Theme 3, 3.2 Economic Factors in Business Expansion. Flashcards
Define PPP
Purchasing power parity means that the data has been adjusted so that it allows for differing price levels in different economies. It uses exchange rates that give accurate comparisons of purchasing power.
Define Market saturation
occurs when it becomes impossible to expand sales further in that particular market. If the product is a durable good, e.g. a washing machine, it may still be possible to sell replacement machines. But growth will be difficult.
Define Supply Chain
The sequence of processes which starts with acquiring the most basic inputs and ends with delivery of the product to the customer.
Define offshoring
Means locating all or part of the production process in a foreign economy where costs are low. It can mean getting foreign business to supply the products. Or it can mean direct investment in the low-cost location, building and running a factory or a call centre.
Define outsourcing
It is a general term for buying inputs from independent suppliers, either within the same economy or abroad. It can apply to any inputs, components, or finished products, or business services such as cleaning, accountancy or IT services.
Describe the differences between push and pull factors
Push factors deter firms from entering new markets, whereas pull factors are those that attract a firm to enter a market.
Would a saturated market be a push or pull factor?
A push factor
Would an emerging economy be a push or a full factor, and why?
A pull factor, as emerging economies have a lot of potential for business growth.
Define offshoring
Process of having part/all of a firm’s services shifted abroad.
How could a firm benefit from offshoring?
They could take advantage of the lower labour costs in other countries
What is outsourcing?
This occurs when firms get their goods from a supplier abroad
How does political stability affect the potential for a business to grow?
If a country faces a lot of corruption it will be harder for a firm to set up a long-term plan in that country and be able to make a profit
Would red take be a push or a pull factor?
A push factor
If a firm is a new importer of raw materials, how would a depreciation of their currency affect the prices of their goods.
A depreciation makes imports more expensive, thus raising their costs of production which they would pass on to consumers in the form of higher prices.
How would government subsidies benefit a firm?
It would lower their average costs of production, thus improving their profit margin per unit of output sold.
