2.5 external influences Flashcards
Why do businesses need to consider changes in inflation?
- general rise of prices over time
- increased costs for wages, resources and utilities
- higher loan repayment
- consumer change spending habits
- international competitiveness reduces
If theres appreciation what is the impact on exporting businesses?
- sales fall as products are more expensive compared to overseas competitors
- may need to lower prices
Why does exchange rates fluctuate?
Changing demand for a currency
Economic growth
Changes to interest rates
If theres appreciation what is the impact on importing businesses?
Costs are likely to fall as supplies from overseas become cheaper when compared to those domestically-produced
Businesses may seek to expand the pool of overseas suppliers to further reduce costs and maximise profits
If theres depreciation what is the impact on exporting businesses?
Sales are likely to rise as products become cheaper when compared to overseas competitors
Businesses may choose to increase selling prices to increase profit margins
If theres depreciation what is the impact on exporting businesses?
Costs are likely to rise as supplies from overseas become more expensive when compared to those domestically-produced
Businesses may seek domestic suppliers to reduce costs and maintain profit levels
What will happen to businesses if interests rates change?
If interest rates rise businesses will have to pay more on new or variable rate borrowing which will increase their costs
Businesses may be less willing to make capital investments when their retained profit may be more profitably invested into savings schemes
Customers are less likely to purchase goods on credit when interest rates are high leading to a fall in sales
Exporting businesses may see demand for their products overseas fall as higher interest rates usually strengthen the value of the domestic currency and make their products comparably more expensive abroad
What is the impact of an increase in taxation?
Revenue falls as disposable income may fall
Increased VAT so customers switch to alternatives
Import costs rise as custom duties increase
What is the difference between direct and indirect taxes?
Direct taxes are levied on income e.g. Income tax and Corporation Tax
Indirect taxes are levied on spending e.g Value added tax (e.g. VAT)
What is the impact in changes in business cycle in a recession ?
high unemployment
low confidence for households
increased gov. expenditure
What is the impact in changes in business cycle in a boom?
increasing jobs
more risky decisions
increasing inflation
gov. budget improves
What Is The Effect of Economic Uncertainty on the Business Environment ?
- hard to plan
- build up cash
- constantly look at economic messages
- take opportunities when arise
what is legislation?
laws and regulations passed by governments that require businesses and individuals to conduct their behaviour in a particular manner
What are the 5 areas of legislation?
Consumer protection
Employee protection
Environmental protection
Competition policy
Health and Safety
What does consumer protection cover?
The safety of products
The standard and quality of products
The rights of customers if they are unhappy with their purchase
The product information that must be given to customers
