Chapter 3 Flashcards
Factors influencing costs and demand include the effect of:
Market conditions and competition Incomes Interest rates Demographic factors Environmental issues and fair trade.
Market condition and Demand
Market conditions are the features of a market, such as the level of sales, sales growth, price levels, the number and strength of rivals, their market position and market share, etc.
Demand is the amount of a particular good or service that consumers or organisations want and are able to afford to purchase. It is a good determinant of how desirable a market is for firms
what are interest rates
Interest rates: the cost of borrowing money and the return for lending it.
Different demographic factors
The UK population is increasing The population is ageing Ethnic diversity Smaller households Higher proportion of women working
What is fair trade?
Fairtrade® is about better prices, decent working conditions and fair terms of trade for farmers and workers
How will income effect cost and demand
Income levels in the market will clearly have an impact on the demand for all goods.
Some products such as normal and luxury goods will see sales rise as income levels rise.
How will interest rates be effected if they are high?
Consumers with mortgages, loans and credit cards have less discretionary income available so will spend less.
Sales of consumer products on credit (cars, electrical goods, furniture, holidays, etc.) may fall as it becomes more expensive to borrow.
Saving becomes more attractive than spending because of the interest earned.
The increased cost of borrowing may encourage businesses to delay any investment in growth as the benefit of saving is greater than that of the project. Therefore, the demand for capital goods (machinery, etc.) will fall.
The cost of borrowing is a fixed cost, therefore a rise will increase unit costs and the break-even point and lower profit margins.
Why might fair trade be a good thing?
This is ethical and helps a firm to be socially responsible.
It can help to add value to products, but will push unit costs up often meaning higher prices must be charged.
Arguments for being environmentally responsible
Improved financial performance of the firm and reduced operating costs, for example reduced waste disposal costs, income from selling recycled materials, etc.
Enhanced brand image and reputation resulting in improved sales and customer loyalty
It will be attractive to some investors and easier to raise finance
Arguments against being environmentally responsible
Companies’ ultimate aim is to make a profit and the only social responsibility of business is to create shareholder wealth.
Extra costs will be incurred which will be passed on to consumers.
It may reduce firms international competitiveness if others are not doing it.
