1.2 Business Economics :Unit 17 - Unit 21

Question 1

1. What do you mean by “scale”?

Answer 1

size of the business.

Question 2

2. What is economies of scale?

Answer 2

it is the falling in average costs due to expansion.

Question 3

3. What is diseconomies of scale?

Answer 3

• rising average costs when a firm becomes too big.

Question 4

4. What is internal economies of scale?

Answer 4

cost benefits that an individual firm can enjoy when it expands.

Question 5

5. What are the 7 types/ reasons for economies of scale?

Answer 5

• Purchasing economies.
• Marketing economies.
• Technical economies.
• Financial economies.
• Managerial economies.
• Risk-bearing economies.

Question 6

7. What is bulk buying?

Answer 6

• buying goods in large quantities, which is usually cheaper than buying in small quantities.

Question 7

8. What is external economies of scale?

Answer 7

• cost benefits that all firms in an industry can enjoy when the industry expands.

Question 8

9. What are the 4 reasons to external economies of scale?

Answer 8

• Skilled labor
• Infrastructure
• Access to suppliers
• Similar business in the area.

Question 9

10. What are the 4 reasons to diseconomies of scale?

Answer 9

• Bureaucracy.
• communication problems.
• Lack of control.
• Distance between senior staff and shop floor workers.

Question 10

11. What is competition?

Answer 10

• rivalry that exists between firms when trying to sell goods to the same group of customers.

Question 11

12. What are the barriers to entry?

Answer 11

• obstacles that might discourage a firm from entering a market.

Question 12

13. What are 5 common features to competitive markets?

Answer 12

• large number of buyers and sellers.
• products sold by each firm are close substitutes for each other.
• Low barriers to entry
• Almost no control over price charged.
• Free flow of information about the nature of products.

Question 13

14. How do firms compete with other competitors in the markets?(4)

Answer 13

• keeping costs as low as possible.
• providing good quality products with high levels of customer services.
• charging prices that are acceptable to customers.
• Innovating by constantly reviewing and improving the product.

Question 14

15. What do you mean by innovative?

Answer 14

commercial exploitation of a new invention.

Question 15

16. What is production differentiation?

Answer 15

attempt by a firm to distinguish it product from that of rival.

Question 16

17. What is the main disadvantage in competitive markets?

Answer 16

lower profit.

Question 17

18. What are the 3 advantages of competition to consumers.

Answer 17

• Lower prices.
• More choice.
• Better quality.

Question 18

19. What are the 2 disadvantages of competition to consumers?

Answer 18

• market uncertainty
• Lack of innovation

Question 19

20. What are the advantages of competition to the economy?(3)

Answer 19

• Resources will be allocated more effectively in order to survive.
• They are more innovative.
• Better standard of living.

Question 20

21. What are the disadvantages of competition to the economy?(2)

Answer 20

• Resources may be wasted due to factors of production may be immobile,
• People are made redundant.

Question 21

22. Name 3 methods the size of a firm is measured.

Answer 21

• turnover
• Number of employees
• Balance sheet total(amount of money invested int he business)

Question 22

23. Name 5 advantages to small firms.

Answer 22

• Flexibility.
• Lower wage costs.
• Personal service.
• Better communication
• Innovation

Question 23

24. Name 4 disadvantages to being a small firm.

Answer 23

• higher costs.
• Lack of finance.
• difficult attracting quality staff.
• vulnerability.

Question 24

25. Name 3 advantages to large firm.

Answer 24

• economies of scale.
• market domination.
• large-scale contracts.

Question 25

26. Name 3 disadvantages to a large firm.

Answer 25

• too bureaucratic.
• coordination and control.
• poor motivation.

Question 26

27. What are the 5 factors influencing the growth of firms?

Answer 26

• government regulation.
• access to finance.
• economies of scale.
• the desire to spread risk.
• the desire to take over competitors.

Question 27

28. What is a market niche?

Answer 27

• smaller market, usually within a large market or industry.

Question 28

29. What are 5 reasons a firm stays small?

Answer 28

• size of the market.
• nature of the market.
• Lack of finance.
• aims of the entrepreneur.
• diseconomies of scale.

Question 29

30. What is a monopoly?

Answer 29

• monopoly is a situation where there is one dominant seller in a market.

Question 30

31. What are the 4 features of a monopoly?

Answer 30

• one business dominates the market.
• unique product.
• price maker.
• barriers to entry.

Question 31

32. What is a new entrant?

Answer 31

• company that starts to sell goods or services in a market where they have not sold them before or one of these goods or services.

Question 32

33. What is price maker?

Answer 32

• where a dominant business is able to set the price charged in the whole market.

Question 33

34. What are the 5 barriers to entry?

Answer 33

-legal barriers.
- patent.
- marketing budgets.
- technology.
- High start-up costs.

Question 34

35. What are natural monopolies?

Answer 34

• situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many smaller firms.

Question 35

36. What are the 3 advantages of monopoly?

Answer 35

• efficiency.
• innovation.
• economies of scale.

Question 36

37. What are the 4 disadvantages of monopoly?

Answer 36

• higher prices.
• restricted choice.
• lack of innovation.
• inefficiency.

Question 37

38. What are market segments?

Answer 37

groups of customers that share similar characteristics, such as age, income, interests and social class.

Question 38

39. What is an oligopoly?

Answer 38

market dominated by a few large firms.

Question 39

40. What are the 7 features of oligopoly?

Answer 39

• few firms.
• large firms dominate.
• different products.
• barriers to entry.
• collusion.
• non-price competition.
• price competition.

Question 40

What is a collusion?

Answer 40

• informal agreements between firms to restrict competition.

Question 41

41. What is interdependence?

Answer 41

where the actions of one country or large firm will have a direct effect on others.

Question 42

42. What is a price war?

Answer 42

where one firm in the industry reduces price causing others to do the same.

Question 43

43. What is a niche market?

Answer 43

market for a product or service, perhaps an expensive or unusual one, that does not have many buyers, but that may make good profits for companies that sell it.

Question 44

44. What are the 5 advantages of oligopoly?

Answer 44

• choice.
• quality.
• economies of scale.
• Innovation.
• Price wars.

Question 45

45. What is a cartel?

Answer 45

cartel is where a group of firms or countries join together and agree on pricing or output levels in the market.

Question 46

46. What are the 2 disadvantages of oligopoly?

Answer 46

• Lack of choice.
• Pay a higher price due to restricted competitions.