ApEcon

• When analysing markets, a range of assumptions are made about the rationality of economic agents involved in the transactions
• The Wealth of Nations was written


  1776
• Rational


  (in classical economic theory) economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
• Consumers act rationally by


  Maximising their utility
• Producers act rationally by


  Selling goods/services in a way that maximises their profits
• Workers act rationally by


  Balancing welfare at work with consideration of both pay and benefits
• Governments act rationally by


  Placing the interests of the people they serve first in order to maximise their welfare
• Groups assumed to act rationally


  • Consumers
  • Producers
  • Workers
  • Governments
• Rationality in classical economic theory is a flawed assumption as people usually don't act rationally
• A firm increases advertising

  Demand curve shifts right
• Demand curve shifting right


  Increases the equilibrium price and quantity
• Marginal utility


  The additional utility (satisfaction) gained from the consumption of an additional product
• If you add up marginal utility for each unit you get total utility
• SWOT analysis


  A strategic planning technique to assess the internal and external factors as well as current and future potential
• SWOT


  Strengths, Weaknesses, Opportunities, and Threats
• Strengths


  • What an organization excels at and what separates it from the competition
• Weaknesses


  • Factors that stop an organization from performing at its optimum level
• Opportunities


  • Favorable external factors that could give an organization a competitive advantage
• Threats


  • Factors that have the potential to harm an organization
• SWOT analysis assesses internal and external factors, as well as current and future potential
• SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization or an industry
• Companies should use SWOT analysis as a guide and not necessarily as a prescription
• Internal factors in SWOT analysis


  • Financial resources
  • Physical resources
  • Human resources
  • Access to natural resources, trademarks, patents, and copyrights
  • Current processes
• Strengths describe what an organization excels at and what separates it from the competition
• Weaknesses stop an organization from performing at its optimum level
• External factors in SWOT analysis

  • Economic trends
  • Market trends
  • National and local laws and regulations
  • Relationship with suppliers
  • Competitive threats
• Opportunities refer to favorable external factors that could give an organization a competitive advantage
• Threats refer to factors that have the potential to harm an organization
• Porter's Five Forces Analysis


  A framework or a guide for assessing and evaluating the competitive strength and position of a business organization

  
• Michael E. Porter


  Developed the Porter's Five Forces Analysis
• Porter's Five Forces


  • Competitive Rivalry
  • Bargaining Power of Suppliers
  • Bargaining Power of Buyers
  • Threat of New Entrants
  • Threat of Substitute Products or Services

  
• Competitive Rivalry


  Examines how intense the competition currently is in the market, which is determined by the number of existing competitors and what each is capable of doing

  
• Bargaining Power of Suppliers

  Analyzes how much power a business' suppliers have and how much control it has over the potential to raise its prices, which, in turn, would lower a business's profitability
• Bargaining Power of Buyers


  Looks at the power of the consumer to affect pricing and quality
• Threat of New Entrants

  Examines how easy or difficult it is for the competition to join the marketplace in the industry being examined
• Threat of Substitute Products or Services


  Studies how easy it is for consumers to switch from a business's product or service to that of a competitor
• Manufacturing business


  Any business that uses components, parts, or raw materials to make a finished good
• Large-scale manufacturing allows for the mass production of goods using assembly line processes and advanced technologies as core assets
• Economies of Scale


  The cost advantage experienced by a firm when it increases its level of output
• Economies of scale can be implemented by a firm at any stage of the production process