Economies of Scale and Market Dynamics

Flashcards covering key vocabulary terms and definitions regarding economies of scale, market size, market share, and market growth from the lecture notes.

Economies of Scale

The falling unit (or average) costs experienced by a business as it increases in size or grows.

Internal Economies of Scale

The process where a growing business increases its output and total costs, but its unit costs (cost of making one product or providing one service) actually fall.

Reasons for internal economies of scale →

Purchasing Economies of Scale

Falling unit costs achieved when a growing business buys raw materials or inputs in larger quantities, granting greater bargaining power to gain bulk-buying discounts from suppliers.

Marketing Economies of Scale

Falling unit costs achieved by spreading promotion campaign costs and umbrella branding over a larger output, as well as obtaining potential advertising discounts.

Technical Economies of Scale

Falling unit costs achieved by investing in more efficient machinery, technology, and automation to increase labor productivity, reduce waste, and improve quality, spreading initial costs over a larger output.

Managerial Economies of Scale

Falling unit costs achieved when a large business employs specialist managers (e.g., HR, finance, marketing) who work more efficiently, spreading their salaries over a larger output.

Market Size

The total sales of all businesses in a market, representing potential sales volume or revenue available, which helps businesses decide between mass marketing and niche marketing strategies.

Market Value

A measure of market size calculated as $\text{selling price} \times \text{number of units sold}$.

Market Volume

A measure of market size defined as the total number of units sold.

Market Share

A business's sales expressed as a percentage of total market sales, calculated as $\frac{\text{sales of business}}{\text{total market sales}} \times 100$.

Market Growth

The rate at which market size changes over time, calculated as $\frac{\text{change}}{\text{original}} \times 100$.