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EDEXCEL Economics B Paper 2 > 2.1 Business growth and competitive advantage > Flashcards

2.1 Business growth and competitive advantage Flashcards

1
Q

Give the 4 objectives of growth

A
  • Economies of scale
  • Market power
  • Market share
  • Profit
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2
Q

Name 3 ways that a business can benefit from economies of scale

A
  • Bulk buying
  • Owning more machinery
  • Utilising managers
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3
Q

How can growth provide a competitive advantage? (2)

A
  • Increased profits allow for r&d

- Monopsony power to drive down prices and give a price-advantage

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4
Q

Define internal economies of scale

A

Lowering the cost of producing each unit ny growing the business in size

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5
Q

Give the 5 methods of internal economies of scale

A
  • Bulk buying
  • Managerial economies
  • Financial economies
  • Technical economies
  • Marketing economies
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6
Q

Explain what is meant by managerial economies of scale

A

Greater potential for managers to specialise and become more efficient

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7
Q

Explain what is meant by financial economies of scale

A

Larger firms find it easier to find lenders at low interest rates

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8
Q

Explain what is meant by technical economies of scale

A

Firms have the benefit of using more advanced machinery and can invest more into r&d

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9
Q

Explain what is meant by marketing economies of scale

A

Where most marketing costs are fixed so, as they expand, the costs are more spread

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10
Q

Define what is meant by external economies of scale

A

A firm benefiting from the lower unit costs as a result of the whole industry growing in size

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11
Q

Give the 3 categories of external economies of scale

A
  • Transport and communication links
  • Training and education
  • Growth of other supporting industries
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12
Q

Explain how transport and communication links provide economies of scale

A

Transport and communication links improve efficiency and lower costs

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13
Q

Explain how training and education provides economies of scale

A

Local education sources will offer courses more suited to the industry so they have a larger pool of workers to choose from

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14
Q

Explain how the growth of other supporting industries provides economies of scale

A

A network of supporting industries can grow with the business, providing them with better suppliers

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15
Q

Define diseconomy of scale

A

When a business grows so large that the cost per unit increases

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16
Q

Give the 3 possible causes of diseconomies of scale

A
  • Poor communication
  • Lack of motivation
  • Loss of direction and coordination
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17
Q

Explain how poor communication can cause diseconomies of scale?

A

As a business expands, messages can be distorted as they are passed down

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18
Q

Explain how lack of motivation can cause diseconomies of scale?

A

workers can feel unappreciated if they’re not receiving praise from above which can diminish committment

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19
Q

Explain how a loss of direction and coordination can cause diseconomies of scale?

A

The bigger the business, the harder it is for the whole firm to have the same goal

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20
Q

Give 3 possible solutions of diseconomies of scale

A
  • Delegation of decision making
  • Making the job more engaging and interesting
  • Splitting employees into teams
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21
Q

Draw the minimum efficient scale

A

See book

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22
Q

Define what is meant by the ‘minimum efficient scale’

A

The point at which a company is at its maximum efficiency

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23
Q

How can reaching the MES be a source of competitive advantage?

A

Firms can operate at their most efficient and have a price advantage or operate with a larger profit margin

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24
Q

Give 3 disadvantages of business growth

A
  • Diseconomies of scale
  • Damage corporate culture
  • Harder to employ the right people (skill shortages)
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25
Q

Define corporate culture

A

The shared values of an organisation that characterises the member of an organisation

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26
Q

Define organic growth

A

Expansion of a business by growing independently

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27
Q

Define inorganic growth

A

Business expansion by a merger or takeover that brings a sudden increase in size

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28
Q

Give 4 advantages of organic growth

A
  • Retains corporate culture
  • More secure and controlled
  • Cheaper initially
  • Better chance of avoiding diseconomies of scale
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29
Q

Give 3 disadvantages of organic growth

A
  • Slower
  • No new external ideas to stimulate growth
  • Harder to enter new markets
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30
Q

Give 4 advantages of inorganic growth

A
  • Fast
  • Removes a competitor
  • New ideas and innovation
  • Instant increase in market share
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31
Q

Give 3 disadvantages of inorganic growth

A
  • Debt
  • More chance of a culture clash
  • Diseconomies of scale
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32
Q

Define horizontal integration

A

Where firms of a similar size and nature merge

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33
Q

Give 3 advantages of horizontal integration

A
  • Organic growth
  • Instant boost in market share
  • Removes a competitor
34
Q

Give 3 disadvantages of horizontal integration

A
  • Initial cost (debt)
  • Culture clashes
  • Reduction in flexibility
35
Q

Define vertical integration

A

Where firms of different sizes merge in the same industry

36
Q

Give 2 advantages of vertical integration

A
  • Reduces the cost of supply materials

- Allows inorganic growth

37
Q

Give 2 disadvantages of vertical integration

A
  • Diseconomies of scale

- Can distract the firm from their established strengths

38
Q

Define conglomerate merger

A

Where completely unrelated firms merge

39
Q

Give 4 advantages of a conglomerate merger

A
  • Spread risk
  • Flexible
  • Diversification
  • Economies of scale
40
Q

Give 3 disadvantages of a conglomerate merger

A
  • Confusion
  • Lack of experience
  • Communication problems
41
Q

Define R&D

A

Doing research to find innovative ideas to make the production process cheaper or quicker or to improve the product

42
Q

Define innovation

A

Turning an invention into something that can be sold

43
Q

Define invention

A

The formulation of new ideas for products or processes

44
Q

Give the 3 ways that R&D can create a competitive advantages

A
  • First movers advantage
  • Create a USP
  • Reduce the cost of production
45
Q

Define market power

A

Bargaining power over suppliers to drive prices down and make consumers pay more

46
Q

Define product innovation

A

Businesses adapting and changing their products

47
Q

Define state funding

A

Where the government provide a business with money, grants or advice to spark innovation

48
Q

How can innovation lead to an increase in AD?

A

Will raise exports and create job opportunites

49
Q

Give 2 examples of government intervention to create innovation

A
  • Tax relief

- Subsidies

50
Q

What is the product life-cycle?

A

The stages through which a product passes from its development through to it being withdrawn from the market

51
Q

What are the 6 stages of the product life cycle?

A 
Development
Introduction
Growth
Maturity
Decline
Extension Strategy
52
Q

What happens in the development stage of the product life-cycle?

A

Research and testing

53
Q

What happens in the introduction stage of the product life cycle?

A

The product is launched onto the market

54
Q

What happens in the growth stage of the product life cycle?

A

The product becomes better known and builds a customer base

55
Q

What happens in the maturity stage of the product life cycle?

A

The product is at its peak and is benefiting from economies of scale

56
Q

What happens in the decline stage of the product life cycle?

A

Sales fall as preferences change

57
Q

What happens in the extension strategy of the product life cycle

A

A method is used to increase the lifetime of a product and prevent its decline

58
Q

Give 6 potential extension strategies

A
  • Updating
  • Advertising
  • Price change
  • Targeting a new market
  • Rebranding
  • Developing new uses
59
Q

What is the digital economy?

A

An economy built online that includes:

  • Infrastructure
  • E-business
  • E-commerce
  • Use of social media
60
Q

Define dynamic market

A

One that is subject to rapd / unpredictable change

61
Q

What is meant by asymmetric information?

A

When the buyer doesn’t have as much information as the seller on competition prices

62
Q

How does the internet reduce asymmetric information?

A

Price comparison sites

63
Q

Define viral marketing

A

The spread of information and opinion about a product from person to person online

64
Q

How can social media benefit a business?

A

It allows them to target a certain group of individuals with a similar interest

65
Q

Give 3 possible advantages of the digital economy on business

A
  • Lower costs from removing the need for rent
  • Good reviews can spread and boost sales
  • Cheaper advertisement than TV
66
Q

Give 3 possible disadvantages of the digital economy on business

A
  • Bad reviews can ruin sales
  • More competition as it is easier to set up a business
  • Prices driven down by asymmetric information
67
Q

Define micromarketing

A

A customised marketing strategy in which advertising is focused on a small, well defined group of consumers

68
Q

Give 2 advantages of micromarketing

A
  • Stops businesses advertising to groups with no interest

- Allows firms to see purchasing patterns and target certain groups

69
Q

Give a disadvantage of micromarketing

A

Might not be suited to large companies like Coke

70
Q

What is meant by ‘online retailing and distribution’?

A

The way in which a company sells online and distributes their products using a courier service

71
Q

Give 2 advantages of a business using online retailing and distribution

A
  • Lowers rent with outskirt warehouses

- Makes it easier for businesses to enter the market

72
Q

Give 3 advantages of recruiting and training staff online

A
  • Cheaper and quicker
  • More suitable pool of candidates to choose from
  • Cheaper
73
Q

What is the long-tail?

A

The more niche products that aren’t available in shops become available through the digital economy because it is profitable so sell such niche products

74
Q

Draw the long-tail

75
Q

Give 5 impacts of the long-tail

A
  • Reduced cost for consumers
  • Reduced costs for businesses
  • More price transparency
  • Business creation (eg. spotify)
  • Business destruction (eg. Blockbusters)
76
Q

Give the 5 ways that small firms compete

A
  • USP
  • Flexibility
  • Customer Service
  • Niche markets
  • Relationships
77
Q

How do small firms compete through USPs?

A

Being different has an appeal to customers so products can be sold for higher prices

78
Q

How do small firms compete through flexibility?

A

They can respond quickly to customer needs

79
Q

How do small firms compete through customer service?

A

They can personalise goods or provide something unique

80
Q

How do small firms compete through niche markets?

A

They can cater for minority interests

81
Q

How do small firms compete through relationships?

A

A personalised relationship between client and supplier will have trust and respect which outweighs the higher financial cost

EDEXCEL Economics B Paper 2 (6 decks)

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