AP ADMS 1000 Final EXAM Review PDF

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AP ADMS 1000 FINAL EXAM REVIEW|2018 Session 7 – Economic Forces

3. Government

What is an Economic Environment?

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Creates laws

Economic conditions in which an organization operates:

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Promotes tax credits

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Ensures Qualified Labour



Recession/Growth



Consumer Confidence

Same MnmvmmmmmmmmmmmmPay Taxes (Government

Analyzing the Economy

to spend)

Microeconomics:

Opportunity Cost:

The study of smaller components of the economy, such as

The cost of the best forgone alternative

individuals and business (Supply and Demand)

Ex: One enters university, the cost is regular income, but it could be saved and invested to further provide more income.

Macroeconomics: The study of larger economic issues involving the economy as

2. Business:

a whole (Inflation, GDP, Price Levels, etc,)

In order to make a profit, managers have to balance the right combination of inputs that allow:

Types of Economic System

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Efficiency

1.

Market Economy:

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Productivity

Free market system in which individuals can decide to

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Overall Firm Growth

employees or owners of their own business. The right to make a profit is incentive for individuals to take the risks

Five factors of Production 1.

involve in establishing a business. Advantages

Natural Resources – land and raw materials

-

Ex: For Shell corporation, oil is a raw material that needs to be refined before it is sold for inventory.

2.

Competitive edge and increased productivity

Disadvantages

-

Labour - Workers

Exploitation of workers due to long hours and less pay.

Ex: includes all the workers that contributes their strengths to create goods and services.

3.

Capital – Buildings Machinery, Tools and Equipment

2.

Communism:

Ex: CIBC uses computers to operate its financial services.

The economic system where the government owns or

Money cannot be capital since it does not produce or create

controls essentially all of country’s economic and resources.

anything in its own to earn.

(Cuba and North Korea)

4.

Knowledge – knowledge workers with specialized education, skills and experience.

Ex: Programmers need specialized education to handle workflow of an enterprise.

5.

Advantages

-

No monopolization

Entrepreneur – Individuals who startup businesses

Ex: Tim Hortons was the original founder, but an individual can own and operate an enterprise.

Disadvantages

AP ADMS 1000 FINAL EXAM REVIEW|2018 -

-

Estimate supply and demand which is often

Obstacles that prevent another company from entering (high

inaccurate and cause supply shortage or supplies.

capital costs, customer brand loyalties, regulations,

Government has too much power which might

intellectual properties, and high switching costs.

discourage business. A. Perfect or (Pure Competition) 3.

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Small to medium size of firms

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No differentiation (unique value added to product)

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Market determines the price (not firm price setter)

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No Barriers to Entry

Socialism:

Government has large ownership in or control over major industries essential to the country’s economy. (Coal mines, transportation, steel mills and health care) (Sweden)

-

Advantages

-

Ex: Agriculture industry (potatoes and corns)

Higher standard of living B. Monopoly

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More economic stability

Disadvantages

4.

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Taxes and Unemployment are higher

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Levels of innovation lower

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Small to large size of firms

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No competitors in market.

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Price setter (determine the selling price of its product and services)

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No achievable entry -

Mixed Economy:

Ex: Canada Post, Sirius XM

C.

Monopolistic

Most industries are the work of private enterprise, the

-

Large size of firms

Canadian government may be considered partly socialist in its

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Minor differentiation (include branding, style or

control of certain industries such as Canada Post and some

design, and advertising. Coffee, shampoo, furniture,

public lands.

and fast-food burger restaurants are a few examples)

Advantages

-

Many competition

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Low barriers to entry

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Tax-funded facilities

-

-

An ideal combination for freedom and restriction

Joe Fresh, Canadian Tire, Shoppers Drug Mart

Ex: Burger King, Tim Hortons, Starbucks,

Disadvantages

D. Oligopoly

-

Relies toward government control and slow down

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Large Size of Firms

economic growth in long run

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Firm Price Setter (fierce competition)

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Few competitors dominate the industry

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High barriers to entry (Capital Costs)

Types of Competition Barriers to Entry:

Bell -

Ex: Apple, Samsung, Wind Mobile, Rogers,

AP ADMS 1000 FINAL EXAM REVIEW|2018 Goals of the Economic System:

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Managers usually reduce costs, lay off workers and

1.

Economic Growth

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The business cycle

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Productivity

consecutive quarter periods of negative or failing

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Balance of Trade

economic activity.

-

Exchange Rates

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National Debt

halt any invest in the company -

-

Recession is realized when there are two more

Depression an extreme recession that is characterized by longer economic periods of declining economic activity, high unemployment.

2.

Economic Stability

-

Inflation

4.

Recovery Phase

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Deflation

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Begins after trough

-

Interest Rates

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Economic activity slowly begins to rise and the demand for goods and services increases.

3.

Employment

-

Employment rates and measures

Measuring Economic Growth 

Business Cycle

Gross Domestic Product (GDP): Value of all final goods and services produced within a

-

The rise and fall of economy over time.

country’s border.

-

Although the economy will grow over the long term,

Ex: Value of all cars produced by the US Ford Motor

economic growth is usually unstable.

Company in Oakville included.

-

-

Business cycles or economic fluctuations vary in



Gross National Product (GNP):

length and severity.

Value of all final goods and serviced produced by a

Some period of fluctuation are difficult are long;

national economy inside and outside of the country’s

others are short and mild.

borders. Ex: Canadian GNP measures income received in Canada

Four Stages of Business Cycle:

whether earned in Canada or abroad.

1.

Expansionary Phase

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Goods are being produced and sold

-

The workforce is expanding and demand increasing

GDP adjusted to reflect the inflation. In other words, real

-

The price of goods are rising

GDP takes out the effect of rising prices

2.

Peak Phase

-

Marks the end of the expansionary phase and the

Not adjusted for inflation and measured in current

beginning of the contraction phase. (Highest point)

dollars.





Real GDP

Nominal GDP

3.

Contraction Phase

-

Characterized by declining economic activity and

GDP per person in a country. Calculated by dividing the

falling profits

total GDP by the total population of the country.



GDP per Capita

AP ADMS 1000 FINAL EXAM REVIEW|2018 Productivity: 

national debt. Canada has the lowest debt-to-GDP ratio

Measures the level of output vs the level of input in an

estimated at 30%

organization 

Improved Productivity is more outputs produced with

Economic Stability:

the same number of inputs

1.

Input – materials, labour and overhead

2.

Output – finished unit of a product (or service

-

Amount of money available

-

The goods and service produced grow at approximately the same rate

-

ready to be sold).

Balance of Trade:

Factors that threaten are inflation, deflation and unemployment.



Inflation

Value of all the goods and services a country exports minus

-

the rise in price level of goods and services

the value of all the goods and services a country imports.

-

Reduces the purchasing power for individuals and business.



Trade Surplus – occurs when a country exports more

-

goods than it imports (Growth). 

services exceed the supply

Trade Deficit – exists when a country imports more goods

-

than it exports

Cost-push results in increase in production cost such as price for materials and labour expenses.

Exchange Rate: 

Demand-pull occurs when demand for goods and

-

Affects senior citizens the most

-

Calculated by current year’s price level – last year price level/ last year price level * 100

Value of a foreign currency compared to a home currency.

Debt:



Borrowed money usually with interest that must be repaid

Deflation: the price level of goods is falling. (industrial productivity can increase, and cost savings can be passed on to customers in the form of lower prices).

1.

National Debt:

-

Debt accumulated by federal government

-

Impact businesses because it has an effect on the entire country’s economy. Interest Rate

2.

Budget Deficit

-

The negative difference between incoming tax

-

A fee charged by lender to a borrower for the use of funds 

Affect cost of borrowing (interest expense on

revenues and outgoing government expenditures.

mortgages, bank loans, capital investments, and

Cash outflows are greater than cash inflows at a

so on)

given period.



Affect customer’s ability to buy goods and services. When customers have a higher

Canada is a leader among G7 nations which is a group of

interests costs on mortgages, student loans,

developed countries with large countries in managing

bank loans and credit card debt, they will have

AP ADMS 1000 FINAL EXAM REVIEW|2018 less money available to spend on goods and

Ex: Construction company may hire contract workers for

services.

summer and not in winter.

Employment A third goal of Canada’s economic system

Practice Questions: 1.

What type of competition do you think “cell phones” compete in?

Unemployment

2.

Occurs when qualified individuals actively looking for work are unable to secure unemployment.

What types of unemployment do you think present the most challenges for the economy and why?

3.

What type of economy system is being used in Canada?

Types of Unemployment: 1.

Frictional Unemployment

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Normal labour market turnover, not a downturn in the economy.

-

4.

Explain the stages of business cycle?

5.

Discuss the three goals of Canada’s economy system.

6.

be making a stable, growing profit?

Full employment occurs where quantity of labour demand equals the quantity of labour supplied

7.

8.

If you can’t enter a market, which competition type is in market in?

Cyclical Unemployment Pace of the economy, when the economy slows

Which of the employment type has strong correlation to the economy?

Ex: Employed workers laid off, new college graduates

2.

During which business cycle stage would a company

9.

If you wanted to launch a successful product at what stage of business cycle would you do it?

down or is in a recession, cyclical unemployment is high. Ex: Construction company may hire contract workers for

Session 8 – Competitive and Tech. Forces

summer and not in winter.

Introduction Phase -

Many small competitors

3.

Structural Unemployment

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Lots of R&D

-

Jobs do not correspond to the skills of the labour

-

High Degree of Innovation

force.

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Customers are willing to pay a premium

Unemployed individuals do not live in a region where

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Uncertainty about the market

jobs are available.

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High fragmentation

Where there has been a tech change and old jobs

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Entrepreneurial

have been discontinued and new jobs created

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Lack of legitimacy

-

-

Ex: Typewriters become obsolete in 1980’s and replaced

Ex: New Biotechnology and green technology; BESTECH

by PC. Repair technician for typewriters lost their jobs.

Growth Phase

4.

-

Dominant design

Seasonal Unemployment

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Shakeout (firms exiting) more competition

Unemployment caused by the seasonal nature of

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Products appeal to wider market

job.

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Lower Prices

AP ADMS 1000 FINAL EXAM REVIEW|2018 -

Growing Sales

-

New Entrants

-

Economies of Scale increase production in larger volume to lower costs.



Key objectives are creating demand and capturing market share

Moderate

Ex: Apple, Samsung, Microsoft, Groupon, Dealfind, Google



Price-conscious and repeat buyers

Maturity Phase



Intense and increased competition

-

Slow growth



Production and manufacturing are critical

-

Market saturated and competition intensifies



Prices is the only distinguishable factor

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Profitability



Incremental Innovation and Mechanistic

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Price-conscious consumers



Cost Leadership

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Incremental Improvements



Key objectives are cost efficiency and extend life cycle

-

Lots of advertising

-

Price Wars

Negative

Ex: Loblaw, Metro, Walmart, Costco, Ford, Chrysler, TD



Late adopters, knowledgeable users

Decline Phase



Price Wars, Mergers and Acquisition, Asset Liquidation

Declining sales due to one or more of the following:



General Management and Finance are critical

-

Changes in demographics



Little Innovation and Mechanistic

-

Shifting consumer tastes



Cost Leadership/Focus

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Technological Substitution



Key objectives are cost reduction, niche market and

Ex: Tobacco industry: Reynolds

Market Growth

consolidation

Main Drivers of Industry Evolution

Slow

1.

Demand Growth

2.

Creation and diffusion of technology and



Early tech adopters and low rivalry



Research and development are critical



Wide variety of design and rapid innovation



Organic; Differentiate their product

Alternative to Manage the Decline Phase



Key objectives are increase awareness and leading the

1.

dominant design which results in achieving legitimacy.

knowledge

Maintain a Leadership Stance -

Invest in marketing, support, product and development.

Very Rapid

-

Hoping that competitors will eventually exit the



Niche markets of customers



Increasing Rivalry and shakeout



Sales and Marketing are critical

firms that remain the industry leaders during this



Standardized Products

phase



Product and Process Innovation; Organic

Ex: Continue to invest in the market as long as they can



Differentiate their product

sustain: Baby Food Industry

market -

Opportunities to generate above-average return for

AP ADMS 1000 FINAL EXAM REVIEW|2018 2.

Pursue a Niche Strategy

Create a whole new industry

-

Ex: Flip-phones Smartphones

Find a specific segment of the industry that many not decline as rapidly as the rest.

-

Where the firm can expect to possess some form of

Incremental Innovations
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