2.5 External influences Flashcards
(25 cards)
What is the 4 stages of the business cycle
Boom
Recession
Slump
Recovery
What is the boom stage of the business cycle
High rates of growth and production
Firms may make a decision to expand into new markets
May expand workforce
What is the recession stage in the business cycle
Output starts to fall, growth declines
Consumer confidence starts to fall
Expansion plans are ‘shelved’, market penetration may be used to become more attractive as less risky
What is the slump stage in the business cycle
This is a prolonged period of economic decline
High levels of unemployment and high rates of business failure, low levels of spending and investment
Business may adopt a strategy of rationalisation, which includes redundancies and sale of assets
What is the Recovery stage in the business cycle
Economy starts to pick up after a period of decline
Increasing consumer confidence, businesses start to invest
New business start-ups might emerge, businesses may use investment into product development
Take on new employees to meet demand
Define exchange rate
The price of one currency in terms of another
What might importers and exporters do when exchange rates change
Importers:
- may switch to international suppliers when exchange rate is less favourable
- Stockpile raw materials and products when currency is strong
Exporters:
- Lower prices to limit the impact of strong currency
- Increase promotion in foreign markets when currency is weak
What might businesses do during high inflation
Increase prices to pass on costs onto consumers
Reduce internal costs to protect profits
What might a business do during low inflation
Feel more confident and therefore invest and grow more
What is the impact on business activity with interest rates
High interest:
- Inflation falls
- Consumer and business spending falls
Low interest:
- Inflation may rise
- Consumer and business spending rises
Define interest rate
The cost of borrowing money and the reward for saving
What 2 policies in government expenditure
Expansionary policy:
Reduces direct and indirect taxes to increase disposable income, increases borrowing
This increases spending in areas like health and education. Stimulates demand for businesses and creates jobs
Budget deficit may rise
Contractionary policy:
Increases direct and indirect taxes to slow down growth and reduce budget deficit
Reduces spending in areas like health and education meaning budget deficit reduces
What are types of taxation
Income tax
Corporation tax
VAT
National insurance
What is government expenditure spent on
Infrastructure
Human capital
Goods
Services
What does consumer protection legislation do
Consumers want to have clear information on what they are buying and want to buy goods at a fair price
Ensures that:
- products are safe
- products are of an approved quality
- consumers are treated fairly if unhappy
- product information is readily available
What does the competition policy do
protects the interests of consumers and businesses and restricts anti-competitive practices such as:
- abuse of market power
- carter activity, businesses working together to manipulate the market
What does the employee legislation do
Prevents exploitation of workers, this includes issues such as pay and working conditions
What does environment protection legislation do
Aims to internalise any negative externalities associated with business activity
Therefore making businesses pay for the full cost of cleaning up or repairing any damage to the environment caused by their production process
What does health and safety legislation do
Ensures that businesses have to provide a safe and healthy workplace and facilities that are safe for customers
May include:
- maintaining temperature and noise levels
- providing breaks and rests
- guaranteeing hygiene levels
What is the impact of legislation on the business
- Can impose costs, due to adapting products to meet new demands
- Not implementing necessary changes may cause a limit to competitiveness and damage the reputation
- Can create new opportunities and encourage innovation
What affects competition in the market
- The number and size of competitors in the market
- The seasonality of the product
- Bargaining power of suppliers and customers
What are the ads and dis of competition on a business
Dis:
- Fall in prices (leads to lower profit margins)
- Increased costs of promotion
Ad:
- Increased innovation
- Wider product ranges
- improved efficiency to reduce unit costs
What are the ads and dis of a large market
Ads:
- Wider customer base
- Less volatility than small markets
Dis:
- More regulation
- Potential for international competition
