of high quality and innovation and low price > availbility of product
Managers: want earn large bonuses and salaries
Government: aim earn tax from firm’s profits , to have a budget , reduce unemployment, inequality
, trade deficit
Suppliers: want firms remain in business so still have customers, money paid on time and fair price,
Firms need from suppler reliability , flexibility , availability and low price
environment
b) Stakeholder objectives
Conflicts between
c) Stakeholder conflicts
Wages and promotion opportunities
Firms charge high prices to maximise profit, consumers lower prices for less proportion income
Income (afford)
Firms give more dividends to shareholders at expense of investing in R and D and innovation
, Government wants the right amount tax revenue cooperation tax and VAT while firms can engage in
take avoidance and transfer pricing (pay less money)
Principal agent problem - shareholders want greater profits as there dividends at linked to it
whereas managers want greater revenue as there bonuses are linked to it
(shareholders give managers a share in business)
Firms are non renewable resources instead on renewable resources that harm the environment
Hard make sure
d) Corporate social responsibility
where the firm makes sure their actions are good for society, good ethics
Result positive effect on environment, communities and employees.
Positive impact on economy and environment
E,g, invest community reduce carbon footprint
to gain competitive advantage over their rivals and differentiated themselves from their
competitors, gives them a USP to charge premium prices as demand would become price inelastic
therefore increase profitability. This could also allow firms to increase their sales and market share
as there will be greater repeat custom(footfall)
Expensive to meet customer and society's need
1.2 Enterprise, business and the Economy
Entrepreneurs are key to a dynamic economy and they take decisions in the context of current
economic conditions. Subject content What students need to learn:
1.2.1 Role of an entrepreneur in the economy
a) Creative destruction (organising factors of production to create and set up an enterprise)
Entrepreneur - person who spots opportunity and shows initiative and willingness
take risks in order to benefit from potential rewards
Entrepreneurs make use of the resources available to them to set up or develop a
business
Creative production - some businesses innovate order produce, new ,cheaper ,
product with a wide market appeal, introducing strong competition
Threatens established producers that fail to adapt
Technological change result improvements in efficiency and productivity = could lower costs
production for firms.
The quality and quantity of goods and services produced might improve. For example, mobile
phones have become cheaper to produce, price has fallen.
improvements in technology, lead development of new products => development of new
markets and may destroy existing markets. For example, downloadable films, has essentially
destroyed the market for DVDs
