Micro Economic Factors Flashcards
(41 cards)
The micro environment refers to…
the immediate operational environment including:
- Suppliers
- Customers
- Stakeholders and
- 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’:
- Inputs (Materials, money, men, machines, minutes
- Organisation (Functions, structure, management, systems and procedures, staff, culture, competencies and skill, strategy, mission, objectives and goals)
- Outputs (Added value, goods, services, knowledge, information, stakeholder satisfaction, social consequences)
- Consumption
Mullins identifies at least 4 factors required by all organisations to function:
- People; human interactions
- Objectives
- Structure
- 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:
- 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…
- Consumers prefer more goods to less
- Providing the price is right, a consumer is willing to substitute 1 good for another
- 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)
- Price
- Household’s income
- Price of substitutes
- Tastes / fashion
- Expectations of price changes
- 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
