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economics > Theme 2 > Flashcards

Theme 2 Flashcards

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

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2
Q

What problems can come from growth?

A

Diseconomies of scale
Internal communication issues
Potential skills shortages

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3
Q

What is the role of corporate structure?

A

Gives each person clearly defined roles with specific responsibilities

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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

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5
Q

What methods can be used to promote organic growth?

A

Development of new products or services
Opening new locations
Employing more staff

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6
Q

What is inorganic growth?

A

Growth which is forced via the expansion of sales

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7
Q

Examples of inorganic growth?

A

Merger or takeover

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7
Q

What is horizontal integration?

A

When companies acquires or merges with another in the same industry which operates at a similar level

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8
Q

What is vertical integration?

A

When firms at different stages of a products production process merge together

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9
Q

Define having a competitive advantage through innovation?

A

When a firm produces less costly products for a better quality than competitors

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10
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

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11
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

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12
Q

Draw the product life cycle

A

Research and development
Introduction
Growth
Maturity
Decline

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13
Q

What extension strategies are there?

A

Redesigning logos/branding
Changing prices
Bringing out additional products
Bogof deals

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14
Q

Where can market information be found in the digital economy?

A

Price comparison sites
Viral marketing
Social media

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15
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.

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16
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

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17
Q

How can the digital economy affect markets and firms (demand side)?

A

Satisfying consumers with the long tail
Wider geographical markets

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18
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.

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19
Q

How can the digital economy affect prices?

A

Can cause more competition between wider geographical markets due to price comparison sites.

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20
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.

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21
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

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22
Q

What is PED?

A

The percentage change in the quantity demanded of a good or service divided by the percentage change in the price.

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23
Q

What is the significance of PED to firms?

A

Price of a product will affect the sales in revenue.

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24
Q

What is the equation for PED?

A

% change in Q demanded
% change in price

25
Q

What does it mean if a products PED is 1 or -1?

A

If its 1 or more its elastic
If its less than one its inelastic

26
Q

What factors can affect the PED of a product?

A

Availability of substitutes
If the good is luxury or a necessity
Proportion of the income spent on the good

27
Q

What is the relationship between PED and total revenue?

A

When the demand is inelastic prices rise which means so does total revenue

28
Q

What ways can companies use price to compete?

A

Cost plus
Penetration
Predatory
Competitive
Skimming
Psychological

29
Q

How does cost plus pricing work?

A

Cost are calculated and then rate of profits is added on.

30
Q

How does penetration pricing work?

A

Price is set low in order to get the company into the markets.

31
Q

How does competitive pricing work?

A

Prices are set at a similar rate to other companies in the same market.

32
Q

How does skimming pricing work?

A

Prices start off high (to target richer people) and then brought down (to target less rich people)

33
Q

How does psychological pricing work?

A

Prices of a product are set at prices to seem less than they are ie 99p or BOGOF deals.

34
Q

How does predatory pricing work?

A

Aims to set prices so low that other companies cannot compete allowing them to then bring prices back up.

35
Q

What factors may there be which can help to determine the most appropriate pricing strategy?

A

USPs/differentiation
Price elasticity of demand
Competition
Brands strength
Products stage in its life cycle
Cost to produce

36
Q

How can marketing affect the demand curve?

A

Product differentiation
Distribution methods
Advertising and other promotional methods

37
Q

How can companies decide on appropriate marketing strategies?

A

By finding specific customer segments which will help you target them better.

38
Q

What is YED?

A

Income elasticity of demand and is the resposiveness of the quantity demanded for a good to change in consumer income.

39
Q

What is the equation for YED?

A

YED = % change in Q demanded divided by % change in income

40
Q

Why is YED significant to firms?

A

Helps to determine a products level of risk

41
Q

What does it mean if a product has a YED of 1.5

A

It is income elastic

42
Q

What can be inferred from a YED of 0.5?

A

That its inelastic and that that a 1% change in income leads to a 0.5% change in quantity demanded.

43
Q

What can affect a products YED?

A

Any factors in an economy which change wages of workers e.g. availability of substitute goods, necessity of the good or service etc

44
Q

What is the definition of productivity?

A

Output per unit of input over a given time period.

45
Q

What factors can affect productivity?

A

How skilled the workers are
The employee satisfaction
Employees training
Changes in technology

46
Q

What is the link between productivity and competitiveness

A

An increase in productivity causes an improvement in competitiveness and an increase in competitiveness causes improvment in productivity.

47
Q

How can wages affect productivity?

A

If workers are payed more they will be incentivised to work harder increasing productivity.

48
Q

How does productivity increase economic growth?

A

If an economy has a high productivity then they can furtherly oincrease their output.

49
Q

What is labour intensive production?

A

When the products are mainly produced by human workers.

50
Q

What is capital intrensive production?

A

Where high priductivity is relied on by high investments in capital equipment and technology.

51
Q

Whats the difference between full capacity and spare capacity?

A

The company is producing at their full capacity.
That they have the capability to produce more than they actually are.

52
Q

What is capacity utilisation refering to?

A

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.

53
Q

What is the equation for capacity utilisation?

A

Current output / by max possible output x 100

54
Q

What is over utilisation of capacity?

A

When the firm attempts to produce more than it is capable of.

55
Q

What is under utilisation of capacity?

A

When the firms does not fully utilise its production resources.

56
Q

What implications are there from over utilisation of capacity?

A

The firms average costs will increase due to falling levels of efficiency.

57
Q

What implications are there from under utilisation of capacity?

A

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.

58
Q

How can a firm improve its capacity utilisation?

A

By increasing demand via promotions, broadened product range or by entering other markets.

59
Q

What types of lean production are there?

A

TQM (total quality management)
Kaizen (continuous improvement)
JIT (just in time)
Cell production

60
Q

What does TQM mean?

A

Total quality management

economics (8 decks)

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