Economics Roleplay Flashcards
Explain the concept of competition.
Competition is the struggle among businesses for customers within a particular market or industry. As an essential component of the free enterprise system, competition forces businesses to produce quality goods at reasonable prices. Competition also encourages businesses to develop new products, enhance or improve existing products, and expand product selection in order to attract new customers.
Businesses compete in different ways:
Price competition assumes that, with all other considerations being equal, a customer will buy the lowest-priced product.
Nonprice competition is where businesses compete on factors such as product quality, business location and reputation, customer service, and payment or financing options available.
Direct: where businesses offer similar products or services to the same target market.
Indirect: where businesses offer substitute products or services that fulfill similar needs or desires.
A monopoly exists when there is no competition in the market for a particular good or service. Monopolies are not permitted in a free enterprise system.
Successful entrepreneurs strive to establish a sustainable competitive advantage, which is a unique aspect of their business that sets them apart from competitors and provides long-term value to customers. This could be achieved through product innovation, superior customer service, cost leadership, or other strategic initiatives.
Markets are dynamic and constantly evolving. Entrepreneurs who stay vigilant and agile in response to competition are better positioned for long-term success.
Identify factors affecting a business’s profit.
Profit is the monetary return a business’ owner receives for taking the risk of investing in the business. In simple terms, profit equals income less expenses.
There are two types of profit:
Gross profit is the money left over after the cost of goods is subtracted from income from sales.
Net profit is the money left over after operating expenses are subtracted from gross profit.
Factors that affect profit include cost of goods sold, demand for the good/service, expenses, prices, the economy, and innovation.
To try to increase profit, a business can increase worker efficiency, increase sales, and/or decrease expenses
Determine factors affecting business risk.
Risks are inherent in every business endeavor, representing the possibility of experiencing adverse outcomes that could lead to financial loss.
Economic risks specifically pertain to those factors that have the potential to result in financial losses.
Pure risks entail situations where there is only the possibility of loss without any opportunity for gain. This includes events like natural disasters, accidents, or unforeseen legal liabilities.
Speculative risks offer the potential for either gain or loss. Investing in the stock market or launching a new product are examples of speculative risks.
Controllability: measures can be implemented to mitigate or reduce their likelihood or impact. For instance, a business can implement safety protocols to minimize the risk of workplace accidents.
Insurability: certain risks can be transferred to an insurance provider through the purchase of insurance policies, such as property insurance or liability insurance. However, not all risks can be insured, particularly those deemed uninsurable due to their unpredictable nature or the inability of insurers to accurately assess and price the risk.
Managing risks
Risk avoidance: involves steering clear of activities or situations that pose significant risks
Risk transfer: involves shifting the financial burden of potential losses to another party, often through insurance contracts
Risk retention: entails accepting the risks and bearing the potential losses internally
Risk mitigation: involves implementing measures to reduce the likelihood or severity of risks
Explain the nature of channels of distribution.
Channels of distribution is a process of delivering products or services from manufacturers or producers to consumers or end-users
Direct: products move directly from the producer to the consumer without intermediaries
Indirect: one or more intermediaries between the producer and the consumer
Intermediaries: middlemen who facilitate the movement of products from producers to consumers.
Wholesalers, distributors, retailers, agents, brokers, etc.
Channel length
Short: fewer intermediaries and are often found in direct distribution models or when products have high demand and require minimal handling
Long: involve multiple intermediaries and are common in industries with complex distribution networks or extensive geographic coverage
Channel functions:
Transactional Functions: Facilitating the buying and selling of products, including negotiation, contracting, and payment processing.
Logistical Functions: Physical distribution activities such as transportation, warehousing, inventory management, and order fulfillment.
Facilitating Functions: Activities that enhance the exchange process, including market research, promotion, branding, advertising, and customer support.
Build corporate brands.
Corporate brands are built through a strategic and deliberate process that involves establishing a strong identity, creating positive associations, and consistently delivering value to stakeholders.
Define brand identity: The first step in building a corporate brand is defining its identity, which includes the company’s mission, vision, values, and unique value proposition (USP)
Develop Brand Messaging: Develop clear and compelling brand messaging that communicates the company’s identity, values, and benefits to its target audience.
Build Brand Awareness: Increase brand awareness through marketing and promotional activities such as advertising, public relations, social media, content marketing, etc.
Provide value and quality
Deliver consistent brand promise
Differentiate from competitors
