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Theme 3 Economics Notes Edexcel B FULL

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Module
Unit 3 - The global economy

Institution
PEARSON (PEARSON)

Gives you everything you need to know about Theme 3 of the Economics A-level Pearson Edexcel B. Much better than using the textbook if you just want to understand exactly what's on the course. Very little waffle, gets straight to the point and very informative. Easy to use and remember from, simpl...

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Uploaded on September 9, 2023
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Written in 2023/2024
Type Lecture notes
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Contains Theme 3

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Microeconomics
Theme 3: Business Behaviour and the Labour Market

, Business Growth
Why do Firms Grow?
- Maximise shareholder returns: This is to increase sales and brand recognition.
- Larger market share, more price setting power.
- Synergies: Firms coming together to produce cheaper goods. Pooling manufacturing and
knowledge.
- Satisfy managerial ambitions: High revenue/growth at expense of profit.
- Stability: Access to a new market so if one thing crashes the firm is still stable.
How to Firms Grow?
- Internal (organic) growth: When a firm grows by increasing output e.g., increased
investment or labour force.
- External growth: When a firm grows by joining with other firms by a merger or takeover.
o Horizontal merger: Two firms merging in the same point in the supply chain.
o Vertical merger: Two firms merging at different points in the supply chain.
o Conglomerate merger: Merging into a different market entirely.

Why do Some Firms Remain Small? (Constraints to Growth)
- Not so much demand from certain markets  Niche markets.
- Profitability over growth, looking after shareholders.
- Barriers to entry: Government regulations preventing mergers or acquisitions.
- Low MES so no need to grow.
- Lack of motivation: Some traders may not want to give up leisure time to expand business.
Reasons for Demergers
- Lack of synergies: No benefit for both firms, could even be diseconomies of scale as senior
management have to divide time between two different firms.
- Price: The price of demerged firms (on stock exchange) may be greater than if they were
merged.
- Focussed companies: Recently, it’s been more fashionable to create firms focussing on one
or only a few markets as this means management can deliver higher profits and growth by
concentrating on limited markets.
Impacts of Demergers
- Businesses: Firms will benefit from demergers if the increased specialisation leads to
greater efficiency.
- Workers: Some senior managers will be promoted as more senior jobs open. Some workers
may lose jobs though as a firm doesn’t need so many workers anymore.
- Consumers: They will gain if the demerger leads to more efficiency but lose if the demerged
firms focus on increasing profits by raising prices.

, Revenue
Revenue – Receipts of money from the sale of goods and services over a period of time. Revenues can
be total revenue, average revenue, or marginal revenue.
Total Revenue, Average Revenue and Marginal Revenue
Total revenue – The total amount of money received from the sale of a quantity of output.
- Total Revenue = Quantity Sold x Average Price.
Marginal revenue – The addition to total revenue of an extra unit sold.
- Marginal Revenue = Change in Revenue / Change in Quantity.
Average revenue – The average receipts sold = Demand curve.
- Average Revenue = Price.
Revenue at Perfect Competition
At perfect competition (PED = ∞) price does not change with output:
- AR and MR are constant, while TR increases constantly as MR doesn’t change.

Price
TR

AR=MR=D

Quantity

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