2.5 - External Influences

Question 1

What are economic influences

Answer 1

They deal with changes in the economy as a whole and how they affect different businesses

Question 2

What is the business cycle (4 steps)

Answer 2

The sequence of slump, recovery, boom and recession. It is measured by changes in GDP

Question 3

GDP:

Answer 3

Gross domestic product- the value of all the goods and services produced in a country per year

Question 4

Boom -

Answer 4

High levels of customer spending, profits and investments , prices and costs tend to rise faster, unemployment is low

Question 5

Recession -

Answer 5

Falling levels of customer spending, lower profits for businesses, spare capacity increases and rising unemployment

Question 6

Slump/Depression -

Answer 6

Very week customer spending and business investment, many business failures, prices fall and unemployment rapidly rises.

Question 7

Recovery -

Answer 7

Things start to get better, consumers begin to increase spending, businesses start to invest, and unemployment slowly falls.

Question 8

What is real income

Answer 8

The income of individuals after adjusting for inflation

Question 9

Interest rate :

Answer 9

The reward for saving and the cost of borrowing expressed as a percentage of the money borrowed or saved.

Question 10

The level of interest is important because :

Answer 10

Affects customer demand , affects total operating costs, the higher the rate of interest the less attractive it is for a firm to invest money into the future of a business

Question 11

What is an exchange rate?

Answer 11

The price of one currency expressed in terms of another currency.

Question 12

Appritiation is where

Answer 12

The value of the pound rises compared to other currencies (£1 can get more $)

Question 13

What is depreciation

Answer 13

The value of the pound falls compared to other currencies ( £1 can get less $)

Question 14

SPICED

Answer 14

Stronger 
Pound
Imports
Cheaper
Exports
Dearer

Question 15

What is Inflation

Answer 15

It measures the percentage annual rise in the average price level

Question 16

What is the Consumer price index

Answer 16

It’s the main measure of inflation in the U.K.

Question 17

Two main causes of inflation

Answer 17

Demand pull - Where there is excess (too much) demand

Cost push - when costs rise

Question 18

Fiscal policy

Answer 18

Involves the use of government spending, taxation and borrowing to affect the level of growth of aggregate demand, outputs and jobs.

Question 19

What does government tax do

Answer 19

Raises revenue to finance government spending and helps the government meet economic objectives.

Question 20

Direct tax

Answer 20

Based on income, wealth and profit. (Income tax, national insurance, corporation tax)

Question 21

Indirect tax

Answer 21

Based on spending by customers on goods and services ( VAT, TV licence, betting tax, car tax)

Question 22

What is a law/legislation

Answer 22

A set of rules and regulations which a business has to comply

Question 23

What are the 5 main areas in which the law affects a business

Answer 23

Employment 
Customer
Health and safety 
Environment
Competitive

Question 24

What is employment protection

Answer 24

Employment sets out, and aims to protect, the rights of employees at work. E.g. Pay (must be over the minimum wage), discriminating against employees ( race, gender)

Question 25

Customer protection :

Answer 25

Designed to ensure that consumers are treated fairly by the companies from which they buy. They have the right to return etc.

Question 26

What act says “goods must be fit for the purpose for which they are sold “

Answer 26

The sale of good act

Question 27

Which act says “ensures that every claim and statement about a product is true “

Answer 27

The trade descriptions act

Question 28

Environmental protection -

Answer 28

A wide range of laws the government issues as diverse as the materials that firms must use for certain products e.g. Packaging , waste.

Question 29

Competitive protection

Answer 29

Investigates possible price fixing, agreeing with competitors, cut prices low enough to get rid of competition (predatory )
Investigates takeovers and mergers

Question 30

What is a dominant position

Answer 30

Where a business has a market share of 50% or more

Question 31

Health and safety protection -

Answer 31

About preventing people from being harmed at work or becoming ill. The job of the H&S executive is to identify any serious errors by companies.

Question 32

What is competitiveness

Answer 32

The ability of a business to deliver better value to customers than competitors

Question 33

Competitive advantage

Answer 33

The ability of a business to add more value for its customers than its rivals and attain a position of relative advantage

Question 34

What are the 4 types of competition

Answer 34

Perfect
Monopoly
Oligopoly
Monopolistic

Question 35

Perfect competition :

Answer 35

Many firms all producing or selling very similar products ( CDs)

Question 36

Monopolistic competition

Answer 36

Competition between many firms producing differentiated goods (restaurants , fast food)

Question 37

Oligopoly

Answer 37

Competition between a small number of suppliers (banking, chocolate bars)

Question 38

Monopoly

Answer 38

Single supplier (water, gas)

Question 39

Suppliers power

Answer 39

Large suppliers may enjoy some degree of power but the small suppliers are in a week position

Question 40

Buyers power

Answer 40

Collectively , buyers are strong but individual buyers are in a weak position

Question 41

Existing rivalries

Answer 41

Intense competition as supermarkets fight over market shares

Question 42

Barriers to entry (3)

Answer 42

Product differentiation
Access to raw materials and distribution channels
Retaliation by established products