Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
A) Factors influencing expansion into a market: o levels and growth of…
Full specification wording
Assessing the potential of different economies: a) Factors influencing expansion into a market: o levels and growth of disposable income o ease of doing business o infrastructure o political stability o exchange rate
When a business expands into a new international market to sell its products, it evaluates several key factors.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 1 of 2
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
When a business expands into a new international market to sell its products, it evaluates several key factors. High levels and rapid growth of disposable income indicate strong potential consumer demand. The ease of doing business, such as straightforward regulations for starting a company, reduces setup barriers. High-quality infrastructure, including reliable transport and communication networks, ensures efficient distribution. Political stability minimises the risk of sudden policy changes or conflict disrupting operations. Finally, a favourable exchange rate can make imported goods cheaper for local consumers or increase the repatriated profits for the expanding firm, depending on its pricing strategy.
What earns the marks
- Identify how rising disposable income in a target market shifts the demand curve for normal goods to the right.
- Explain how a high ranking in the ease of doing business index lowers the administrative costs of market entry.
- Assess how poor infrastructure increases transport costs and delivery times, reducing competitiveness.
- Evaluate the impact of political instability on the risk premium required by investors before committing capital.
- Calculate or interpret how a depreciation of the target market's currency reduces the purchasing power of local consumers buying imported goods.
Common mistakes and how to put them right
Assuming a strong domestic exchange rate always benefits expansion.
Put it right: A strong domestic currency makes exports to the new market more expensive, potentially reducing demand.
Confusing total GDP with disposable income.
Put it right: Disposable income accounts for taxes and benefits, providing a more accurate measure of consumer spending power.
Treating political stability and ease of doing business as identical.
Put it right: Political stability refers to the likelihood of government overthrow or conflict, whereas ease of doing business relates to regulatory efficiency.
Exam tips
- When evaluating market expansion, link the growth of disposable income specifically to the income elasticity of demand for the firm's product.
- Use the exchange rate to determine the price competitiveness of exports versus the cost of setting up local operations.
- Contrast infrastructure quality with the ease of doing business to provide a nuanced assessment of non-financial barriers to entry.
Try the lesson
The start of the Assessing the potential of different economies: a) Factors influencing expansion into a market: o levels and growth of disposable income o ease of doing business o infrastructure o political stability o exchange rate lesson, made from checked teaching notes for this specification point.
Have a go first
Which of the following is a key factor that directly influences a business's decision to expand into a new international market to sell its products?
Listen
When a business expands into a new international market to sell its products, it evaluates several key factors. High levels and rapid growth of disposable income indicate strong potential consumer demand. The ease of doing business, such as straightforward regulations for starting a company, reduces setup barriers. High-quality infrastructure, including reliable transport and communication networks, ensures efficient distribution. Political stability minimises the risk of sudden policy changes or conflict disrupting operations. Finally, a favourable exchange rate can make imported goods cheaper for local consumers or increase the repatriated profits for the expanding firm, depending on its pricing strategy. A strong answer earns marks for these points. Identify how rising disposable income in a target market shifts the demand curve for normal goods to the right. Explain how a high ranking in the ease of doing business index lowers the administrative costs of market entry. Assess how poor infrastructure increases transport costs and delivery times, reducing competitiveness. Evaluate the impact of political instability on the risk premium required by investors before committing capital. A common slip: Assuming a strong domestic exchange rate always benefits expansion. Instead, a strong domestic currency makes exports to the new market more expensive, potentially reducing demand. Exam tip: When evaluating market expansion, link the growth of disposable income specifically to the income elasticity of demand for the firm's product.
See it
Key words
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Consumer demand
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Ease of doing business
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Infrastructure
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Political stability
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See every definition
- Consumer demand
- High levels and rapid growth of disposable income indicate strong potential consumer demand in a new international market.
- Ease of doing business
- Straightforward regulations for starting a company reduce setup barriers when a business expands into a new market.
- Infrastructure
- High-quality infrastructure, including reliable transport and communication networks, ensures efficient distribution.
- Political stability
- This minimises the risk of sudden policy changes or conflict disrupting operations.
Label the diagram
Some boxes have lost their names. Pick the right name for each number.
1Box 1
2Box 2
3Box 3
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