Notes, summaries, assignments, exams, and problems for Economy

Economies and Diseconomies of Scale

Economies of scale: Reduction in the average unit costs as the business increases in size. When a business increases the scale of operations, it becomes more efficient.

Diseconomies of scale: Increase in average unit costs as the business increases in size. This occurs when the business experiences inefficiencies as it becomes larger.

Internal Economies of Scale

Efficiencies the business makes itself:

• Technical: Bigger units of production reduce costs since the increase in variable costs are spread over a set of fixed costs.

• Managerial: Managers specialize in one job and not in many.

• Financial: Bigger businesses are less risky than smaller ones since big businesses are considered safe by financial institutions,

Pure Competition

is a theoretical market structure with three necessary conditions: Very large numbers of buyers and sellers, identical products and freedom of entry and exit.

Market Structure

is a classification that describes the nature and degree of competition among firms in the same industry.

Competition:

is a theoretical market structure with three necessary conditions.

Monopolistic Competition

a market structure that has all of the conditions of pure competition except for identical products.

Because a monopolistic competitor faces competition from a large number of firms in its industry, it must somehow convince consumers that its products are better than the products produced by other firms.

Natural Monopoly

A natural monopoly is one in which... Continue reading "Market Structures and Competition" »

Key Characteristics of a Perfectly Competitive Market

1. Very Large Number of Producers

In a perfectly competitive market, there are a very large number of producers, each of whom produces a very small proportion of the total market output.

2. Producers are Price Takers

As a single producer produces a small proportion of the total output supplied in the market, their production decisions cannot affect the market price of the product. They have to take the prevailing market price as given and fixed. Thus, an individual producer faces a perfectly elastic demand curve.

3. Products are Homogeneous

Products are exactly the same and, therefore, are perfect substitutes for each other. This implies that the cross-elasticity of demand is infinite between... Continue reading "Understanding Perfect Competition in Economics" »

Small Business Advantages:

• Greater focus: focus where they want; in places with greater profitability; in specific markets
• Greater cachet: greater sense of exclusiveness so they can charge more for their output, leading to higher profit margins
• Greater motivation: more prestige can motivate managers/employees
• Competitive advantage: giving a more personalized service and being more flexible
• Less competition: focusing on a niche gives limited competition
• Internal growth: slowly, steady and out of the existent operations of the business. They don't take many risks. Expands by selling more products or by increasing its product range. Usually self-financed
• External growth: quick and riskier methods. Expands by entering into an arrangement with another

Values and Attitudes

Values and attitudes vary between nations, and even vary within nations. So if you are planning to take a product or service overseas make sure that you have a good grasp the locality before you enter the market. This could mean altering promotional material or subtle branding messages. There may also be an issue when managing local employees.

Education

The level and nature of education in each international market will vary. This may impact the type of message or even the medium that you employ.

Social Organizations

This aspect of Terpstra and Sarathy’s Cultural Framework relates to how a national society is organized.

Technology and Material Culture

Technology is a term that includes many other elements. It includes questions... Continue reading "International Marketing: Key Factors to Consider" »

Consumer

person who buys things or uses

Retailer

company or persona who sells directly to the public, especially through shops

Wholesaler

person or company that sells goods in large quantities to shop keepers

Manufacturer

person or organization that makes goods

Distribution

person or company that supplies goods to shops or another business

Transaction

business done between people, often involving a buyer and seller

Goods

things that are produced to be sold

Services

doing something for customers but not producing goods

Value

how much something is worth in money

Supply

quantity of goods available

Turnover

the value of the goods or services sold during a certain period of time

Margin

difference between costs and selling price

Discount

reduction in the usual price of something

Deposit

small... Continue reading "Understanding the Consumer Goods Industry: Key Terms and Concepts" »

Elements Influencing the GDP:

Consumption:

Consumption is the value of goods and services bought by people.

An increase of consumption will cause GDP to increase. This means there is an increase in living standards as more people can consume higher levels of goods and services.

Increased GDP per Capita will improve government finances. This is because people will pay more income tax and more VAT; firms will pay more corporation tax. Also, the government will spend less on income support and unemployment benefits. Therefore, the budget deficit will decrease. Also, the government could decide to spend more on investing in the economy, e.g. spending on better roads. This will enable higher rates of growth in the long term.

An increase of consumption... Continue reading "Factors Influencing GDP Growth and Stability" »

Exercises in International Trade

1. Define the Following Terms:

• Forwarding Agent: A person, agency, or enterprise engaged in the collection, shipment, and delivery of goods. For example, a company that arranges the transportation of products from a manufacturer to a retailer.
• Green Channel: The route followed when passing through customs at an airport or other port of entry for passengers who claim to have no dutiable goods to declare.
• Customs: The official organization responsible for collecting taxes (duties) on goods entering a country and preventing the entry of illegal goods.
• Freight: Goods transported in bulk by truck, train, ship, or aircraft.
• Invoice: A document listing goods supplied or services rendered, stating the sum of money owed for

Advantages of Strategic Alliances

Technology Exchange

This is a major objective for many strategic alliances. Many breakthroughs and major technological innovations are based on interdisciplinary and/or inter-industrial advances. As a result, it is increasingly difficult for a single firm to possess the necessary resources or capabilities to conduct its own effective R&D efforts. This is further perpetuated by shorter product life cycles and the need for companies to stay competitive through innovation. Some industries that have become centers for extensive cooperative agreements are:

• Telecommunications
• Electronics
• Pharmaceuticals
• Information Technology
• Specialty Chemicals

Global Competition

There is a growing perception that global battles between... Continue reading "Strategic Alliances: Advantages, Risks, and Partner Selection" »

Fixed Costs

Expenses that do not change as a function of the activity of a business, within the relevant period.

Price-Elastic Demand Curve

When the price goes down a little, volume increases significantly. When the price goes up a little, volume decreases significantly. Many grocery items are price elastic.

Price-Inelastic Demand Curve

Volume does not change much, even with significant price changes. Products like critical raw materials, electricity, and heart pacemakers are price inelastic.

Tactical Pricing

Tactical pricing is the ongoing stream of pricing decisions the firm makes daily.

Pricing Toolkit

A set of pricing tactics for the firm to change a product's price.

Vision

A description of an ideal future state; an impressionistic picture of what... Continue reading "Key Business Concepts: Pricing, Control, and Performance" »