Unit One

In economics, the major problem is scarcity of resources where resources are limited in supply e.g. raw materials, time.

Trade-off: The selection of one choice results in the loss of another

Opportunity cost: The loss of the next most desired alternative when choosing a particular course of action

Price sensitivity 

A service/product is price insensitive when changing the price, leads to a small change in demand. Reasons for price insensitivity include:

• It’s a necessity
• Few substitutes
• Only takes up a small proportion of an individual’s finance

Stakeholders

Stakeholder - Groups interested in the performance of a business

Shareholders - Owners of a limited company. Shares bought represent part ownership of the company.

Competition Commission - The body which investigates when firms merge or are taken over. They decide whether such activity is in the public interest. It can prevent merges or take-overs where these are seen to reduce the level of competition.

Dividends - Payments made to shareholders from the profit of a company.

Examples of stakeholders:

• Shareholders
• Workers
• Customers
• The Government
• Local community

Externalities

Third party - Groups or individuals who are not directly involved in a decision/action

Externalities - Effect of an economic decision on individuals and groups outside who are not directly involved

Negative Externalities - Costs arising from business activity which is paid by people of organisations outside the firm

Positive externalities - Benefits arising from business activity experienced by people/organisations outside the firm. The firm do not receive a payment for the benefits received.