BEC 5.3 Flashcards
Market influence on business strategies
What is the fundamental law of demand, and what factors shift demand curves?
Fundamental law of demand: Price of a product/service and the quantity demanded of that product/service have an inverse relationship
Factors that shift demand curves include the mnemonic “WRITEN”:
- (W)ealth
- Prices of (r)elated goods
- Consumer (i)ncome
- Consumer (t)astes/preferences
- Consumer (e)xpectations
- (N)umber of buyers in a market
What is the fundamental law of supply, and what factors shift supply curves?
Fundamental law of supply: price and quantity supplies are positively related.
The higher the price received for a good, the more quantity sellers are willing to produce
Factors that shift supply curves include the mnemonic “ECOST”:
- Changes in price (e)xpectations of the supplying firm
- Production (c)osts
- Demand for (o)ther goods
- (S)ubsidies or taxes- (T)echnology
Changes in equilibrium cause demand & supply curves to shift, and new equilibrium price and quantity result. In general, what effects do the following shifts in demand supply curves have?- Shift right in the demand curve- Shift left in the demand curve- Shift right in the supply curve- Shift left in the supply curve
- Shift RIGHT in the DEMAND curve: increase in demand, causing increase in price and market clearing quantity
- Shift LEFT in the DEMAND curve: decrease in demand, causing decrease in price and market clearing quantity
- Shift RIGHT in the SUPPLY curve: increase in supply, causing decrease in price and increase in market clearing quantity
- Shift LEFT in SUPPLY curve: decrease in supply, causing increase in price and decrease in market clearing quantity
Market clearing quantity = equilibrium quantity
Define cross elasticity of demand (supply) and demonstrate how it is calculated
Cross elasticity of demand (or supply) represent this % change in quantity demandED (or suppliED) of a good due to the price change of another good
Cross elasticity = %change in # of units in X demanded (supplied) / % change in price of Y
What are the attributes and basic competitive strategies of pure (perfect) competition?
- Zero economic profit in the long run
- Large number of suppliers and customers acting independently
- Very little product differentiation
- No barriers to entry
- Firms are price-takers
- Strategies include maintaining market share and responsiveness to sales price
What are the attributes and basic competitive strategies of monopoly?
- Positive economic profit in the long run
- Single firm with a unique product
- Significant barriers to entry
- Ability of the firm to set output and prices (e.g., patents and restrictions against competition - firms are price setters)
- No substitute products
- Strategies include ignoring market share and focusing on profitability from production levels that maximize profits
What are the attributes and basic competitive strategies of monopolistic competition?
- Numerous firms with differentiated products
- Few barriers to entry
- Ability of firms to exert some influence over price but have more control over quantity produced
- Significant non-price competition in the market (to promote brand awareness and loyalty)
- Zero economic profits in the long run
- Strategic plans include maintaining the market share but also including a plan for enhanced product differentiation
What are the attributes and basic competitive strategies of oligopoly?
- Positive economic profit in the long run
- Relatively few firms with differentiated products
- Fairly significant barriers to entry (high capital costs, etc.)
- Strongly interdependent firms (prices tend to be fixed)
- Kinked demand curve (firms match price cuts but ignore price increases)
- Strategic plans focus on enhancing market share and call for the proper amount of advertising and ways to adapt to price and volume changes
Elasticity is the measure of how sensitive the demand for or the supply of a dproduct is to a change in its price.Define price elasticity of demand and price elasticity of supply.
Price elasticity of demand: Percentage change in the quantity demanded divided by percentage change in price
Price elasticity of supply: Percentage change in the quantity supplied divided by percentage change in price
What quantitative values indicate the following?- Inelasticity of demand and supply- Elasticity of demand and supply- Unit elasticity of demand and supply
- Inelasticity of demand (or supply) exists when the absolute value of the elasticity calculation is < 1.0- Elasticity of demand (or supply) exists when the absolute value of the elasticity calculation is > 1.0
- Unit elasticity of demand (or supply) exists when the absolute value of the elasticity calculation is exactly 1.0
What effect do the following forms of government intervention have on market operations?- Price ceilings- Price floors
- Price ceilings: price is established below the equilibrium price, prices are artificially low, and more quantity demanded than supply is available (market shortage)
- Price floors: price is established above the equilibrium price, prices are artificially high, and less quantity demanded than supply is available (market surplus)
List Porter’s five external forces that affect the competitive environment and profitability of a firm
- Barriers to market entry
- Market competitiveness (intensity of competition)
- Existence of substitutes
- Bargaining power of the customers
- Bargaining power of the suppliers
What are the five basic competitive strategies, and what do the main components mean?
- Cost leadership focused on a broad range of buyers
- Cost leadership focused on a narrow range (niche) of buyers
- Differentiation focused on a broad range of buyers
- Differentiation focused on a narrow range (niche) of buyers
- Best cost provider
Cost leadership: lowest overall costs
Differentiation: unique features that create loyalty/value
Best cost: low cost leader among rivals and unique features
What are the four key management processes of supply chain management (SCM) per the SCOR model?
- Plan
- Source
- Make
- Deliver
