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BTF > External environment > Flashcards

External environment Flashcards

1
Q

What is defined
the interaction of demand and supply for a particular item

A

market mechanism

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2
Q

What is defined
a situation in which potential buyers and sellers of an item or good come together for the purpose of exchange

A

market

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3
Q

what factors affect demand

A

price
Interrelated goods (substitutes and compliments)
Income levels (normal v inferior)
Fashion and expectation
Income distribution

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4
Q

What factors affect supply

A

price
Price of other goods
Price of related goods (joint supply)
Cost of making the good
Changes in tech

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5
Q

What is defined
the price of a good at which the volume demanded by consumers and the sieve are willing to supply are the same

A

equilibrium price

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6
Q

government intervention - what happens if price set is higher than equilibrium price

A

nothing - no effect on market forces

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7
Q

Government intervention - what happens if price set is lower than equilibrium price

A

Excess demand over supply

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8
Q

What is defined
The extent of a change in demand and or supply given a change in price

A

elasticity

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9
Q

Equation for PED

A

Proportional change in quantity/proportional change in price
where proportional change is change / original

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10
Q

PED < 1

A

demand inelastic

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11
Q

PED > 1

A

demand elastic

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12
Q

PED = 1

A

unit elasticity

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13
Q

PED = 0

A

Demand perfectly inelastic - vertical straight line

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14
Q

PED = infinity

A

demand perfectly elastic - horizontal straight line

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15
Q

PED = 1

A

Unit elasticity of demand, demand changes proportionately to change in price

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16
Q

factors influencing PED

A

availability of substitutes
Time horizon
Competitors pricing
Luxuries and necessities
Percentage of income spent on a good
Habit forming goods

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17
Q

What kind of good is described
non luxury targeting low income customers

A

Giffen goods - positive PED

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18
Q

High quality status related goods where demand increases as price increases

A

Veblen goods - positive PED

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19
Q

When demand for a good rises as income rises but then falls back as incomes pass a certain point what kind of good

A

inferior goods

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20
Q

What is defined
indication of the responsiveness of demand to changes in household income

A

income elasticity of demand

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21
Q

What is equation for income elasticity of demand

A

% change in quantity demanded/% change in household income

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22
Q

If income elasticity > 1 the good is

A

luxury, demand income elastic

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23
Q

If income elasticity between 0 and 1

A

normal goods/necessities - income inelasticy

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24
Q

Income elasticity < 0

A

inferior goods, demand negatively income elastic

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25
Q

What is defined
a measure of the responsiveness of demand for one good to changes in the price of another good

A

Cross elasticity of demand

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26
Q

Cross elasticity of demand equation

A

% change in quantity of A demanded/%change in price of B

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27
Q

If X-elasticity >0 good are

A

substitutes

28
Q

If X - Elasticity < 0 goods are

A

complements

29
Q

If X-elasticity = 0 goods are

A

unrelated

30
Q

What is defined
a measure of the responsiveness of a supply to a change in price

A

price elasticity of supply

31
Q

Equation for price elasticity of supply

A

% change in quantity supplied/% change in price

32
Q

What kind of market structure
many small buyers and sellers - can’t influence price
no barriers to entry
perfect information
homogenous products
no collusion

A

perfect competition

33
Q

What do these describe
Suppliers are price takers
all suppliers earn normal profits
there is a single selling price

A

perfect competition

34
Q

What kind of market structure
one dominant supplier
many buyers
barriers to entry

A

Monopoly

35
Q

what is described
business can either set selling price or quantity
monopolists earn greater than normal profits
natural monopoly where something about market causes it to happen

A

monopoly

36
Q

What market structure is described
many buyers and sellers
some differentiation between products
branding products achieves differentiator
some customer loyalty
few barriers to entry
significant advertising

A

monopolistic competition

37
Q

What is described
Increaes in prices cause loss of some customers
Only normal profit earned in long run

A

monopolistic competition

38
Q

What market structure
few large sellers many small buyers
product differentiation
mutual interdependency

A

Oligopoly

39
Q

what is described
Business compete through non-price competitoin
price cuts usually copied
price increases are not always copied

A

oligopoly

40
Q

What market structure is
two dominant suppliers who between them control prices
temptation for two suppliers to act in collusion (illegal in most countries)

A

duopoly

41
Q

what is defined
a situation in which a free market mechanism fails to produce the most efficient/optimum allocation of resources

A

market failure

42
Q

What arguments are put forward by advocates of the free market

A

efficient
impersonal
efficient allocation of economic resources
- based on perfect competition

43
Q

Factors causing market failure

A

Market imperfection
externalities
public goods and benefits gained by third parties
economies of scale

44
Q

four factors of production GDP

A

Land
Labour
Capital
Entrepreneurship

45
Q

What is define
income available to individuals after payment of personal taxes, it may be consumed or saved

A

Disposable income

46
Q

Six influences affecting total spending/consumption by households

A

Change in disposable income and marginal propensity to consume
change in distribution of wealth
government policy
development of major new products
interest rates
price expectations

47
Q

What is defined
the continual sequence of rapid growth in GDP followed by a slowdown in growth and then a fall. growth comes again, and when it has reached a peak, the cycle turns once more

A

business cycle/trade cycle

48
Q

Four main phases of the business cycle

A

recession
depression
recovery
boom

49
Q

What phase of cycle
Capacity and labour become fully utilised, causing bottlenecks in some industries as can’t meet increase in demand
Further rises met by price rather than production increases
Business profitable few firms facing losses
Expectations about future optimistic and high level of investment expenditure

A

boom

50
Q

What phase of cycle
consumer demand falls/confidence diminishes
Investment projects already undertaken bein to look unprofitable
Orders cut
Inventory levels reduced
Business failures occur as firms find themselves unable to sell goods
Production, employment and prices fall

A

recession

51
Q

What is defined
an increase in price levels generally and a decline in the purchasing power of money

A

inflation

52
Q

what is defined
falling prices generally, normally associated with low rates of growth and reecession

A

deflation

53
Q

What kind of inflation
Price rises from persistent excess of demand over supply in the economy as a whole. Supply cannot grow any further once full employment of factors of production is reached. Supply can’t go up, prices rise.

A

Demand pull

54
Q

What kind of inflation
Increase in cost of production of goods and services from imported raw materials/wage increases then companies will put up prices

A

cost push

55
Q

Two main causes of demand pull inflation

A

fiscal - more gov spending, reduce in taxes
credit - levels of credit increase, expenditure rise

56
Q

What is defined
government policies on the money supply, monetary system, interest rates, exchange rates and availability of credit

A

monetary policy

57
Q

What is defined
government policies on taxation, public borrowing and public spending

A

fiscal policy

58
Q

How do government affect overall demand

A

Monetary and fiscal policy

59
Q

the government rising interest rates is an example of what kind of policy

A

monetary policy

60
Q

What does supply side economics concern

A

The behaviour of the aggregate supply curve in connection with levels of prices, incomes and employmen

61
Q

What is defined
any form of state interference with the operation of the free market. this could involve regulating demand, supply, price profit quantity quality entry exit information technology or any other aspect of production and consumption in the market

A

regulation

62
Q

What is defined
systems or departments in businesses which ensure that people are aware of and take steps to comply with relevant laws and regulations

A

regulatory compliance

63
Q

Four responses to regulation

A

entrenchment o practice (non response)
mere compliance (pass cost to customer)
Full compliance (change product/services)
innovation

64
Q

What are quotas

A

limits on output so output is set at the social optimum

65
Q

What is the benefit of anti monopoly enforcement

A

deters firms from engaging in collusion, price fixing and deceptive advertising

66
Q

Why is anti monopoly legislation undertaken

A

to promote competition and market regulation is undertaken to compensate for lack of competition

67
Q

Is restricting technical developments an offence under chapter 1 of competition act 1998

A

No - abuse of dominant position - Chapter 2

BTF (14 decks)

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