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Business Studies > External influences > Flashcards

External influences Flashcards

1
Q

What is the definition of demand?

A

The amount of product that a consumer is willing and able to purchase at any given price.

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2
Q

What is the definition supply?

A

The amount of a product that a supplier is willing and able to supply at any given price.

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3
Q

What is needed when drawing a supply and demand graph?

A

Axis: y-price, x-quantity demanded.
Cross- supply at top, demand at bottom.
Equilibrium in centre with dotted line to PE and QE.

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4
Q

What is the definition of equilibrium price?

A

The situation a market where demand is equal to supply ie. both parties are happy. Customers can buy what they want and shops have no unsold stock.

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5
Q

What happens if there is an excess in demand in the market?

A

Price would increase and the supply would also increase.

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6
Q

What happens if there is an excess in supply in the market?

A

Price would fall in order to sell of the excess stock.

This fall in price may lead to an increase in demand.

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7
Q

What are the demand factors?

A 
Price
Income
Wealth
Demographic changes
Advertising, Promotional offers and public relations
Government action
Taste and fashion
Price of other products: complements and substitutes
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8
Q

How does price affect demand?

A

As price goes down, demand goes up.

As price goes up,demand goes down.

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9
Q

How does income affect demand?

A

Income-the money which you earn.

As disposable income goes up the quantity demanded goes up.

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10
Q

How does wealth affect demand?

A

Wealth-combined value of all you assets.

Increased confidence in wealth leads to an increase in demand.

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11
Q

How does demographic changes affect demand?

A

Demographics-characteristics of the human population groups.
Population size: bigger population means larger demand.
Gender/Age: items can be aimed a certain genders and ages ie. iPhones

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12
Q

How does advertising, promotional offers and public relations affect demand?

A

If there is successful advertising this will lead to an increase in demand.

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13
Q

How does government action affect demand?

A

Government campaigns can alter patterns of consumption eg. a keep fit campaign leads to an increase in demand for fitness products.

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14
Q

How does taste and fashion affect demand?

A

When products become fashionable there is an increase in demand because consumers regard these products as essential for their life.

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15
Q

How does the price of other products affect demand; complements and substitutes?

A

Complements: products in joint demand, should be sold alongside each other (DVD and DVD player)
Substitute-Altenative product which serves the same purpose (Pepsi and coke)

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16
Q

What are the factors of supply?

A 
Price
Costs 
Taxes
Subsides
Price of other products
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17
Q

How does price affect supply?

A

When price goes up the supply goes up.

When prices goes down the supply goes down.

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18
Q

How does costs affect supply?

A

When costs go up the supply goes down.

When costs go down the supply goes up.

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19
Q

How does taxes affect supply?

A

If tax goes up, supply goes down.

If tax goes down, supply goes up.

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20
Q

How does subsidies affect supply?

A

Subsides:a payment from the government to incentivise businesses to supply certain products.
If subsides go up, supply goes up.
If subsides go down, supply goes down.

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21
Q

How does the price of other products affect supply?

A

This is sometimes also known as competitive supply. A fall in the price of a product makes it less competitive/profitable to supply. If the price of another product stays the same this will become more profitable to supply.

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22
Q

What is the definition of inelastic?

A

insensitive to a change in price (not many substitutes) eg. train ticket, cigarettes and fuel

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23
Q

What is the definition of elastic?

A

sensitive to a change in price (has many substitutes) eg. sofa, Heinz tomato soup and a newspaper

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24
Q

What is meant by elasticity of demand?

A

Measures how sensitive a product/good/service is to a change in price.

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25
Q

What happens to a supply and demand graph if there is a positive change?

A

Shift to the right.

26
Q

What happens to a supply and demand graph if there is a negative change?

A

Shift to the left.

27
Q

What happens to the supply and demand graph if there is a change in price?

A

Movement along the existing curve: show P1,Q1,P2,Q2 and the direction in which the price is moving with arrows.

28
Q

How do you represent demand and supply interactions?

A

Draw on a graph the demand or supply shift but still add the S1 or D1 line. You must draw P1,P2,Q1,Q2 swell as E1 and E2.
Remember to add the dotted lines when representing P1/P2 etc…

29
Q

How does an excess supply and demand/shortage start?

A

If the price is set too high,an excess supply will be created.
If the price is set below the equilibrium price there is a shortage. This is because too many consumers want the good while the producers are not making enough of it.

30
Q

How is an excess supply graph drawn?

A

A general supply and demand graph with P1 on the y axis.
Price is set above the PE
This will have a dotted line to the demand curve with Q1 on the x axis as well as to the supply curve with Q2 on the x axis.
YOU MUST INCLUDE PE AND QE IN THE CENTRE.

31
Q

How is a shortage/excess demand graph drawn?

A

A general supply and demand graph with P1 on the y axis.
Price is set below the PE
This will have a dotted line to the demand curve with Q1 on the x axis as well as to the supply curve with Q2 on the x axis.
YOU MUST INCLUDE PE AND QE IN THE CENTRE.

32
Q

What is the definition of competition?

A

Refers to rivalry amongst sellers

33
Q

What is the definition of market?

A

Any situation where buyers and sellers are in contact to establish price.
They can be physical or non physical.

34
Q

What is a physical market?

A

Face to face market which exists as it offers a personalised service.

35
Q

What is a non-physical market?

A

Not face to face which is growing rapidly due to the convenience they provide.

36
Q

What is the definition of market price?

A

Although there is no such thing as ‘the market price’ in the sense of a single price for a product, there is a PRICE RANGE in a market at which consumers are prepared to pay.

37
Q

What is the definition of mark up?

A

The difference between the cost of producing an item and the price at which it is sold.
If the market price rises, so does the mark up.

38
Q

What happens to demand when price goes up?

A

It will decrease as customers are not willing or able to purchase a product at a higher price.

39
Q

What happens to supply when price goes down?

A

It will decrease as it is less profitable (lower mark up) to continue to supply a product.

40
Q

What is the definition of a competitive market?

A

A market in which there are a large number of sellers. Competition is mainly based on price.

41
Q

What is the definition of a monopoly market?

A

A market dominated by one seller. It must own over 25% of market share.

42
Q

What is the definition of an oligopoly?

A

An oligopoly exists where a market is dominated by a few firms. The mobile phone network market is an example of an oligopoly.

43
Q

What is the definition of monopolistic competition?

A

A market structure with many competing firms each of whom supplies a slightly differentiated product.
Non price differences are used to compete.

44
Q

What are the characteristics of perfect competition?

A

Many firms
Low prices
Lowest market power

45
Q

What are the characteristics of a monopoly market?

A 
One firm (theoretically- only needs 25% market share)
High prices (not always as the large firm will benefit from economies of scale therefore they can pass this onto their customers)
High market power
46
Q

What is the definition of economies of scale?

A

They arise when unit cost falls as output rises.

47
Q

What are the characteristics of an oligopoly?

A 
Few Firms (similar products)
Prices are similar but often high
Non-Price differences 
Collusion
Force other firms out of the market
Medium market power
48
Q

What is the definition of collusion?

A

When two or more parties act together to influence production and/or price levels, thus preventing fair competition. It is illegal but difficult to prove.

49
Q

What are the characteristics of monopolistic competition?

A 
Many firms
Supply slightly differentiated products
Lower prices
Non price differences to compete
Low market power
50
Q

What is the definition of market size?

A

Expressed as the collective value of the goods/services that buyers purchase

51
Q

What is the definition of market growth?

A

The % change in the size of the market, measured over a specific period.

52
Q

What is the definition of market share?

A

The % of total sales (by values) that a business has in a specified market.

53
Q

What is the definition of a barrier to entry?

A

The factors that could prevent a firm from entering and competing in a market.

54
Q

What are the barriers to entry?

A 
Large start up costs
Having the marketing budget to break customer loyalties
The inability to gain economies of scale
Price war
Legal restrictions such as patents
55
Q

What is the definition of a barrier to exit?

A

The factors that could prevent a firm fro leaving a market, even if it wanted to (not collapsing the market)

56
Q

What are the barriers to exit?

A

Difficulty of selling capital
High redundancy costs
Contracts with suppliers (company will face legal challenge if they are not honoured)

57
Q

Describe the barriers to entry if you have high market power?

A

High barriers to entry

58
Q

Describe the barrie’s to entry if you have low market power?

A

Low barriers to entry

59
Q

How do you increase your market share?

A

Be aware of customer needs and meet them
Sell more to existing customers
Find out why old customers no longer use your products
Have a clear marketing plan
Varied marketing techniques, pricing, advertising and promotion
Merge with a competitor

60
Q

What is the definition of market dominance?

A

A measure of market share compared to competitors.

61
Q

What is the definition of market power?

A

The ability of a firm to influence or control the terms and conditions on which goods are bought and sold.

Business Studies (2 decks)

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