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1.2 Business economics

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  1. 1.2.1 Production

    1. The factors of production: • land • labour • capital • enterprise.

    2. Sectors of the economy: • primary • secondary • tertiary.

    3. Explain changes over time in the employment and output shares of the primary, secondary and tertiary sectors in developing and developed economies.

  2. 1.2.2 Productivity and division of labour

    1. Definition of productivity.

    2. Factors affecting productivity: • land – use of fertiliser, drainage, irrigation, reclamation • labour – quality of labour, including improved human capital through education and training and impact of migration • capital – increased quantity and technological advances.

    3. Definition of division of labour.

    4. Advantages and disadvantages of the division of labour to workers and businesses.

  3. 1.2.3 Business costs, revenues and profit

    1. Define and use formulae to calculate total revenue, total costs, total fixed costs, total variable costs, average total costs and profit.

    2. Define economies of scale and internal economies of scale; explain purchasing, marketing, technical, financial, managerial and risk-bearing internal economies. Define external economies of scale and explain skilled labour, infrastructure, access to suppliers and clusters of similar businesses.

    3. Define diseconomies of scale and explain bureaucracy, communication problems, lack of control and distance between senior management and workers. Use an LRAC diagram to show internal economies, diseconomies and the output at which the business is most efficient.

  4. 1.2.4 Business competition

    1. Advantages and disadvantages of competition to firms, consumers and the economy, including: • efficiency • choice • quality • innovation • price.

    2. Advantages and disadvantages of large firms and small firms.

    3. Factors influencing the growth of firms: • government regulation • access to finance • economies of scale • the desire to spread risk • the desire to take over competitors.

    4. Explain why firms may stay small because of market size, niche-market characteristics, lack of finance or the entrepreneur’s aims.

    5. Definition of monopoly.

    6. Main features of monopoly: • one business dominates the market • unique product • price-maker • barriers to entry: - legal barriers - patents - marketing budgets - technology - high start-up costs.

    7. Evaluate monopoly in terms of efficiency, choice, quality, innovation, price and economies of scale.

    8. Definition of oligopoly.

    9. Main features of oligopoly: • few firms • large firms dominate • different products • barriers to entry • collusion • non-price competition • price competition.

    10. Advantages and disadvantages of oligopoly: • choice • quality • innovation • collusion and cartels fixing high prices • price wars between oligopolies.

  5. 1.2.5 The labour market

    1. Explain how demand for the final product (derived demand), availability of substitutes including machines, and workforce productivity affect demand for labour.

    2. Factors affecting the supply of labour: • population size • migration • age distribution of population • retirement age • school-leaving age • female participation • skills and qualifications • ability to move geographic locations/move to different types of employment.

    3. Importance of the quantity and quality of labour to business.

    4. Impact of education and training on human capital and quality of labour.

    5. Use labour-market diagrams showing labour supply, labour demand, equilibrium wage and employment, and the effects of shifts in labour demand or supply.

    6. Trade union involvement in the labour market: • impact of trade union activity to improve working conditions and increase wages.

  6. 1.2.6 Government intervention

    1. 1.2.6.aGovernment policy to deal with externalities

      Government policy to deal with externalities: • taxation • subsidies • fines • regulation • pollution permits.

    2. 1.2.6.bEvaluating government policies for externalities

      Advantages and disadvantages of each government policy.

    3. 1.2.6.cGovernment regulation of competition

      Government regulation of competition to: • promote competition • limit monopoly power • protect consumer interests • control mergers and takeovers.

    4. 1.2.6.dMinimum-wage intervention and diagrams

      Explain reasons for a minimum wage and its advantages and disadvantages. Use diagrams to show the effects of introducing or increasing a minimum wage.