AS Business & Economics

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The Entrepreneur
An Entrepreneur is someone who starts up their own business and is very often successful in the field they choose to work in. For more information on what an entrepreneur is and the skills they will often need to be successful, access the video link below:

An entrepreneur can be any age, young or old and will often have a unique idea that relates to either selling a product or providing a service. Watch the short clip below and consider what you think what made this young man a success:

Some further examples of skills that entrepreneurs will need to be a success can be identified through watching the short clip below:

When starting up small businesses, or any business for that matter, there is a certain amount of risks involved. Many entrepreneurs will take calculated risks, which means that they will weigh up the advantages and disadvantages of an idea and choose accordingly. For further information on how many small businesses are started up, please access the video link below:
Introduction to Markets
Many businesses will operate in different markets. These markets have all number of different businesses and organisations working within them. A Market is any place or process that brings together buyers and sellers with a view to agreeing a price. This is a basis of how an economy
operates - through the prodcution of a product and subsequent exchange. Markets Can be analysed in a number of different ways. See the video clip below to help you identify some of the ways in which this can happen:


Firms will need to think about the size of the market in which they trade. If a business trades in a large market, this will mean lots of potential customers and large revenues, which ultimately can lead to huge profits. Working within a fairly small market will mean that potential profits could be limited. In order to assess where there is a market for the idea, a business will have to consider such things as the number of competitors and the potential for market growth. It is also crucial to consider and study the market share that existing businesses already have.
Market Share
The Market Share for a firm is the percentages of sales that it has within the overall market. If brand X has a 20% market share, this means that 1 in 5 products purchased within that market are brand X. Firms with the larger market share will have greater power over suppliers and distributors. They can demand preferential treatment and better rates.
The Market Share of a business is calculated by:

Sales of the product   X 100 = %
Total market sales

For more information on Market Share and how to calculate this, please access the video clip below:
Market Growth
Ideally, a firm will want to enter a market that is growing. Market Growth refers to an increase in the size of the market for a particular product. If the marking is shrinking, then market growth will be negative. Some examples of sales strategies which can encourage business growth can be seen in the video clip below:
Market Segments
A Market Segment is an identifiable group with similar needs and wants within a market. Firms will adjust their market according to these needs and the wants of the customer. Using magazines as an example, publishers will produce for different groups - some will be based on sports, hobbies and interests and lifestyles etc. This is a way of dividing up a market.  Some examples of how to define market segments include:

• Age
• Gender
• Income
• Socio-economic grouping
• Demographic
• Usage Rate
• Purchase Occasions

For further information on market segments, make use of the video clip below:
When a firm aims a product or service at the majority of the market, this is known as a mass market. Niche markets are classed as the opposite of this and this is where a firm will concentrate on a specific section of the market. ITV is an organisation that tries to appeal to the majority of the market and cater for the majority of tastes, hence why they produce goods on a large scale. This will often require substantial investment as well as large recruitment of staff. For more information on both mass and niche markets, please access the video link below:
All business will generally conduct some form of market research. This can be split into two distinct categories and these are Primary & Secondary. Primary research is research that is conducted 'first-hand' by the business, although they do sometimes pay specialist organisations to do this for them - this can be very expensive. Secondary research is taken from other sources and is not always specific to what a business is aiming to find out. For further information on Market Research, visit the video clip below:
 
Market research can also be viewed in two different formats - this is quantitative and qualitative research. Please view the clip below to identify the difference between these two forms of data:


Marketing Objectives, Tactics & Strategies
A marketing objective is a target set by the marketing function of a business. The business will consider  what it wants to achieve in terms of its marketing activities. THis will usually be created in conjunction with SMART targets.
Specific
Measurable
Achievable
Realistic
Timed
Marketing Objectives will usually come from the overall corporate objective.
Marketing Strategies identify HOW the marketing objective will be fulfilled. This will be:

• Influenced by the opportunities available in the market
• Will also be influenced by competitors
• Will be different depending on the industry

Marketing Tactics - the strategy is implemented through the use of marketing tactics and these include decisions that need to be made to make sure that the strategy is successful. The clip below outlines the importance of marketing objectives.

Unit Two
How businesses respond to their markets
Two key terms that you need to be aware of are Supply & demand. When a business wants to work out the price of a product, they need to consider supply and demand. Supply will involve working out a price from the businesses point of view, whilst demand refers to the price from a customers point of view. This interesting video clip below illustrates some points concerning supply and demand:

Businesses will put information on a Supply & demand curve - this will plot price against quantity supplied. This should normally slope upwards from left to right - remember, 'Supply to the sky'.
See the video clip below for further information on Supply & Demand:
If the price of a product is very low, the business will not want to make and sell many as they are not going to make much profit. It is an obvious point to make, but if a business can get a high price for its product, it will want to make more to get a high level of profit.
The diagram below shows what would happen if we plot supply onto a graph. This shows that as the price rises, the quantity a business produces will increase. It is important to remember, that with high prices, the business can make higher profits.

The Demand aspect of the graph will show how customers react to a change in price. Demand is the term given to the human wish to obtain goods and services. Another key term is effective demand, which means the addition of readiness and ability to pay. It is also important to remember that as the price of a product falls, the quantity demanded increases- this can be seen in the graph below. A customer will always spot a bargain! 

Determinants of demand will include each of the following:

Price

Number of buyers

Price of other goods

Income

Expectations about future

Tastes

Supply

Quality

Despite the above, the central element on demand theory is the relationship between price and the quantity demanded. When BOTH supply and demand are plotted on a graph together you will see the equilibrium point, which is where supply and demand meet (See the graph below). This is the main way in which prices for most products are set and it is important to remember that consumers will not pay high prices, whilst businesses will not supply products at really low prices. 

It is imperative that a business gets the price right. You must be aware that when supply and demand change, the lines on the graph move. In the exam, you will be asked to show the effect of certain events upon the market in relation to a good or service. You will need to specify and decide if these events will shift the demand curve, the supply curve or BOTH. You will need to show these changes on a Supply & Demand graph, emphasising the change to equilibrium price and quantity. The diagram below shows the market for foreign holidays following an increase in income tax:

Explanation

An increase in income tax will mean that people have less disposable income and so consumers may well cut back on luxuries such as these. Fewer foreign holidays are now demanded by consumers at each and every price. The demand curve will shift to the left creating a new equilibrium. Price falls from P1 to P2 and quantity falls from Q1 to Q2. 

Watch the short clip from Gremlins and consider what effect this would have on the Supply & demand for microwaves.

Price Elasticity of Demand
Elasticity refers to HOW changes in price may affect demand and therefore, sales. We need to establish whether demand will be affected and by how much. There is a way of establishing this through a simple calculation. It is essential that you remember the following:
Price Elastic: If the % change in demand is greater than the % change in price. 1 or above is elastic.
Price Inelastic: If the % change in price is less than the % change in demand. A decimal highlights that this is inelastic.
Percentage Change is calculated by: Difference   X 100
                                                            Original
The calculation for Price Elasticity is:

Ped = % change in demand
           % change in price
If a figure is a minus, you need to ignore this. 
For further information on elasticity of demand, please access the video link below:
For more help with the calculation of elasticity of demand, please access the two links below:
Elasticity Part One
Elasticity Part Two
Income Elasticity of Demand measures the relationship between a change in quantity demanded and a change in real income. One of the first things you will have to do in the exam is to complete the following calculation:
Yed = % change in demand
           % change in income
Once you have completed this calculation, you will need to identify whether or not this reflects a:
Normal Good - demand rises as income rises and vice versa (Identified if they are between 0 & 1)
Inferior Good - demand falls as income rises and vice versa (Identified by a decimal or a value greater than 1)
Luxury Good - demand rises more than proportionate to change in income (Identified if they are greater than 1)
During high Income Elasticity, the demand will be sensitive to changes in real income. In an economic expansion, demand will grow strongly but in a recession, the demand will fall. For information on a recession and how this is identified, visit the video clip below:

It can be difficult for businesses to accurately forecast demand and make capital investment decisions. During a period of low elasticity, a business will need to focus on the long run and consider products with a higher income elasticity of demand if they want to increase total profits. You will find that over time, inferior goods and normal necessities tend to decline, based on consumer spending. It is also important to point out that demand is more stable during fluctuations in the economic cycle.
Key terminology: If a business is making profits and doing well, this will be interpreted by other businesses. The 'Profit Signaling Mechanism' outlines that if a business is doing well, they attract the competition - this is know as the 'invisible hand'. There are a number of factors that can affect Ped. Watch this video clip and consider some of these examples:
The Price of a product relates specifically to the four P's of the Marketing Mix. For further information on the Marketing Mix, watch the video clip below which discusses this overall topic:

The Product Life Cycle is something which can affect the price of a product. This is literally the 'life span' of a product. Eventually, the sales of a product will begin to fall and a business may have to cut the price to maintain sales. Watch the short clip below and consider the importance of the product life cycle:

As a business grows, two areas that you will need to discuss are economies and diseconomies of scale. The video clip below explains both of these aspects:
In relation to economies of scale, you will also need to be aware of what is called 'minimum efficient scale'. This relates specifically to the smallest amount of production that a company can achieve whilst still taking advantage of economies of scale in terms of their costs and supplies. The minimum efficient scale is defined as the lowest production point at which average costs are minimised.
A business will often use a variety of different marketing strategies in an attempt to regain their market share. This short clip below identifies some possible example of successful marketing strategies that a business may use:

Some possible strategies that businesses may use to retain or regain market share are included in the video clip below:

For a recap of market share and how this is calculated, please access the video clip below:
Profits and their distribution
If a business is in a strong position and has made profit, then the distribution of these profits is going to be a tricky decision. Some element of these profits is going to be distributed to shareholders in the form of dividends, whilst other profits will be retained by the company. The decisions concerning the distribution of profits is normally made by the Board of Directors. In some growing companies, shareholders will sometimes be willing to accept low dividends to help the company further increase in size and develop. On the other hand, a large business and their decisions would be totally different. This would be highly unlikely as shareholders would expect income in the form of dividends.
Perfect & Imperfect Competition
Perfect competition will contain the following characteristics:
Many buyers and sellers who have a small market share, although this is not substantial enough to influence the price by individual actions
There will be identical products
All suppliers attempt to maximise their profit levels
Perfect knowledge of prices, technology and production methods
Freedom of entry and exit from a market
Normal profit is inevitable
Imperfect competition will contain the following characteristics:
This term refers to where 'some', but not all of the assumptions of 'perfect' competition are met
You can analyse the competitive forces within a market
Imperfect competition will take in monopolistic competition, oligopoly and duopoly
Within the economy, there will be a number of objectives for governments, these include:
Unemployment
Economic Growth
Inflation
Stable Exchange Rates
Watch the short clip below which explains what is meant by Economic Growth:
Economic Growth can be managed using two separate tools, these are:
Interest Rates
For information on Interest rates, please click the following link:
Interest Rates
Government Spending

Unemployment can have a major impact on the economy. For further information on Unemployment and a detailed explanation, access the video clip below:
Unemployment can have both positive and negative effects on the economy. For examples businesses have a greater choice when recruiting as more people are looking for work. It is also likely that they will be able to pay lower wages. Some of the negatives include the fact that people will have less disposable income and this will lead to a decrease in demand. This will result if a loss of profit if sales revenue cannot be replaced.
Inflation

Inflation can have a major impact on businesses. Watch the short video clip to identify ways in which businesses are affected.
The business effects on Inflation include the following:
Wage negotiation costs
Menu costs
'Shoe leather costs'
Reduced purchasing power - lower demand
Unemployment
Uncertainty - can affect investment decisions
International competitiveness may decrease
Exchange Rates
Exchange rates are an example of a factor which can affect the economy. Watch the short clip below to identify what is meant by these:
 
The diagram below shows the effects of Exchange rates on the economy: