CEA Market & Industry Analysis 5 — Questions and Answers
Question 1: Which type of market analysis examines macroeconomic, technological, social, environmental, legal, and political factors affecting an industry?
- Five Forces Analysis
- PESTLE Analysis (Correct answer)
- VRIO Framework
- Competitive Benchmarking
Correct answer: PESTLE Analysis
PESTLE (Political, Economic, Social, Technological, Legal, Environmental) analysis identifies external macro-environmental factors that shape industry conditions.
Question 2: A market experiencing excess capacity and declining prices is most likely in which phase of the industry life cycle?
- Introduction
- Growth
- Maturity
- Decline (Correct answer)
Correct answer: Decline
The decline phase is characterized by falling demand, excess capacity, price wars as firms fight for shrinking market share, and eventual industry exit.
Question 3: The term 'price leadership' in an oligopoly refers to a situation where:
- One firm sets prices and rivals follow (Correct answer)
- All firms collude explicitly on prices
- The government sets a price floor for the industry
- New entrants undercut incumbents on price
Correct answer: One firm sets prices and rivals follow
Price leadership occurs when a dominant firm sets its price and rival firms follow suit, achieving tacit coordination without explicit agreement.
Question 4: Which measure captures the total economic value created by all producers and consumers in a market?
- Producer surplus only
- Consumer surplus only
- Total surplus (consumer plus producer surplus) (Correct answer)
- Deadweight loss
Correct answer: Total surplus (consumer plus producer surplus)
Total surplus is the sum of consumer surplus and producer surplus, representing the aggregate net benefit derived from all market transactions.
Question 5: When an industry's supply curve is perfectly inelastic in the short run, a demand shock primarily affects:
- Quantity supplied
- Input costs
- Market price (Correct answer)
- Long-run equilibrium output
Correct answer: Market price
With perfectly inelastic supply, quantity cannot adjust in the short run, so any shift in demand manifests entirely as a price change.
Question 6: A firm's 'core competency' as defined in strategic market analysis refers to:
- Its largest revenue-generating product line
- A unique bundle of skills and technologies that provide competitive advantage (Correct answer)
- The primary geographic market it serves
- Its highest-margin customer segment
Correct answer: A unique bundle of skills and technologies that provide competitive advantage
Core competencies, as defined by Prahalad and Hamel, are distinctive capabilities that are difficult to replicate and enable a firm to access multiple markets.
Question 7: In conducting a market sizing analysis, the 'bottom-up' approach estimates total market size by:
- Applying an industry growth rate to last year's market value
- Aggregating individual customer or segment-level demand estimates (Correct answer)
- Using GDP multipliers derived from macroeconomic data
- Dividing total industry revenue by the number of firms
Correct answer: Aggregating individual customer or segment-level demand estimates
The bottom-up approach builds a market size estimate by summing disaggregated unit demand or spending across customer segments rather than starting from aggregate statistics.
CEA Market & Industry Analysis 5
Which type of market analysis examines macroeconomic, technological, social, environmental, legal, and political factors affecting an industry?