Micro Economic Factors Flashcards Preview

ACCA: F1: A: The Business Organisation, Stakeholders and the External Environment > Micro Economic Factors > Flashcards

Flashcards in Micro Economic Factors Deck (41)
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The micro environment refers to...

the immediate operational environment including:
1. Suppliers
2. Customers
3. Stakeholders and
4. Intermediaries


Drucker holds that to generate a profit, it is necessary to...

...create a customer - the distinguishing characteristic of business organisation


The micro environment has 4 'phases':

1. Inputs (Materials, money, men, machines, minutes
2. Organisation (Functions, structure, management, systems and procedures, staff, culture, competencies and skill, strategy, mission, objectives and goals)
3. Outputs (Added value, goods, services, knowledge, information, stakeholder satisfaction, social consequences)
4. Consumption


Mullins identifies at least 4 factors required by all organisations to function:

1. People; human interactions
2. Objectives
3. Structure
4. Management


The 'customer value proposition' consist of...

the sum total of benefits which a vendor promises that a customer will receive in return for their associated payment
(what the customer gets for what the customer pays!)


Value propositions can be evaluated on 2 dimensions:

1. Relative performance (relative to competitors)
2. Price (Payment + access cost)


A market can be defined as...

a situation in which potential buyers and potential sellers of a good or service come together for the purpose of exchange


Utility describes...

the pleasure, satisfaction or benefit derived by a person from the consumption of goods


Marginal utility is...

the satisfaction gained from consuming 1 additional unit of a good or the satisfaction foregone by consuming 1 unit less


Assumption: Customers act rationally meaning...

1. Consumers prefer more goods to less
2. Providing the price is right, a consumer is willing to substitute 1 good for another
3. Choices are transitive (A over B and B over C, then A over C)


Demand is...

the quantity of that good or service that potential purchasers would be willing and able to buy or attempt to buy at any possible price


Market demand is...

The total quantity of a product that all purchasers would want to buy at each price level


Factors affecting demand for a good: (6)

1. Price
2. Household's income
3. Price of substitutes
4. Tastes / fashion
5. Expectations of price changes
6. Distribution of income


Ceteris paribus means...

'all other things remain equal'


Substitutes are...

...goods that are alternatives to each other;
Swtiching demand from 1 good to another 'rival' good


Complements are...

goods that tend to be bought and used together


Elasticity is...

the relationship between 2 variables


Price elasticity of demand explains the relationship between...

Change in quantity demanded and changes in price


The coefficient of PED =

% change in quantity demanded /
% change in price


Income elasticity of demand indicates...

the responsiveness of demand to changes in household incomes


Income elasticity in demand =

% change in quantity demanded /
% change in income


Normal goods are those goods...

whose income elasticity of demand is positive; demand for them will rise when household income rises


Inferior goods are those goods...

whose income elasticity of demand is negative; demand for them falls as income rises


Necessities have an elasticity of demand...

which is inelastic; between 0 and 1


Cross elasticity of demand is...

the responsiveness of quantity demanded for 1 good following a change in price of another good


Cross elasticity of demand =

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


Indices tending towards 0 and 1:

Indices tending towards 1 or -1 indicate a strong relationship
Indices tending towards 0 indicate a weak relationship


Demand curves shifting could be caused by: (6)

1. Rise in household income
2. Rise in price of substitutes
3. Fall in price of complements
4. Changes in taste
5. An expected rise in price
6. Population increase


Shifts along a demand curve are called...

movements (expansions / contractions) and are caused solely by changes in price


Shifts in demand curves are called...

shifts in demand and are caused by variations in the conditions of demand