Unit 2- Economics Flashcards
What is product orientation?
Matching a companies capability with customer wants
What is market orientation?
Where the needs of a customer are overriding the priority in production, meeting the needs of the goods and services
Why do you want to increase market share, list 3 reasons?
Increases market power
Greater brand awareness
Increasing the volume of sales, therefore leading to economy of scales
What is market share?
Is how much a firm owns a percentage of the market, for example the phone market is worth £4bn and apple own 25% of the market, the have £1bn
What’s a market?
Is any medium in Which buyers and sellers interact and agree to trade at a price.
How can market leaders expand market share?list 2 reasons
Take overs- (buying out a business to reduce competition)
Developing new product within the market
Name 5 things how firms with the largest market share have advantage over competitors?
The set the bench mark with pricing Advertisement Technology expertise Rate of production Competitive advantage
What are market challengers?
They have lower market share than leaders but share high aspirations. They try to challenge the market leader upon building there percentage of the market.
what is PINTSWC a condition for?
Supply
What’s PASIFIC a condition for?
demand
what does PINTSWC stand for?
productivity, indirect taxes, number of firms, technology, subsides, weather and cost of production.
what does PASIFIC stand for?
population, advertising, substitutes, income, fashion and trends, interest rates and complementary goods.
what does dynamic mean?
the way in which the market changes with economy.
if supply increases which way on the graph does it go?
to the left.
if the supply increases within in a business, can they lower or increase their pricing?
lower as there demand is increasing aswell as supply.
what is a pricing strategy?
describes how a business meets the requirement of it’s market.
what is profitability?
money which is earned in trade or business, especially after paying the costs of producing and selling your goods and services.
What can market leaders do? List 4 things?
bench mark- they set the pricing levels.
Technology expertise, as they are the biggest firm more advanced people would want to work for them..
rate of production, so they set how much is supplied to each store/retailor etc..
They can expand their market share by buying out other companies “take overs”..
Advertising- as they are the biggest brand, they have more money than other firms to advertise their business further.
Name the 2 organisation structures within a business?
Tall and Flat.
What is a Tall structure?
more employees, it has more layers of staff under the CEO.
What is a Flat structure?
they have more layers of staff. For example have 3 mangers under one segment. This business structure is more spread out.
name 3 things that are within a Tall structure?
..more managers. (AD)
.. Tighter control, so less delegation.(DIS)
.. more opportunities for promotion. (AD)
.. more expensive for the business as their are more employees. (DIS)
What is a “span of control”?
people someone controls.
Name 3 things that are in a Flat structure?
less staff, so save money (less layers)
less employees but experts.
wider span of control.
shorter communication patterns.
What is delegation?
you give somebody below you more responsibility.
what is Authority?
you have power to tell someone what to do.
What is centralisation?
where the CEO (director) makes all the decision at headquarters and passed the information on to it’s locations around the world and they have to stick to his order.
list 3 things why centralisation Is good/bad?
..greater efficiency- all the staff know exactly what they are doing so can produce more and work together.
..Economies of scale- they can produce more and allows larger volumes of work to be done.
..you cannot meet local needs within your region as your director has made the decisions.
what is decentralisation?
different executive groups (Layer) in each country makes there own decisions but the director has given them direction but they sort out their problems and work load themselves.
What motivates your staff, list 5 reasons?
..give them more empowerment, they feel more comfortable instead of just there for labour.
.. fear of loosing their job, therefore cannot support their family.
.. team working- if they are in teams and close relationships, they will enjoy their job and get it down quicker.
.. Delegation (empowerment) giving them more control.
.. enough money to live on, they will then come to work.
What is (TQM) Total quality management?
employees are involved in quality control and all taken responsibility for their team work.
what is price inelasticity?
change in price leads to less than proportionate change in quality demanded. For example; you increase the pricing by 10%, the demand only fall by 5%.
within a price Inelastic graph, what should you see?
a steep curve.
list 3 things why price inelasticity might happen?
..highly fashionable.
.. Fewer alternatives.
.. Seen as an essential.
what is Price Elastic demand?
the price is increased, it leads to less demand than price lowered more demand.
What is the price elasticity equation?
PED= % change in quality demanded (OVER- Divided) by % change in price.
On a price elasticity graph, if the answer is between -1 and -infinity, what is it?
elastic demand.
On a price elasticity graph, if the answer is between 0 and 1, what is it?
Price inelasticity.
On a price elasticity graph, if the answer is -1, what is it?
unitary elasticity.
What is productivity?
is how much of a product is produced or how many services are provided.
what is efficiency?
is the extent in which time, effort or cost is well used for the intended task.
what is capital intensive?
using machinery to make your product.
what is Labour intensive?
a firm that uses workforce (employees) to make their goods/services.
what is capacity utilisation?
is the proportion of the maximum possible output that is currently being used.
what is capacity utilisation’s equation?
current output over maximum possible output x100.
what is lean production?
where you use all your raw materials without wasting them, it cut’s out processes that don’t add value to the business.
what is the ideal capacity to work at?
90% as if you are producing goods constantly and the capital breaks. then you’ll be producing at 0% but with the extra spare you can maintain the machinery to work efficiently.
what is Just In Time (JIT)?
Items are delivered when they are needed, usually 1/2 hours before production.
Name 4 advantages of JIT?
..No added costs for storage space of the materials.
..overheads are cheap as no stock is just sitting their.
..they have to be scares with their resources as only the ..
amount of stock they ordered comes, no wastage.
disadvantages of JIT?
..have to pay a premium price to suppliers as they demand them to deliver the goods straight the way.
.. if suppliers are late delivering the goods, the workers will just be standing around and the order will be late.
what is Total Quality Management (TQM)?
everyone is responsible for the quality check of their work, each employee of the production line self checks it.
what is cell production?
segmented into cells of employees (a form of team working) each employee is multi-skilled and responsible for it’s unit of work.
Advantages of cell production?
..It’s a quick process, as they are working in a team.
.. workers become multi-skilled and adaptable for future jobs within the business.
what does Capacity depend on? (4 reasons)
..quality of the size of the building.
..quality of machinery.
..quality of Labour.
..quality of products.
what is structural unemployment?
is where you don’t have the certain skills for that business.
what is economies of scale?
the output is rising, whereas Average costs are falling.
name the 5 types of unemployment?
Structural Seasonal Regional Cyclical Frictional
what is a barrier to entry?
anything that prevents firms entering their market.
name 3 barriers to entry?
Start up costs Economies of scale Legal restrictions quotas tariffs
What is Purchasing economies of scale?
as you are a larger firm, as you buy materials in bulk, you can bargain discounts on the goods.
Name the 6 economies of scale?
Managerial Purchasing Risk bearing Technology Financial marketing
what is risk bearing economies of scale?
as you are a more established firm, it doesn’t matter if one of your products isn’t taking enough sales because you rely on other products.
what is micromarketing?
meeting the needs of an individual or a small section of the market.
what is uncertainty?
is when a particular situation is impossible to read, eg. the market changing because it’s dynamic.
how can you gain market share?
by taking over a business- you buy it and take it’s market share (have to own 50% or more)
Mergers- you join with another firm to have a combined market share.
what are the 3 biggest reasons for uncertainty?
the government- increasing direct taxes (income and corporation).
The economy- the economic cycle; eg. unemployment.
Markets- as they are dynamic, they constantly change.
how much market share do you need to be a monopoly?
25%
how can you measure price elasticity?
%change in QD over % change In price.
how can you measure income elasticity?
% change in QD over % change in income.
what is monopolistic power?
firms can bargain prices with their suppliers as they buy in bulk.
have can monopolistic power effect suppliers?
the firm wanting the goods goes to another supplier if you don’t except there offer.
If they don’t supply the goods, they will be making no profit. (cost for storage space)
what is capacity utilisation?
it measures what proportion of the maximum possible output you are using.
how can you measure capacity utilisation?
current output over possible maximum output x100.
what is the long tail?
it describes how online retailers have created a new kind of market with pure digital memory, taking over physical retailers.
what is an oligopoly?
where a few firms dominate the market.
name 4 things in a perfect competition market?
perfect knowledge available.
homogenous products.
price takers.
many firms and buyers within the market.
name 3 things within a oligopoly market?
price setters.
selling similar goods.
high barriers to entry.
abnormal profits made
what is seasonal unemployment?
occurs when there is a seasonal variation in demand and people are not employed all year round. e.g. a rep in Ibiza.
what is abnormal profit?
is any level of profit above normal profit.
what is recession?
2 or more quarters of negative growth
what is chains of command?
the sequence of authority down the organisation.
what does uncertainty link with?
the economic cycle because it’s constantly changing.
give 3 reasons for mergers and take overs?
..To reduce competition from the other firm, now only have to tackle small businesses.
..To gain market power(market share) they will be sharing the profit from both brands, more brand loyalty.
..Defensive reasons- they may think the other firm was going to take over them or have more customers buying their goods.
what is the difference between delegation and empowerment?
delegation is where the individual has more responsibility and empowerment gives them independence without consulting a manager.
3 advantages of decentralisation?
..can meet local needs of customers.
.. the managers and staff don’t have to discuss decisions they make with CEO, as the communication path would take a long time.
.. staff feel more responsibility and empowered by this.
what is inflation?
the general level of prices in good and services increasing.
which 2 ways are inflation measured?
CPI and RPI.
3 reasons why inflation is a problem?
..it leads to uncertainty as they cannot predict what’s going to happen in the future.
.. makes it hard to make accurate cash flows forecasts as prices and costs are constantly changing in the economy.
.. the real value of money is lost, in real terms. e.g. savers are worse off.
what is unemployment?
someone that is searching for work but unable to find a paying job.
name the 5 types of unemployment?
Seasonal Frictional Regional Structural Cyclical
what is cyclical unemployment?
is caused by the economic cycle - the downturn (recession) people lose there jobs as not as much being spent or produced.
3 effect on businesses for rising unemployment?
..people have less disposable income, therefore demand might fall as they cannot buy there goods.
.. it should be easier to fill jobs as people are unemployment and will work for minimum wage- saving the business money. (lower costs)
..businesses selling income elastic goods might see a massive fall in demand as they will find cheaper substitutes.
3 effect on businesses for falling unemployment?
..more people in work so there demand will go up, as they can increase their spending.
.. businesses selling income elastic goods and now likely to benefit as people’s incomes are rising and likely to spend more money on luxury’s.
..if businesses wanted to expand and recruit new employees it might be hard to find one’s with the skills as unemployment is falling.
what is structural change?
occurs when the economies change over time. Patterns of demand change and we produce/consume different things. e.g. new technology.
what is the knowledge economy?
Is where intellectual skills, knowledge, understanding and ideas are central to economic activity and more important physical effort.
For the “wider economy” how can the knowledge economy help? give 2 reasons?
…education becomes more important.
.. certain skills are encouraged eg. sciences.
for Businesses how can the knowledge economy help? give 2 reasons?
..they need to constantly keep updating new technologies, costing loads of money eg. Research and development).
..employees might need constantly training if the pattern changes in the economy.
give 3 reasons how you can reduce uncertainty?
market research
hedging
planning ahead
what are the 3 main reasons for uncertainty?
the economy- e.g. the economic cycle.
the government- eg. setting high/low taxes whenever they want.
the markets- as they are dynamic they are constantly changing.
what is the definition for the long tail?
where the internet has vastly increased customers choice. the businesses selling “HIT” products are getting outsold by the niches.
what is the definition for the economic cycle?
measures the fluctuations in the change of GDP over a certain period of time.
name 3 barriers to entry?
start up costs, economies of scale and legal barriers.
why can inflation be a problem? (give 3 reasons)
… can lead to a loss in consumer confidence.
… inflation can lead to uncertainty for businesses.
… makes consumers on fixed incomes lose out as their real incomes fall.
… prices increase, therefore could lead to less spending in the economy for lower income earners.
How can interest rates affect your business? (give 3 reasons)
… less willing to save, as wont get much money, therefore more spending in the economy.
… if they are low, mortgages will be low.
… cheaper borrowing costs, if they are low.
if they are high, will be more savings.
higher mortgage payments.
more expensive to borrow.
what is diseconomies of scale?
average costs start to increase, as output falls.
can lead demotivate staff.
may have to reduce size of business, as costs are over weigh the output produced.
advantages of lean production? (give 5)
... reduces wastage and storage costs. ... improved quality and efficiency. ... more motivated staff. ie. TQM and cell production. ... increases team working. ... fewer reject costs.
pros and cons of operating in a niche market “micromarketing”?
... can set premium prices. ... can meet local/customer needs. ... reduces competition. ... cannot benefit from EOS. ... brand awareness. ... good brand image. ... usually high quality products. ...high start up costs.
what is the market share equation?
sales of business over total sales in that market x100.
types of stakeholders? (give 6)
shareholders customers government employees suppliers banks
why does “diseconomies of scale” happen? (3 reasons)
… poor communication (chain of command)
… lack of control or authority.
… lack of motivation to increase output.
… some managers may not delegate all staff.
what are the two types of inflation?
…demand pull.
… cost push
what is demand pull inflation?
is where the Aggregate demand (AD) is higher than the Aggregate Supply (AS). the spending is higher than the supply of the good.
what is cost push inflation?
labour costs- raw materials are higher priced.
what is cyclical unemployment?
linking to the economic cycle e.g. unemployment levels are high in a recession.
define R+D and give 3 reasons for it’s use?
allows you to discover new knowledge: i.e. on new products, processes or new technologies. It is specific research needed for that market to improve or get a better understanding.
it gives you a competitive advantage over rival firms.
