Business 5: Market Influence on Business Strategies Flashcards
1
Q
What does the demand curve illustrate?
A
- Max quantity of a good that consumers are willing and able to purchase at each and every price (at any given price), all else being equal
2
Q
What is quantity demanded determined by?
A
Price
3
Q
Define quantity demanded.
A
Quantity of a good (or service) individuals are willing and able to purchase at each and every (given) price, all else being equal
4
Q
True or false.
A change in quantity demanded is represented as a movement of the demand curve.
A
FALSE (movement “along” the demand curve)
5
Q
A change in quantity demanded is a change in the amount of a good demanded resulting solely from what?
A
A change in price
6
Q
A change in demand is a change in the amount of a good demanded resulting from a change in what?
A
Something other than price of the good
7
Q
What does the fundamental law of demand state?
A
Price of a product (service) and the quantity demanded of that product (service) are inversely related
8
Q
What are the two reasons why quantity demanded is inversely related to price?
A
1) Substitution effect
2) Income effect
9
Q
What do you call the effect that refers to the fact consumers tend to purchase more (less) of a good when its price falls (rises) in relation to the prices of other goods?
A
Substitution effect
10
Q
What do you call the effect that as prices are lowered with income remaining constant, people will purchase more of all of the lowered-priced products?
A
Income effect
11
Q
What do you call the effect that as prices are lowered with income remaining constant, people will purchase more of all of the lowered-priced products?
A
Income effect
12
Q
What does the fundamental law of supply state?
A
Price and quantity supplied are positively related
13
Q
What does the fundamental law of supply state?
A
Price and quantity supplied are positively related
14
Q
Which curve illustrates the max quantity of a good sellers are willing and able to produce at each and every price (at any given price), all else being equal?
A
Supply curve
15
Q
Which curve illustrates the max quantity of a good sellers are willing and able to produce at each and every price (at any given price), all else being equal?
A
Supply curve
16
Q
Quantity supplied (the amount of a good that producers are willing and able to produce at each and every price) is determined by what?
A
Price
17
Q
Quantity supplied (the amount of a good that producers are willing and able to produce at each and every price) is determined by what?
A
Price
18
Q
True or false.
A change in quantity supplied is represented by a movement of the supply curve.
A
FALSE (along the supply curve)
19
Q
True or false.
A change in quantity supplied is represented by a movement of the supply curve.
A
FALSE (along the supply curve)
20
Q
The market equilibrium price and quantity is the point where the supply and demand curves intersect. This is also known as what?
A
Market clearing price
21
Q
If the price is set below equilibrium price, what will result?
A
- Quantity demanded will exceed quantity supplied
- SHORTAGE
22
Q
If the price is set above the equilibrium price, what will result?
A
- Quantity demanded will be less than quantity supplied
- SURPLUS
23
Q
Give an example of a price floor.
A
Minimum wage
24
Q
Give an example of a price ceiling
A
Rent control
25
Give an example of a price ceiling
Rent control
26
If the supply or demand curve shifts, what will be the impact on the equilibrium price and quantity?
It will change
27
What six factors shift the demand curve?
WRITEN
1) Change in WEALTH
2) Change in price or RELATED goods
3) Changes in consumer INCOME
4) Changes in consumer TASTES or preferences for a product
5) Changes in consumer EXPECTATIONS
6) Changes in # of buyers served by the market
28
If the price of computers fall, what will happen to the demand for peripherals?
Increase (complements)
29
As the price of computers fell, what happened to the demand for typewriters?
Decreased (substitutes)
30
What five factors shift the supply curve?
ECOST
1) Changes in price EXPECTATIONS of the supplying firm
2) Changes in production COSTS
3) Changes in the price or demand for OTHER goods
4) Changes in SUBSIDIES or taxes
5) Changes in product TECHNOLOGY
31
What is the effect on equilibrium Q and equilibrium P when there is an increase in both demand and supply?
- Equilibrium Q: Increase
| - Equilibrium P: Indeterminate
32
What is the effect on equilibrium Q and equilibrium P when there is an increase in demand and a decrease in supply?
- Equilibrium Q: Indeterminate
| - Equilibrium P: Increase
33
What is the effect on equilibrium Q and equilibrium P when there is a decrease in both demand and supply?
- Equilibrium Q: Decrease
| - Equilibrium P: Indeterminate
34
What is the effect on equilibrium Q and equilibrium P when there is a decrease in demand and an increase in supply?
- Equilibrium Q: Indeterminate
| - Equilibrium P: Decrease
35
What is a measure of how sensitive the demand for, or the supply of, a product is to a change in price?
Elasticity
36
How do you calculate the price elasticity of demand?
- Percentage change in QD divided by the percentage change in P
37
True or false.
In a normal demand curve, the price elasticity of demand is usually positive.
False (negative; reflects downward sloping demand curve)
38
Give an example of a relatively inelastic good.
Gasoline
39
If price inelasticity is zero, demand is perfectly inelastic. What does that mean?
Demand does not depend at all on price
40
If the price elasticity of demand for a good is > 1.0, what does that say about the demand for the good?
Elastic
41
What causes elasticity?
- Product demand is more elastic with more substitutes available, but inelastic if few subs are available
42
If the price elasticity of demand for a good = 1.0, what does that say about the demand for the good?
Unit elastic (percentage change in QD caused by a change in P equals the percentage change in P)
43
What are the effects of price inelasticity on total revenue?
Positive relationship
- Increase in price (proportionately smaller decrease in QD)
- Increase in total revenue
44
What are the effects of price elasticity on total revenue?
Negative relationship
- Increase in price (proportionately larger decrease in QD)
- Decrease in total revenue
45
What are the effects of unit elasticity on revenue?
No effect
46
How do you calculate the price elasticity of supply?
Percentage change in QS divided by percentage change in P
47
If the price elasticity of demand for a good is
Inelastic
48
If the good is price inelastic, what is the price elasticity of supply?
49
If the good is price elastic, what is the price elasticity of supply?
> 1.0
50
Supply is unit elastic if the absolute price elasticity of supply is equal to what?
1.0
51
What two factors affect price elasticity of supply?
1) Feasibility of producers storing the product
| 2) Time required to produce and supply the good
52
A product that can be produced and stored until needed may have a ____ elasticity of supply.
High
53
Perishables, such as flowers, cannot be stored for very long and may have a ____ elasticity because it is more difficult to increase supply when the prices rise.
Low
54
A longer production time leads to ____ price elasticity.
Lower
55
What does a perfectly inelastic supply curve reflect?
Reflects that QS is insensitive to price changes
56
What measures the percentage change in the QD (or QS) of one good caused by the price change of another good?
Cross elasticity of demand (or supply)
57
If the cross elasticity of demand/supply coefficient is positive, what does that say of the two goods?
Substitutes (if price of Product A goes up, demand for Product B goes up)
58
If the cross elasticity of demand/supply coefficient is negative, what does that say of the two goods?
Complements (increase in price of Product A results in decrease QD for Product B)
59
If the cross elasticity of demand/supply coefficient is zero, what does that say of the two goods?
Unrelated
60
What does the income elasticity of demand measure?
Percentage change in QD for a product for a given percentage change in income
61
How do you calculate the income elasticity of demand (or supply)?
= % change in # of units of X demanded
| divided by % change in income
62
What do you call a product whose demand is positively related to income?
Normal good (as income goes up, demand for normal goods increases)
63
Positive income elasticity indicates what type of good?
Normal good
64
Negative income elasticity indicates what type of good?
Inferior good
65
What do you call a product whose demand is inversely related to income?
Inferior good (as income goes up, demand for inferior goods decreases)
66
What do companies used to evaluate optimal production levels based on available inputs?
Production measures
67
What are the three main production measures?
1) Total product
2) Marginal product
3) Average product
68
What does total product (TP) equal?
= total amount of output (Q) produced
69
What does marginal product (MP) equal?
= change in total product resulting from a one-unit increase in the quantity of an input employed
70
How do you calculate the MPL?
Marginal product of labor
= Change in TP
Divided by change in labor
71
What does average product (AP) equal?
= Total product
| divided by the quantity of an input
72
How do you calculate APL?
Average product of labor
= TP
Divided by labor
73
What law states that when more and more units of an input are combined with a fixed amount of other inputs, output increases but at a diminishing rate?
Law of diminishing returns
74
What are the four major cost functions used to analyze and forecast?
1) Average FC
2) Average VC
3) Average TC
4) Marginal Cost
75
How do you calculate average FC?
AFC
= FC
/ Q
76
How do you calculate average VC?
AVC
= VC
/ Q
77
How do you calculate average TC?
ATC
= TC (fixed plus variable costs)
/ Q
78
What is marginal cost?
The change in total cost associated w/ a change in output quantity over a period
79
In the SR or within the relevant range, do fixed costs influence marginal costs?
No (marginal coy sts depend solely on variable costs)
80
Which curve decreases continually over the range of quantity produced (as output increases)?
AFC curve (average fixed cost curve)
81
The vertical distance b/w the AVC curve and the ATC curve is equal to what?
AFC
82
Why is the ATC curve U-shaped?
- at low levels of output, ATC are high b/c AFC are high
- as output increases, AFC fall and thus ATC fall
- as output continues to increase, MC and AC start to increase, causing ATC to rise
83
The SR supply curve is the MC curve above the minimum point of its ____ curve.
AVC
84
Generally, the LRATC curve is ______. Therefore, the optimal size or # of plants is at the minimum point of the LRATC curve.
U-shaped
85
Companies that are able to reduce per-unit costs by using large plants to produce large amounts of output are said to have what?
Economies of scale
86
What three factors enable economies of scale (increases in the productivity of inputs)?
1) Opportunity for specialization
2) Utilization of advanced technology
3) Mass production is normally more efficient
87
True or false.
At a certain point, firms cross from having economies of scale to diseconomies of scale
True
88
What may occur when large firms become inefficient and are no longer cost productive?
Diseconomies of scale
89
Two factors that may cause diseconomies of scale include what?
1) Bottlenecks and costs of transporting materials
| 2) Difficulty of supervising and managing a large bureaucracy
90
What are four types of market structures?
1) Perfect competition
2) Monopolistic competition
3) Oligopoly
4) Monopoly
91
What is the most competitive environment in which a firm can operate?
Perfect (pure) competition
92
What is the least competitive environment in which a firm can operate?
Monopoly
93
What do you call a market in which no individual firm can influence the market price of its product, nor shift the market supply sufficiently to make a good scarcer or more abundant?
Perfect competition
94
In a perfectly competitive market, firms are price takers and only have control over what?
Quantity produced (each firm can sell as much or as little as it wants at the given market price)
95
Under perfect competition, what two strategic plans can a firm adopt?
1) Maintain market share
| 2) Responsiveness of the sales price to market conditions
96
What is slightly less competitive than perfect competition?
Monopolistic competition
97
What type of competition exists when many sellers compete to sell a differentiated product in a market into which the entry of new sellers is possible (e.g. brand name cosmetic products)?
Monopolistic competition
98
Under monopolistic competition, what are two strategic plans a firm may use?
1) Maintaining the market share
2) Enhanced product differentiation and extensive allocation of resources to advertising, marketing, product research, etc.
99
What is the name for a market structure in which a few sellers (e.g. The "Big Three" US auto manufacturers) dominate the sales of a product and entry of new sellers is difficult or impossible?
Oligopoly
100
In an oligopoly, products are differentiated and firms have control over what?
Control over both:
- Quantity produced
- Price charged
101
Oligopolists face a ____ demand curve b/c firms match price costs of competitors but ignore price increases.
Kinked
102
In an oligopoly, if a firm cuts price, what limits the potential gain in sales?
Rival firms match the reduction
103
In an oligopoly, if a firm raises prices above the prevailing level, what is behind why the firm will lose a large portion of its sales?
Rival firms will ignore the increase
104
Under an oligopoly, what strategic plans do firms tend to focus on?
1) Market share
2) Proper amount of advertising (to ensure product differentiation)
3) Ways to properly adapt to price changes or required changes in production volume
105
What type of market represents a concentration of supply in the hands of a single firm?
Monopoly
106
Under a monopoly, strategic plans will likely focus on what?
1) Ignore market share
| 2) Focus on profitability from production levels that maximize profits
107
Regardless of the model that represents the industry, the firm will operate best under what conditions?
MR = MC
| marginal revenue = marginal cost
108
The primary resources from which final products are made consist of what three things?
1) Labor (human capital)
2) Land (natural resources)
3) Capital (nonhuman physical capital acc. through past investment)
109
Do the laws of supply and demand apply to the factors of production?
YES
110
What makes an input complementary?
If an increase in the usage of one input results in an increase in the usage of the other input
111
What makes an input a substitute?
If an increase in the usage of one input results in a decrease in the usage of the other input
112
What do you call the demand for factors of production?
Derived demand
113
True or false.
If the marginal product of an input increases, the demand for that input will decrease.
False
The demand for that input will ALSO INCREASE
114
True or false.
The supply of labor and demand for labor determines the price, or wage, of workers.
True
115
When does a monopsony occur?
When there is only ONE employer in a market
116
Relative to a purely competitive labor market, a monopsony results in what?
Lower wages and lower levels of employment
117
What two general types of factors influence a firm's strategy?
1) Internal factors (strengths and weaknesses)
| 2) External factors (opportunities and threats)
118
What five factors affect the competitive environment of the firm (aka Porter's 5 Forces)?
1) barriers to market entry
2) market competitiveness
3) existence of substitute products
4) bargaining power of the customers
5) bargaining power of the suppliers
119
The lower the barriers to entry, the more ______ the market structure is.
Competitive
120
Which two market structures have low barriers to entry?
1) Perfect competition
| 2) Monopolistic competition
121
Which two market structures have high barriers to entry?
1) Oligopoly
| 2) Monopoly
122
According to Michael Porter, which of the five forces of competition is most significant?
Market competitiveness (intensity of competition)
123
The greater a rival firms ability to respond to changes in various components affecting business (e.g. regulation, input costs, labor issues, tech changes, consumers tastes), the more ________ the market structure is.
Competitive
124
If there are many substitutes products, elasticity is high. If elasticity is high and a firm raises its price, what will happen to its profits?
DECREASE
125
True or false.
If buyers (customers) are in the position to bargain w/ suppliers on the conditions of service, price, and quality, they are a strong force in the competitive market in which the firm operates.
True
126
Suppliers can take ____ away from a firm by simply increasing the cost of inputs to the firm's production process.
Profits
127
What are the two main types of competitive strategies that firms employ?
1) Cost leadership
| 2) Differentiation
128
The overall competitive advantage of a firm is determined by what?
Value the firm offers to its customers minus the cost of creating that value
129
When firms desire to achieve competitive advantage w/r/t products, what two basic forms of advantage will they choose from?
1) Cost leadership advantage
| 2) Differentiation advantage
130
What does cost leadership stem from?
Lower costs (firm has been able to produce and sell its products for less than its rivals)
131
Cost leadership advantage may be used by the firm in what two ways?
1) build market share (lower price of its product below price of competitors, and profit through volume)
2) match price of rivals (b/c it has overall lower TC, beat profitability of its rivals)
132
What is the idea behind using differentiation advantage?
Customers willing to pay a higher price for "better" product
133
In what two ways may a firm use differentiation advantage?
1) Build market share (profit through volume)
| 2) Increase price (profit through revenue)
134
What are the five basic types of competitive strategies that firms can employ?
1) Cost leadership focused on BROAD range of buyers
2) Cost leadership focused on NARROW range of buyers
3) Differentiation focused on BROAD range of buyers
4) Differentiation focused on NARROW range of buyers
5) Best cost provider
135
Which type of competitive strategy works well in markets in which buyers have large amounts of bargaining power and are able to switch b/w competitive products w/o incurring significant cost?
Cost leadership strategies
136
Which type of competitive strategy fails if firms focus too much on cutting costs and overlook tech advances that could help lower costs, or overlook the fact that customers may want improvements to the product or may not care as much about the existence of a lower price in the desired product?
Cost leadership strategies
137
Which type of competitive strategy works well when customers are able to see value in a product, when the product appeals to different people for different reasons, and when the firms that are competing in the market choose differentiate features to differentiate their products?
Differentiation strategies
138
When do differentiation strategies fail?
When cost of differentiating the product exceeds the benefit to consumers (costs > benefits)
139
The best cost strategy combines what two strategies?
= cost leadership strategy + differentiation strategy
140
Firms that adopt a best cost strategy seeks to give their customers what?
High quality product at a reasonable product
141
When do best cost strategies work well?
1) Generic products aren't acceptable
| 2) Buyers are still sensitive to value
142
Under an oligopoly structure, strategic plans focus on what?
Maintaining the market share, ensuring product differentiation, and adapting to changes in price and/or production volume
143
Under a monopoly structure, strategic plans focus on what?
Profitability from production levels that max profits
144
Under a perfectly competitive market, strategic plans focus on what?
Maintaining market share and being responsive to market conditions related to sales price
145
Under monopolistic competition structure, strategic plans focus on what?
Maintaining the market share and planning for enhanced product differentiation
146
What type of tool is value chain analysis?
Strategic tool that assists a firm in determining how important its value (as perceived by buyers) is w/r/t the market in which the firm operates
147
In value chain analysis, what three major forms of analysis are used?
1) internal costs analysis
2) internal differentiation analysis
3) vertical linkage analysis
148
What are the four general steps in value chain analysis?
1) Id value activities
2) Id cost drivers associated w/ each activity
3) Develop a competitive advantage by reducing cost or adding value
4) Exploit linkages among activities in the value chain
149
What do cost drivers represent?
Factors that increase TC
150
Porter identified what four major factors that impact global competitive advantage?
1) conditions of the factors of production
2) conditions of domestic demand
3) related and supporting industries
4) firm strategy, structure, and rivalry
151
What does ISCM stand for?
Integrated supply chain management
152
What exists when a firm and the entire supply chain are able to reasonably predict the expected demand of consumers for a product and then plan accordingly to meet that demand?
Integrated supply chain management (ISCM)
153
What does SCOR stand for?
Supply chain operations reference model
154
What are the four key management processes or core activities pertaining to SCOR (which assists a firm in mapping out its true supply chain and then configuring it to best fit the needs of the firm)?
1) Plan
2) Source
3) Make
4) Deliver
155
Which process in the SCOR model consists of developing a way to properly balance demand and supply w/i the goals and objectives of the firm and prepare for the necessary infrastructure?
Plan
156
What is sourcing?
How an entity obtains resources for production
157
Which process of the SCOR model encompasses all activities that turn the raw materials into finished goods that are produced to meet a planned demand?
Make
158
Which process of the SCOR model encompasses all activities of getting the finished product into the hands of the ultimate consumers to meet their planned demand?
Deliver
