Topic 2.1 - Growthing a business pt.2

Question 1

Price sensitivity

Answer 1

The extent to which a change in the price of a product will affect a customer’s ability and willingness to continue to purchase it.

High price sensitivity means consumers are especially sensitive to price changes and are likely to spurn a good or service if it suddenly costs more than similar alternatives.

Question 2

what are the main factors which cause business objectives to evolve? (5)

Answer 2

• market conditions
• technology
• legislation
• company performance
• change in management

Question 3

what are the main ways how business aims and objectives evolve? (4)

Answer 3

• change from survival to growth (or vice versa)
• entering or exiting markets
• increasing or decreasing product range
• growing or reducing the workforce

Question 4

what are the main factors when assessing production location (abroad)? (8)

Answer 4

• cost of production
• skills + availability of labour force
• infrastructure
• government incentives (elg: trading bloc, SEZ)
• return on investments
• natural resources
• political stability (e.g: a country with a stable economy and government is less risky)
• ease of doing business (limited bureaucracy)

Question 5

bureaucracy

Answer 5

An organisation or system where many rules and process exist that slow down decision-making (excessively complicated system of government)

Question 6

globalisation

Answer 6

The increasing integration of business, culture and experience on a global scale.

Question 7

deregulation

Answer 7

The process of removing government controls from markets in order to give businesses more freedom and efficiency

Question 8

protectionism

Answer 8

Protectionism is when a government seeks to protect domestic industries from foreign competition

Question 9

tariff

Answer 9

A tariff is a tax placed on imported goods from other countries

Question 10

what is the main purpose of tariffs?

Answer 10

A tariff increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses

This may increase the spending in the domestic country (as products are cheaper)

Which will, by the trickle-down effect, increase the company’ GD

which will boost the economy

Question 11

infant industry

Answer 11

An industry in the early stages of development in the economy.

Question 12

dumping

Answer 12

When a business sells their products abroad in export markets at significantly low prices

Question 13

pros of tariffs? (3)

Answer 13

• They protect infant industries so they can eventually become more competitive globally
• An increase in government tax revenue
• Reduces dumping by foreign businesses as they cannot sell below the market price

Question 14

cons of tariffs (3)

Answer 14

• Increases the cost of imported raw materials which may affect businesses who use these goods for production, leading to higher prices for consumers
• Reduces competition for domestic firms who may become more inefficient and produce poor quality products for their customers
• Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them

Question 15

trading bloc

Answer 15

A trading bloc is a group of countries that form an agreement to reduce or eliminate protectionist measures between each other

Question 16

pros of a business being located within a trading bloc (4)

Answer 16

1.
Access to more markets
Businesses are able to sell to more customers due to free movement of goods

2.
External tariff walls
An external tariff wall is a tax applied to imported goods from outside the bloc
This protects businesses within the trading bloc from competition from businesses outside of the trading bloc

3.
Infrastructure support
Businesses may gain additional support from the government to enable them to maintain their competitiveness against businesses in countries inside the trading bloc

4.
Free movement of labour
Trading blocs may also have free movement of labour allowing businesses to source workers from a wider pool
A higher supply of labour may push wages lower, leading to reduced costs for business
E.g. Citizens of EU countries have the right to work in any Member State and to be treated equally as citizens of that State

Question 17

cons for businesses inside a trading bloc (3)

Answer 17

1.
Increased competition
There is increased competition for businesses within the trade bloc which may be more of an issue for small businesses as they have less resources available with which to compete
Businesses with monopoly power can increase their monopoly by eliminating competitors in other countries within the bloc
E.g. the UK supermarket industry faced increased competition from the German supermarkets Aldi and Lidl when the UK was part of the EU

2.
Common rules and regulations
In order to operate as one market, new rules and regulations may be put in place that all businesses must adhere to
E.g. The EU working time directive states that employees can only work a maximum of 48 hours per week

3.
Retaliation
External tariffs set against countries outside of the trading bloc may lead to retaliation from these countries

Question 18

trade diversion

Answer 18

trade is taken away from efficient producers who operate outside of the trade bloc and replaced by trade within the bloc