Supply and Demand

What is the Supply Curve?

• The supply curve is a relationship between each possible price of the good and the quantity that would be supplied for market sale at that price.

Factors that can affect Supply

• Available resources
• Price
• Competition
• Demand
• Economic factors
• Inflation

What is Effective Demand?

Quantity of a good or service that consumers are actually buying at the current market price.


What is Margin of safety? and How is it Calculated?

• The amount by which a firm's current level of output exceeds the level of output necessary to break even.  
• Margin of safety can be calculated by number of sales - BEP

business costs

Start up costs - barriers of entry, legal permits, staff employment, manufacturing machinery, premises, etc.

Running costs are different to start up costs, as start up costs are a one off payment when opening a business, where as running costs are the recurring costs throughout a businesses lifetime, such as, electric bills, heating bills, staff wages, fuel costs.

Direct costs = direct materials e.g. engine parts,  direct labour e.g. wages paid to employees on the production line

Indirect costs = Indirect labour costs, e.g. management salaries and wages paid to security staff,  administration and distribution

Oppurtunity costs = values a product in what has been given up to obtain it.

total costs = fixed costs + variable costs

fixed costs will not vary when a business alters its levels of output e.g. rent

variable costs alter directly with the level of a firms output e.g. expenditure on fuel

semi variable costs have fixed and variable elements e.g. telephone costs

Competition

Perfect competition - these markets have many small firms producing virtually identical products at very similar prices.

Imperfect competition - is the opposite to perfect competition and is when one firm dominates the market and can influence the suppliers and pricing strategies, examples of this can include Monopoly.

Their are a number of benefits of a perfectly competitive market for the consumer, as with the high levels of competition a number of pricing strategies will be employed as well as special offers, this will in turn provide more value for money for the consumer.

Oligopoly - is a market structure with few firms in a market, all of whom consider rivals' reactions before introducing new policies.

Monopoly - is a theoretical market situation where a single producer supplies a particular market

Cartel - operates when a group of producers collude to set prices and (Sometimes) to share out markets. Cartels are illegal in most countries.

Market leader - The company or brand with the largest share in the market.

Barriers of entry are obstacles that make it difficult to enter a specific market, for example, this can include government regulation,  a monopolised market, start up costs, supplier loyalties

Barriers of exit are obstacles that a firm must over come to leave a market, for example, this can include high redundancy cost, closure costs, contracts with suppliers, high investment in non transferable fixed assets (such as machinery that is manufactured for one specific task)

Large businesses can greater influence there suppliers, as if the business is substantially larger than the other competition it can demand preferable treatment by receiving there deliveries first of being able to choose from a bigger selection as they are spending the most money.

What possible side affects are their of a business growing larger?

• risk, of potential spending money expanding the business, however sales do not increase
• sacrifice profits to gain more control of the market.
• they may cut prices to sell more, reducing profits
• expenditure on more equipment and facilities 

Limit price? a limit price is a price set by the monopolist to discourage entry in to a market, the limit price is often lower than the average price of production, or just low enough to make entering non profitable, limit pricing is illegal in most countries.

Contest ability? a perfectly contestable market has three main features

1. No barriers of entry of exit
2. No sunk costs
3. Access to the same level of technology

Brand proliferation?  is when a firm puts out new brand names under the same product lines, by doing this you can compete with more expensive or less expensive products in the market without damaging your brand name.

Highlight the advantages and disadvantages of a monopoly to stakeholders

advantages 

• Market leader sets the trend 
• if a chain of a monopoly opens in an area it can bring business to that area
• provide jobs
• high expenditure to the government in taxes

Disadvantages

• can become to big and discourage sales in local shops
• can pollute the environment
• can push other local firms out of the market

Monopsony power? this is a market where one buyer faces many sellers, it is an example of imperfect competition, the monoponist can dictate terms to its suppliers as it is the sole trader in the market.

Marketing Mix

1. Price - how much are customers charged for the product and what are the terms of payment?
2. Product - this term includes the features of the product, such as design, quality, reliability, features and functions.
3. Place - this is the way the product is distributed. Is the product sold direct to the customer or through retail outlets?
4. Promotion - is the way in which the firm communicates information about the product to the customer. For example, it may use advertisement or a sales force, promotion also includes the image customers have of the product.

Price war - is a term used to identify a state of intense competition, usually followed by a series of price reduction strategies. e.g. the supermarket price wars.

Competition through the use of loyalty schemes - loyalty schemes are designed to employ customer satisfaction and are in the main developed to keep a sustained customer base by offering rewards e.g. club card points from Tesco which offers reduced sales on certain products.

Tale-overs and Mergers - combine two previously separate firms into a single legal entity. These can create monopolies with the power to exploit customers.

Special offers - are when a firm offers a product at a price for a limited amount of time, in order to gain interest from the consumer and hopefully create an awareness of the product and get people to buy it more often when it goes back to its normal price.

Product extension strategies - a firm may try to prevent sales from decline by using these...

• increasing the use of the product
• encouraging the use of the product on more occasions
• reducing the price
• adapting the product
• introducing promotional offers
• changing the name of the product.

Profits

A profit occurs when the value of a firms sales is greater than the costs.  Profits are important to businesses as they can provide the opportunity for expansion and is vital for growth.  Profit can be used to reward owners and reinvest in to the firm.  

Profit = total revenue - total costs

Revenues are the earnings or income generated by a firm as a result of its trading activities

revenue = quantity sold x average selling price

Financial considerations a business might have...  Running costs, direct costs, indirect costs, opportunity costs, fixed costs, business costs, variable costs

distributing profits can prove difficult as it is important to keep the balance between short term and long term goals, distributing a high proportion of profits may keep shareholders happy in the short term, but might not be in the interests of those looking for a long term investment.

Stakeholders & Shareholders

A stakeholder is an individual or group which is affected by the actions of a business.


Internal stakeholders are people who are already committed to serving your company, such as...

• board members
• staff
• volunteers
• former staff

External stakeholders are people who are impacted by your organization, such as...

• clients
• local community
• leaders of non-profit organisations such as green peace

Employees can impact upon the business as their productivity will increase if they are motivated through the firm recognising the needs and wants of these stakeholders.

The local community can impact upon the business as without their support the business could fail due to lack of customers, and without their support the brand name could be damaged.

Suppliers can impact greatly on a business and it is important to keep good relations with this stakeholder as they provide the business with the materials needed to succeed.

A shareholder is an owner of an organisation.  There are different types of shares but an 'ordinary' shareholder has one vote per share and receives a dividend if it is paid each year.

Many companies pay more attention to their shareholders rather than their stakeholders as a shareholder has put money in to the business and can influence the policy of the business.

A dividend is a reward paid by the company to its shareholders.

Growing Markets

Why would a business want to enter a growing market?

A business would want to enter a growing market as their is less competition for consumers between firms, also their are more opportunities for growth and profit due to higher demands, and a greater chance for expansion.

Market segments:

an identifiable group with similar needs and wants within a market.  market segments have an impact on businesses as if firms can identify particular segments they can target these and adjust their market accordingly to tailor for their needs and increase customer loyalty and profits.

Mass & Niche Markets:

A mass market is a market that appeals to the majority, and has a large customer base, examples can include supermarket chains such as Tesco.  Apart from this Niche markets can be described as markets that target a specific audience and offer specialized services such as JCB work clothing which is specifically designed for builders.  Niche markets can be at a higher price but are generally good quality and offer specific equipment.

Primary and Secondary re-search:

Primary re-search (field re-search) involves gathering and analysing data which has been collected for the first time.

Advantages:

• up to date
• specific to the firms needs

Disadvantages:

• may be expensive to collect
• not available immediately as it takes time to collect

Secondary research (desk re-search) involves gathering and analysing data which has already been gathered.

Advantages:

• normally cheaper than primary research
• quicker to gather than primary research

Disadvantages

• may be out of date or in an inappropriate format
• available to other firms; may be very general

Why do firms conduct market research?

Market research can be used to help firms...

• when considering the launch of a new product, a firm may want to know the size of a market
• information on customers views on an advertisement before launching can help to make sure that the 'right' advertisements are used.
• to assess how a product is doing, a firm may want to measure its sales.

Qualitative and Quantitative research:

Quantitative research is based on relatively large samples and is statistically valid.  It is used to show what has happened in a market and is expressed in numerical terms e.g. sales have increased b 45% £12 million

Qualitative research is based on the opinions of a small focus group - it aims to understand why customers behave in certain ways or what they think of a product.  Rather than focusing on what happened it focuses on why it happened.

A sample:  is a small number of people or items which is meant to represent the target population

A confidence level:  is a measure of the reliability of the findings of primary research.