Flashcards · H431 · Topic 2

External influences facing businesses flashcards

33 cards on Topic 2, subtopics 2.1 to 2.6. Pick a subtopic or study them all.

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2.1 The market, market size and growth

Market, market size and market growth: Market: a setting, physical or online, where buyers and sellers trade. Market size: total sales of all firms in a period, by value or volume. Market growth = (new size − old size) ÷ old size × 100.
A firm sells 30,000 units in a market that grows from 250,000 to 275,000. Share and growth?: Market growth 10%. Share falls from 12% to 10.9%: the firm's sales did not grow while the market did.
Why does market size matter?: It shows the ceiling on potential sales, guides investment and the chance of scale economies, shows attractiveness to entrants and gives context for the firm's share. A big, static market suggests saturation: gains must come from rivals.
Monopoly, oligopoly and monopolistic competition: Monopoly: one dominant seller, high barriers, no close substitute. Oligopoly: few large firms, branded similar products, interdependent. Monopolistic competition: many small sellers, low barriers, differentiated products.
Why might an oligopolist avoid cutting price?: Interdependence: rivals may copy the cut, leaving everyone with lower revenue and no gain in share.

2.2 Demand and supply

Demand and supply: Demand: the amount consumers are ready and able to buy at every price in a period. Supply: the amount producers are ready and able to sell at every price in a period.
Determinants of demand and of supply: Demand: income, prices of substitutes and complements, tastes, advertising, population, expectations, seasons. Supply: costs of production, technology, number of firms, taxes and subsidies, weather, expectations.
Effects of shifts on price and quantity: Demand right: price up, quantity up. Demand left: both down. Supply right: price down, quantity up. Supply left: price up, quantity down. An own-price change is a movement along the curve.
QD = 600 − 20P and QS = 40P − 120. Equilibrium, and the position at £16?: 600 − 20P = 40P − 120 → P = £12, Q = 360. At £16, QD = 280 and QS = 520: an excess supply of 240.
Excess supply vs excess demand (shortage): Excess supply: price above equilibrium; unsold stock, price cuts, falling margins. Shortage: price below equilibrium; lost sales, price rises, new entrants attracted.

2.3 Market forces, physical and non-physical markets, competition and market dominance

Physical vs non-physical markets: Physical: buyers and sellers meet in a place; touch, advice and instant sale, but footfall risk. Non-physical: dealing by website, app or phone; wide reach and lower overheads, but easy price comparison and data risk.
Online vs digital: Online means trading over the internet. Digital is wider: it also covers digital products and app-based trading.
Barriers to entry vs barriers to exit: Entry barriers keep new firms out: start-up costs, incumbents' scale economies, brands, control of supply or distribution, patents and licences. Exit barriers keep firms in: redundancy costs, long leases, specialised assets, reputation damage.
Market dominance; is size the same as dominance?: Dominance: one firm (or very few) with a very large share and real power over price, output and rivals. No: power comes from few substitutes and high barriers, not size alone.
Two firms with 31% and 8% merge; the next rival has 25%. Dominant?: Combined share 39%, 1.56 times the next rival. Not proven: it depends on barriers to entry, product similarity, ease of switching and whether a regulator challenges the deal.
What can a competition regulator do about a merger?: Investigate it, block it, or allow it with conditions; it can also investigate anti-competitive behaviour.

2.4 Global context, international trade, the EU and emerging markets

Facilitators of globalisation: Multinationals; transport infrastructure; trade liberalisation; e-commerce; the Internet and communication technologies.
Barriers to trade: tariff, quota, embargo: Tariff: a tax on imports (revenue, dearer imports). Quota: a limit on quantity (protects local producers). Embargo: a ban on trade, for political or security aims. Also subsidies and administrative rules.
Exchange rates: converting at £1 = USD 1.25: Home to foreign: multiply (£480 × 1.25 = USD 600). Foreign to home: divide (USD 3,000 ÷ 1.25 = £2,400).
Pound appreciates vs depreciates: Appreciates: imports cheaper in pounds, exports dearer abroad. Depreciates: imports dearer, exports cheaper abroad.
Single European Market vs single currency: Single market: goods, services, capital and people move largely freely among members. Single currency (euro): no exchange risk or conversion cost between Eurozone members, with one shared interest rate.
Emerging markets: features and impact on business: Fast growth, rising incomes, a growing middle class, still-developing institutions and infrastructure. Opportunity: new customers and cheaper production. Threat: new rivals, price pressure and risk.

2.5 Political, economic, social and technological factors

Direct vs indirect tax: Direct: paid straight to government by the person or firm it falls on (income tax, corporation tax). Indirect: collected by sellers and paid by consumers through prices (VAT, excise duties).
Monetary, fiscal and supply-side policy: Monetary: interest rates and the cost and availability of money. Fiscal: government taxation and spending. Supply-side: measures that raise the economy's productive capacity.
Business cycle phases, and who is most affected: Boom, downturn or recession, slump, recovery. Most affected: luxuries, durables, construction, highly indebted firms and those with high fixed costs. Least affected: necessities and budget goods.
Effect of higher UK interest rates: Borrowing costs rise and spending on credit falls. Higher rates also tend to lift the pound, making imports cheaper and exports dearer.
Political stability vs uncertainty: Stability supports planning, investment, steady demand and cheaper borrowing. Uncertainty delays investment and hiring; instability can disrupt supply, payments and export orders.
Social factors affecting business: Age structure, population movement, lifestyle, attitudes and fashion. They shift demand and the labour supply.

2.6 The digital revolution, ethical, legal and environmental factors

Digital revolution: opportunities and threats: Opportunities: wider markets, lower costs, personalised marketing, real-time data. Threats: low-cost online rivals, cyber-crime, data misuse, constant investment needed. Digitisable products (music, books, banking) are most affected.
Law vs ethics: Law is compulsory, enforced by the state, with penalties. Ethics is chosen, based on moral judgement, and the penalty is reputational. Legal does not mean ethical.
Consequences of failing to comply with the law: Fines, compensation, court action, lost contracts, damaged reputation and, at worst, closure.
Sustainability, and sustainable actions: Using resources so present needs are met and later generations can meet theirs. Actions: renewable energy, less waste, recycling, responsible sourcing, durable design, measured targets.
Ethical sourcing raises unit cost from £26 to £27.20 at a £40 price. Effect on margin?: Margin falls from 14 ÷ 40 = 35% to 12.80 ÷ 40 = 32%. Judge whether brand trust and repeat custom repay the three percentage points.