external influences

AS ccea applied business external infulences

  • Created by: Leah
  • Created on: 15-05-11 14:10

Markets and Sectors

5 Types of Market

  • Commodity- Raw materials such as wood, copper and iron
  • Consumer- finished goods which can be purchaced by the customer eg:bread, coffee or stamps
  • Capital- goods which can be used in production such as machinery
  • Industrial- used in industry such as sand and gravel
  • Specialist- eg the stock and fortex markets that exchanged forgien currency or shares and bonds

4 Types of Industy sector

  • Primary- raw material
  • Secondary- manufaturing and construction of raw materials into finished goods
  • Terrtiary- service sector such as banking and tansport services
  • Quaternary- research&development or information management such as communication, education andconsulting
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  • What are the 5 types of market?
  • What does each of the 5 markets trade?
  • What are the 4 types of market sector?
  • What does each industry entail?
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Demand and supply

What is demand?

The theory of demand is how consumers behave when they are faced with a change in the price of a good.

"The quantity of a good or service that a consumer is willing and able to buy at a given price at a giiven time"

What is supply?

The theory of supply deals with how produces behave when they are faced with change in the price of a good.

"the quantity of a good or service that producers are willing and able to suply onto a marlet at a given price at a given time"

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Conditions of demand and supply

Conditions of demand

  • Income
  • Price of other related goods(compements /substitutes)
  • Tastes and fashions
  • Advertising
  • Government policy
  • Population
  • Change in expectations and future events

Conditions of supply

  • Price of production
  • Productivity
  • Indirect taxes and subsidies
  • Technology advances
  • Natural factors
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The Competitive Enviornment

4 Type of market structure

  • Perfectly competitive - Abnormal profits in short run, Large number of small firms producting idential goods & No barriers to entry.
  • Competitive - Large number of small firms producing simillar goods, Abnormal profits in short run & No barriers to entry
  • Oligopoly - Several large firms producing similar goods, Some barriers to entry & Abnormal profits can be made in the long run.
  • Monopoly - One large firm produces all the output in the industry, Barriers to entry exist, They are considered to be price makers & Abnormal profits can be made in the long run.
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What are the benifits of having competition?

  • Price - consumers may benifit from the price of goods and services as firms and industry who face competition from firms producing similar products will have less scope to influence price and as a result will charge lower prices.
  • Quailty - firms which face competition will be forced to produce high quality goods and servies for the fear of loosing customers to their rivals and to try and maintiain customer loyalty.
  • Choice - markets with significant compeition the consumer may be able to choose from a range of differentiated products as firms are trying to win over the customer by differing their products and services from that of thier rivals.
  • Efficency - firms which face competition wil be forced to become more efficent if they wish to remain competitive with rivals and reduce costs.
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Anti Competitive Practices

Name 4 Anti competitive practices ?

  • Destroyer pricing-  setting low prces so rivals make a loss and are forced to leave the market
  • Dominant display- dominant displays in prominent at the expense of a rival
  • Price fixing- Pre agreeing a price or price range in order to limit competition
  • Resale price maintinence- retailer and manufacturer pre agree the selling price so that profits are secured for both supplier and retailer.

What is a Stake holder ?

a stake holder is any person or group of people having an interest in  the sucess of a business.

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Dealing with competition

Internal stakeholders

  • Shareholders
  • Managers
  • Employees

External stakeholders

  • Customers
  • Suppliers
  • Local community
  • Government
  • Pressure groups and Enviornment
  • Competitors
  • Creditors
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Benifits of mergers and aqusitions

.Benifits of mergers and aqusitions

  • Economies of scale
  • Diversification
  • Market power
  • Gain specialist knowledge

Drawbacks of mergers and aqusitions

  • Disecomonies of scale
  • incompatible cultures
  • lack of expertise
  • investigations by competition authorities


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Economies of scale & Diseconomies of scale

Economies of scale

Advantages of increased size which lead to falling average costs. In result firms can afford to reduce prices and this may increase demand and expense of competitors.

4 Sources of economies of scale

  • Technical economies- allows increased capacity machinery and more productivity
  • Marketing economies- able to buy materials in bulk and get discounts from suppliers.
  • Financial economies- loans at lower interest interest rates as the firm is more creditworthy
  • Managerial economies- able to employ specialist mangers and employees and increase productivity.
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Dealing with competition

Diseconomies of scale

When a firm  becomes too large it may find average costs may actually rise due to growing too large too quickly

Problems such as lack of :

  • Coordination
  • Control
  • Co-operation
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Competiting on product

Competiting on product

  • Improving quality
  • Adding value
  • Product differentiation (branding and advertising)

Why would goventment intervine in a market ?

  • Ensuring fair trade
  • Controlling competition
  • Protecting the enviornment
  • Protecting stakeholders
  • Achieving macro economic objectives
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International trade

Why would the post office trade internationally?

  • Gain access to larger markets
  • Gain economies of scale
  • Diversification
  • Saturated home market
  • Pressure from shareholders

Benifits of international trade

  • increased growth
  • increased competition
  • import of new technology
  • increased employment
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Merger and aqusition types

Cheese processing plant-------- > Vertical Forwards---------> Shop selling cheese

Cheese processing plant-------- > Vertical Backwards--------> Dairy farm

Cheese processing plant------ > Horizontal------> Another Cheese processing plant

Cheese processing plant----- >Conglomerate ----> Anything not related to cheese


What is the difference between mergers and aqusitions?

an aqusition is when one firm takes over or buys another and a merger is when two firms agree to join together anf form one larger company

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Competition Policy

Who enforces compeition policy in the UK?

  • The office of fair trade- investigates company behvaiour and refers cases to the competition commission
  • The competition commission- investigates mergers and monopolys as an independent public body and aims to increase level of competition in the economy
  • Industry watchdogs - Post comm is an industry watch dog which regulates the postal services int he UK. it issues licence, sets limits on what that can charge consumers and regulates the firms in the market.
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Barriers to Market entry

3 Barriers to Market entry

  • Government restrictions- licences and patents may be required this may amke it difficult to enter a market.
  • Advertising- some industries spend huge amounts on advertising in attempt to deter possible enterants as new or smaller firms cant compete.
  • Sunk costs- It can be difficult to leave market if things go wrong, sunk costs are uncoverable costs that are invested incase anything goes wrong. Firms can be reluctant to enter markets that require sunk costs.
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Competing on price

Competing on price

  • Destroyer pricing- setting low prces so rivals make a loss and are forced to leave the market
  • Competitive pricing- setting price just above or below rivals which makes goods appear competitive but is not detrimental, can result in price wars.
  • Penetration pricing- new products being introducted a firm set initally low prices to sttract customers.
  • Psychological pricing- 99p , £39 or £29.99 making the price appear cheaper
  • Skimming- when launching a new product setiing the price initally high to attract customers called early adopters.
  • Cost plus pricing -  calculating the average cost of producing the good and percentage of profit to calculate the selling price( idsadvantage is it does not take into account demand ) used by small or new firms.
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Why would the govenment resitrict international tr

Why would the govenment resitrict international trade?

  • Protect domestic jobs
  • Protect infant industry 
  • Protect declining industry
  • Gain revenue
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