Edexcel AS/A Level Economics revision

Business growth  There are two types of growth.  Organic (aka internal)  e.g. UnderArmour/LEGO  Organic growth is the internal expansion of a company - no other companies are involved.  This is  the most common type of growth , as most firms are small or medium-sized, so don't have the resources necessary for external growth.  Can be done in various ways:  through advertising and reaching out to more consumers, hence building customer base by expanding into new markets/introducing new products expanding existing production through investment in capital such as building factories, acquiring new machines, etc.  Advantages:  Cheaper, more cost-effective.  Easier and less complicated.  Less risky.  Disadvantages: Growth usually takes a long time.  It is hard to expand internationally without making acquisitions as different countries have different legal rules, etc. Th...

Normal profits, supernormal profits and losses  Profit maximisation  Occurs at: MC = MR  where MC cuts MR from below (as where it cuts from above is point of profit minimisation)  This is because past this point MR < MC , and each additional good is costing the firm more than it is making. Before that point MR > MC so the firm can increase profit by producing more.  NB - point of prof max can be found using TC and TR:  Normal and supernormal profit and losses Normal profit is profit that covers the opportunity cost of capital and is just sufficient to keep the firm in the market.  Supernormal/economic profit are profits that exceed normal profits.  When AC lies below AR at the point of output, the difference between AR and AC is the supernormal profit on that unit output. The overall supernormal profit is the difference times the quantity sold (Q2 in the above)....

Economies and diseconomies of scale  Economies of scale occur when an increase in a firm's scale of production leads to a lower LR average cost.  Diseconomies of scale occur when an increase in a firm's scale of production leads to a higher LR average cost.  Constant returns to scale occur when LR average cost remains constant with an increase in output  i.e output and costs rise at the same rate.  Found at the minimum of the LRAC.  Types of economies and diseconomies of scale  External economies of scale - economies of scale that arise from the expansion of the industry in which a firm is operating.  i.e as a sector expands, firms are able to choose from a larger pool of skilled workers, and may be able to forgo expenses on training, advertising, etc.  Internal economies of scale - processes that a firm can benefit from as they increase their own scale of production in order to reduce their L...

Costs   Total cost - the total expense incurred in reaching a particular level of output.  TC = TFC + TVC  Total fixed cost - costs that do not vary with output.  e.g rent, R&D, advertising Total variable cost - costs that vary with output  e.g raw materials, labour, power  Average (total) cost - the cost in producing a unit output. Obtained through dividing TC by Q (quantity sold).  ATC = TC/Q Average fixed cost - fixed cost in producing a unit output. AFC is not fixed - increasing the output spreads the TFC (a fixed quantity) and divides it, making it smaller and reducing the cost per unit output.  NB: area under the AFC curve is TFC.  AFC = TFC/Q  Average variable cost - variable cost per unit output  AVC = TVC/Q  Marginal cost - equal to marginal variable cost as there are no marginal fixed costs.  We define the short run as time in which at least one fac...

Revenue  Total revenue - the income derived from sales of a product over a period of time. Often referred to as turnover.  TR = P x Q where Q is quantity sold and P is price sold at Average revenue - revenue generated per unit of output sold. Found by dividing the TR by Q.  It is the same as the demand curve .  P = AR = TR/Q  Marginal revenue - the revenue gained in selling an additional unit(s) of output. This is the rate of change of TR (so the gradient and the first differential).  Diagrammatic analysis  As you can see here, MR is the gradient of TR - where the grad of TR is 0 (the maximum), MR cuts the x-axis.  MR has a gradient that is double that of AR.  Elasticity and revenue  Where demand is price elastic, a fall in price causes a greater than proportionate rise in demand, and revenue increases. Where price is elastic, the firm should price cut in order to increase re...

Competitiveness   The ability of an economy to compete fairly and successfully in markets for internationally traded goods, allowing for rising living standards over time.  Measures of competitiveness: Price competitiveness -  Relative unit labour costs:  Labour costs of supplying goods per unit output expressed in relative terms. This is then compared to that of other countries, and expressed as an index number.  This measures productivity.  This is used as a measure, as:  - Almost all firms use labour  - Labour costs reflect the quality of capital (i.e if a few workers produce a lot of output, this indicates extensive/efficient capital)  - Labour is uniform in all economies, so can be compared  Relative export prices:  The ratio of one country's export prices relative to another country's, expressed as an index. The lower the relative export price, the more competitiv...

Interventionist approaches to development  Development of human capital  Human capital is the economic value of a worker's skill set - workers can become more skilled through education.   Promotes growth as:  More skilled workers are more productive, and an increase in productivity shifts out AS, generating growth.  Greater innovation, so long term growth and higher living standards.  Lower levels of structural unemployment as the labour force will be more adaptable to changes in the labour market (due to innovation, etc.)  By developing human capital, the country can move their production up the supply chain from primary products, to manufactured goods and to services, which can earn them more. e.g Brazil - anti-poverty programmes include the investment in education and training by the government in order to build up human capital. The programmes have helped reduce extreme poverty from 23% in 1993 to 8.3% in 2009....