Economic good : produced from scarce resources , more is wanted

Free good : not produced from scarce resources , more is not wanted

Consumer good : used to satisfy wants

Capital goods : used for production

Private goods : rival in consumption : one’s consumption will reduce the good’s availability to
others ; excludable in consumption : the cost for excluding people’s consumption is low

Public goods : no rival in consumption: one’s consumption will not reduce the availability of the
good to others ; non excludable in consumption : the cost of excluding other’s consumption is
high

Interest :

Positive statement : doesn’t involve value judgement , can be refuted by facts

Normative statement : involves value judgement , not refutable by facts

Occupational mobility : the cost of changing jobs will be lower with more transferable skills /
higher if there is a strong union

Geographical mobility : the cost of travelling to work will be lower if there are travel subsidies

Private property rights : the exclusive rights to use , rights to own and rights to transfer a property
owned by an individual

Labour supply : labour force x working hours

Labour productivity : 1/labour supply -> when labour supply drops , labour productivity rises

Division of labour advantage : assign the right person to do the right job , practice makes perfect ,
saves time in training workers , stimulate mechanisation

Land : gift of nature , capital : man made resources to aid production , labour : human e ort in
production , entrepreneur : makes business decisions and bears business risk ( rent : land ,
interest : capital , wage : labour , pro t : entrepreneur )

Methods of wage payment : piece rate : advantage to employer : lower supervision cost on the
working incentive of workers , workers have strong working incentive

Advantage to employee : earn more by working harder

Time rate : advantage to employer : the cost of calculating wage is lower , lower cost on
supervising the quality of products / Advantage to employee: stable income / disadvantage to
employer : higher cost of supervising the quality of products ; higher cost of calculating wages /
disadvantage to employees: unstable income

Basic salary and commission: advantage to employer : the cost of supervising workers is lower ,
share part of business risk / Advantage to employee: earn more by performing better
disadvantage to employer : higher cost of calculating wages of employees / disadvantage to
employees: unstable income

Pro t sharing scheme : advantage to employer : the cost of supervising workers is lower , share
part of business risk / Advantage to employee: earn more by performing better / disadvantage to
employers: higher cost in calculating wages / disadvantage to employees: have to bear business
risk

Tips : advantage to employer : the cost of supervising worker’s performance is lower , worker’s
have strong working incentive ; Advantage to employee: earn more by performing better /
disadvantage to employees : unstable wage and share business risk

Fixed cost : cost incurred only in short run

Variable cost : cost incurred in both short and long run , changes when output level changes

Lateral expansion : expand to a similar, related but not competitive industry

Advantage : enjoy economies of scale , make use of brand name , diversify products to spread
business risk

Horizontal expansion : expand to a similar, related and competitive industry

Advantage : enjoy economies of scale , make use of brand name , enjoy larger market share ,
reduce duplication of resources

Vertical forwards expansion : expand to an industry involving the next stage of production

Advantage : enjoy economies of scale , ensure market outlet , make use of brand name

Vertical backwards expansion : expand to an industry involving previous stage of production

Advantage : enjoy economies of scale , ensure steady supply of factor inputs , reduce training
time of factor inputs

Conglomerate expansion : expand to an unrelated industry

Advantage : enjoy economies scale , diversify products to spread risk , make use of brand name

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Perfect competition : homogeneous products , no non price and price competition , no entry
barrier, many sellers , perfect information , price taker

Imperfect competition: heterogeneous competition , non price and price competition , may have
entry barrier , many sellers , imperfect market information , price searcher

Oligarchy : heterogeneous competition, price rigidity , price leadership , price and non price
competition , imperfect information , price searcher

Monopolistic competition: heterogeneous competition , non price and price competition , may
have entry barrier , many sellers , imperfect market information , price searcher

Monopoly : can be government franchise and natural monopoly , strict entry barriers ,
heterogeneous competition , non price and price competition , may have entry barrier , many
sellers , imperfect market information , price searcher , have no close substitute but still need to
compete with substitute

Private enterprise : public limited , private limited , sole proprietorship, partnership

Sole proprietorship :1 person , not a legal entity , narrow source of capital , lower pro ts tax rate ,
less complicated setup procedure , easy transfer of ownership , limited continuity

Partnership : 2 to unlimited ppl , not a legal entity , wider source of capital , lower pro ts tax rate ,
less complicated procedure , harder transfer of ownership , limited continuity

Private limited : 2 to 50 ppl. Legal entity , wider source of capital , higher pro ts tax rate , more
complicated setup procedure , harder transfer of ownership , lasting continuity

Public limited : unlimited ppl , legal entity , widest source of capital , higher pro ts tax rate , more
complicated setup procedure , easy transfer of ownership , lasting continuity

Advantage of partnership to sole pro : wider source of capital , make more informed choices

Disadv of partnership to sole pro : less exibility in decision making , harder to transfer ownership

Adv of partnership to limited company : higher incentive to improve , lower pro ts tax rate

Disadv of partnership to limited company : wider scope of capital and specialisation

Adv of public limited to private limited : easier transfer of ownership , wider source of capital

Disadv of public limited to private limited: harder transfer of ownership , more costly setup
procedure

Adv of shares to bonds( investors ) : have voting rights , higher returns than bonds when
company pro ts

Disadv of shares to bonds : unstable returns ; risky , lower priority in getting capital back when
company liquidates

Adv of shares to bonds ( company ) : no redemption obligation , no interest burden

Disadv of shares to bonds : dilute the controlling power of existing shareholders , higher risk of
being taken over

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