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Economics by Mind Map: Economics

1. Chapter 1

1.1. The 4 factors of production

1.1.1. Land Any of the physical materials extracted from the Earth / the actual land upon which something is built on

1.1.2. Capital Any of the robotic machinery to the furniture, any assets owned by a company

1.1.3. Labour The actual workforce/labourforce

1.1.4. Enterprise A different form of labour specialising in the innovation of new products whereby all the costs of the innovation are borne by the entrepreneur

1.1.5. Mobility of the resource Geographically mobile means that the resource can be moved from place to place easily Occupational mobility refers to how easily you can change the use of the resource (what it's doing)

1.2. The basic economic problem

1.2.1. The basic economic problem states that human wants are infinite but the resources to fulfil them are not infinite therefore creating the basic economic problem

1.2.2. Scarcity Scarcity is the idea that everything is scarce, because there isn't an infinite amount of something to fulfil the demands of humans

1.3. Opportunity Cost

1.3.1. Opportunity cost is the idea that any resources used to do/make one thing could've been used elsewhere The other places it could've been used are the opportunity costs...

1.3.2. Production Possibility Frontiers Also known as PPFs PPF PPFs show 2 possible productions using the same resources Here they are butter and guns (remember they can be completely unrelated things) It shows that at 9 guns being produced 0gm of butter is which shows opportunity cost It shows that at 8 guns, 75 grams of butter is produced If a firm produces on it's PPF line then it's very efficient and using all resources to maximum If it performs under the line it is inefficient and isn't fully using up it's resources If a question says for example a firm is producing both guns and butter, if it allocates it's resources to producing 9 guns, how much butter can it produce, read through the graph and answer 0

2. Chapter 4

2.1. There are many different types of business organisation structures

2.1.1. Sole Propeitors Also known as a sole trader, a sole proprietor has only 1 owner that is responsible for all the financing of the company Advantages - All profit goes to owner - Quick to make decisions - Flexible to demand changes - May get government subsidies Disadvantages - Unlimited Liability to owner - Limited by the amount of finance the owner wishes to input - If the owner dies, there is no company continuity

2.1.2. Partenerships With partners typically ranging from 2-20, partnerships are funded entirely by the partners Advantages - Quick(er than Public/Private/Multinational/Public Corporations) at making decisions - Has more financial input than sole proprietors (finance from every partner) - Flexible (quick to make decisions) - Each partner can bring in their own skillsets Disadvantages - Unlimited liability (to owners) - If one partner dies, partnership is dissolved (no continuity)

2.1.3. Private Limited Company Firm is sold in shares but not on the stock market. The approval of every shareholder must be retrieved before company shares are sold to anyone Advantages - Easier to raise finance (than all above) - Business continuity (even if one shareholder dies) Disadvantages - Not very flexible to demand (lots of decision making and permissions required)

2.1.4. Public Limited Company Firm is sold in shares to anyone on the stock market Advantages - Easy to raise finance (sell shares) - Limited Liability - Free advertising (on the stock market when selling shares) Disadvantages - Not very responsive to changes in demand (lots of decision making involved before implementation)

2.1.5. Multinationals Firms that have branches/manufacturing chains that spread multiple countries Advantages - Tends to spread out production line over numerous countries which could lower relative costs due to a cheaper workforce in some countries / cheaper raw materials in another

2.1.6. Public Corporations State owned enterprises that are mostly funded by the government Advantages - Fully backed-up by the government therefore isn't pressured by market forces Disadvantages - Can be inefficient because of lack of true competition

2.1.7. Integration between businesses Horizontal The merging of 2 companies in the same industry (eg. Apple and Samsung) Vertical Forward Backward Conglomerate The merging of 2 companies that are completely unrelated (eg. McDonalds and Toyota)

2.2. Privatisation

2.2.1. Privatisation is when a Public Corporation is bought over by the Private Sector (when a government firm is bought over by a non-government firm/person)

2.2.2. Effects of Privatisation Either the firm could continue The firm could quickly adapt to the new circumstances and prevail Or the firm would cease to exist Since the management has never faced the true market forces before, always being subsidised by the government, by suddenly being punished due to inefficiency and low profit margins, the firm wouldn't last long The effect on consumers The consumers are likely to get a better product as the only way to not be punished by market forces is to provide a good product at a reasonable price Effect on environment/external costs The external costs are likely to rise as 1). Governments strive and need to be eco-friendly therefore all costs tend to be covered in a Public Corporation Firms in the private sectors need profits and therefore tend to ignore external/social costs more causing external costs to rise Effects on employees Wages are likely to reduce for employees and less employees are likely to be employed This is because: - Governmental organisations strive to increase employment rate in the country but private firms need profits therefore reducing employment in the company is a main priority - Public Corporations need to maintain the governments reputation and will therefore pay more than the demand and supply of the job will dictate

2.3. Production vs Productivity

2.3.1. Production is the total unit of output produced

2.3.2. Productivity is the amount of units produced per unit of labour* It is a measure of how productive each member of staff is in a firm

2.3.3. * it could be labour or capital or any other factor of production, tends to be labour

2.4. Demand for the factors on production

2.4.1. The main determinant for the factors of production in a firm is how labor intensive or capital intensive the production process is A firm producing a standardised model of car is likely to be very capital intensive Whereas a hairdresser is likely to be labour intensive

2.4.2. Other determinants The productivity of the capital/labour The national minimum wage of the country The price of capital relative to labour (or vice versa) The main determinant for land is the location, farmers want the most fertile while shops want the ones in th city centre.

2.4.3. Important* determinant How are workers paid? How is capital paid? Firms prefer those workers paid on a piece rate* system *Piece rate refers to being paid per unit of output produced

2.5. Costs of Production

2.5.1. Types of costs Fixed costs Fixed costs are costs in a firm that do not change 1). As output changes 2). In the short run The graph of a fixed costs is a straight horizontal line Example for a supermarket are - Rent for building - Insurance - Advertising - Shelves Variable costs Variable costs are costs in a firm that do change 1). As output changes 2). In the short run The graph for a variable cost tends to be a curvy going upwards line Examples for a supermarket are - Groceries (to sell) - Utilities (electricity, water) - Labour Important to learn* Graphs | - variable cost | - | - |----------------------- fixed cost | - | - ____________________ As output changes fixed cost remains constant, variable costs increase | | |- | - | - | - average fixed cost ___________________ As output changes, average fixed cost decreases AFC is calculated using the formula Fixed cost ÷ output A constant number divided by a number that is growing, will obviously result in this graph | | | - - average variable costs | - - | - | __________________ This is a graph of average variable cost AVC is calculated using the formula Variable cost ÷ output

2.6. Perfect Competition vs Monopoly

2.6.1. Explanation A monopoly is when one* firm dominates the market Monopolies face no direct compeititon In certain cases it may not be 100% share of market but it should be a very large share nonetheless Perfect competition is when many firms, selling a homogenous product, compete Perfect competition firms have lots of competition

2.6.2. Characteristics of Perfect Competition Many buyers and sellers Low degree of market concentration (each firm has a small share of market) Free to enter/exit market Because of this, firms constantly look for ways to improve their product and respond fully to changes in demand Homogenous product Perfect Information Price taker (sells at market price) If they sell at even a slightly higher price, because the product is the same and there is no sense of brand loyalty towards the product, the firm won't survive

2.6.3. Characteristics of Monopolies Only 1 buyer High barriers to enter/exit Why do monopolies continue? Price Maker (it sells at whatever price it wants)

3. Chapter 2

3.1. Commercial Banks

3.1.1. Enable Payments (Bank Cards)

3.1.2. Lend money (Loans)

3.1.3. Borrow Money (Deposits)

3.2. Central Banks

3.2.1. Control country's money supply (printing banknotes)

3.2.2. Set monetary regulations

3.2.3. Banker to government

3.2.4. Fiscal advisor to government

3.2.5. Act as a lender of last resort to commercial banks

3.2.6. Stores country's reserves of gold and foreign currency

3.2.7. Represent the government to major financial organisations (such as the World Bank)

3.2.8. Manages national debt

3.3. Stock Exchanges

3.3.1. Shares is a part of a Public Limited Company that can be bought over by the general public Buying a share doesn't mean the company owes you any money Regularly (but not necessarily), dividends are paid out to shareholders Dividends are a share in the profits of the company Shares are sold on the stock market

3.3.2. Bonds

3.3.3. Functions of a Stock Exchange To protect buyers (by only selling shares from companies registered) Help judge a country's economic status through the performance of it's stock exchanges (bullish or bearish markets) Allows the mobilisation of savings (invest money) Allows firms to raise finance Allow individuals to profit (buy low sell high) Allows for companies to take-over each other

3.4. Types of economic systems

3.4.1. Planned

3.4.2. Market

3.4.3. Mixed

3.4.4. What does this refer to The basic economic problem is limited resources but unlimited wants. The economic systems refer to: Who Gets the resource How is it made

3.5. Specialisation

3.5.1. Specialisation is the research and provision of goods and services by both individuals and businesses

3.5.2. It is an individual being dynamically efficient and becoming as good as they can be in a narrow field of work

3.6. Functions of Money

3.6.1. Medium of Exchange It is the standardised/universal way in which we exchange goods or services

3.6.2. Store of Value It is a way to keep a person's savings for time without deteriorating

3.6.3. Unit of Account It is a universal way in which the value of 2 goods/services can be compared, relative to each other

3.6.4. Standard for Deferred Payment It is a standard way in which we borrow and spend. We can agree on an exact amount to be paid at a later date

3.7. Choice of Occupation