Sources of Finance.

2. Assets those are no longer required, like an outdated computer or an obsolete piece of machinery, can be sold.

3. Stock levels can be reduced and funds made available for other uses.

External sources of finance

. A sole trader or a small business may be able to borrow money from family or friends without paying interest.

2. Loans from a bank or a building society can be expensive. An agreed amount is borrowed and repaid over a fixed period of time with interest.

3. Grants from central or local government can cost the firm nothing.

4. Firms often lease equipment or machinery to avoid a large outlay of cash. This is useful if a firm needs to upgrade within the medium term as technology advances.

Economies

Planned Economy

In a pure planned economy the government decides what will be produced - this system operated in the former communist countries. Resources may not be used efficiently but all members of society will have food, housing and work.

Market Economy

In a pure market economy the use of factors of production is determined solely by supply and demand. The market decides what will be produced. This means that resources are used efficiently, but the wealthiest members of society determine production decisions. There will be little or no provision of goods and services for vulnerable members of society.

Mixed Economy

In a mixed economy, some production decisions are made by government and others by the market. Most modern economies are mixed, having a private sector and a public sector. In the private sector resources are allocated by supply and demand and the pursuit of profit. In the public sector government makes production decisions to ensure basic levels of service for all, in key areas such as health, housing and education.

Costs

FIXED COSTS

These don't vary with the level of production. Fixed costs have to be paid whatever the level of output, even it nothing is being produced, e.g., rent. The fixed cost curve is shown overleaf.

VARIABLE COSTS

These costs vary directly with the level of production, e.g., fuel, labour and raw materials.

SEMI-VARIABLE COSTS

Some costs are not so easy to classify. They are fixed for certain levels of production, however if output rises too much costs will also rise.

TOTAL COSTS

When fixed and variable costs are added together (plus any semi-variable costs) we arrive at the fixed costs figure.

DIRECT COSTS

These are costs that can be directly attributed to the production of a particular good or service, e.g., raw materials and piece rate wages.

INDIRECT COSTS (OVERHEADS)

These can't be directly linked to a good or service. They can be difficult to control and managers have to be aware of them, e.g., depreciation, management, administration and marketing.