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Theme 1: Markets, Consumers and Firms - Coggle Diagram

- - - - The Economic Problem: there are finite resources available to supply infinite or unlimited wants
      - this lack of resources creates scarcity
    - - opportunity cost: the benefit lost (value) of the next best alternative forgone
      - choices need to be made so resources are allocated and used optimally
      - there is an opportunity cost for all decision made by economic agents
      - trade-off: the range of alternatives that have been given up
    - - when producing goods, the economy has to consider the following:
      - What to produce?
      - How to produce?
      - Who to produce for?
  - - - operating at the price and output which derives the greatest profit
      - profit = total revenue - total cost
      - provides greater wages and dividends for entrepreneurs
      - occurs when MC=MR so each extra unit provides no loss or revenue
      - retained profits are a cheap source of finance - lower interest rates on loads
      - short run: owners and shareholders are most important as they aim to maximise gain from the firm - important for PLCs to keep them happy
      - long run: consumers don't like rapid price changes, provides stable price and output
    - - the firm aims for the highest amount of sales by either value or volume - without making a loss
      - non-for-profit organisation may use this
      - AC = AR
      - used to sell the most products in order to gain market share so they can earn more profits in the long run - detering competition
    - - this is earning just enough profits to keep shareholders happy
      - managers may do this as personal reward is small compared to shareholders
      - therefore keeping shareholders happy whilst achieving other objectives
      - occurs when there is a divorce of ownership and control
    - - to continue to exist as a business
      - when consumer spending plummets, firms might have survival as their objective, until there is economic growth again.
      - most important short term objective
      - primary objective for new firms or those in difficult economic periods
      - might aim to sell as much as possible to keep their market position, even if it is at a loss in the SR
      - needs sufficient cash for every day expenses
    - - the proportion of total market sales a firm has
      - firm A sales/market sales x100
      - helps increase the chance of surviving in the market, and it can be achieved by maximising sales
    - - cost efficiency lowers average costs
      - allows the maximum value of outputs with the lowest value of inputs - supports profit maximisation
      - gives them a competitive advantage as lower prices
      - ensures they aren't competed out of the market by more efficient firms
    - - to look after the physical and economic welfare of employees
      - motivated employees are more productive
      - increases loyalty to employer