3 - External influences Flashcards
Demand
how much a product is demanded in relation to price
Supply
how much a product is supplied in relation to price
What is a market?
any place/situation where buyers and sellers are in contact in order to trade goods, services or contracts
features of a competitive market
- large numbers of firms
- no decision on price setting ~ these are often low
- little if any power in the market
- compete on non price differences
- low barriers to entry and exit
features of a monopoly
- single business dominates the market
- fully in control of the market
- high barriers to entry
- usually higher prices
features of monopolistic competition
- large number of firms
- low barriers to entry and exit
- product differentiation
oligopoly
- market dominated by a few large firms
- more limited competition
- all adopt the same pricing approach
- buyers in control
- compete on non price differences
barriers to entry
factors that could prevent a business from entering and competing in a market
barriers to exit
factors that could prevent a business from exiting a market, even if it wants to
organic growth
growth that is achieved by increasing the firms sales by selling more to existing or new customers. This will help towards market dominance as long as competitors aren’t all achieving the same.
mergers and acquisitions
two businesses join together.. the larger the businesses the more dominant these can be together leading to increased sales and dominance
what is equilibrium?
the situation in a market where demand is equal to supply
other than price, what factors determine demand?
- fashion
- income
- population
- substitutes
other than price, what factors determine supply?
- costs
- tastes
- subsidies
substitues
an alternative product that serves the same function
complements
a product that is used and brought in conjunction with another
subsidy
a payment from the government to encourage a business to increase supply
what is meant by elasticity of demand?
the responsiveness/sensitivity of demand in relation to a change in price
elastic… eg
sensitive products (demand is effected by a change in price)
- chocolate
- cinema tickets
- clothes
inelastic.. eg
insensitive products (less likely to change, no matter what the price)
- fuel
- alcohol
- cigarettes
examples of some barriers to entry?
- large start up costs
- legal restrictions
- inability to gain economies of scale and compete against existing firms
examples of some barriers to exit?
- existing contracts
- redundancy costs
- difficulty of selling machinery etc
what can small businesses do to compete in a market?
- longer opening hours
- improved customer service
- compete in a niche market rather than a very broad one
what is meant by market size?
the total number of sales in value in a market
two reasons why market size is important ?
- allows the business to know when and where to sell a product
- helps the business decide the potential profitability of a market
what is meant by market growth?
the % increase in the size of the market on a yearly basis
how may a business increase its market share?
- innovation
- strengthening customer relationships
- more advertising
examples of non price differences?
- better quality products and service
- longer hours
- relationship with suppliers
what is meant by competition?
rivalry in which each seller tries to get what other sellers are seeking at the same time: sales, profits, market share
relationship between dominant market structures and decision making power?
dominant structures have full decision making power e.g. monopoly
less dominant firms can’t do this as their is more competition.. often buyers have more power
what is ‘globalisation’?
the process of growth in world markets through a process of integration
what factors have facilitated globalisation?
- increased trade (removal of trade barriers)
- increase in the movement of people for work
- the internet
- transport
how has the internet facilitated globalisation?
customers and buyers are now able to meet in non physical markets to trade
what is meant by a multinational company?
a company operating on a global scale, producing centres in various countries and selling in these too
three ways in which multinationals benefit from globalisation?
- benefit from economies of scale
- access to lower wages in developing countries
- can take advantage of certain markets with little competition
three ways the LEDCs benefit from globalisation?
- provides new jobs
- increased training opportunities
- infrastructure development
what is a problem that globalisation has on LEDCs?
exploration of vulnerable people e.g. child labour
people work for very little money because globalised companies have the power to do this
a problem of globalisation on multinationals?
can suffer from diseconomies of scale as there are difficulties associated with coordinating certain activities in several countries
why is low wages in LEDC’s a problem for MEDC’s
the number of jobs in MEDC’s will decrease because of foreign competition
gap between the rich and the poor worlds is increasing
what is meant by emerging markets?
developing countries that are achieving rapid growth and industrialisation e.g. India/China
what does the term ‘emerging markets’ commonly show?
the financial markets of developing countries
there is excess demand of a product, what is the impact on price?
trying to buy more than is on sale and so price will increase in order to make a profit whilst also lowering demand to reach equilibrium
excess demand?
more demanded than is being supplied
excess supply?
more being supplied than there is demanded
when price goes up, demand…
goes down (people less willing to buy at higher prices)
when price goes down, supply…
goes down (not in the businesses best interest to supply more)
when price goes up, supply…
goes up (in the businesses interest to apply more so that they can make the highest profits)
when price goes down, demand…
goes up (people want to buy more when its price is lowered)
what is free trade?
trade without tariffs or quotas being imposed when products are traded
what is a single market?
a market in which there is a single set of laws and regulations relating to the movements of products, people and money
trade barriers examples
quotas and tariffs
implications of trading in the EU for UK businesses?
- Businesses have to comply with laws and standards
- Marekting must be adapted and broadened
- Operating in other countries in the EU can enable the business to benefit from EOS
- Employees who deal directly with other countries must be able to face language barriers
how have companies benefited from the expansion of the EU?
- larger market to export to
- opportunity to expand manufacturing into other countries
- availability of labour from migrants moving in
advantages of the UK joining the euro?
- encourage trade
- prices would be transparent
- less uncertainty over costs and profits
disadvantages of the UK joining the euro?
- loss of control over monetary policy
- some countries may be left behind
eurozone:
the collective name for countries that have adopted the euro as their currency
advantages of globalisation?
- incoming companies bring investment, jobs etc
- news and new ideas are spread more rapidly around the world (especially when it comes to disasters)
disadvantages of globalisation?
- benefits are mostly felt by the developed countries
- the lack of clear legal frameworks in LEDC’s can result in poor working conditions etc
- fear that in developed countries jobs will be lost to less developed countries because of lower wages etc
