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Economics micro - Coggle Diagram

- - - - Often producers aim to sell their goods and services so that they make a profit
        
        Profit - the amount of money a producer has left after all costs have been paid - eg when total rev is reater than total cost
        
        Procuers are important in our economic system because they employ workers and pay wages
        
        employment results in goods and services being produced
        
        paying the workers enables them to buy the goods or services
    - - producers may be individuals firms or government
  - - - it come about by bringing together the factors of production - land capital labour entreprise
    - - An increase in employment - unless greater productivity causes it
      - An increase in profits for firms and the industry
      - LArger economies of scale
      - An increase in market share if production of one firm increases as against that of other firms
      - A rise in the standard of living as consumers have more goods and srevices to buy
  - - - productivity - total output / total input
    - - productivity depends on improving the inputs to the production process
        this could be achieved through investment in better equipment - eg improving uality of the machines
        Can also be achieved through imporved education and training for the workforce
        This would increase their skills and knowledge
        ALso finding better quality raw materials is another way
    - - Individuals gov and firms usually want to increase their producitivity
      - in the case of individs - higher productivity is likely to be rewarded with higher wages and increase in the standard of living
      - firms
        
        for firms , higher productivity will resuly in
        
        lower average costs and increasing economies of scale - this makes the firm more competitive so that it can then decrease prices and compete more ffectively on a world scale
        
        This will improve the economy by increasing GDP through greater consumption and more exports - this then also improves the balance of payments
        
        Greater profits - allowing the firms to pay higher wages to attract the best workers, invest in new ewuipment and reseatch
        
        investment will again increase competitiveness and gdp, higher wages will benefit the economy by encourahging people to get better qualifications, improve their skills, thus further increasing productivity
      - Government will benefit from economic growth
        
        Productivity will increase total output of an economy , likely to lead to greater employment and higher wages - then leads to greater gov revenue through taxes
        
        more competitive firms will lead to greater exports and thus further economic growth
    - - if a firm increases producitvity by using capital equipment in place of labour this may increase unemployment
        
        This will not only have an immidiate effect causing the ggov to have to support the worker and their family through benefits but also decrease standard of living
        
        increased producitivy leading to greater international competitiveness which may lead to other countries retaliating - this leads to fall in gdp
    - - total cost - all the costs of a firm added together
        
        Total cost consists of the costs of actually producing an item such as raw materials which vary with output (variable costs)
        
        It also consists of the costs that a firm has by just existing such as marketing, machinary (fixed cost)
        
        total cost = fixed costs+ variable costs
      - Average cost - the cost of producing a unit (unit cost of production)
        
        It is the cost of producing a unit
        
        calculated by dividing total cost by output or quantity
        
        average cost - total cost/ quantity
        
        a fall in average costs show that a firm is becoming more efficient and a rise in average costs show that a firm is becoming less efficient
      - Tottal revenue - the total income of a firm from the sale of its goods or srvices
        
        Total revenue is often called sales revenue or sales turnover
        
        the value of total rev is found by multiplying the price of the product by the quantity sold
        
        total rev = price * quantity
      - average revenue - the revenue per unit sold
        
        average revenue is the revenue per unit sold
        
        it is calculated by dividing total rev by quantity sold
        
        average rev = total rev/quantity
      - profit and loss
        
        profit is when a firm gains more revenue than it pays out in costs
        
        it is the financial reward that entrepeneurs aim to achieve to reflect the risk they take
        
        profit = total rev - total cost
        
        profit maximisation is one of the main aims of most firms. This occurs when there is the greatest dif between total rev and total cost
        
        A loss is when a firms revenue is less than its costs
        
        this may not matter immediately to a firm depending on wether it has reserves to enable it to continue
  - - - when demand in the economy is high firmsneed to increase production to meet demand. This leads firms to produce as much as they can - called full capacity.
        
        this results in the productivity of workers rising as all factors of production are being used to their full extent
        
        equally, when demand falls producitivity growth also slows down
  - - - as seen, if total costs are less than total revenue then a firm makes a profit
      - all firms try to keep their costs under control in order to make or increase profits
      - Production costs generally rise as output increases , this means that as costs rise with quantity produced and supplied, so too does the supply price
    - - Revenue
        
        low revenue levels therefor may lead to a loss and the producer going out of business
        
        revenue is important because without enough inflow of money from sales, a producer cannot earn a profit and remain in business in the long run
        
        in addition revenue is important to producers because...
        
        growth in revenue encourages investors to invest more money into the firm, this allows producers to expand further , buy new equipment etc
        
        Steady levels of revenue allow producers to secure lons and favourable interest rates on overdraffts etc
    - - Profit is important in a market economy bceause it signals to scarce resources to move to those firms making the most profit - this is because larger profits indicate most efficient use of resources
      - profit is also an important source of finance for a business
      - what is the importance of profit for producers ina market economy
        
        profit is important for producers in a market economy because...
        
        it generates finance
        
        It acts as a signal and tells othe rproducers that they too might be able to make a profit in that market
        
        It allows a producer to attract more resources to the firm or industry
    - - Loss it cannot go on making a loss, it will either run out of money or people who have lent money will demand repayment
        
        this will result in producer having to close
  - - - economies of scale are the cost advantages a firm can gain by increasing the scale of production, leading to a fall in average costs
      - The producer gains because the firm now more efficient in its prduction
        
        gives it a competitive advantage in the market
      - economies of scale are available to any size of fitm
      - there are many diffrenet types of economies of scale but theyre usually grouped into internal and externak economies of scale
        
        internal economies of scale
        
        internal economies of scale come about as a result of the growth of the firm itself, leading to a fall in average costs
        
        examples of internal economies of scale
        
        techincal economies
        
        larger firms are able to purchase expensive specialist equipment. this is possible because the cost can be spread across a large output, while a small firm cannot do this
        
        Purchasing or bulk buying econoies
        
        buying goods and services in bulk results in the purchaser being able to buy at lower costs per unit - so they're getting a discount - producers buy in bulk resulting in the costs of materials falling
        
        division of labour
        
        larger firms are able to divide up into seperate tasks so that their workers become specialised in a small part of the production process - increases productivity
        
        Financial economies
        
        larger firms are able to borrow money from banks more easily and at lower rates of interest as theyre seen as less of a risk than small firms
        
        managerial economies
        
        larger firms can aford to employ specialist staff for functions such as finance marketing production and exporting
        
        marketing economies
        
        larger firms are able to use more expensive marketing methods which reach more potential customers such as tv and newspapers
        
        their marketing budgt can be spread over a wider range of goods and services or a larger quantity of the same product - this results in marketing costs per unit falling
        
        risk bearing economies
        
        larger firms are able to spread the risk by offeringa wide range of goods or services - if one product loses sales then it can still rely on others
        
        risk bearing economies can also occur if products are sold in different markets
        
        research and development economies
        
        larger fims may be able to afford their own research and development equipment - this can allow them to stay ahead of their competitiors
        
        external economies of scale
        
        External economies of scale are benefits a firm gains from being a member if an industry or because of its location
        
        external economies of scale
        
        external economies of scale are those that a firm benefits from as being a member of an industry or because of its location
        
        they are due to factors out of the direct control of the firm
        
        examples of external economies of scale
        
        improvement in transport links - better roads, faster rail travel
        
        education adn training facilities
        
        location - if an area gets a good rep for a certain industry it is likely to attract more companies due to advantages of location such as availability of skilled labour
        
        concentraton of firms - suppliers of parts may locate closer to main producer thus cutting transport costs
- - - - For example transport - most demand for transport is derived from the demand to commute to work, go on holiday or move goods from one place to another
  - - - comes about because as the price of a good or service falls consumers have more money left over so they cna buy more with the same amount of money
      - Also as the price of a good or service falls more people are actually able to afford the product
  - - - when the price changes leading to a movement up or down the existing demand curve
    - - a complete movement of the existing demand curve either to the right or to the left
        
        important to remember shift has nothing to do with price its not caused by price change
      - what causes shifts of the demand curve
        
        income - if income rises then consumers are able to buy more goods and services at every price. if the income becomes unevenly distributed then there will be increase in demand for luxury goods as the rich become wealthier. if poverty increases then demand for cheap and basic products is likely to rise
        
        Advertising - best form of marketing is advertising , customer is appealed and intrigued
        
        tastes and fashion - overtime consumer tases change and so does fashion. People may prefer to buy more advanced products for demand for these products increase
        
        Substitutes - substitutes are goods and services which can be used up in place of another good or service. If the price for one product rises then people will change to buy another one
        
        complements - complements are goods and services that go togetehr eg cars and fuel cups and saucerss
        
        if the demand for one goes up so does the demand for the other
        
        Economic situation - the state of the economy as a whole or the world can affect demand - for example if people become unemployed tis could lead to a fall in demand for many goods and services
      - consequences of shifts of the demand curve
        
        most important consequence is that a shift of the demand curve will lead for nearly all products to the price and quantity demanded of the good or service moving in the same direction
        
        for example if demand increases then both price and quantity wll rise
- - - - comes about because
        
        higher profits are likely ro be earned by existing firms if they supply more
        
        production cost are likely to rise as output expands so a higher price is needed to cover these exracosts
        
        new firms may be attracted to the market becayse the higher prices mean they can cover higher production costs
  - - - a shit of supply curve seen by supply curve moving left or right
        
        main factors that could cause the supply curve to shift
        
        cost of production
        
        an increase in the cost of production means that a firm will supply less at every price. This could be caused by an increase in the price of raw materials eg oil or a rise in wages
        
        taxes
        
        a increase in indirect tax eg vat would lead to rise in costs and thus a fall in quantity supplied at each price
        
        subsisdy
        
        government subsidy would allow a firm to supply more at every price - shift of supply to right
        
        technology
        
        The introduction of new or improved technology can reduce the costs of production and increase the amount that can be produced - dont have to pay workers
        
        climate - especially for farmers - changes in the weather can lead to significant differences in how much farmers can supply each year
        
        increase in the numer of producers or the size of existing firms
        
        if the number of producers in an industry increases then supply will shift to the right
    - - as already stated the main consequence of a shift in the supply curve is price and quantity move
      - consequences of supply curve shift to the right
        
        economies of scale - the ability of a firm to produce more at every price should lead to a fall in average costs and gaining of greater economies of scale - could lead to greater profits or lower prices for customer or both
        
        efficiency - being able to produce more with same resources leads to greater efficiency which may include greater productivity
        
        sales - being able to supply more at lower price may lead to greater sales
  - - - elastic supply - when the percentage change in quantity supplied is greater than the percentage change in price
      - inelastic supply - when the percentage change in the quantity supplied is less than the percentage change in price
      - if PES is less than one then it is price inelastic
      - if PES is more than one then it is price elastic
      - if product has a value of 1 then it is unitary elastic
      - for firms
        
        in most cases it is better for firms to have a elastic PES as they can more easily respond to price changes
        
        firms can increase their elasticity by...
        
        adopting or upgrading to the latest technology
        
        creating spare capacity
        
        improving storage methods to prolong the life of a prouvt
        
        keeping large amounts of stock
        
        training employees so they can perform range of jobs as required
        
        what are the effects of PES on consumers?...
        
        If pes is inelastic then it may prove more difficult for a consumer toget more of the product without paying a much higher price .
        
        in some cases such as seats in a sports statium or concert even an ability to pay more may not provide a seat as the numbers are restricted to how many seats there are
        
        1 more item...
- - - - marketing
      - customer service
      - quality
  - - - most obvi form of comp - firms lower their prices to gain customers and thus market share - any firm that cant achieve this will find itslf losing customers
        
        equally, however, firms cannot sell at less than cost price for any length of time as this will also lead to them going out of business -
        
        price competition is therefor limited
    - - can take place in many forms
        
        smallerproducers can compete by offering a specialist product or bettwe and more personalised customer service
        
        quality of the product is also another simple way of competitng
        
        non price competition often leads to customer loyalty
        
        The most obviway to comete for many producers is through marketing - this involves the process of identifying what consumers want and then devising a strategy of trying to satisfy these wants
        
        best known method is by advertising
        
        one of the main aims of advertising is to create and ensure customer loyalty to a certain brand - buyers are often prepared to pay higher prices for a brand they know and which has been heavily advertises rather than an unkown shop or brand
    - - to enter a marjet
        
        market entry
        
        if a producer wants to enter a market it has not prev been in it must devise ways of persuading consumers to buy its product - it can do so, for example by advertising or offering the product at a low price
        
        this will force existing producers to respond
        
        in this way there is competition
      - to survive in a market
        
        to survive in a market firms often find it necessary to compete for consumers and market share
        
        existing consumers need to be persuaded to return while new consumers should be enticed to try the product
      - to make profit
        
        firms need to make a profit to both survive and to grow
        
        profit provides the means for investment in order for the firm to expand and the business to innovate - producers that are able to innovate market succesfully are then able to compete strongly in the markey
  - - - Greater demand will lead to greater profits for the more efficient producers which will then expand output to meet demand
      - producers more willing to innovate to stay ahead of competition as new products will attract more xustomers
        
        also lead to attraction of new investors as investors realise that there are more opportunities for earning money
      - negative impacts of competition to producers
        
        those who are slow to adapt to changing technology or demands of consumers will either go out of business or be forced out of that particular market
        
        negative impacts of compeition on consumers
        
        new technology and the need to cut costs may lead to firms no longer demanding their labour and consequently they become unemployed
  - - - this will lead to increase in consumers standards of living
    - - producers may introduce goods eg peciticides that are dangerous or harmful either directly or indirectly to consumer
      - advertising can be a method of persuasiob
        
        consumers may be encouraged to buy products they dont need eg a new type of tooth paste
        
        in some circumstances producers may tempt consumers to buy a product eg cigarretes by offering it at a low price but then increase price once theyre hooked on it
  - - - what is meant by a monopoly
        
        in economics a monopoly is a sole producer of a good or service - this could be in a country as a whole or in some area of the country
        
        Unless the governemnt or a regulator prevents it, monopolies can set either the price or the quantity of products in the market
        
        monopolies exist because they have barriers to entry
        
        these may be ...
        
        legal ones - eg only royal mail can delivery letters to your home
        
        greater efficiency than potential rivals due to very large economies of scale
        
        copyrights and patents act preventing copying while they exist
        
        legally however a monopoly exists when one provider has at least 25% of the market
    - - oligopoly is where a small number of firms control the large majority of market share
        
        technically an oligopoly is said to exist if the five largest firms have 50% or more of the market share
        
        an oligoply however does not prevent the existence of smaller firms producing or selling tge same type of products
        
        while oligopolys have barriers to entry, theyre usually not sufficient enough to prevent other firms from enerting the market and increasing competition
        
        oligopolies often try to control the market through collusion - they get together and agree to set the price so they avoid price comp - illegal in uk
    - - an obv way in which they differ frim competitive markets is that the firms involved are usually much larger than those involved in a competitive market
        
        a monopoly is likely to be larger than any firm in the competitve market - so its likely to gain economies of scale allowing it to have lower costs and therefor charge lower price
- - - - want- something a consumer wants to have but isnt essential for survival
  - - - to try meet consumers wants, decisions have to be made regarding the following
        
        what should be produced
        
        in the uk the government decides this by seeing what consumers are willing and able to buy
        
        who it should be produced for
        
        how it should be produced
        
        what is meant by opportunity cost
        
        the next best alternative given up when making a choice
      - evaluating the costs and benefits of economic choices
        
        costs and benefits of the economic choices are weighed against each other in order for the producer to make the bet choices on how to allocate scarce resources
        
        to evaluate costs and benefits economists consider the impact on the three key areas of economic social and environmental sustainabilty
        
        economic choice - an option for the use of selected scarce resources
        
        economic sustainability - the best use of resources in order to create responsible development or growth now and into the future
        
        social sustainability - the impact of development or growth that promotes an improved standard of living for all now and in the future
        
        environmental sustainability - the impact of development or growth where the effect on the environment is small and possible to manage now and into the future
        
        impact on renewable and non renewable resources
        
        social sustainability considers how an economic choice affects a communitys quality of life and well being, it requires that growth or development meeet the basic needs of all now and into the future, encourages fairness and a better society with respect for others
- - - - signalling
        
        prices change to signal when resources are needed, if prices rise then this shows that more resources are required, whereas, if they fall, then fewer are needed
      - transmission of preferences
        
        producers can send information to resource suppliers about their changing needs - higher prices will encourage owners of resources to supply more
      - rationing
        
        prices help to ration scarce resources - if resources are scarce the price rises, so that only those willing and able to pay the price are allocated to the resources
  - - - In some cases prices can be directly negotiated between buyers and sellers
    - - their spending decisions will send signals to the producers about what goods to produce and how many of them to produce
  - - - market forces are factors which determine price levels and the availability of goods and services in an economy without government intervention
      - how do market forces of supply and demand affect equlibrum price and quantity
        
        market forces are those that determine price levels and the availability of goods and services within an economy without any government intervention
        
        market forces push prices up when either demand rises or supply falls
        
        equally, market forces drive them down when demand decreases or supply increases
- - - - a consumer buys goods or services for their own use rather than for use in production, a consumer is also the end user of a good, so the decision to buy or use is at the last stage of the production of a good
    - - ggoernemnt has the power within a country they ryn it and make and enforce rules within a country - can also be referred to as laws and regulations
        
        the gov also spends money in an economy - for example it pays for hospitals , roads to be built, as well as transfers money to individuals
    - - Production - the total output of goods and services produced by a firm or industry in a time period
      - producer supplies goods and services for example a farmer is a producer who grows crops and then supplies them to customers or other producers - producers can also be labelled as firms
    - - service - intangible, cant be seen or touched
    - - the decisions that each individual consumer producer or gov all contribute to final choices made on how to use an economy's resources, each economic group respondsg to the actions of the others
  - - - labour - the factor of production that is concerned with the workforce of an economy in terms of both physical and mental effort involved in production
      - land - the factor of production concerned with the natural resources of an economy such as farmland and mineral deposits - for example coal oil trees the sea
      - capital - factor which relates to human made aids to production - for example machinary tools factory transport such as lorries
      - Entreprise - the factor of production that takes a risk of organising the other three facts of production. Also ideas. risk is undertaken by an entrepreneur
- - - - a physical market with many stal holders and buyers as found in cities
      - an auction where the selling price is determined by how many buyers there are and what theyre prepared to pay
      - through the internet or over the phone or through catalogues sent over the post
  - - - primary sector - the direct use of natural resources such as the extraction of basic materials and goods from land and sea
        The primary sector includes - agriculture , fishing and forestry mining oil and gas extraction
      - secondary sector - all the actvities within an economy that are concerned with either manufacturing or construction
        
        manufacturing
        
        manufacturing includes both the direct use of raw materials from the primary sector such as refining oil to make petrol
        As well as the indirect use of materials such as making component products for a car or mobile phone parts
- - - - a trade union is an organisation that is active on behalf of its members eg increasing wages and salaries and improving working conditions