A Level Economics AQA Practice Exam

What are purchasing economies of scale?

1. A reduction in unit costs as a result of buying in large quantities

2. Reductions in costs due to technological advancements

3. Cost increases due to higher demand

4. Economies achieved from hiring additional workers

The correct answer is: A reduction in unit costs as a result of buying in large quantities

Purchasing economies of scale refer to the cost advantages that a business experiences when it buys goods or services in bulk. When a company makes large purchases, it typically receives discounts or lower prices from suppliers since they are purchasing higher quantities. This bulk purchasing can significantly decrease the average cost per unit, as the fixed costs (like transportation or logistics) can be spread over a larger number of items. Consequently, this reduction in unit costs enhances the firm’s overall profitability and competitiveness in the market. The other options do not accurately depict purchasing economies of scale. Cost reductions from technological advancements refer to an entirely different aspect of operational efficiency. Higher demand can lead to increased costs due to strain on production resources rather than reductions. Finally, while hiring additional workers may lead to increases in output, it does not specifically relate to the purchasing aspect of economies of scale.