3.1.3 What is business Flashcards
understanding that business operate within an external environment (13 cards)
What is meant by the “external environment” in business?
Factors outside a business’s control that affect its operations, such as economic, social, legal, technological, and environmental conditions.
How can the external environment affect a business?
It can increase or decrease costs (e.g. input prices) and affect demand for goods/services (e.g. through consumer incomes or interest rates).
What external factors can cause business costs to rise or fall?
• Price of raw materials
• Wage levels
• Interest rates (cost of borrowing)
• Environmental regulations
• Supplier costs
• Taxes and tariffs
How do interest rates affect business costs?
Higher interest rates increase borrowing costs, reducing profitability. Lower rates reduce the cost of loans.
What is demand in business terms?
The amount of a product or service that consumers are willing and able to buy at different prices.
What external factors can influence demand?
• Competition
• Market conditions
• Income levels
• Demographics
• Interest rates
• Environmental awareness
How does competition affect demand and costs?
• Increased competition may reduce demand for one firm’s products unless they differentiate.
• Can force businesses to cut prices and increase promotional spending, raising costs.
What are market conditions, and how do they affect demand?
The state of the market, including customer trends, economic growth, and consumer confidence. Strong markets boost demand; weak ones reduce it.
How do changes in income affect demand?
• Rising incomes generally increase demand for normal goods.
• Falling incomes can increase demand for inferior goods and decrease it for premium products.
What is the impact of interest rates on demand?
• Higher interest rates reduce consumer spending (especially on credit) and investment.
• Lower rates encourage borrowing and spending.
How do demographic factors affect demand?
Changes in population size, age structure, ethnicity, or household types can shift demand for products (e.g. ageing population increases demand for healthcare).
How do environmental issues impact business operations?
• May increase costs due to sustainability or recycling regulations.
• Also influence consumer preferences toward eco-friendly products.
What is fair trade, and how does it influence businesses?
A movement promoting ethical sourcing and better wages for producers in developing countries.
• Can raise costs but also improve brand image and attract ethical consumers.
