3.1.3

Question 1

What is an external environment?

Answer 1

Aspects that are out of the control of the business. This can affect demand and the ability for a business to reach its goals.

Question 2

What is demand?

Answer 2

The number of people willing and able to buy a product at a given time and price.

Question 3

Why would businesses be confident/optimistic? (List 4)

Answer 3

• High profits
• Customer loyalty
• Outperforming competitors
• Belief in success
• Investors willing to spend
• Growth in the economy
• Stable government

Question 4

Why would businesses not be confident/be pessimistic? (List 4)

Answer 4

• Low profits
• Recessions
• High level of competition
• Increased costs
• Lack of trust
• New government
• Negative media attention

Question 5

What are market conditions?

Answer 5

The attractiveness of the market that the business operates in, including GDP and demand.

Question 6

What impact/influence do market conditions have on confidence levels?

Answer 6

• Increase: Good economic growth = More spending
• Decrease: Bad economic growth = Less spending

Question 7

How might market conditions affect demand?

Answer 7

• Increase: More spending = More demand
• Decrease: Less spending = Less demand

Question 8

How might market conditions affect costs?

Answer 8

• Increase: Due to competing (eg. buying higher quality products)
• Decrease: Due to bulk-buy discounts

Question 9

What is competition?

Answer 9

The number of businesses operating in the same market

Question 10

What impact/influence does competition have on confidence levels?

Answer 10

• Increase: Less competition = Less panic about loss of sales
• Decrease: More competition = More panic about loss of sales

Question 11

How might competition affect demand?

Answer 11

• Increase: If products are better quality than competitors more people will buy/competitive pricing
• Decrease: Products that are poorer quality in comparison to competitors

Question 12

How might competition affect costs?

Answer 12

• Increase: Due to increasing quality of products against competitors, also to pay wages as workers will demand more

Question 13

What are household incomes?

Answer 13

The collective income in one household

Question 14

What impact/influence do household incomes have on confidence levels?

Answer 14

• Increase: Consumers become more willing to buy if income is high = More spending
• Decrease: Consumers become less willing to buy if income is low = Less spending

Question 15

How might household incomes affect demand?

Answer 15

• Increase: Consumers become more able to buy things if income is high
• Decrease: Consumers become less able to buy things if income is low

Question 16

How might household incomes affect costs?

Answer 16

• Increase: Consumers may demand better quality products therefore will cost more
• Decrease: Low income means people will want to spend less, therefore the business can lower quality

Question 17

What are interest rates?

Answer 17

The price paid for borrowing money and ROI (return on investment)

Question 18

What impact/influence do interest rates have on confidence levels?

Answer 18

• Increase: Interest rates are falling = Costs less to borrow = More people borrow and spend
• Decrease: Interest rates are rising = Costs more to borrow = Less people borrow and spend

Question 19

How might interest rates affect demand?

Answer 19

• Increase: Interest rates are falling = More people spending = Higher demand
• Decrease: Interest rates are rising = Less people spending = Lower demand

Question 20

• How might interest rates affect costs?

Answer 20

• Increase: Interest rates are rising = Costs more to borrow loans = Higher costs
• Decrease: Interest rates are falling = Costs less to borrow loans = Lower costs

Question 21

What are demographics?

Answer 21

The statistics that describe populations and their characteristics (eg. age, income)

Question 22

What impact/influence do demographics have on confidence levels?

Answer 22

• Increase: Growing population = Better opportunities to develop products = Potential for more sales
• Decrease: Falling population = Worse opportunities to develop products = Less potential for more sales

Question 23

How might demographics affect demand?

Answer 23

• Increase: Growing population = Business is noticed by more consumers = More sales
• Decrease: Falling population = Business is noticed by less consumers = Less sales

Question 24

How might demographics affect costs?

Answer 24

• Increase: Growing population = More money spent on products to suit consumer needs
• Decrease: Bulk-buy discounts

Question 25

What are environmental issues?

Answer 25

Challenges facing the earth that disrupt the usual function of ecosystems. It includes things such as pollution and contamination.

Question 26

What impact/influence do environmental issues have on confidence levels?

Answer 26

- Increase: Fighting issues = Better brand image = More sales - Decrease: Not fighting issues = Worse brand image = Less sales

Question 27

How might environmental issues affect demand?

Answer 27

- Increase: Fighting issues = Consumers more likely to buy due to social consciousness - Decrease: Not fighting issues = Consumers less likely to buy due to social consciousness

Question 28

How might environmental issues affect costs?

Answer 28

- Increase: More money spent on research of issues and development of products

Question 29

What is fair trade?

Answer 29

A social movement that operates with the goal of assisting businesses in less developed countries to achieve improved trading terms

Question 30

What impact/influence does fair trade have on confidence levels?

Answer 30

- Increase: Customer loyalty increases with fair trade products = More sales - Decrease: Risk of less sales due to high costs for consumers

Question 31

How might fair trade affect demand?

Answer 31

- Increase: More people will be willing to buy ethical products - Decrease: Ethical products are more costly, less people may be willing to buy

Question 32

How might fair trade affect costs?

Answer 32

- Increase: Ethical products cost more to produce as it ensures workers are also paid fairly