Business Handout 2

• what is meant by demand and supply and equillibrium

  supply - amount of goods and services sellers are able to provide at a given price

  demand - amount of goods and services customers are willing to purchase at a given price

  equillibrium - when quantity demanded is equal to quantity supplied
• what are some factors that affect demand

  price

  income

  interest rates

  change in price of substitutes

  changes in tastes and fashions

  changes in legislation
• what are some factors that affect supply

  price

  costs of production

  VAT

  subsidies

  weather

  improvements in technology
• what is meant by price elasticity of demand and formula

  measures the responsiveness/sensitivity of demand to a change in price.

  percentage change in qunatity demanded / percentage change in price
• interpret PED

  price inelastic - PED between 0 and -1 ( a change in price will lead to a less than proportional change, demand isnt sensitive, majority of people will continue to buy at increased price, few subsitutes perhaps addictive e.g. basic foods, ciggaretes.

  price elastic - PED is less than -1 (lead to a more than proportional change) very sensitive, switch to cheaper alternatives e.g. cereals

  PED is always negative.
• what is meant by income elasticity of demand (YED) and formula

  measures the responsiveness/sensitivity of demand to a change in income

  percentage change in quantity demanded

  percentage change in income
• what are the 3 types of YED products

  normal goods - YED is between 0 and 1 (Income inelastic) less than proportional change, everyday items e.g. furniture, washing machine

  luxury goods - YED is greater than +1 (Income elastic) more sensitive to changes in poeples income, e.g. gym memberships

  inferior goods - YED is less than 0 (income elastic negative) demand rises when income falls e.g. supermarket own label products
• what is meant by competition 


  where two or more sellers of similiar goods or services act independently to persuade buyers to choose their products
• what are the four different levels of competition

  Monopoly

  Oligopoly

  Monopolistic competition

  Perfect competition
• what are the features of perfect competition

  large number of businesses competing and no business is larger than another, no business is large enough to influence the activities of others.

  infinite number of individual buyers

  products can be easily substituted, no branding, no product differentiation no way in telling products apart

  no market leaders and no price leaders, each business must accept the price on marketplace (price takers)

  sellers and consumers have perfect knowledge on competitors

  no barriers to entry or exit, business free to leave market anytime
• what is meant by monopoly and what are the charecteristics

  where there is only one dominant business or a single producer within a market e.g. London underground, Google, monopoly exists when one business has over 25% market share

  price maker - control over what price they set, no close substitutes

  barriers to entry - difficult for new competition to enter

  unfair competition - may apply predatory pricing when a new competitior enters the market
• what is meant by oligopoly and what are the charecteristics

  this is where there are many firms within a market but it is dominated by a few large competitors each of which have control over the market, e.g. in grocery market Asda, Tesco, Aldi dominate.

  differentiated products - strong brand loyalty, heavy advertising

  stable pricing - prices tend to stay stable as you are more aware of what your competitiors are doing, a lot of non price competition e.g. loyalty schemes, promotional deals, clubcards

  barriers to entry
• what is monopolistic competition and what are the charecteristics

  where a large number of small businesses in competition with each other, offer similiar products but not exact substitutes

  business have some control over price

  low barriers to entry

  similair products with few differences
• what are some reasons for protecting consumers against exploitation

  profit motive - not overcharging customers for unsatisfactory products especially in monopoly structure as consumers have little power

  unsafe or defective products as business want to reduce costs

  unfair advertising / misleading information - false claims about products to increase sales

  pressured sales through convincing consumers to buy

  online buying can be misleading

  globalisation - protection from overseas

  description of goods

  scientific testing before new products being released
• what are some areas of legislation that affect business

  data protection - use of information stored on computers cant be given to other parties without consumer consent e.g. address, bank details

  consumer protection - business acts fairly

  trade description act - misleading or false info cant be given

  environmetnal protection
• what is the role of the ombudsman

  they offer complaint procedures for dissatisfied customers, set up by government and free for consumers, after consumers have tried to solve dispute with business than ombudsman services take full legal action, make a final decision and can only be over turned by court
• what are the trading standards departmemnt

  power to do random spot checks, checking that local businesses are complying with various trading laws, check if products are correctly described, sold in correct quantites, ensure no counterfiet goods are being sold, can prosecute businesses and pay fines and in extreme cases may lead to imprisonment
• what is the competition markets authority CMA

  investigate takeovers, mergers can bring criminal proceedings against individuals who commit cartel offences, can be investigated when not doing fair competition