GCE(A-level) ECONOMIC B Theme 1- The economic problem

The economic problem

The problem of scarcity                            

Individuals, businesses and governments have unlimited wants but most resources are limited.

This means that we have to make choices and it bases on personal preferences within the constraint of our income.

 

Opportunity cost The best alternative that we give up when make a choice Trade-off Making balance between more or 2 choices rather than choosing a simple choice

Different business objectives and reasons for them                            

Profit maximisation

It involves short and long run processes.

Entrepreneur are often motivated by being the riches. This is because riches give a luxurious material lifestyle.

Sales maximisation

Sales maximisation is important objective in competitive markets

It is achieved when the firm sells as much as possible without loss

Social entrepreneurs may operate at this output level.

A small business often has higher risk. In hence, the small

businesses tend to aim at growth rather than making profits.

The growth helps to increase chance of survival and eventually,

market shares which improve consumer loyalty

Return profit on investment

The most entrepreneurs want to return profits on investment at

right amount to improve their products’ quality or technology.

It helps to increase sale and market shares.

 

 

Satisficing

Entrepreneurs aim to reach good enough profit level without profit

maximasation since they want to avoid stress and worry

Social objective

A company might aim to create and achieve ethical policies.

For example, providing good employee welfare, fare trade and

eco-friendly products.

This is because these objectives help to attract both

consumers and high skilled workers since labour want to

work within good environment.

More high-skilled workers will bring out better quality of goods and

services, which increase consumer satisfaction, productivity and

ultimately, sale revenue.

Moreover, positive social awareness also influences the

demand for their goods and services.

Evaluation                                               

For example, objective such as increasing market share may lead

to higher profitability.

Therefore, it is difficult to judge business objectives and identify as

one as the most important.