1.5 Understanding External Imfluences On Business

Question 1

What affects the economic climate

Answer 1

-interest rate change
-inflation
-taxation
-levels of unemployment
-consumer income
-exchange rates

Question 2

What is the economy

Answer 2

-activities in a country concerned with the making,distribution and use of goods and services

Question 3

What is the economic climate

Answer 3

The general level of wealth,consumption and activity within a particular area or region

Question 4

What is unemployment and how does it affect a business

Answer 4

-availability to work, but not having a job or losing the job that you have

-if unemployment is high consumers will buy less and sales will decrease for a business

Question 5

What is the benefit of high employment

Answer 5

-incomes will be higher so spending on goods and services will increase
-workers will be more motivated as they will have job security

Question 6

What happened if consumer incomes are low

Answer 6

-Lower priced shops, budget shops and supermarkets become more popular
-fewer products and devices bought

Question 7

What happens if there is high levels of consumer income

Answer 7

-consumers are more likely to buy luxury
-more products and services are bought

Question 8

What is demand

Answer 8

A request for something to be sold or supplied

Question 9

What happens to a business if consumers are spending down

Answer 9

-business are making less and staff lose jobs as a result

Question 10

What is the economic cycle

Answer 10

A cycle that the economy faces

Upturn(up),slowdown(straight),recession(down)

Question 11

What is the impact of increase in interest rates on savers

Answer 11

-will receive more interest on savings
-encourages them to spend less so they can save more

Question 12

What is the impact of a decrease in interest rates on savers

Answer 12

-will receive less interest rates on savings
-discourages them from saving so they may spend money instead

Question 13

What is the impact of an increase in interest rates on borrowers

Answer 13

-will have to pay back more money that is borrowed
-will discourage them from borrowing

Question 14

What is the impact of a decrease in interest rates on borrowers

Answer 14

-will have to pay back less for money that is borrowed
-encourage them to borrow more money to spend

Question 15

What is inflation

Answer 15

Inflation is the general increase in prices and the fall of the purchasing power of money

Question 16

What is the effects of inflation on consumers

Answer 16

-High inflation rates mean that unless income increases at the same time people are worse off.
-this leads to low levels of consumer spending and a fall in sales for businesses

Question 17

What is the effect of inflation on costs

Answer 17

-wage and raw material costs rise
-sone workers may lose their jobs so higher wages can be afforded
-pay disputes with workers may result

Question 18

What is the effect of inflation on demand

Answer 18

-higher prices for customers may reduce demand
-consumers find cheaper alternatives from goods imported deducting the demand for British goods

Question 19

How to calculate interest

Answer 19

Total repayment -borrowed amount

Question 20

How do we calculate rate of interest

Answer 20

)Total interest/borrowed amount)x100

Question 21

What is the direct effect of high interest rates on a business

Answer 21

-business loans will be more expensive,reducing investment
-costs may increase as costs of existing business loans/overdrafts may be higher

Question 22

What is the indirect impact of interest rates on businesses

Answer 22

-consumers spend less as it is more expensive to borrow money/existing loans become more expensive
-consumers save more as rewards for saving increase

Question 23

What is government taxation

Answer 23

Taxation is when the government collects money from individuals or businesses in order to pay for expenditure plans

Question 24

What taxes are payed by a business
-VAT,Income tax,Cooperation tax

Answer 24

-VAT is a tax on the value of sales
-income tax is tax payer by sole traders and partnerships on profits
-cooperation tax is paid by limited companies on profits

Question 25

What is the direct effect of taxation on a business

Answer 25

-if taxes on businesses are increased,companies will invest less as their profits will be higher -if taxes are decreased companies will be encouraged to invest more and create more jobs

Question 26

What is the indirect effect of taxation on businesses

Answer 26

-if income tax is increased then consumers will have less money to spend -if VAT increases the prices of some goods and services will increase,again some business sales are likely to decrease

Question 27

What is exchange rates

Answer 27

-most companies have their own currencies -exchange rate is the price of buying foreign currencies

Question 28

What is the disadvantages of business to use other currencies

Answer 28

-transaction costs -uncertainty over costs and prices

Question 29

What is an import

Answer 29

-The purchase of a good or service from a foreign business -leads to a flow of money out of the UK

Question 30

What is an export

Answer 30

-the sale of a good or service to a foreign buyer

Question 31

How do we change pounds into a foreign currency

Answer 31

Multiply by the rate

Question 32

How do we change foreign currencies into pounds

Answer 32

Divide by the rate

Question 33

What does SPICED stand for

Answer 33

S-strong P-pounds I-import C-cheaper E-exports D-dearer

Question 34

What is the impact of the pound getting stronger on consumers and businesses

Answer 34

-good for consumers as prices of imports will decrease -bad for businesses that export,it’s goods will become more expensive abroad

Question 35

What happens if exchange rates change and the currency gets weaker or depreciates

Answer 35

-it will be worth less.it will be more expensive for UK customers and business to buy from other countries

Question 36

What is the impact of currency getting weaker on consumers and businesses

Answer 36

-GOOD for BUSINESSES that exports as goods will be cheaper in the country the business sells in,increase in sales -BAD for CONSUMERS as prices of exports will increase

Question 37

What are external influences

Answer 37

Any business will be affected by events and factors outside its control,how well it responds to these influences is likely to determine how successful it is overall

Question 38

What are the different aspects of the external environment

Answer 38

-developments in technology -changes to economic climate -changed to legislation

Question 39

What is the possible business response to the external factor of technology

Answer 39

-introduce eccomerce for sales and home based working for employees increasing revenue and saving costs

Question 40

What is the possible business response to the external factor of legislation

Answer 40

Costs will increase to meet requirements, businesses will have to minimise costs elsewhere,for example changing to cheap suppliers

Question 41

What is the possible business response to the external factor of the economic climate

Answer 41

-Likely that sales decreasing -firm considers accessing other markets -eg international markets through e-commerce