Booklet 5 : Markets and Market Forces

Question 1

Define a market (2)

Answer 1

A market is an environment where buyers and sellers exist to exchange goods and services (2)

Question 2

Define a consumer goods and services market (2)

Answer 2

This is a market that sells products and services to the general public that they use for themselves (2)

Question 3

Define a capital goods market (2)

Answer 3

A capital goods market is one in which tangible products are sold from one business to another which in turn uses the products to produce consumer goods (2)

Question 4

Define a labour market (2)

Answer 4

A labour market is characterised by the availability of job opportunities and workers, it is the market where employers and employees are brought together (2)

Question 5

Define a mass market, and state three advantages and two disadvantages of a mass market (7)

Answer 5

A mass market is a large market where consumer wants and needs are not specific but products are used for mass consumption but there is little differentiation of products (2)

Advantages
1. The products sold in a mass market are appealing - this is because a lot of consumers buy it which lowers the cost of production per unit, improving profit margins
2. A mass market product can be advertised effectively - this is because advertising will target most people who see it
3. Mass market products can afford R&D - this results in their development of new products being effective

Disadvantages
1. High fixed capital costs - the cost of manufacturing the products in such a large volume will put off firms from entering
2. Products can be difficult to appeal - mass market products are designed to suit all consumers therefore all products are relatively similar

Question 6

Define a niche market, and state three advantages and disadvantages of a niche market (8)

Answer 6

A niche market represents a small segment of the larger market on which a product or service is focused (2)

Advantages
1. Little competition - there is little firms operating in this area as the small market doesn’t attract large businesses, therefore the lack of competition allows allows firms to charge higher prices
2. Easier to target customers - niche markets make it easier to know what customers wants and needs are
3. Lack of economies of scale - this suits smaller firms and allows them to compete more effectively by producing an appealing product

Disadvantages
1. The small scale limits profit - even if a high price is charged, there are very little customers
2. Niche market businesses carry more risk - they may specialise in an area and if that area falls into decline the business falls and may dissolve
3. An increase in interest may attract larger firms which increases competition

Question 7

Describe the feature of market size (2)

Answer 7

Market size is calculated by adding all sales reported by a firm within a marketplace (2)

Question 8

Describe the feature of market share (2)

Answer 8

Market share represents the proportion of sales a business or product line has achieved, expressed as a percentage of the total during a particular time period (2)

Question 9

Describe the feature of location for a market (2)

Answer 9

This represents the geographical territory the business operates and trades in (2)

Question 10

Describe the differentiation of products in a market (2)

Answer 10

The process a business undertakes to ensure that their product/service is sufficiently different from other products in the chosen market in order to make it appealing (2)

Question 11

Define demand (1)

Answer 11

A consumers willingness to pay for a product (1)

Question 12

Define supply (1)

Answer 12

The quantity of a good or service that a business can produce and sell on the market (1)

Question 13

Outline three factors influencing demand (3)

Answer 13

1. Price - if price increases then demand decreases
2. Consumer income - if a consumer has more disposable income, customers purchase more of the product or service
3. Advertising - when a business increases expenditure on advertising the demand curve will shift to the right due from an increase in demand

Question 14

Outline three factors influencing supply (3)

Answer 14

1. New technology - when new technology is introduced the product can be produced at a lower cost therefore quantity and supply increases
2. Changes in cost production - when the cost of raw materials increase, the overall costs increase therefore supply decreases
3. Indirect taxes - where tax increases the business will want to increase supply of the product or service