Tuesday, April 1, 2014

MRF0013: Basic Economics: Chap 1, 2 & 3.

Chapter 1: The business environment and business economics

PEST analysis: Where a Political, Economic, Social and Technology factors shaping a business environment are assessed y a business so as to devise future business strategies.

Primary production:  The production and extraction of natural resources, plus agriculture.

Secondary production:  The production from manufacturing and construction sectors of the economy.

Tertiary production:  The production from from service sector of the economy.

Gross domestic product (GDP):  the value of output produced within the country over a twelve-month period.

Deindustrialisation:  The decline in the contribution to production of the manufacturing sector of the economy.

Industry: A group of firms producing a particular product or service.

Industrial sector:  A grouping of industries producing similar products or services.

Standard Industrial Classification (SIC):  The name given to the formal classification of firms into industries used by the government in order to collect data on business and industry trends.

Industrial concentration:  The degree to which an industry is dominated by large business enterprises.

Chapter 2: Economics and the world of business.

Scarcity:  The excess of human wants over what can actually be produced to fulfill these wants.

Consumption:  The act of using goods and services to satisfy wants.  This will normally involve purchasing the goods and services.

Production:  The transformation of inputs into outputs by firms in order to earn profit (or meet some other objective).

Factors of production (or resources):  The inputs into the production of goods and services: labour, land and raw materials, and capital.

Labour:  All forms of human input, both physical and mental into current production.

Land (and raw materials):  Input into production that are provided by nature: eg unimproved land and mineral deposits in the ground.

Capital:  All inputs into production that have themselves been produced: eg factories, machines and tools.

Macroeconomics:  The branch of economics that studies economic aggregates (grand total): eg the overall level of price, output and employment in the economy.

Aggregate demand:  The total level if spending in the economy.

Aggregate supply:  The total amount of output in the economy.

Microeconomics:  The branch of economics that studies individual units: eg households, firms and industries.  It studies the interrelationships between these units in determining the pattern of production and distribution of goods and services.

Rate of inflation:  The percentage increase in the level of prices over a twelve-month period.

Balance of trade:  Exports of goods and services minus imports of goods and services.  If exports exceeds imports, there is a 'balance of trade surplus' (a positive figure).  If import exceeds exports, there is 'balance if trade deficit' (a negative figure).

Recession:  A period where national output falls.  The official definition is where output declines for two or more quarters.

Unemployment:  A number of people who are actively looking for work but are currently without a job.  (Note that there is much debate as to who should officially be counted of unemployed).

Demand-side policy:  Government policy designed to alter level of aggregate demand, and thereby the level of output, employment and prices.

Supply-side policy:  Government policy that attempts to alter the level of aggregate supply directly.

Barter economy:  An economy where people exchange goods and services directly with one another without any payment of money.  Workers would be paid with bundles of goods.

Market:  The interaction between buyers and sellers.

Opportunity cost:  The cost of any activity measured in terms of the best alternative forgone.

Relational choices:  Choices that involve weighing up the benefit of any activity against its opportunity cost.

Marginal costs:  The additional cost of doing a little bit more (or 1 unit more if a unit can be measured) of an activity.

Marginal benefits:  The additional benefits of doing a little bit more (or 1 unit more if a unit can be measured) of an activity.

Time-series data:  Information depicting how a variable (eg the price of eggs) changes over time.

Cross-section data:  Information showing how a variable (eg the consumption of eggs) differs between different groups or different individuals at a given time.

Index number:  The value of a variable expressed as 100 plus or minus its percentage deviation from a base year.

Base year (for index numbers):  The year whose index number is set at 100.

Consumer prices index (CPI):  An index of the prices of goods bought by a typical household.

Weighted average:  The average of several items where each item is ascribed a weight according to its importance.  The weights must add up to 1.

Functional relationships:  The mathematical relationship showing how one variable is affected by one or more others.

Chapter 3: Business Organisations.

The firm: An economic organization that coordinates the process of production and contribution.

Transaction costs:  Those costs incurred when making economic contracts in the marketplace.

Joint-stock company:  A company where ownership is distributed between a large number of shareholders.

Principal-agent problem:  One where people (principals), as a result of lack of knowledge, cannot ensure that their best interests are being served by their agents.

Asymmetric information:  A situation in which one party in an economic relationship knows more than another.

U-form business organization:  One in which the central organization of the firm (the chief executive or a managerial team) is responsible both for firm's day-to-day administration and for formulating its business strategy.

Bounded rationality:  Individuals are limited in their ability to absorb and process information.  People think in a ways conditioned by their experiences (family, education, peer groups, etc)

M-form business organization:  One in which the business is organised into separate departments, such that responsibility for the day-to-day management enterprise is separated from the formulation of the business's strategic plan.

Flat organization:  One in which technology enables senior managers to communicate directly with those lower in the organizational structure.  Middle managers are bypassed.

Holding company:  A business organization in which the present company holds interests in a number of other companies or subsidiaries.

Integrated international enterprise:  One in which an international company pursues a single business strategy.  It coordinates across different countries.

Transnational association:  A form of business organization in which the subsidiaries of a company in different countries are contractually bound to the parent company to provide output to or receive inputs from other subsidiaries.

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