Theme 3 Flashcards
giver reasons why firms decide to stay small instead of grow
it keeps the cost of running the business low
lowers costs like staff and rent
less costs on equipment
explain the public sector
organisations that are controlled/owned by the government
explain the private sector
the part of the economy that isn’t controlled by the government
distinguish between profit and not-for-profit organisations
profit organisations aim to maximise profit whereas not-for-profit organisations would use profit to re-invest in the business or to give out to dividends
explain organic growth
growth from within the business like expanding the product range or the number of business units or locations
explain forward vertical integration
acquiring a business further up the supply chain
explain backward vertical integration
acquiring a business further down the supply chain
explain horizontal integration
acquiring a business at the same stage of the supply chain as you
explain conglomerate integration (diversification)
acquiring or merging with a business that is in a different industry or market to yourself
explain advantages of organic growth
allows the business owners to maintain control of their business
less risk than external growth
can be financed through internal funds
allows growth at a more sensible rate
explain disadvantages of organic growth
its slow growth and shareholders may prefer quicker growth
its a slower process to acquire new customers and expand business with existing customers
Explain advantages of vertical / horizontal integration
Reduced competition
Increased market share and power
You already know how the function of the business works
Revenue growth
Improved efficiencies
Disadvantages of horizontal / vertical integration
Less flexibility
Job duplication
Less efficiency
Explain advantages of conglomerate integration (diversification)
Increases business market share
Gain access to larger market potential due to lower competition in foreign markets
Reduces risk due to investments being spread across multiple areas
Explain disadvantages of conglomerate integration (diversification)
Losing focus
Diluting your brand identity
Increasing your costs
Facing more competition
Failing to meet customer expectations
give reasons for demergers
a change in the overall objective for the business could lead to conflict between the two business
explain efficiency
the optimal production and distribution of scarce resources
explain reasons for inefficiency
lack of motivation
lack of knowledge
outdated technology
wasted stock
explain allocative efficiency
allocating goods and services to meet customer needs and wants, the marker dictates price and quantity supplied
explain productive efficiency
operating at the lowest point on the average cost curve
explain x-inefficiency
occurs when firms don’t have incentives to cut costs so costs end up higher than they should be a
explain technical efficiency
when a firms producing the maximum output from the minimum quantity inputs, such as labour capital and technology
explain dynamic efficiency
when all resources are allocated efficiently over time, and the rate of innovation is at the optimum level, which leads to falling long run average costs
identify characteristics of perfect competition
large number of firms
homogenous products
freedom of entry and exit
firms have no control over price
each producer supplies a small amount into the market
perfect knowledge (consumers and producers)