1. External Influences Flashcards
Term 1 Miss Blackwell (Until Globalisation)
Demand
The amount of a good/service that customers are willing and able to buy at any given price
Supply
The amount of a good/service that sellers are willing and able to sell at any given price
Equilibrium Price
The situation in a market where demand is equal to supply
What are the factors affecting demand? (8)
Price Income Wealth Demographics Government action Advertising, offers and public relations Tastes Price of substitutes and complements
What would happen to demand if prices were to be reduced?
Demand would increase
What is the relationship between income and demand?
Higher incomes result in higher demand
Define wealth
Wealth is the total value of an individual’s assets minus his liabilities
Define demographics
Demographics relate to the characteristics of the human population
Define advertising
Drawing attention to a product
Define promotional offers
A technique which involves reducing the price to attract more customers and increase sales volume
Define public relations
The maintenance of a favourable public image
How can government action affect demand?
Government can promote types of lifestyle through campaigns, e.g. keep fit campaign
Define tastes
The public perception of a product/service and how fashionable it is
Define substitutes
Products that can be used instead of another one because it has a similar function
Define complements
Products that are in joint demand, (when one product is brought, so is the other)
What is the impact on price, if there is excess demand in the market?
The price would increase as people are willing to pay more
What is the impact on demand of price increasing?
Demand would decrease as less people are willing and able to buy the product at the higher price
What are the factors affecting supply? (5)
Price Costs Tax Subsidies Price of other products
What would happen to supply if prices were to be increased?
Supply would decrease
What is the impact of costs being reduced on supply?
Supply would increase as the business can afford more
Define a tax
A payment to government on top of the product price
What are subsidies?
Payment from the government to the supplier for every unit supplied
What is the price of other products also known as?
Competitive supply
What direction does the demand/supply curve move when there is an increase in demand/supply?
to the right
How does a change in price affect the demand curve?
It leads to a different quantity demanded. The curve does not shift, the equilibrium changes.
Elasticity of Demand
How sensitive quantity demanded is to a change in price
What is inelastic demand? Example?
Quantity demanded is insensitive to a change in price
Petrol
What is elastic demand? Example?
Quantity demanded is sensitive to a change in price
Newspaper
What makes a product inelastic?
Not many substitutes
Necessity
What makes a product elastic?
Lots of substitutes
Luxury
Define an excess
Demand for a product is less than the amount that the business potentially could supply to the market.
What to do if there is an excess?
Reduce the price in order to clear the stock
Define a shortage
Demand for a product or service exceeds its supply in a market
What to do if there is a shortage?
Increase the price to reduce the demand for the product
Market
Any situation where buyers and sellers are in contact in order to establish price
Competition
Rivalry amongst sellers
2 types of market?
Physical and non-physical
Why do physical markets continue to exist?
Because of the personalisation that they offer
Why has the number of non-physical markets grown rapidly?
Because of the convenience that they offer
Market Price
The price range in a market at which consumers are prepared to pay
Mark up
The difference between the cost of producing an item and the price at which it is sold
Market Size
Collective value of the goofs/services that buyers purchase
Market Growth
The percentage change in the size of the market, measured over a specific period
Market Share
The percentage of total sales (by value) that a business has in a specified market
What are the 4 market structures?
Competitive market
Monopolistic competition
Oligopoly
Monopoly
Define a competitive market
A market in which there are a large number of sellers. Competition is mainly based on price
Describe 2 features of a competitive market?
High number of firms
Low prices
Define monopolistic competition
A market structure with many competing firms each of whom supplies a slightly differentiated product
Describe the features of a monopolistic competition market structure
Higher number of firms than an oligopoly
Price are fair
Compete on non-price differences
Examples of non-price differences?
Wifi
Disabled access
Define an oligopoly
A market that is dominated by a few firms which have some diversity
Describe the features of an oligopoly
Few firms
High similar prices
Interdependence - 1 business changes prices, others follow
Collusion
Define collusion
Rival companies co-operate for their mutual benefit.
E.g. phones4U
Define a monopoly
A market dominated by 1 seller (theoretically)
A monopoly must have __% market share, according to the CMA
25
Prices in a monopoly market are typically ___ because…
High
There is a lack of choice for consumers
Why are prices in a monopoly not always high?
The business can utilise economies of scale, which arise when unit costs fall as output rises
How could a business increase its market share? (6)
Customer needs - meet them Sell more to existing customers Old customers - why don't they use product any more Clear marketing plan Variety of marketing techniques Merge with a competitor
What are barriers to entry?
The factors that could prevent a firm from entering and competing in a market
What are the 5 barriers to entry?
- Large start up costs
- Marketing budget - to break customer loyalties
- Inability to gain economies of scale
- Price wars
- Legal restrictions
What are barriers to exit?
The factors that could prevent a firm from leaving a market, even if it wanted to
What are the 3 barriers to exit?
- Difficulty selling off capital
- High redundancy costs
- Contracts with suppliers
Define market dominance
A measure of market share compared to competitors
Define market power
The ability of a firm to influence or control the terms and conditions on which goods are bought and sold
What is a merger?
The joining together of 2 companies to form a new larger business
What is an acquisition?
The control of another company is achieved by buying a majority of its shares
What are the advantages of merging to the business?
+ EOS
+ May gain new management with different skills
+ Increased market share and market power
+ Greater ability to meet customer needs with combination of resources
What are the disadvantages of merging to the business?
- May suffer diseconomies of scale due to size
- Redundancies (employees)
- Higher prices (customers)
What does the CMA stand for?
Competition and Markets Authority
What does the CMA do?
The CMA works to promote competition for the benefit of consumers, both within and out of the UK
Name another organisation that is able to block UK mergers and acquisitions
The European Regulatory Commission
The CMA is a __________ __________ body that is able to stop _______ and _________ going ahead
governmental regulatory
acquisitions mergers
What are the CMA’s key responsibilities?
- Investigating breaches of anti-competitive behaviour
- Bringing criminal offences against individuals who commit cartel offence
- Enforce customer protection legislation
What sanctions can the CMA appoint?
- Fines up to 10% of their global turnover
- Customers/competitors can sue damages
- Individuals may be disqualified from being a company director
What is meant by organic growth?
Growth from within the business
Give examples of organic growth
Launching new products
Franchising
Exporting abroad
New distribution channels
Globalisation
The world coming together to trade in each other’s markets
Which factors have facilitated the level of imports? (8)
- Reduction in trade restrictions
- Cost of production abroad
- Ease of transportation
- Internet
- Communication tech
- Easy movement of capital
- Easy movement of people
- The rise of multinationals
Multinationals
A business that has operations in more than 1 country
Why would a company be keen to become a multinational?
EOS can be obtained
Can take advantage of lack of legal restraints
New markets which may be less competitive
Lower wages abroad
What is an LEDC?
Less Economically Developed Country
What are the positives for the LEDC of multinationals operating?
Jobs created and skills developed
Reduced poverty
Investment in infrastructure - roads
Utilise local resources - builders/local food
What are the negatives for LEDC of multinationals operating?
Jobs are unskilled and low wages Unsafe working conditions Child labour Local businesses are driven out of market Income goes back to the domestic market
What is a strategy?
A plan of action
What is a global strategy?
The consideration of how to build a competitive global advantage
What is a brand?
A distinctive product offering created by the use of a logo, symbol, name, design or packaging. The key is to differentiate from competitors.
What is a global brand?
Brands that are recognised throughout much of the world
What are the opportunities linked to globalisation for a business?
+ More affluent customers
+ Outsourcing abroad - don’t have to pay for machinery
+ Offshoring - setting up a factory abroad
What are the threats linked to globalisation for a business?
- Developing economies are making products for themselves
- Threat to UK manufacturing jobs
- Cultural differences
Identify 3 reasons why some businesses are more affected by globalisation than others
- The sector of the economy
- Size of business
- Niche?
