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Business paper one > Markets > Flashcards

Markets Flashcards

1
Q

Define competition

A

The number of firms that are operating in the same market, they are competing to sell similar products to the same target market

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2
Q

Define a market

A

A place where buyers and sellers come together to exchange goods or services, usually involving an exchange of money at a set price

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3
Q

Define competitive advantage

A

A feature of a business that allows it to perform more successfully than others in the market

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4
Q

State the strategies of competition

A

New product development, Changing or improving existing products, promotions, changing prices, improving distribution channels and improving customer service (training staff)

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5
Q

State the 5 types of markets

A

Local-Global, Mass-Niche, Trade-Consumer, Product-Service, Seasonal

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6
Q

Comment on product targeting, segmentation, appeal, availability and advertising in mass markets

A

Products are targeted at a wide range of people
The market is not segmented
Appeals to a wide range of customers
Widely available through a range of markets
Mass media used to advertise

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7
Q

Comment on gap filling, target market, promotion and price changes in niche markets

A

Identifies small and currently unsatisfied gaps
Target market is well defined with distinct characteristics
Promotion is targeted at a small subsection of the whole market
Often charge higher prices

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8
Q

Discuss the logistics of trade markets

A

Where businesses are selling to other businesses, the technical specification of the product and service is likely to be more important than the physical environment

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9
Q

Discuss the logistics of consumer markets

A

Where businesses sell to the public, the product and the price are of equal importance to the physical environment but more important than place (it doesn’t matter what channels the product went through to reach the consumer

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10
Q

What is market size

A

The total value or volume of sales in the market, number of units sold multiplied by selling price

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11
Q

What is market share

A

The proportion of total market share that a firm has, sales of one firm divided by total market sales multiplied by 100

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12
Q

What are market trends

A

The overall changed in the market, (growing, static or declining) which businesses are gaining or loosing market share

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13
Q

What is market segmentation

A

When the market is split into subgroups of consumers with similar characteristics

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14
Q

What are the 4 types of market segmentation

A

Demographic, geographic, income and behavioral

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15
Q

Describe demographic segmentation

A

Identifies subgroups of the population based on their demographic profile or characteristics, looking at the social and economic characteristics of individuals and households

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16
Q

What are the categories of demographic segmentation

A

Age, gender, level of education, race, religion, family size, stage in life

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17
Q

Define geographic segmentation

A

Defines market categories based on where people live, people from different places have different characteristics

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18
Q

What are the categories of geographic segmentation

A

Warmer and colder regions, taste and tradition, infrastructure

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19
Q

Define income segmentation

A

Identifying subgroups of the market based on their level of income and profession

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20
Q

Explain socio-economic groupings (income segmentation)

A

A - Higher managerial (chief executives and directors)
B - Intermediate managerial (accountants and doctors)
C1 - Supervisory, clerical or junior professional (teachers)
C2 - Skilled manual (Plumbers)
D - Semi and unskilled workers (window cleaners)
E - Pensioners, casual workers, students and unemployed

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21
Q

Define behavioral segmentation

A

Characterizes subgroups based on the behavioral patterns of the consumer rather than their characteristics

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22
Q

What are the characteristics of behavioral segmentation

A

Reasons for making purchases, frequency of purchase, time of purchase, brand loyalty, method of purchase and triggers

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23
Q

Explain the impact of market segmentation

A

Advertising can be targeted so spending on advertising is more effective, profitability of customers can be identified, avoid less profitable markets, easier to launch new products, greater variety of goods and services in the market

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24
Q

Define competitive environment

A

The degree of competition in the market and the buying and selling power of customers and suppliers within the market

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25
Describe a monopoly
When one firm dominates the market
26
Describe an oligopoly
When a few firms dominate the market
27
Describe monopolistic competition
When there are many firms in the market but there is some form of product differentiation
28
What assumptions is the model of perfect competition based on
Large number of producers, identical products, freedom of entry and exit and readily available information
29
Describe producers in the context of perfect competition
Each firm is relatively small in size and sell to a large number of buyers, all producers are price takers and so cannot influence price, each firm can sell all of its output at the current market price therefor it would not lower its prices
30
Describe homogeneous products in the context of perfect competition
Buyers cannot tell the difference between products from different firms, there is no branding and brand loyalty does not exist, firms cannot raise their prices beyond competitors, in reality firms will sell unique products
31
Describe freedom of entry and exit in the context of perfect competition
Firms are free to enter or exit the market if they wish to do so, therefor entry costs are very low or even non existent, firms can move into the market if they see that profits are higher than usual, the opportunity to charge higher prices is restricted
32
Describe readily available information in the context of perfect competition
Perfect knowledge exists, all economic targets (buyers) have a comprehensive understanding of all the factors within a market, all buyers have all the info about prices and availability of goods and services in the market, all sellers know how to produce goods and services so produce the same quality of output
33
Define imperfect competition
A type of market structure that exhibits some but not all elements of perfect competition
34
What differences does imperfect competition have
Less firms in the market, some form of product differentiation, some barriers to entry and exit, demand curve is downward sloping, suppliers can influence prices
35
Define price leaders (monopoly)
They can charge high prices but these are often restricted by government regulation
36
Is new product development effected by competitors in a monopoly
No
37
How do monopolies inform and persuade customers
Promotion
38
How do monopolies increase sales revenue
Increasing the market size
39
How do the government define monopolies
Any company that has more than 25 percent market share
40
Why are monopolies regulated by the government
They can exploit customers by charging high prices
41
What barriers to entry exist in a monopoly
High capital costs, economies of scale, legal barriers (only pharmacies can sell prescription drugs)
42
What is a pure monopoly
One firm exists in the industry
43
What is a duopoly
There are only two firms in the market
44
What competitive strategy is prominent in a duopoly
Non - price competition like promotion
45
What is collusion
Mostly in duopolies where agreements are made to restrict competition, this is illegal
46
What is an oligopoly
Where there are only a few firms in a market
47
Why is it crucial for oligopolies to pay attention to competitors
If one firm lowers prices the rest will follow suit and the market as a whole will lose value
48
What are the characteristics of an oligopoly
Do not compete on price in the long term, do compete on price in the short term, spend heavily on new product development, branding is critical and large marketing budgets are common, firms must ensure that products are accessible to be successful
49
Where does monopolistic competition exist
Where there are a large number of firms in the market selling differentiated products, this leads to a small degree of monopolistic power as each firm offers something different to consumers
50
Describe barriers to entry in the context of monopolistic competition
Very low which creates very strong competition
51
Give a few examples of monopolistic competition
Hairdressing, restaurants and the health and beauty industry
52
When do barriers to entry exist
When firms that are within an industry are protected from competition from outside the industry, these obstacles may occur naturally or be man made through intervention
53
Give 3 barriers to entry
Advertising, economies of scale and financial
54
Define product differentiation
When firms make their product different to the competition by adapting the actual product in some way or distinguishing the product through advertising and branding
55
Define USP
Something that distinguishes a firms product from those of its competitors and can allow a firm to charge a premium price
56
State competition policy
A monopoly exists where there is only one firm in the market. The government refer to any company that has at least 25 percent market share as having monopoly powers. Market power is the ability of a firm to set prices above those that would be charged if there were competition. Monopolies can exploit consumers by charging higher prices. Therefor, monopolies are regulated in order to protect the customer. The objective is to achieve free and fair competition.
57
Define demand
The amount society is willing to able to buy at a set price at a given point in time
58
Define a normal good
A good where if the prices rise, demand will fall and vice versa, there is a negative correlation
59
How is the relationship between price and quantity demanded determined
By constructing a demand curve
60
What is a demand curve
A graphical representation of the relationship between price and quantity demanded
61
What are the axis of a demand curve
Y is price and X is quantity
62
What are the factors leading to a change in demand
Change in price (movement along) Change in other factors (shift)
63
What are the non price factors that change demand
Changes in price of substitutes and complimentary goods, changes in consumer income, fashion taste and preferences, advertising and branding, demographics, external shocks, seasonality
64
Why do substitute goods affect demand
It acts as an alternative and therefor creates competition, if the price of good A increases the demand of good B will increase, there is a positive correlation
65
Why do complimentary products affect demand
They are bought alongside a good or service, if the price of good A increases the demand for good B will decrease (negative correlation)
66
What happens to demand when consumer income increases
Demand increases
67
What effect does increased income have on the demand of necessities
It’s not really affected because they are essential and would be purchased regardless of income
68
What effect does income have on the demand for luxuries
If income increases customers may be able to afford more luxuries causing an increase in demand
69
What effect does income have on the demand for inferior goods
If income increases demand may decrease as customers switch to being able to afford a better quality product
70
Define advertising
A promotional method that involves the use of media to communicate with existing and potential consumers with a purpose of creating awareness and desire
71
Define branding
A promotional method that involves the creation of an identity for a business that distinguishes the firm and its products from competitors
72
Define the term demographic factors
The statistical characteristics of the population
73
Give examples of demographic factors
Age, gender and ethnic mix
74
What effect has migration had on demand
Increased the demand for a wide range of goods and services such as housing, public transport and healthcare
75
Define external shocks
Unexpected events that are outside of the businesses control but have a direct impact on the level of demand
76
Define seasonality
The fluctuation in demand depending on the time of year
77
Why does seasonality exist
Changes in the weather and public holidays
78
What causes a demand curve shift
If the change in demand is caused by any factor other than price, an increase in demand is shown by a shift to the right and a decrease to the left
79
Define supply
The amount of a good or service that producers are willing and able to sell at any given price
80
Define producers
Those that create and supply goods and services to a market
81
What happens to supply as price falls
Supply decreases
82
What happens to supply as prices rise
Supply rises because profit margins are greater
83
What are the axis on a supply curve
Y is price and X is quantity
84
What happens to supply output if the cost of production increases
Some firms will reduce output because it becomes less profitable
85
How have technological advances improved the cost of production
Large scale machinery allows fixe costs to be spread over greater output making the cost per unit cheaper, as tech improves firms find more profitability in supplying
86
What is taxation
A charge placed on individuals and firms, governments use this money to finance their spending
87
What are indirect taxes and the types
Taxes placed on goods and services produced by individuals or firms, VAT and duties
88
What happens to the supply of a product if indirect taxes increase
It becomes more expensive to produce so the quantity supplied will decrease
89
What are subsidies
Finance provided by the government to encourage suppliers to produce goods and services
90
Name 3 external shocks that affect supply
Natural disasters, terrorist attacks and outbreaks of disease
91
What causes a shift in the supply curve
Any factor other than price
92
What is market equilibrium
The point at which demand is equal to supply, also known as the market clearing price
93
Describe market clearing price
All buyers can get the exact amount that they want to buy at this price so there is no supply left over, any change in demand or supply will lead to a new market clearing price
94
Give some causes of shifts in the supply curve
The impact of changing costs of production, technological progress, prices of other goods and services and government policies
95
What does price elasticity of demand measure
How responsive demand is to a change in price
96
What does price elastic demand mean
A change in price will lead to a more than proportional change in demand
97
What does price inelastic demand mean
A change in price will lead to a less than proportional change in demand
98
State the PED formula
Percentage change in demand divided by percentage change in price
99
State the range of price inelastic demand
0 and -1
100
State the range of price elastic demand
-1 and -1.4
101
Explain how the availability of substitutes affects PED
The closer the substitutes and the more that are available, the higher the PED
102
Explain the effect of price of competitor goods on PED
If the price of goods in competition with a product increases the PED is effected
103
Explain the effect of time on PED
The longer the time period the higher the PED, Given more time other firms have the ability to produce similar products and customers have more chance of adapting their buying habits
104
How does branding affect PED
Firms spend time and money building brand image, they build brand loyalty and can then charge higher prices as the PED is lower
105
How does income affect PED
If consumers incomes are higher then the issue of price becomes less important to the customer and its easier for firms to raise prices as the PED is lower
106
How does the nature of a good affect PED
A luxury good will be price elastic as demand will be more sensitive to changes in price, a necessity good will be price inelastic as demand is less sensitive to changes in price
107
How does raising and lowering selling price affect price elastic demand products
Raising will decrease revenue, lowering will increase revenue
108
How does raising and lowering selling price affect price inelastic demand products
Raising will increase revenue, lowering will decrease revenue
109
What are some issues with forecasting PED
Constantly changes in a dynamic world, hard to measure because it changes over different price ranges, competitors do not stand still and tastes and fashion are always changing
110
What is income elasticity of demand
A measure of the responsiveness of demand to a change in income
111
What is the type of good that has a demand increase when income increases
Normal goods
112
Do normal goods have a positive or negative income elasticity of demand
Positive
113
What type of good has a decrease in demand when income increases
Inferior goods
114
Do inferior goods have a positive or negative income elasticity of demand
Negative
115
State the formula for income elasticity of demand
Percentage change in quantity demanded divided by percentage change in income
116
State the range of YED coefficient for income inelastic goods, what does this mean for a business
-1 to 1, demand changes at a lower proportion than the change in income
117
State the range of YED coefficient for income elastic goods, what does this mean for the business
Less than -1 or greater than 1, demand changes at a higher proportion than the change in income
118
What determines the income elasticity of demand for a product
Whether it is a luxury or necessity

Business paper one (38 decks)

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