Business Activity
A business lowers its selling price. What might happen to demand?
Lower price → demand increases.
Workers receive a pay rise. Give one motivation chain.
Higher pay → greater motivation → higher productivity.
A business lowers its price below competitors. Give the sales chain.
Lower price → more customers attracted → sales increase.
Productivity increases. What happens to unit costs?
More output per worker → lower unit cost.
Revenue rises while costs stay the same.
Revenue increases → profit increases.
A business grows and buys materials in larger quantities. Give the chain.
Bulk purchasing → lower cost per unit → higher profit margin.
Staff receive better training. Give the quality chain.
Better skills → fewer mistakes → higher product quality.
Successful advertising. Give the chain.
Greater awareness → more potential customers → sales increase.
A business introduces automation. Give a cost chain.
Less labour required → labour costs decrease → unit costs fall.
Cost of sales increases but price stays unchanged.
Gross profit falls → profit margin decreases.
A business becomes very large. Give one possible diseconomy of scale chain.
More employees → communication becomes harder → decisions/errors may increase.
Labour turnover increases. What could happen to costs?
More employees leave → more recruitment/training → costs increase.
A business identifies a specific market segment. Build the chain.
More targeted marketing → better meets customer needs → sales increase.
Poor-quality products are produced. Give the consequence chain.
More defects → more complaints/returns → costs increase.
Customers take longer to pay the business.
Cash inflows are delayed → cash balance falls → liquidity problems.
A competitor is taken over. Give one benefit chain.
Fewer competitors → greater market share → potentially higher sales.
A manager delegates more responsibility. Give one positive chain.
More responsibility → employees feel trusted → motivation increases.
A new product uses penetration pricing. Give the intended chain.
Low launch price → customers try the product → market share increases.
A business holds too much inventory. Give one negative chain.
More inventory → more money tied up → cash-flow problems.
A business takes a large bank loan. Give the negative chain.
Interest payments increase → expenses increase → profit decreases.
The benefit given up when choosing one option instead of the next best alternative.
Opportunity cost
Giving a subordinate authority to complete a task while the manager remains ultimately responsible.
Delegation
Dividing a market into groups of customers with similar characteristics or needs.
Market segmentation
The percentage of a firm's maximum possible output that it is actually producing.
Capacity utilisation
The ability of a business to pay its short-term debts.
Liquidity