Pestle analysis -Political factors Flashcards
(15 cards)
Instability
one of the government objectives is to provide a stable economic and legal framework within a business can grow, if a country is politically unstable this can create considerable risks
Monetary Policy
monetary policy involves the use of interest rates and the manipulation of the money supply to influence level of consumer spending and aggerate demand in an economy
Impact of monetary policy
if inflation expected to rise interest rates may rise but if inflation falls then interest rates may be cut or decrease as this impacts the level of disposable income that a consumer has this is because if interest rates change in the cost of borrowing this may encourage extra spending or discourage any spending which can impact the level of sales
Fiscal policy
fiscal policy are government measures that involve changes in spending or taxation in order to influence levels of demand and economic activity within an economy
contractionary fiscal policy
decrease the spending by raising taxes
expandatory fiscal policy
expandatory fiscal policy
increase the level of spending by reduce the level of tax
Impact of fiscal policy
This can be useful for a business as it allows to capitalised on increase spending this will allow the business to increase the demand of the products by increase the rate of their marketing as aresult this will allow them to increase their sales as aresult the business to increase their profit margins
changes in government
Changes in government – New governments may well have a more, or less,
positive attitude towards business activity. For example, legislation may be put in place that lifts restrictions on businesses in terms of such matters as pollution or workers’ rights. This may result in cost increases for businesses
and impact upon future profitability.
Business Start-Ups
Government seek to promote enterprise within the economy as this creates new jobs and wealth, generates new tax revenue streams and also increases levels of competition within the market.
Government assistance for new business start-ups can take many forms including:
Tax breaks and financial assistance
Government backed online help and advice
Government recognised industry awards
Grants
Stable Legal Environment
It is the responsibility of government to create a legal framework within which businesses can operate and grow and individuals thrive.
Competition needs to be fair; the rule of law and clear property rights must apply.
Analysis of Patent Law
Problems
Patents are only valid for the country in which they have been registered.
The patent process can be very expensive if you need to apply for a global patent.
There is no enforcing agency for patents. If the patent is challenged then this might require an expensive court battle.
Benefits
Holding a patent encourages businesses to invest money into research and development.
A patent holder can licence its idea to others for the generation of a fee.
Successful patents can protect you against rival businesses copying your ideas and allow you to generate higher levels of profits.
Government & Market Power
Government seek to prevent the development of monopolies if they are considered not to be in the best interests of the consumer.
The UK Government empower the Competition and Markets Authority (CMA) to investigate and assess any industry that they believe to be acting against consumer interests e.g. high prices.
The takeover and merger of firms is also investigated by the CMA if it is feared that they might become too large and exploit their market power.
Deregulation of Markets
Another way in which governments can open up markets to become more competitive is through deregulation.
This involves the removal of rules and regulations that prevented competition e.g. only one bus service provided might have been allowed to operate on a specific route.
The idea is that government involvement in the market is reduced and with the introduction of more competition prices, choice and efficiency is improved for the consumer.
Effects of Taxation
Lower rates of taxation help to encourage economic growth as consumers have more disposable income that they spend in shops and businesses.
During a period of very strong economic growth, governments are likely to raise taxes to try to suppress demand and prevent large rises in the rate of inflation.
Any rise in taxes on business e.g. Corporation Tax or National Insurance will make it more expensive for them to operate and they will try to pass some of this additional cost on to consumers in the form of higher prices to protect their profits.
The goverment and subsides
ubsidies are a sum of money granted by the government to help an industry or business keep costs and therefore prices low and so encourage consumption.
Offering subsidies to domestic producers or exporters can make UK firms more internationally competitive but this is an unfair advantage and might break free trade agreements.
