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AS Business Economics Part 1

Edexcel - Unit 2b Economics and Business
by

James Marchant

on 17 July 2013

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Transcript of AS Business Economics Part 1

Business Economics
Unit 2b
AS Level

How does Market Structure affect Business?
A market structure describes the characteristics of a market which can affect the behaviour of businesses and also affect the welfare of consumers.
Question:
In pairs, identify aspects which could affect the behaviour of a business
Main aspects of Market Structure
The
number of firms
in the market
What is meant by Market Structure?

Definition
The nature of production costs in the short and long run e.g. the ability of businesses to exploit
economies of scale
The extent of
product differentiation
i.e. to what extent do the businesses try to make their products different from those of competing firms?
The price and cross price elasticity of
demand for different products
The
number and the power of buyers
of the industry’s main products
The turnover of customers
- this is a measure of the number of consumers who switch suppliers each year and it is affected by the strength of brand loyalty and the effects of marketing
For example, have you changed your bank account or your mobile phone service provider in the last year? What might stop you doing this?
Objective 1:
Identify the meaning of Business Structure
Objectives:
Identify the meaning of Business Structure

Apply Market Structure to current business behaviour

Recommend ways in which they could have used Market Structure to help their business
Advancements in technology - e-commerce and online retailing:
Using alternative forms of making a product/service available to consumers will affect a businesses behaviour
Activity:
Examine a company
(provided to you below)
that has recently struggled and answer the following questions.
Company:

JJB Sports, Jessops, Morrisons, Comet

Questions:
Suggest the most influential aspects of the Market Structure
Analyse how these aspects have affected the business.
Evaluate their business situation (recommendations, alternative solutions, balanced argument)
Duration: 20 minutes
E-Commerce
B2B
(Business-to-Business)
B2C
(Business-to-Consumer)
C2B
(Consumer-to-Business)
C2C
(Consumer-to-Consumer)
Back in the 70s
via EDI (Electronic Data Interchange)
through VANs (Value-Added Networks).
Businesses selling to the general public
What is more commonly referred to as e-commerce
Online retail
Consumers selling goods back to business
Examples
A photographer or a designer offering stock images to companies by selling his artwork
Selling your old books to a second hand bookshop
Consumers selling to other consumers
Examples
Gumtree
eBay
Wighbay
Autotrader
Examples
Intel selling micro processors to Dell
Heinz selling ketchup to McDonalds
Definition:

Business conducted through the use of computers, telephones, fax machines, barcode readers, credit cards, automated teller machines (ATM) or other electronic appliances
Types of e-commerce
Objective 2:
Apply Market Structure aspects to current business behaviour

Objective 3:
Recommend ways in which they could have used Market Structure to help their business
Recap:
Presentations
Lesson 2
Peer to Peer workshop
Students who missed yesterday join groups from yesterday.
Your groups are responsible for helping you learn what you missed out on yesterday.

Cover following points
Market structure - definition, aspects which influence business behaviour
e-commerce - definition, types of e-commerce

10 minutes
Online retail = e-tailing
Definition:
Electronic commerce used specifically for retail purchases, including grocery and supermarket items.
e-tailing vs high street
Task
Identify the advantages and disadvantages of each form of shopping.
Huge range of sites to use and compare

Less stressful

Cheaper
Wrong fitting

Not with you immediately

Returns can take a longer

Delivery time can vary

No direct communication with company

Computer literate
e-tailing
Disadvantages
Advantages
Instant purchase/transaction

Can return items face to face

Familiarity of shops - recognition

Correct fitting, feel of product

knowledge of skill is not needed to purchase goods
Long queues

Lack of stock

limited places available

Opening hours - may not suit your free time

Limited time to compare
High street
How has e-commerce and e-tailing
changed competition between businesses.
Provide examples of how businesses have attempted to keep one step ahead of competitors
Question
Question
How serious have each of these businesses been affected by e-commerce and online retail
Relationship between e-commerce and
the Product Life Cycle.
How do you think e-commerce has affected
the life of products?
Shorter, longer, no difference
RAG sheet:

Be able to explain how businesses are being affected by e-commerce and online retailing

Be able to explain how the growth of e-commerce and online retailing has changed competition between businesses

Be able to explain how e-tailing has grown. This is where a business uses e-commerce to prolong the life cycle of a product
Lesson 1
Lesson 3
Complete starter
Objectives:
Identify the meaning of Long Tail and able to provide relevant examples
Identify the spectrum of competition
Analyse the different spectrum's
Task:
Shelving your CD stock
How does conventional distribution differ from
the likes of Rhapsody, iTunes and Android music market
Question:
The Long Tail
The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of "hits" toward a huge number of niches in the tail.
Do they share commonalities as to why Long Tailing has been successful for them?
eBay, Amazon, Yahoo, Google, Netflix, BT Vision
Lovefilm, iTunes, Play, ASOS etc
Waterstones, Topshop
Storing music - limited/unlimited
Labour costs - delivery
Release date -
James Arthur: Sold 187,000 copies
by midnight Monday. the CD wasn't
released until Wednesday
Objective:
Identify the meaning of Long Tail and able to provide relevant examples
Task
List your top three albums/singles or films/TV series or fashion/make up
Question
Identify 3 other successful firms who have benefited from Long Tailing
Popularity
Product
Recap
RAG sheet:

Be able to explain how businesses are being affected by e-commerce and online retailing

Be able to explain how the growth of e-commerce and online retailing has changed competition between businesses

Be able to explain how e-tailing has grown. This is where a business uses e-commerce to prolong the life cycle of a product

Be able to explain what the long tail is and the reasons why e-commerce and online retailing help this happen
Define Market Structure
Identify two aspects which affect business behaviour
Define e-commerce
Identify the four types of e-commerce
Which type of e-commerce would you associate eBay to?
Define e-tailing
Provide and advantage and disadvantage of e-tailing
What has caused e-tailing to grow
How has e-commerce and e-tailing changed competition
Define Long Tail
Give two reason why e-commerce and online retailing has helped the Long Tail theory to happen
Market Structure
Economies of scale
Demand for different products
Number of firms
Turnover of customer
Product differentiation
Technology
Task:
Leaflet:
Produce a leaflet which covers the spectrum of competition and answer the following questions for each.
Perfect competition
Monopolistic competition
Oligopoly
Imperfect competition
Duopoly
Pure monopoly
Define each structure
Provide relevant examples of each spectrum
Analyse the advantages and disadvantages for consumer/firms
Spectrum of competition
Questions
You have a fox, a chicken and a sack of grain. You must cross a river with only one of them at a time. If you leave the fox with the chicken he will eat it; if you leave the chicken with the grain he will eat it. How can you get all three across safely?
From the exercise you have just done…
If someone asked you to explain barriers to entry in plain English what could you say?
Some barriers occur inevitably:
Innocent entry barriers
Others are
deliberately created
by the firm to keep out competitors
Offer a Babysitting service?
Set up a school?
Open a new coffee shop in Newport?
Establish a new Hairdressing salon?
Start a gym company?
Open up a car wash on an industrial estate?
Barriers to Entry “marketplace”
Lesson 5
Complete starter
Objectives
Define barriers to entry and identify different examples in different industrial contexts
Discuss the significance of barriers to entry and exit to firms in different market structures
Evaluate why barriers to entry are a critical element of market structure
What might make it
difficult for anyone to…
Leaflets
Task
Definition
Anything that prevents a new firm entering a market
Task:
In pairs, match the Barrier - Descriptions - Examples together
10 minutes
7 barriers
7 descriptions
7 examples
These barriers to entry may be divided into two groups
Case study:
Using the two case studies
Examine which barriers to entry they may/have come up against.
Are the barriers more natural or deliberate, justify your answer
If you were already successful in the industry, how might you respond?
Could they do anything to reduce/elimate any barriers
10 minutes each
Individual task:
Choose two (initially) barriers and create information sheets/poster for each barrier:
Include the following:
A clear title identifying the barrier
A decent definition of the barrier
provide at least two examples of how the barrier has been used
Determine whether the barrier doubles up as an exit from the market (determined only once you have fully explained the barrier as an entry)
ICT 1 room
Define barriers to entry and identify different examples in different industrial contexts
Analyse how market structures can influence certain aspects
Evaluate whether the influences are a benefit to consumers and their market
Review Objectives
A: Capital cost, Limit pricing, Economies of scale, patents, advertising and marketing, vertical integration, experience economies.
A reduction in average costs brought about by an increase in the size of the business
Questions
Electronic commerce used specifically for retail purchases.
A: Where some but not all characteristics are

met
Questions
Disadvantages
Wrong fitting
Not with you immediately
Delivery/Returns can take longer
Need to be computer literate
1. Provide a definition of Market Structure
The characteristics of a market which can affect the behaviour of businesses and also the welfare of consmers
2. Identify two aspects which affect business behaviour
The amount of firms
Technological advancements
Product differentiation
The number and the power of buyers
Demand for different products
Economies of scale
3. Provide a definition of Economies of
scale
4. Provide a definition of e commerce and identify the four types.
Business conducted through various electronic devices. Cutting out paper transactions
5. If you were to sell a personal item to another person (buyer) using a platform
such as Amazon, which type of e commerce would you be using
?
Consumer to Consumer
6. Explain what is meant by e-tailing and provide an advantage and disadvantage of using e-tail
ing
Advantages:
Huge range of sites to use and compare
Less stressful
Che
a
per
7. Describe what is meant by the theory of long tail, use the graph below to provide an example.
A:The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of "hits" toward a huge number of niches in the tail.
8. Provide a definition of Perfect competition and identify two characteristics which form perfect competition.
A: Perfect - an idealised competitive model with rigid characteristics
Many buyers and sellers
Identical (homogeneous) products from suppliers
Price takers rather than price makers
Perfect knowledge known by all
Total freedom to enter and exit the market
Normal profits had by all
9. How does imperfect competition diffe
r?
10. Which market structure does this definition refer to?
‘a market structure with a few large firms which dominate the market. There may be some smaller firms competing as well’
‘a market structure with a few large firms which dominate the market. There may be some smaller firms competing as well’
11. Analyse how each of the following market structures Monopolistic and Duopoly would affect the behaviour of firms. Focus you attention on Profit levels, Pricing, Company efficiency, and consumer choice.
A: Monopolistic would give consumers more choice, therefore more product information and power to consumers.
Technological advancements in a monopolistic structure may occur more frequently than in a Duopoly.
Entry into a duopoly is extemely difficult and you would be influenced by market leaders when it comes to pricing your products.
12. Identity 2 barriers to entry and provide suitable description of e
ach
1. Provide a definition of Market Structure
2. Identify two aspects which affect business behaviour
3. Provide a definition of Economies of scale
4. Provide a definition of e commerce and identify the four types.
5. If you were to sell a personal item to another person (buyer) using a platform
such as Amazon, which type of e commerce would you be using
?
6. Explain what is meant by e-tailing and provide an advantage and disadvantage of using e-tailing
7. Describe what is meant by the theory of long tail, use the graph below to provide an example.
8. Provide a definition of Perfect competition and identify two characteristics which form perfect competition.
9. How does imperfect competition diffe
r?
10. Which market structure does this definition refer to?
11. Analyse how each of the following market structures Monopolistic and Duopoly would affect the behaviour of firms. Focus you attention on Profit levels, Pricing, Company efficiency, and consumer choice.
12. Identity 2 barriers to entry and provide suitable description of e
ach
Oligopoly
Individual task:
Choose two (initially) barriers and create information sheets/poster for each barrier:
Include the following:
A clear title identifying the barrier
A decent definition of the barrier
provide at least two examples of how the barrier has been used
Determine whether the barrier doubles up as an exit from the market (determined only once you have fully explained the barrier as an entry)
ICT 2 room
Just as we now understand the there are entry barriers, there are also exit barriers
Task:
What might make it difficult for you to to exit the following markets?
A cocktail bar
Ice cream van
Doctors surgery
Specialised skills
Barriers
There are three typical barrier to exit
Specialised equipment that cannot be readily used in other industries tends to be an issue
Investment in specific equipment
Having highly skilled employees may make it difficult to leave the market as their skills aren't very transferable
High fixed costs
High/long term fixed costs may cause an hindrance when exiting the market
Contractual obligations - Buyers, suppliers, landlords/premises
Questions:
How influential do you think entry/exit barriers are in deciding to enter a market or even continue in the same market?
Extension:
Old ideas about barriers to entry and exit have been a new twist with the development of e-commerce. Which barriers do you think have been most affected by the evolution e-commmerce?
Define Barriers to
entry and exit
Objective
Examine likely affect of different market structures on:
Profit levels
Pricing
Company efficiency
Consumer choice of product
Task:
Research two different market structures (monopolistic, oligopoly, Duopoly monopoly) and determine how they have influenced one of the below aspects.
Apple & Android
Results from your paired research will take place in 30 minutes
Class discussion
Amazon - e-books
Sainsburys
Use the case studies you were researching last week
.
Analyse how market structures can influence certain aspects

Evaluate whether the influences are a benefit to consumers and their market
Objectives
Full transcript