Topic 3

• What are push factors in a market context?

  Factors that push firms out of a domestic market.
• How did the 2008 financial crisis affect businesses?


  It made it harder for firms to survive in a market due to poor trading conditions.
• What does a saturated market imply?

  A market where it is not possible to expand sales volumes any further.
• What can excessive competition lead to for a firm?

  It can push a firm out of a market.
• How might a firm try to differentiate its product?

  By improving the design of the product or through innovation.
• What are the potential consequences of trying to increase market share?

  Firms could face high marketing costs.
• What advantage do firms gain by expanding into a new market?

  They can take advantage of lower production costs and access a new market of customers.
• What are pull factors in a market context?

  Factors that can pull firms into a new market.
• Why do firms find potential for business growth in emerging markets?

  Because these markets are relatively unsaturated, allowing for increased sales and profits.
• How can economies of scale benefit firms?

  They can result in lower average costs of production.
• What is risk spreading in the context of market expansion?

  It is when a firm diversifies into another market to mitigate risks associated with losing sales in one market.
• What is offshoring?


  The process of having some of a firm’s processes or services abroad.
• Why might a firm choose to offshore its production?

  To enter a new market and use resources not available in the domestic market.
• What is outsourcing?


  The process of getting goods or services from an outside supplier.
• How can firms extend the product life cycle by selling in multiple markets?

  By exporting goods and services to new markets, which can increase profitability and sales.
• What happens to a product in the declining stage of the domestic market when sold in an overseas market?

  The product life cycle can start again as it may be new for that market.
• How can a firm raise capacity utilization?


  By using spare capacity to increase production volume.
• What is the effect of increased production volume on average costs?

  Average costs of production fall, making the firm more competitive.
• What is one factor influencing expansion into a market?

  Ease of doing business
• How does government policy influence the ease of doing business?

  It can make doing business difficult and restricted through excessive red tape
• What is the relationship between ease of doing business and production costs?

  The easier it is to do business, the lower the production costs and the more likely firms will expand

  
• What happens to UK exports when the pound depreciates?

  UK exports become more price competitive
• What options do firms have when the pound depreciates?

  They can reduce the price of goods to increase sales or keep the price the same to increase profit margins
• How does the price elasticity of UK goods affect sales in the export market after a depreciation of the pound?

  If UK goods are relatively price inelastic, sales will not increase significantly despite depreciation

  
• What factors influence the likelihood of purchasing UK exports in the export market?

  The level of consumer and firm confidence and the amount of disposable income available
• What happens to production costs for firms that are net importers of raw materials when the pound is weaker?

  Production costs will increase because imports become more expensive
• How do fixed contracts for importing materials affect firms when the exchange rate changes?

  Changes in the exchange rate will not affect the quantity purchased or the price paid
• What might firms believe they can do if the pound depreciates?

  They might think they can increase profit margins by keeping prices the same without increasing efficiency
• What is a key factor influencing the location of production sites?

  Costs of production
• Why are lower costs of production attractive for firms?

  They make production more profitable, especially for manufactured goods
• How has the increase in average incomes in China affected production locations?

  Production has moved out of China as it has become more expensive
• Why might Mexico be considered an attractive location for production despite slightly higher labor costs?

  Lower transport costs to America make production cheaper
• What influences costs of production besides labor costs?

  The skills and availability of the labor force
• How do government incentives affect production locations?

  They can encourage firms to produce in a country by providing subsidies
• Why are countries with easy access to natural resources more attractive for production?

  They keep production costs low
• What is a likely return on investment for firms when choosing a production site?

  Firms prefer sites where their return on investment is high and predictable
• What are the main factors influencing expansion into a market?

  • Ease of doing business
  • Exchange rate
• What are the main factors influencing the location of production sites?

  • Costs of production
  • Government incentives
  • Natural resources
  • Likely return on investment
• How has the global labour market changed since economies have become more industrialised?

  The global labour market has grown significantly.
• What has been a noticeable trend in population movement related to the global labour market?

  People have moved from rural to urban areas.