Theme 2 Flashcards
(187 cards)
1
Q
Why do companies want/need growth?
A
Achieve economies of scale
Increase market power over consumers and suppliers
Increase market share and brand recognition
Increase profitability
2
Q
What problems can come from growth?
A
Diseconomies of scale
Internal communication issues
Potential skills shortages
3
Q
What is the role of corporate structure?
A
Gives each person clearly defined roles with specific responsibilities
4
Q
What is organic growth?
A
Organic growth is when a company grows at a natural rate by increasing output and enhancing its sales internally
5
Q
What methods can be used to promote organic growth?
A
Development of new products or services
Opening new locations
Employing more staff
6
Q
What is inorganic growth?
A
Growth which is forced via the expansion of sales ie merger or takeover
7
Q
Examples of inorganic growth?
A
Merger or takeover
8
Q
What is horizontal integration?
A
When companies acquires or merges with another in the same industry which operates at a similar level
9
Q
What is vertical integration?
A
When firms at different stages of a products production process merge together
10
Q
Define having a competitive advantage through innovation?
A
When a firm produces less costly products for a better quality than competitors
11
Q
What incentives are there for companies to increase market power?
A
Allows the company to increase its market power and also make barriers to entry for other smaller firms and gain economies of scale.
12
Q
What is the role of state funding in research and development?
A
State funding is where the government will fund R+D projects that will positively affect them.
13
Q
Draw the product life cycle
A
Research and development
Introduction
Growth
Maturity
Decline
14
Q
What extension strategies are there?
A
Redesigning logos/branding
Changing prices
Bringing out additional products
Bogof deals
Celebrity endorsement
15
Q
Where can market information be found in the digital economy?
A
Price comparison sites
Viral marketing
Social media
16
Q
How can market information affect firms?
A
Helps businesses to gain in depth insights which allows companies to better understand the market. Which with this information allows smaller firms to grow/start up as they have easier access to more information.
17
Q
What does satisfying consumers with the long tail mean?
A
Businesses can satisfy consumers in the “long tail” market by offering a wide variety of niche products, catering to individual preferences and needs that are often overlooked by mass-market businesses.
18
Q
How can the digital economy affect markets and firms (supply side)?
A
Micromarketing
Online retailing and online distribution
Recruiting and training staff with digital skills
19
Q
How can the digital economy affect markets and firms (demand side)?
A
Satisfying consumers with the long tail
Wider geographical markets
20
Q
How can the digital economy affect costs?
A
Costs for businesses can be reduced as they can find cheaper products via price comparison sites.
21
Q
How can the digital economy affect prices?
A
Can cause more competition between wider geographical markets due to price comparison sites.
22
Q
How can the digital economy affect profits?
A
Can cause profits to increase if marketing is well executed and more customers are brought in.
23
Q
How can small firms compete/survive in competitive markets?
A
Through product differentiation and USPs
Flexibility in response to customer needs
Customer service
Targeting niche markets
Achieving competitive advantage through relationships with stakeholders
24
Q
What is PED?
A
(Price elastic demand) The percentage change in the quantity demanded of a good or service divided by the percentage change in the price.
25
What is the significance of PED to firms?
Price of a product will affect the sales in revenue.
26
What is the equation for PED?
% change in Q demanded ÷ % change in price
27
What does it mean if a products PED is 1 or -1?
If its 1 or more its elastic
If its less than one its inelastic
28
What factors can affect the PED of a product?
Availability of substitutes
If the good is luxury or a necessity
Proportion of the income spent on the good
29
What is the relationship between PED and total revenue?
When the demand is inelastic prices rise which means so does total revenue
30
What ways can companies use price to compete?
Cost plus
Penetration
Predatory
Competitive
Skimming
Psychological
31
How does cost plus pricing work?
Cost are calculated and then rate of profits is added on.
32
How does penetration pricing work?
Price is set low in order to get the company into the markets.
33
How does competitive pricing work?
Prices are set at a similar rate to other companies in the same market.
34
How does skimming pricing work?
Prices start off high (to target richer people) and then brought down (to target less rich people)
35
How does psychological pricing work?
Prices of a product are set at prices to seem less than they are ie 99p or BOGOF deals.
36
How does predatory pricing work?
Aims to set prices so low that other companies cannot compete allowing them to then bring prices back up.
37
What factors may there be which can help to determine the most appropriate pricing strategy?
USPs/differentiation
Price elasticity of demand
Competition
Brands strength
Products stage in its life cycle
Cost to produce
38
How can marketing affect the demand curve?
- Product differentiation - Shifts the demand curve to the right
- Distribution methods
- Advertising and other promotional methods - shifts demand curve to the right
39
How can companies decide on appropriate marketing strategies?
By finding specific customer segments which will help you target them better.
40
What is YED?
Income elasticity of demand and is the resposiveness of the quantity demanded for a good to change in consumer income.
41
What is the equation for YED?
YED = % change in Q demanded ÷ by % change in income
42
Why is YED significant to firms?
Helps to determine a products level of risk
43
What does it mean if a product has a YED of 1.5
It is income elastic
44
What can be inferred from a YED of 0.5?
That its inelastic and that that a 1% change in income leads to a 0.5% change in quantity demanded.
45
What can affect a products YED?
Any factors in an economy which change wages of workers e.g. availability of substitute goods, necessity of the good or service etc
46
What is the definition of productivity?
Output per unit of input over a given time period.
47
What factors can affect productivity?
How skilled the workers are
The employee satisfaction
Employees training
Changes in technology
48
What is the link between productivity and competitiveness
An increase in productivity causes an improvement in competitiveness and an increase in competitiveness causes improvment in productivity.
49
How can wages affect productivity?
If workers are payed more they will be incentivised to work harder increasing productivity.
50
How does productivity increase economic growth?
If an economy has a high productivity then they can furtherly increase their output.
51
What is labour intensive production?
When the products are mainly produced by human workers.
52
What is capital intensive production?
Where high productivity is relied on by high investments in capital equipment and technology.
53
Whats the difference between full capacity and spare capacity?
The company is producing at their full capacity.
That they have the capability to produce more than they actually are.
54
What is capacity utilisation refering to?
Refers to how the extent of which the company is using their product capacity. I.e if the company is producing more they have a higher capacity utilisation.
55
What is the equation for capacity utilisation?
Current output ÷ by max possible output x 100
56
What is over utilisation of capacity?
When the firm attempts to produce more than it is capable of.
57
What is under utilisation of capacity?
When the firms does not fully utilise its production resources.
58
What implications are there from over utilisation of capacity?
The firms average costs will increase due to falling levels of efficiency.
59
What implications are there from under utilisation of capacity?
When the capacity is under utilised then the average costs per unit will increase because costs will be spread between less units furtherly decreasing profits.
60
How can a firm improve its capacity utilisation?
By increasing demand via promotions, broadened product range or by entering other markets.
61
What types of lean production are there?
TQM (total quality management)
Kaizen (continuous improvement)
JIT (just in time)
Cell production
62
What does TQM mean?
Total quality management works by having every rank of employee focussing on improving quality of product/service.
63
Benefits to TQM
+ Customers get better quality products.
+ Can increase sales as the business would develop a greater reputation.
+ Product defects can be reduced early in the products lifecycle.
64
Negatives to TQM
- Can be difficult to implement without expertise and often needs a clear plan of action and expert guidance.
- Can require large upfront costs as TQM requires a holistic mindset, intensive project management and robust documentation across all processes.
- Can be difficult to get all stakeholders on board especially employees that have been employed for a long time.
65
What does Kaizen mean?
Kaizen or continuous improvement is where small incremental changes are placed into a business in order to improve quality and or efficiency.
66
Benefits to Kaizen/continuous improvement
+ Unlikely to require large capital investment as its only small changes at a time.
+ Small changes are unlikely to have larger impacts on reducing wast and increasing productivity.
+ encourages employees to take responsibility/ownership of work which can help to motivate the employees further.
67
Negatives to Kaizen/continuous improvement
- Implementing even small changes to an existing system can be difficult especially with long lasting employees.
- If it is poorly implemented and not sustained it can cause minor costs which build up, this can be from having to provide additional training for both management and employees to accomplish kaizen.
- In short term kaizen events may lead to a shallow and short lived burst of excitement which can then be abandoned.
68
What does JIT production mean?
Just in time production (JIT) is where a company produces its products just in time for them to be delivered to customers. Ie clothes being produced when an order is placed for them.
69
What benefits are there for JIT production?
+ Prevents over-production as products are made when they are needed.
+ Helps to minimise waiting times for products.
+ Helps to reduce waste on resources which would normally happen from over production.
70
What are the negatives of using JIT production?
- Can run out of materials to produce stock if inaccurate forecasts are given or in attempt to comply with sudden changes in demand.
- Machines often rely heavily on electricity making it difficult to work/produce when in severe climates due to power cuts.
71
What is cell production?
Often a part of JIT but where each employee is subsection into teams which deal with particular areas ie McDonalds have separate stations to produce each meal one for frying etc
72
What benefits are there for cell production?
+ Reduces waste by reducing defect products that are produced.
+ Can produce a more agile and efficient work environment as each employee is trained for a specific area which they can then master.
+ Workers can be more motivated as they are producing in an area they are specialised for which people generally find more enjoyable.
73
What is a competitive advantage
that can come from lean production?
Reduces overheads as it creates a more streamlined process, these processes is addition can require less production space which furtherly costs less.
74
What is average costs?
Average costs is the total costs of products divided by the Q of products produced.
75
What is the impact of lean production on average costs?
Costs are reduced as lean production aims to make the business more efficient and responsive to the market this therefore reduces average costs.
76
What is globalisation?
Growing world markets and increasing international trade. There is often increasing interdependence as individual businesses make profits in foreign markets and look abroad for investment.
77
Why would companies want to sell overseas?
Extend their products life cycle.
Source products from other countries.
Could be limitations of growth in domestic markets.
Could be large amounts of competition where they currently are.
78
What does WTO stand for?
World trade organisation
79
What effects can globalisation have on the world?
Increased migration.
Increased FDI.
Changes in wealth depending on the industry, price and
Changes in GDP depending on the exports that firm produces.
80
What does the WTO do?
(World trade organisation) it regulates and facilitates international trade.
81
How do governments use the WTO?
Use it to establish, revise and enforce rules over international trade.
82
What is the purpose of the WTO?
To improve the welfare of people around the world by ensuring that trade flows as smoothly, predictably and freely as possible.
83
What factors have contributed to globalisation in the past 50 years?
Trade liberalisation
Capital market liberalisation
Political change resulting in the opening up of China and former Soviet Union
Reduced costs in transport and communications
Increased significance of global transitional economics
84
What is trade liberalisation?
The removal or reduction of trade barriers among countries such as quotas or tariffs.
85
What is capital market liberalisation?
The removal of controls in an industry/market in attempt to allow new suppliers to enter which therefore increases competition.
86
How does reduced cost in transport and communications contribute to globalisation?
Reduced costs in transport allow for business to move resources and materials around the world to supply other countries with there products at a cheaper cost.
Reduced costs in communications allow for a business to discuss business plans, create orders for stock etc overseas without needing to be present in that countries headquarters of that company.
87
What has the uk growth rate been like since 2000?
The uk has had 2 major drops in growth during the 2008 recession dropped to -4.6% then again during the pandemic in 2020 where growth dropped to -10.6%
The major boom since 2000 has been during the post pandemic boom where growth rose to 8.6%
88
What has the China growth rate been like since 2000?
China had a slow growth from 2000 at 8.49% until 2007 where it reacher 14.23% then it had a steady decline until 2019 where it reached 5.95% then the global pandemic hit where its growth crashed to 2.24% in 2020.
Growth then decreased and increased naturally hitting 8.45% in 2021 and 2.99% in 2022.
89
What has the Brazil growth rate been like since 2000?
High boom and low recessions consistently major recessions in 2015 and 2020
90
What are some of the indicators of growth?
GDP
GDP per capita
Literacy rates
Health
Human development index (HDI)
91
How is GDP per capita measured
How much each person in that country makes on average
GDP per capita = GDP ÷ population
92
How is HDI measured?
HDI or human development index is a summary measure of human development.
93
What are the three stages of an economy?
Emerging
Developing
Developed (mature)
94
What characteristics are there for an emerging economy?
Rapid growths which reach 6-7%
Labour is a low cost which provides high production
Larger amounts of people living in the middle class as economic improvement shifts people out of poverty
Very vulnerable to changes in the market such as COVID, change in currency, interest rates and inflation.
Can attract investors as although investing in emerging countries is risky it can also come with high rewards.
95
What are some examples for emerging economies?
BRICS - Brazil, South Africa, Russia, India, China and South Africa.
MINT - Mexico, Indonesia, Nigeria and Turkey
96
What characteristics of a developing economy are there?
Low per capita real income - meaning a person doesn't earn enough money to invest or save any.
High population growth rate - Due to the belief that more children result in larger work force, could also be because of less contraception access.
High unemployment - Often due to large seasonal variations.
Dependance on primary sector - 75% of the population of low -income countries is rurally based.
Dependance on exports of primary commodities - output often originates from the primary sector
97
What are some examples of developing economies?
China, India, Nigeria, Mexico, Brazil, and Moldova
98
What are the characteristics of a developed (mature) economy?
High per capita income
Diverse industrial mix
Strong financial systems
High standards of living
High GDP
99
What are some examples of developed economies?
USA
Canada
Western European countries
Japan
Australia
New Zealand
100
What is a mean income?
Mean income is all individuals incomes in a certain area and the dividing by the population of people used.
101
What is a median income?
The income which divides the population, therefore half of people earn above it and half below.
102
What are mean and median incomes used for?
Provide a typical income level within a group of people.
103
What is specialisation?
When a person, country or firm specifies to the specific production of an item.
104
What benefits are there to specialisation?
Increased productivity, efficiency and quality (as consistent)
Lower costs - As people operate with less mistakes/waste
Better potential for innovation - If customers increase innovation becomes easier
105
What is a weakness to specialisation?
Reduced flexibility to markets
Workers may find it difficult to switch roles, technologies and replacing these workers can be difficult
Companies may struggle to compete with new innovative competitors
106
What is international trade?
The purchase and sale of goods and services by companies in different countries.
107
What benefits are there to international trade?
Consumers have access to more goods and services
Allows specialisation for specific sectors of production
Lower prices for consumers as more competition
108
What weaknesses are there to international trade?
Tariffs or trade barriers could develop
Supply chain disruptions as more producers enter markets
Currencies fluctuate due to more exchanges being made
109
What is a trade bloc?
Group of countries which form an agreement to reduce or eliminate trade barriers.
110
What are some examples of trade barriers?
Tariffs or Quotas
111
What is the purpose of a trade bloc?
Promote trade - As member countries will prefer to trade with lower tariffs, quotas and other restrictions.
Economic cooperation - As they can also involve in other issues such as monetary policy, investment and regulatory standars
112
What are the types of trade bloc?
Free trade area
Custom unions
Common market
Economic union
113
What is a free trade area trade bloc?
Type of trade bloc where member countries eliminate tariffs on each others trade but externally they remain
114
What is a custom union trade bloc?
Similar to a free trade area, but also includes a common external tariff policy, meaning all members apply the same tariffs to non-member countries.
115
What is a common market trade bloc?
A customs union with the added feature of free movement of labor and capital, as well as economic policy.
116
What is an economic union trade bloc?
A common market with a common currency, monetary policy, and further economic integration.
117
What are the benefits to trade blocs?
Reduced trade barriers which can lead to surges in economic activity within the bloc
Economic growth as larger markets are created which attract more investment
118
What are some drawbacks to a trade bloc?
Can lead to trade diversion, where trade is redirected from more efficient non-member countries to less efficient member countries.
119
How do trade and economic growth relate?
Trade allows countries to access resources which may not be acquirable on their land, this increases that countries access to larger markets. This therefore increases both specialisation and competition.
120
What is an import?
A good or service which is imported into a country or region.
121
What is an export?
A good or service which is exported into another country or region
122
What is an invisible export?
The export of an intangible service rather than a physical good such as financial services, tourism or intellectual property.
123
What is a visible export?
The export of a tangible good or physical product across international borders.
124
What is a visible import?
The importation of a tangible or physical good.
125
What is an invisible import?
The importation of an intangible service such as banking, insurance or tourism.
126
How can cheap imports affect standards of living?
They may lower consumer prices, increase consumer choice and potentially boost the economic growth for both the importing and exporting economy.
127
How can cheap imports affect standards of living in the long run?
May lead to job losses in domestic industries depending on which products people favour.
128
How do demand and supply affect exchange rates?
If there is high demand for a currency then more people want to buy it therefore its value rises.
If there is high supply for a currency then more people are selling it making the value fall.
129
How do political uncertainties affect an exchange rate?
Uncertainty can cause investors to flee a currency, leading to a decline in its value.
130
What would happen to a countries exchange rate if they have strong economic growth?
It attracts foreign investment which will increase the demand for that currency.
131
What would happen to an exchange rate if that country has high inflation?
High inflation erodes the purchasing power of a currency, potentially leading to a decrease in its value.
132
How do interest rates affect exchange rates?
Higher interest rates can attract foreign investors seeking higher returns, increasing demand for the currency.
133
How do high exchange rates affect imports?
When a currency strengthens (appreciation), importing becomes cheaper because the same amount of foreign currency costs less in the local currency.
134
How do high exchange rates affect exports?
A strong currency makes exports more expensive for foreign buyers, as they need to pay more of their local currency to purchase the same amount of goods.
135
Why does a strong currency bring competitiveness?
A strong currency can improve the competitiveness of domestic producers in the import market, as they can offer lower prices.
136
What is an exchange rate?
The value of one country's currency relative to another's.
137
If the GBP/USD exchange rate is 1.25 how many pounds would you pay?
£1
138
How are exchange rates expressed?
Currency pairs eg GBP/USD
First currency known as the base currency and the second the quote currency.
139
What is the exchange rate index (ERI) or effective exchange rate?
An overall measure of the exchange rate of a currency when measured against multiple other currencies.
140
What are the stages in an economic cycle?
Downturn - Recession - Recovery - Boom
141
How is a recession identified?
When a country has 2 consecutive quarters of negative GDP.
142
What are the characteristics of a boom?
High economic growth (GDP)
Low unemployment
Rising prices in assets such as stocks, bonds, real estate etc
Increased consumer spending and investments
Demand pull inflation
Higher consumer/business confidence
143
What are the characteristics of a recession?
Decline in economic growth (GDP)
Rising unemployment
Reduced consumer and business spending
Less consumer/business confidence
144
What are the long term impacts of a recession?
Erosion of House and Equity Values - Property values can fall, and the value of investments may decline.
Increased Government Debt - Government spending on social programs and unemployment benefits rises, while tax revenues fall, leading to increased budget deficits.
145
What does the circular flow of income show?
The circular flow of income shows the economy as a simple model where the households own all the factors of production land, labour, capital and enterprise and the firms produce goods. Money moves from households to firms for the exchange of goods and services; and money moves back to households as payment for the use of the factors of production in the form of rent, wages, interest and profit.
146
What are the 2 main elements on the circular flow of income?
Households
Firms
147
What goes from firms to households in the circular flow of income?
Income in the form of wages for work, interest, profits on any ownerships and goods/services.
148
What goes from households to firms in the circular flow of income?
Consumption of the firms products and services
149
How does money exit the circular flow of income?
Withdrawals in the form of savings (money which isn't spent), taxation (money payed by households to governments) or imports (money spent on goods and services abroad).
150
How does money re enter the circular flow of income?
Injections in the form of investment (could offer more jobs), government spending or exports (foreigners spending on products made in the UK)
151
How do injections affect the circular flow of income?
Injections make the circular flow of income expand as there is more money going around.
152
How do withdrawals affect the circular flow of income?
Withdrawals make the circular flow of income shrink as there is less money going around.
153
What are the components of aggregate demand?
Consumption + Investment + Government spending + (Exports - imports)
154
What is meant by aggregate demand?
Total demand for goods and services within a particular market.
155
What factors influence aggregate supply?
Changes in cost of inputs and resources
Changes in productivity
156
What is meant by aggregate supply?
Total quantity of goods and services which firms in an economy are able to produce and sell at various price levels during a specific period.
157
What is inflation?
% increase in the general price level of goods and services in an economy.
158
What is disinflation?
A decrease in the rate of inflation meaning prices are still rising just at a lesser rate.
159
What is deflation?
The decrease in general price level of goods and services in an economy.
160
What are price indices?
Statistical measures that track changes in the prices of a specific group of goods or services over time, typically expressed relative to a base period set at 100. They help quantify inflation and are used to track changes in the cost of living or the prices faced by producers.
161
What is RPI?
Retail price index which is an average measure of inflation across prices payed by households.
162
What is CPI?
A measure of the average change over time in the prices paid by consumers for a representative basket of consumer goods and services.
163
What are real values?
A monetary value that has been adjusted for inflation, providing a more accurate representation of its actual worth over time.
164
What is a nominal value?
The unadjusted rate or current price, without taking inflation or other factors into account.
165
What are the 2 types of causes of inflation?
Demand pull
Cost push
166
What is meant by demand pull inflation?
When an economy cannot supply the products at the rate of demand which therefore means prices increase.
167
What is meant by cost push inflation?
When production of products increase which is passed on to higher prices for consumers.
168
How does increasing inflation impact individuals?
Consumers lose real income
People will be more inclined to saving
169
What measures of inflation are there?
Claimant count
International Labour Organisation (ILO) measure
170
What is the claimant count?
Measure of unemployment which uses the amount of people claiming job seekers allowance.
171
How do the international labour organisations measure unemployment?
By defining an unemployed person as someone who is without work, available for work, and actively seeking work.
172
What are the causes of unemployment?
Structural unemployment
Occupational unemployment
Geographical unemployment
Technological unemployment
Demand deficiency and cyclical unemployment
173
What is meant by structural unemployment?
When workers experience unemployment for a long period of time as a result of structural changes in an economy such as massive industry changes, jobs moving overseas, new technologies, competition etc.
174
What is meant by occupational unemployment?
When the workers in that industry lack skills or training needed to do certain jobs. Leading to an unbalance between demand from employers and the skills on offer.
175
What is meant by geographcial unemployment?
Occurs when unemployment is caused by workers being unable or unwilling to move to areas where jobs are available.
176
What is meant by technological unemployment?
When new technologies such as new cheaper, efficient machines take over jobs which were previously completed by people
177
What is meant by demand deficiency and cyclical unemployment?
Occurs as a result in a decline of overall economic activity of an economy leading to a decrease in the demand for labor.
178
How does unemployment affect firms?
Higher unemployment negatively affects firms as it reduces consumers spending leading to lower sales and revenue. Whilst also potentially increasing labour costs and making it harder to find workers with the skills needed.
179
How does unemployment affect individuals?
High unemployment can significantly impact individuals, leading to financial instability, mental health challenges, and potentially affecting physical health and overall well-being, as well as social relationships.
180
How can governments combat unemployment?
Providing training and education at a lower cost.
Job creation programs
181
What are some possible macroeconomic objectives?
Stable GDP
Low unemployment
Low and stable inflation
Balanced trade
182
What is the UK objective for inflation?
2%
183
What is the UK objective for economic growth?
2.5%
184
What is meant by fiscal policy?
Governments use of spending and taxation to influence aggregate demand in an economy.
185
What is meant by monetary policy?
Governments changes in money supply in order to affect aggregate demand.
186
What is meant by supply side policy?
Government policies which seek to increase the productivity and efficiency in an economy.
187
What does monetary policy use?
Interest rates
