BUSS 4

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Macroeconomics

Macroeconomics - the study of the whole economy
Microeconomics - the study of the individual parts of the economy
Gross domestic product - the total value of a country's output over the course of a year
Gross national product - the total value of a country's output over the course of a year plus net income from abroad
Consumer durables - goods that are owned by households, but which are not instantly consumed by them, e.g. cars
Stock - raw materials, components, work-in-progress, finished goods
Capital goods - items that are purchased by firms because they help them to produce goods

The circular flow of income illustrates the interrelationship between the main parts of the macroeconomy: producers, consumers, the government and other countries.

Firms recieve revenue/customer spending in exchange for the goods and services that they provide - revenue is used to pay incomes to workers and to other factors of production

The income of households is spent on goods and services that are produced by UK firms or withdrawn from the circular flow. Income withdrawn from the circular flow is used to buy imported goods from abroad, is saved, or is paid as tax to the government

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Social auditing

The process by which a business attempts to assess the impact of the entire range of its activities on satekholders and society in general

Purpose:

  • Part of the move towards more scrutiny of business practices and increased availibility of information for stakeholders
  • Much broader than enviornmental audits

Implementation of social auditing:

  • Identifying social objectives and ethical values
  • Defining stakeholders
  • Establishing social performance indicators
  • Measuring performance, keeping records and preparing social accounts
  • Submitting accounts to independent audit and publishing the result

Non-financial measures of efficiency:

  • The workplace, the marketplace, the environment and the community
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Concentration ratios

The level of competition in a market is indicated by how many firms are operating in it, the more firms, the more competitive the market

A 5-firm concentration ratio identifies the total market share of the five largest firms in an industry, while a 4-firm concentration ratio gives the market share of the largest four firms in an industry.

Market structures can be classified by their concentration ratios, e.g:

  • A perfectly competitive market will give a very low concentration ratio
  • A monopolistically competitive market will usually have a 4-firm concentration ratio of less than 40%
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Concentration ratios

The level of competition in a market is indicated by how many firms are operating in it, the more firms, the more competitive the market

A 5-firm concentration ratio identifies the total market share of the five largest firms in an industry, while a 4-firm concentration ratio gives the market share of the largest four firms in an industry.

Market structures can be classified by their concentration ratios, e.g:

  • A perfectly competitive market will give a very low concentration ratio
  • A monopolistically competitive market will usually have a 4-firm concentration ratio of less than 40%
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Fair vs unfair competition

Fair competition - where firms compete on equal terms in a way that offers consumers the best choice of products and prices

Unfair competition - where firms do not compete fairly, but act in a way that restricts consumer choice in the short or long run

The more competitive the market, the less opportunity there is for profit as firms try to cut costs and prices in order to attract customers

Examples of unfair competition include:

  • Monopolies charging high prices because of a lack of competition
  • Oligopolies agreeing to restrict supply or fix high prices
  • Producers only supplying to retailers that promise not to stock rival products or that agree to stock the whole range of a supplier's products
  • Predatory pricing by large firms
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Assessing the internal and external influences on

SWOT analysis: a technique that allows an organisation to assess its overall position, or the posision of one of its divisions, products or activities. It uses an internal audit (Assessment of the strengths and weaknesses of a firm in relation to its competitiors) to assess its strengths and weaknesses, and an external audit (assessment of the opportunities and threats facing a firm in the general business environment) to assess its opportunities and threats

Advantages:

  • Highlights current and potential changes in the market and encourages an outward-looking approach
  • Encourages firms to develop and build upon existing strengths
  • Relates the present position and future potential of a business to the market which it operates
  • Determines the organisation's position

Disadvantages:

  • Time consuming
  • External factors may change rapidly
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Influences on corporate decision making

  • Ethical positions (moral values held by an individual/group)
  • Resources (resources available to a business)
  • The relative power of the stakeholders
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Factors that promote and resist change

  • A lack of clear objectives
  • Appropriate and sufficient resources
  • Appropriate trained staff with relevant expertise
  • Resistance to change
  • Planning
  • The impact on people employed in the business
  • The effectiveness of teams
  • The nature of the organisational structure
  • External factors
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