2.6 Competitive Environment

Question 1

Impacts of businesses operating in a competitive market

Answer 1

. Nobody is powerful enough to dictate prices therefore forces producers to be efficient when it comes to how much they charge customers or they will go elsewhere
. Costly marketing to show they are better than rivals
. Lots of money must be spent to develop new products to maintain their position or increase it
. Similar products being made therefore can bring firm revenue and profits down as they can only compete by price

Question 2

What is a market

Answer 2

A market exists where there are buyers and sellers

Question 3

Why might a business not have much competition

Answer 3

. When a business creates a new product initially wont have any competition and whoever wants that product will have to buy from that business
. Some businesses sell very specialist products that not many people buy e.g qualified thatchers
. Some markets are hard to start a business in e.g commercial planes as they require lots of space, money and equipment which is hard to get

Question 4

Example of a market which is very competitive

Answer 4

Estate agents - compete on price

Question 5

What is market share

Answer 5

Is the percentage of sales in a particular market recorded by a business

Question 6

What is competiton

Answer 6

Competition exists when more than one business is attempting to attract the same customers

Question 7

What is a monolopy

Answer 7

A monopoly exists when a business does not face any competition in a particular market

Question 8

What is uncertainty

Answer 8

Uncertainty occurs where there is a lack of information about a situation meaning the outcome or consequences are difficult to predict

Question 9

What is risk

Answer 9

Risk is the possibility of something going wrong

Question 10

Internal risks a business may face

Answer 10

. Employees refuse to work
. Fire or theft
. Bad publicity
. Loss of ‘best employees’

Question 11

External risks a business may face

Answer 11

. New competitors
. Natural disasters
. New laws

Question 12

How can a business minimise risk

Answer 12

. Business plan
. Investing in training
. Using experts and consultants
. Selling in different markets

Question 13

How can a business plan minimise risk

Answer 13

. As a business plan sets out what a business does and what it hopes to achieve in the future
. Market and customer research
. Allows the business to prepare for likely events
. Reduces the chance if something going wrong in the future

Question 14

Why can investing in training help reduce risk

Answer 14

Various problems in the business can be fixed by employees e.g insecure IT systems and cybercrime, dealing with dissatisfied customers, manage crises such as flooding

Question 15

Why can experts and consultants reduce risk

Answer 15

They can identify risks with their specialist knowledge reducing the chances if a business making major errors

Question 16

What is diversification and how can it help avoid risk

Answer 16

. Diversification occurs when a business starts selling new products in new markets
. Attracts new customers reducing the chance of fall in sales if one competitor takes over one of the markets your business is in

Question 17

How are businesses impacted by economic uncertainty

Answer 17

E.g in 2008 Uk experienced an unexpected financial crisis therefore caused a major recession and a fall in value of goods and services

Question 18

What is a recession?

Answer 18

A recession occurs when the value of an economy’s output of goods and services falls for six months or longer

Question 19

How are businesses impacted by competitors and uncertainty

Answer 19

Difficult for a business to predict what a competitor will do as they might:
. Cut their prices significantly
. Introduce a new and popular product
. Attempt to buy their rivals

Question 20

How are businesses impacted by social changes and uncertainty

Answer 20

. Changes in society are hard to predict e.g fashion and tastes
. Difficult to estimate future sales
. E,g Coca-Cola have experienced a fall in sales as society realises the dangers of their sugary product

Question 21

What is an entrepreneur

Answer 21

Is someone who is willing to take risks involved in starting a new business