AS Economics: Small businesses & reducing risk

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  • Created on: 20-03-13 23:04
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Big businesses have two major factors in their favour: economies of scale and the ability to negotiate toughly with suppliers.
Small can be beautiful for two main reasons:
They are able to respond flexibly to changes in the market e.g. interest rates.
Small firms can find niches that are too small to be attractive to large producers.
Though some small businesses will grow, entrepreneurs sometimes choose to stay small as it allows them to be closely involved in all aspects of the
business, including dealing with customers, suppliers and employees. These people are called SATISFICERS: people who are not aiming to maximise
income, growth or any other individual objective; they target a `good enough' performance and lifestyle.
Risk minimisation measures
DIVERSIFICATION/RANGE OF REVENUE STREAMS: this can ensure that a company continues to be profitable even if one area of the
business faces losses.
EXTENSIVE MARKET RESEARCH: Allows the business to stay a step ahead, and therefore able to alter production/ selling approaches as
demand conditions change.
COLLABORATION WITH COMPETITORS: threats and weaknesses spotted by one firm may be shared, thus preventing losses.
RESARCH AND DEVELOPMEMENT: development of new ideas ensures that future threats to the business may pose less risk, as there is a
future variety of revenue streams.
CONTINGENCY PLANNING: if the business fails then the company has already considered possible alternatives which can be implemented
Frictional Unemployment Unemployment due to movement between jobs in a dynamic economy. Normally
regarded as relatively short term and less problematic than other types.
Structural Unemployment Caused by structural change in the economy such as the decline of an industry or
technological change. Can be long term.
Regional Unemployment Occurs in a particular geographic area, after resulting from structural unemployment in
localised industries.

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Seasonal Unemployment This reflects the uneven pattern of activity throughout the year in some industries
e.g. tourism.
Cyclical or demand deficiency Unemployment occurs because of falls in aggregate demand during the
downturn of the trade cycle and subsequent recession.
MOBILITY (the ease with which people can move from job to job)
Occupational mobility of labour: the ease of which members of the labour force can move from one type of work to another. Can be improved by
effective retraining.…read more


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