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Economics and Business > Unit 2 > Flashcards

Unit 2 Flashcards

0
Q

Transitional economy

A

One in which the government is liberalising some sectors so that production and marketing decisions are made by individual organisations and people on the basis of supple and demand conditions, rather than by state employed planners

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1
Q

Command economic system

A

A command system relies on planners, directed by government, to decide what and how to produce. Command economies were characterised by low living standards and inflexibilities. Former command economies are now mixed.

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2
Q

Mixed economy

A

An economy which has both public (state) and private sectors

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3
Q

Public sector

A

The areas of economic activity which are directly controlled by the state.

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4
Q

Free market economy

A

One where activity is directly by entrepreneurs and private organisations rather than the state

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5
Q

Entrepreneurs

A

People who take responsibility for organising business activity and Carey business risks

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6
Q

Profit

A

The gain from operating a business when sales revenue earned is greater than costs incurred

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7
Q

Market forces

A

When the conditions of supply and/or demand change in a market, this is likely to lead to price changes

(Private sector)

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8
Q

Scarcity

A

In all economies individual needs and wants always exceed the availability of resources to provide them.

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9
Q

Choice

A

Involves deciding on priorities in the light of what can be afforded.

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10
Q

Opportunity cost

A

The best alternative foregone when a particular choice is made

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11
Q

Consumer sovereignty

A

A theoretical attraction of free markets it is consumers ultimately control the allocation of resources by choosing what to buy

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12
Q

Effective demand

A

Is the combination of desire for a product or service with the ability and readiness to pay.

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13
Q

Tastes

A

Involve consumer preferences for specific products. These are likely to change over time and be influenced by factors such as fashion

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14
Q

Substitutes

A

Are the alternatives to a product. Sometimes there are close subtitles, sometimes not.

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15
Q

Complementary goods

A

Tend to be used together or ‘complement’ each other.

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16
Q

Income

A

Is the flow of money received by an individual or household over time.

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17
Q

Population

A

A group of people fitting a particular description, from national to target market.

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18
Q

Price

A

The money amount paid by the buyer to the seller in a transaction.

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19
Q

Demand curve

A

A graphical representation of a relationship between quantity demanded and price, for w product in a market.

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20
Q

Supply curve

A

A graphical representation of the quantities businesses will supply to a market at different price levels

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21
Q

Incentive

A

A reward which stimulates activity. The rewards are often, but not always, financial

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22
Q

Benefits

A

A gain

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23
Q

Differentiate

A

This means making your product stand out from others, either by distinctive features or persuasive advertising.

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24
Q

Competitive advantage

A

Any quality which gives the business an edge over rivals

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25
Q

Equilibrium price

A

The price at which quantity supplied and quantity demanded are equal in a market, leaving neither excess supply nor excess demand

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26
Q

Market clearing

A

Obtaining a balance between quantity supplied and quantity demanded, normally by arriving at the equilibrium price

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27
Q

Profit signalling mechanism

A

The way that the prospect of profits will attract entrepreneurs to a market and losses will lead businesses to consider leaving a market

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28
Q

Price elastic demand

A

A situation in which quantity demanded is sensitive to price and a change in price will lead to a more than proportionate change in quantity demanded.

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29
Q

Price inelastic demand

A

A situation in which price changed lead to a less than proportionate change in quantity demanded

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30
Q

Price elasticity demand

A

Percentage change in quantity demanded decided by percentage change in price

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31
Q

Inferior goods

A

Inferior goods are products with negative income elasticity demand.

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32
Q

Market share

A

The share of sales in a market which one business or brand has

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33
Q

Non price competition

A

Included all possible inducements to buy the product other than a price cut. Design, reliability, customer service, advertising, promotions, packaging, branding and sponsorships ball provide examples

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34
Q

Market segment

A

A subdivision of a market in which consumers have distinctive characteristics and preferences.

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35
Q

Market orientation

A

Refers to the way businesses use the wishes and priorities of consumers to guide production and marketing decisions

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36
Q

Product orientation

A

Means prioritising product design, quality or performance rather than customer preferences.

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37
Q

Market mapping

A

Means plotting the position of brands in the market again the key characteristics of the product

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38
Q

Market positioning

A

Means identifying a specific market segment and focusing the product and its marketing so as to appeal directly to people in that segmentS

39
Q

Marketing mix

A

Price
Product
Promotion
Place

40
Q

Brand loyalty

A

May be achieved if the distinguishing features of the product create a sense of uniqueness that will induce customers to make repeat purchases and avoid competing products

41
Q

Added value

A

Means the value of output minus the costs of inputs.

42
Q

Value analysis

A

Involves studying a product to see how each aspect contributes to consumer satisfaction.

43
Q

Diversification

A

Means spreading business risks by developing a range of products, the market it is sold in or both

44
Q

Promotion

A

In marketing, promotion is the use of advertising, branding, sales promotion and public relations to directly or indirectly stimulate product sales

45
Q

Informative advertising

A

Is paid for communication about product availability, features and price.

46
Q

Persuasive advertising

A

involves communication which is designed to have an emotional appeal.

47
Q

Corporate social responsibility

A

Accepting that organisations must take account of their impacts on the community and environment, show consideration and behave ethically

48
Q

PGTIPPED / what determines demand

A 
P - population
G - government 
T - tastes 
I - income 
P- price of other goods
Ed - expected price change
49
Q

Barriers to entry

A 
Economies of scale 
Start up costs are high 
Heavy investment costs
Patents 
Collision with other firms (wiping out competition)

High level:
Branding
Advertising

50
Q

Contestability

A

The ease in which you can enter a market

51
Q

Example of how businesses compete

A

Lower prices
Better products
Better customer service
Incentives: freebies, coupons, sales and special deals
Advertise to say how wonderful their products are

52
Q

How does competition affect the consumer

A

We’re better off - more options
Benefit from pricing, product quality and incentives
However, if there is too much competition this can lead to preditory pricing, businesses fail, less choice and then higher prices

53
Q

Market structure (what we analyse)

A

Impact on consumer

Impact on firm

54
Q

Perfect competition

A 
Many small firms 
Many individual buyers
Perfect freedom of entry and exit 
Homogeneous products
Product knowledge from consumers
No externalities
55
Q

Sunk costs

A

Hugh start up costs that are maintained

56
Q

Monopoly characteristics

A

Influence prices
Influencing output
Erecting barriers to entry
Pricing strategies to prevent or stifle competition
May not persue profit maximisation - as it encourages unwanted entrants to the market
Sometimes seen as a case of market failure

57
Q

Adv and d’adv of monopoly

A

Adv
The firm should make higher profits

D’adv
Consumers may pay higher prices due to he lack of competition
Consumers may have less choice
Lack of competition
May lead to low quality and outdated goods and services

58
Q

Oligopoly

A

Entry barriers
Mutual interdependence - due to fear of loss of market share
Intensive non price competition
Periodic aggressive price wars/ non price competition (mostly)
Strong tendency for many market structures to tend towards oligopoly in the long run
Dominated by a few (concentration ratio)
Exploitation of economics of scale
Market consolidation/power

59
Q

Concentration ratio

A
  • perfect competition: low - no clear winner
  • monopolistic - below 40% - four firm
  • oligopoly - above 40% - four firm
  • monopoly - near 100% - four firm
  • duopoly - above 40% but in the hands of two firms
60
Q

CMA (competition and market authority)

A

Investigate and regulate control in the market

(This has replaced office of fair trade) and cc

Ofcon

61
Q

Monopolistic

A 
Low barriers to entry and exit
Differentiated products 
Many buyers and sellers 
Firm has some control over price 
Examples: restaurants, professions, solicitors
62
Q

Cartels

A

Sellers agree to coordinate prices and production

associated with oligopolies

63
Q

Homogeneous products

A

Are identical to one another

64
Q

Normal profits

A

Are just sufficient to keep the producer in the market.

65
Q

Price takers

A

Businesses with undifferentiated products they face high price elasticity of domain in a competitive market

66
Q

Productive efficiency

A

Means minimising the average cost of production by minimising resource use

67
Q

Allocative efficiency

A

Occurs when resources are allocated between competing uses in a way that matches the requirements of consumers to the greatest possible extent

68
Q

Barriers to entry

A

Obstacles which make it difficult for new firms to enter a market.

69
Q

Patents

A

Give legal protection from competition when a new product or process is registered.

70
Q

X-inefficiency

A

Occurs where there is weak control of costs and resource use and no competition to provide the incentive to stimulate efficiency.

71
Q

Imperfect competition

A

Covers any market situation between the extremes of perfect competition and monopoly

72
Q

Monopolistic competition

A

Describes a market with many sellers, easy entry and exit and product differentiation.

73
Q

Oligopoly

A

Refers to a market structure with a few very large firms which dominate the market

74
Q

Price leaders

A

Are leading firms in the industry with sufficient market power to decide between restricting output and charging higher prices, or reducing prices in order to increase sales

75
Q

Concentration ratio

A

A measure of the extent to which a market is dominated by large firms

76
Q

Predatory pricing

A

Involves setting unusually low prices with the intention of driving a competitor out of the market

77
Q

Game theory

A

Studies the behaviour of players which are interdependent; the actions of one will have an impact on others

78
Q

Brand proliferation

A

One producer sells multiple brands, to reach different market segments or/and as a competitive strategy

79
Q

Limit pricing

A

Setting prices below a profit maximising level in order to attract competitors to enter a co testable market

80
Q

Collusion

A

Means reaching agreement with other businesses, often in ways which are anti competitive

81
Q

Monopoly power

A

Is the ability to determine price or quantity of output without having to consider competitors.

82
Q

Monopoly

A

A market in which there is a single supplier

83
Q

Natural monopoly

A

Where scale and fixed costs make it impractical to have more than one supplier.

84
Q

Niche market

A

A small segment of a market with distinctive specialised requirements

85
Q

Conventional wisdom

A

A widely accepted view which is not necessarily as try as it once might have been

86
Q

Why is price elasticity of demand important to businesses

A

Marketing - it is extremely important for a business to know what may happens to its demand if it changes the price of its products or services

Branding - businesses try to make the demand for their products more price inelastic. They do this by advertising and branding

Total revenue - changing price can dramatically affect total revenues, depending upon whether the demand is price elastic or price inelastic.

87
Q

Hierarchical structure

A

An organisation with multiple layers of management, often associated with centralised decision making and rigid rules

88
Q

Chain of command

A

The sequence of authority down which instructions are passed in an organisations

89
Q

Span of control

A

The number of subordinated directly answerable to a manager

90
Q

Centralised

A

An approach to management that gives more decision making powers to the top staff in an organisation

91
Q

Delayering

A

involves the removal of one or more levels from a hierarchical management structure

92
Q

Delegating

A

means allowing people who are lower down in the chain of command to take decisions

93
Q

Decentralisation

A

Occurs when decision making powers are given to local branches or individual divisions within the business, rather than deciding everything at the head office.

94
Q

Adv and d’adv of tall organisation

A

Adv
Narrow span of control means each employee can be closely supervised
Clear lines of authority and control
Clearly defined roles and responsibilities
Specialist managers
Clear promotion paths

D’adv
Freedom and responsibility of employees is restricted
Can be bureaucratic - decision making may be slow as communications pass through each layer in turn
Expensive, managers tend to get paid more each time they move up a layer
Interdepartmental rivalry may reduce efficiency

95
Q

Adv and d’adv of flat organisations

A

adv
Better communication between managers and workers
Better motivation as workers enjoy more responsibility
Less bureaucracy and quicker decision making
Reduced costs with fewer managers

D’adv
Employees not strictly controlled, some may abuse this
Roles and responsibilities mag become blurred
May limit growth

Economics and Business (2 decks)

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