Unit 6 Flashcards
(226 cards)
1
Q
What are the governments’ four economic objectives?
A
- Healthy balance of payments.
- Low unemployment.
- Low inflation.
- Economic growth.
2
Q
What is a balance of payments?
A
The difference between the values of export and import goods and services of a country over a year.
3
Q
What are exports?
A
The goods and services bought by a country from other countries are imports.
4
Q
What are imports?
A
The goods and services bought by a country from other countries.
5
Q
What are exports in relation to money?
A
They involve money coming into the country.
6
Q
What are imports in relation to money?
A
They involve money flowing out of a country.
7
Q
What happens if there are more imports than exports?
A
Then there is more foreign currency flowing out than coming into a country. This is known as a balance of payments deficit, which can cause a shortage of foreign exchange.
8
Q
What does this mean for the government?
A
That they may have to borrow foreign currency from other countries at an expensive rate of interest, which could also affect the exchange rate of the country.
9
Q
How do we avoid expensive borrowing costs and varying foreign exchange rates?
A
It is better for a country to have a positive balance of payments.
10
Q
What is inflation?
A
The price increase of goods and services over time.
11
Q
What happens if inflation is low?
A
People enjoy a better standard of living as they can afford to pay for goods and services.
12
Q
What else can people buy when inflation is low?
A
They can afford to pay for non-essential (luxury) items.
13
Q
What happens in relation to businesses when inflation is low?
A
It becomes easier for companies to set up new ventures and expand, which means that all sectors of the economy benefit.
14
Q
Why does low inflation help businesses?
A
Their overall costs decrease as not as much money is needed to buy a product. Therefore leading to higher profit margins and sales.
15
Q
What happens if inflation is high?
A
People may not be able to afford to buy local goods and instead buy foreign goods (which may be cheaper).
16
Q
How do the consequences of high inflation affect local businesses?
A
This can affect local businesses in the country as they receive fewer sales.
17
Q
What is the level of unemployment?
A
The proportion / percentage of the population that are capable of working, but are unable to find a job.
18
Q
Why does the government want their country to have a low level of unemployment?
A
So as many people can have jobs as possible.
19
Q
What are the advantages of as many people having jobs as possible?
A
- They contribute to the total output of the country and improve economic growth.
- The people of the country can earn money and have a better standard of living.
- The government does not have to spend money on unemployment benefits so can spend that money on improving the countries infrastructure.
- The higher level of employment, the more income tax, a government receives
20
Q
What is the GDP?
A
The value of all goods and services produced by a country in a year.
21
Q
What does the GDP show?
A
It shows whether a country’s economy is growing or not.
22
Q
What does it mean if GDP increases in terms of goods and services?
A
It means more goods and services have been produced in the country compared to the previous year.
23
Q
What does it mean if GDP increases in terms of the population?
A
This is good for people as their standard of living should improve. A growing economy should mean more business opportunities.
24
Q
What does it mean if GDP falls?
A
This is bad for the economy and the businesses and people in it.
25
What is an example of how falling GDP influences everyone?
It could lead to lower output so fewer employees are needed, and generally people experience a lower standard of living as they cannot afford to buy as many goods and services.
26
Why is GDP a good measure of economic activity?
It allows us to analyse the economic growth of a country from one year to the next, between years and to compare its performance with other countries' economies.
27
What is the business cycle?
It shows the change in the economic activity as the economy grows and shrinks over a number of years.
28
What does the business cycle do?
It plays a vital role in shaping the economic policies of the government.
29
How many stages does the business cycle have and how long do they last for?
4 stages. Each stage may last for months or even years.
30
What are the names of the 4 stages?
- Growth.
- Boom.
- Recession.
- Slump.
31
How do you represent 'growth' in the business cycle?
32
What happens during 'growth'?
This stage is when the economy recovers or grows.
33
What are the key characteristics of the 'growth' stage in the business cycle?
- A positive outlook for new businesses.
- Existing businesses grow and make profits.
- Growth in economic activity is measured by a rise in GDP until it reaches a maximum (boom).
- Falling unemployment as there are more jobs due to businesses doing well.
- Raised standards of living as more people are employed.
34
How do you represent the 'boom' in the business cycle?
35
What happens during the 'boom'?
This stage is the peak of the business cycle.
36
What are the key characteristics of the 'boom' stage in the business cycle?
- Business investments and profits are at their highest levels.
- Most sectors of the economy are performing at their best.
- High levels of demand for goods and services cause price to rise (inflation).
- Very low unemployment rates and people have better jobs to choose from; this leads to increased wage costs for businesses as well as a shortage of skilled people.
37
What makes the 'boom' unstable?
Too much spending and high borrowing costs during this stage may be risky for businesses. If the economic outlook looks poor, the economy may go into a decline.
38
How do you represent a 'recession' in the business cycle?
39
What happens during the 'recession'?
This is when the economy shrinks in size.
40
What are the key characteristics of the 'recession' stage in the business cycle?
- Business confidence falls leading to less investment in new and existing businesses.
- Decline in economic activity until it reaches a minimum (slump).
- Falling demand by consumers leads to falling profits.
- Unemployment rises as businesses are not doing well and have to cut costs; employees are made redundant and some businesses even close down.
41
How do you represent a 'slump' in the business cycle?
42
What happens during the 'slump'?
This is where the recession stage of the economy is at its worst.
43
What are the key characteristics of the 'slump' stage in the business cycle?
- Very low business confidence with very little investment in new and existing businesses.
- Low production of goods and services-many businesses close down.
- Low demand for goods and services.
- High unemployment due to low business activity.
44
How do governments achieve their economic objectives?
By controlling:
- Interest rates.
- Tax rates.
- Government spending.
45
What is an interest rate?
The cost to a person or business of borrowing money from a lender such as a bank.
46
What is tax?
A charge/fee paid to the government on income, goods and services.
47
Where do governments mainly get their income from?
Taxes.
48
Why is the steady growth of economic activity is what most governments aim for?
- If the growth is too fast, it may not be long-lasting as the infrastructure to support this growth may not exist.
- A slow growth rate will increase unemployment levels as there will be fewer jobs.
49
How do we achieve steady growth then?
Governments may change their economic (fiscal) policies to encourage growth.
50
What are fiscal policies?
They are the use of government spending and taxation to influence the economy.
51
What are the two types of fiscal policies?
- Government income.
- Government spending.
52
What are the two examples of government income in terms of fiscal policies?
- Taxes.
- Borrowing, e.g. from financial institutions.
53
What are taxes used for?
Taxes are used by governments to pay for investments they make in public services such as education, health and transportation.
54
What can taxes be categorised into?
- Direct tax.
- Indirect tax.
55
What is direct tax?
It is the tax charged on personal income or tax on the profit made by a business.
56
What is indirect tax?
It is the tax charged on the price of goods and services, which is added to the price of goods and services before they are bought.
57
What are the two types of direct taxes?
- Income tax.
- Corporation tax.
58
What is income tax?
It is a tax that varies on the amount of income received by an individual. The higher the income tax rate, the smaller the disposable income of individuals.
59
Why is income tax useful for the government?
If the economy is in recession, the government may decide to invest in certain sectors in order to encourage growth. This investment may be partly funded by higher tax rates.
60
What is corporation tax?
This is the tax paid by businesses on the profits they make.
61
What affect does higher corporation tax have on profit?
The higher the corporation tax rate, the smaller the profit after tax is available to businesses.
62
What would the government do to corporation tax if a government is in recession?
If a country is in recession and the government's objective is to encourage economic growth, it can lower the corporation tax rate.
63
What does an increase in corporation tax rate lead to?
It will lead to smaller profit after tax for businesses.
64
What are the four types of indirect taxes?
- Value aded tax (VAT).
- Import tariffs/customs duty.
- Sales tax.
- Excise duty.
65
What is VAT?
It is added to the prices of some goods and services we buy.
66
What goods and services have VAT applied on them?
Non-essential items, as adding VAT on an item, makes it more expensive and harder for us to buy.
67
What effect does an increase in VAT/sales tax have on consumers?
- Goods and services become more expensive.
- Demand for related goods and services fall.
68
What effect does an increase in VAT/sales tax have on businesses?
Businesses make a fewer sales.
69
How do businesses respond to an increase in VAT/sales tax?
- Less production due to decreased demand.
- Businesses will have to become more competitive in price.
70
What do import tariffs/customs duty do?
Governments can also raise money by charging import tariffs or customs duty on goods that are imported from other countries.
71
Why are import tariffs/ customs duty important?
They help the government control the number of imports, so that the local businesses do not incur loss of sales.
72
How is the duty calculated?
As a percentage of the value of goods being imported.
73
How does an increase in import tariffs/customs duty effect consumers?
Imported goods or goods, using imported raw materials become more expensive.
74
How does an increase in import tariffs/customs duty affect businesses?
- Lower sales for businesses, selling imported goods.
- Increased cost of imported raw material may lead to higher cost of production.
-Local firms may benefit as demand for their products will increase.
75
How do businesses respond to an increase in import, tariffs/customs duty?
- Businesses may decide to use local raw materials which may be cheaper, but quality may suffer as a result.
- Local firms may set up more branches and expand.
76
What is sales tax?
This is the tax paid by consumers on the purchase of some items.
77
How does the rate of sales tax change?
There will be different rates of sales tax depending on the type of item.
78
What is excise duty?
This is the tax paid by manufacture on the production of specific goods within the country.
79
What is an example of a country which uses excise duty?
In India, the government has different tariffs for different classes of goods.
80
What is government borrowing?
Money that the government borrows to spend on public services.
81
Why is government borrowing important?
Tax rates can only be altered to a certain extent. Governments also borrow money from the public in order to funder spending.
82
How and where do governments borrow from?
This money can be borrowed locally by issuing treasury bills and bonds, which people and organisations of the country invest in.
83
Where else can governments borrow from?
Governments may also borrow from other countries, but this can be expensive.
84
What is the money raised through taxes used for?
It is used by the goevernment to improve the infrastructure of its country.
85
What can the government control due to its spending?
Growth by controlling its own spending.
86
What can the government do if growth is slow?
The government can increase its spending in areas such as schools, hospitals and transportation. This will create more jobs in these and other dependent sectors.
87
What is an example of what I said above?
If the government spends more on roads, then construction firms that build and repair the road network will benefit.
88
What will that encourage businesses to do?
To think about growth.
89
How else could a government affect the level of business activity?
By reducing its spending, or discouraging businesses from expansion.
90
What are expansionary policies?
Policies that help speed up the economy, or increase economic growth.
91
What are contractionary policies?
Policies that help slow down the economy, or slow economic growth.
92
What are monetary policies?
They are government policies that adjust the interest rate and foreign exchange rates to influence the demand and supply of money in the economy.
93
Who conducts monetary policies?
It is usually conducted by the countries central bank and usually to maintain price stability, low unemployment and economic growth.
94
What is an interest rate?
The cost to a person or business of borrowing money from a lender, such as a bank.
95
What do interest rates determine?
- The money that an individual or a financial organisation can gain when they deposit money with a bank.
- The cost of borrowing money from a bank.
96
How does an increase in interest rates affect consumers?
- Cost of borrowing increases thus people borrow less.
- More incentive to save thus they will spend less.
97
How does an increase in interest rates affect businesses?
- Credit/cost of borrowing is more expensive; interest cost rise.
- With people spending less, business sales will drop.
98
How do businesses respond to an increase in interest rates?
Firms may delay or cancel their plans to expand as the cost of borrowing money is high.
99
How do an increase in interest rates effect the economy in the long-term?
- Reduced business activity leading to slow economic growth.
- High rate of return from savings will encourage individuals and financial institutions from other countries to invest their money with the banks in that country. This strengthens the national currency and leads to exchange rate appreciation. This will make imports cheaper.
100
In relation to different businesses, how do changes in taxation and interest rates differ?
They change in relation to different businesses.
101
What happens to the taxation and interest rates of businesses that produce non-essential (luxury) goods?
These businesses that produce non-essential goods and services – such as electronic gadgets, and the tourism industry – are affected the most by changes in taxation policies.
102
What happens to the taxation and interest rates of businesses that produce essential goods?
Businesses that produce essential goods and services, such as food and health related products, or less affected by such changes.
103
Why are non-essential goods taxed more than essential goods?
People cannot do without essential goods, and have to buy them no matter how expensive they are.
104
What happens if businesses fail to recognise their need to deal with the environmental impact and ethical issues related to their activity?
It may lead to bad publicity and loss of sales for a business.
105
What happens if a business is environmentally friendly and ethical?
If a business is environmentally friendly and ethical, it's can lead to positive image and an opportunity to increase sales.
106
With all that being said, how do businesses try to operate?
Businesses try to work in such a way that their environmental impact is minimal and their operations are ethical.
107
How can business activity affect us and our environment?
Through:
- Pollution.
- Waste.
- Emission of greenhouse gases.
- Use of energy.
- Use of natural resources.
108
What are the different types of pollution?
- Air pollution.
- Land pollution.
- Thermal pollution.
- Light pollution.
- Water pollution.
- Visual pollution.
- Noise pollution.
109
What is air pollution?
It is caused by fumes from manufacturing units, and exhaust fumes created by vehicles. Can lead to respiratory disorders in humans, and affects plants and animals. Corrosive chemicals in the air damage buildings.
110
What is land pollution?
Waste that cannot be recycled, finds its way into landfill. Harmful and possibly nuclear waste from factories can end up in landfill too. Some of this does not decompose and is toxic and unpleasant to see.
111
What is thermal pollution?
Exhaust fumes in the air that trap heat lead to an increase in air temperatures. Water is used as a coolant in factories and then return to the environment at a higher temperature, damaging the plants and animals in the area.
112
What is light pollution?
Electronic billboards use by businesses for advertising and over illumination can interfere with ecosystems and astronomical observations.
113
What is water pollution?
Caused by improper waste disposal and contamination by toxic, chemical waste from factories. This consider damage the plant and animal life in the water and can be life-threatening if consumed by humans.
114
What is visual pollution?
Unattractive view, such as power lines, (needed by a manufacturing plant) and overcrowding can be unpleasant and prevent people from enjoying the natural environment.
115
What is noise pollution?
Caused by manufacturing plants and cars and aeroplanes. Can be an irritant and affect peoples quality of life.
116
How do governments reduce the amount of pollution?
Governments of most countries put controls on pollution.
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How do they control the pollution?
They may do this by charging a levee, and the release of pollutants or introducing laws to ban the release of dangerous chemicals. Controlling pollution has to be a combined effort of governments, scientists, businesses, and individuals.
118
What are specific business activities that produce large amounts of waste?
- Factories.
- Offices.
- Farming activities.
- Mining activities.
119
What are the five types of waste?
- Commercial waste
- IT waste
- Packaging waste
- Chemical and hazardous waste
- Paper waste
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What do the three R's do
(Reduce, Reuse, Recycle)?
Governments are trying to deal with the issue of waste by introducing initiatives based on the 3 R's.
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Why don't the three R's work soemtimes?
Not all types of waste can be recycled. For example, electrical waste, such as computers and packaging waste often ends up in landfill were toxic chemicals and harmful gases, then flow into the ground and air.
122
Waste is not just caused by primary and secondary sector businesses, what else is it caused by?
Packaging and plastic bags. Although very important to the marketing mix, packaging waste can have a serious impact on the environment. Many businesses are trying to reduce the quantity of packaging materials that they use.
123
What are greenhouse gas emissions?
Greenhouse gases such as carbon dioxide and methane are naturally found in the environment. When manufacturing businesses and others burn fossil fuel, such as coal and oil, the amount of greenhouse gases in the atmosphere greatly increase.
124
What releases greenhouse gases?
Heating and air-conditioning systems, release greenhouse gases from offices and factories into the atmosphere, which leads to global warming.
125
What contributes to the use of energy?
Office equipment, lighting, heating and air-conditioning, and machinery, use large amounts of a countries, energy sources, such as coal, gas, oil, and electricity. Coal, gas and oil are all our natural resources that cannot be replaced once they have been used up.
126
How can we reduce our use of energy?
By turning off lights and equipment when not working, businesses reduce the amount of energy they use. Many countries are developing renewable sources of energy, such as wind and solar power. These do not produce greenhouse gases and can easily be replaced.
127
How does the usage of natural resources affect us?
Many manufacturing businesses use non-renewable raw materials, which may lead to scarcity. Over fishing and deforestation (cutting down large numbers of trees) can affect the plants and animals in those areas, destroying their natural food, source or habitat.
128
What does deforestation contribute to?
Global warming.
129
What are the people that are not directly involved in a businesses decision making but who will be affected by its operations called?
External stakeholders.
130
What is an externality?
The effect of business activities on unrelated parties.
131
What do negative externalities contribute to?
Negative externalities make up the social cost of a project. For example, the setting up of a new hospital in a residential area will cause traffic congestion and increased noise levels for the residents.
132
What is the social cost?
The negative impact of a business decision on society.
133
What do positive externalities contribute to?
Positive externalities contribute to the social benefits of a project. For example, the construction of a new hospital in a residential area will create more jobs and the local community will have easier access to healthcare.
134
What is the social benefit?
The positive impact of a business decision on society.
135
How do businesses work out if the externalities created by their decisions are justified?
They use cost-benefit analysis.
136
What is cost-benefit analysis?
Analysis of the costs and benefits of a project, the focus being on the social costs and benefits.
137
How is a verdict agreed on when using cost-benefit analysis?
The social benefits must outweigh the social costs, and the interest of the various stakeholders need to be taken into account.
138
Why is using cost-benefit analysis challenging?
- It can be hard to put a value on some costs.
- There can be conflicting interests.
139
What is an example of when there can be conflicting interests?
For example, a business may decide to use expensive technology in order to reduce its pollution levels, meeting the interests of the community, but this will increase costs and reduce overall profits, affecting shareholders and owners.
140
What is at the heart of business decisions?
Corporate social responsibility, which makes a business think of their overall impact on the public.
141
When is a business considered to be sustainable?
If it contributes towards the economic growth of the country and makes profits while obeying the law and being ethical and environmentally friendly.
142
What steps can a business take to be sustainable?
- Use renewable sources of energy.
- Avoid unnecessary travel by promoting a work from home policy (telecommuting).
- Avoid or reduce the use of chemicals that produce toxic waste.
- Use packaging that is made of recycled material.
- Use packaging that can be recycled or reused.
- Use energy, efficient, processes, and equipment to minimise the use of energy.
- Reduce waste or find a market where it can be used as raw material.
- Work with employees customers and suppliers fairly
143
What is sustainable development?
A business activity is said to be sustainable, if it has a positive overall impact on the environment and its stakeholders, ensuring its survival in the future.
144
How do businesses achieve sustainable development?
A business needs to weigh up the environmental social and economic impact of its activities.
145
What are the indicators that indicate sustainable development?
- Environmental indicators.
- Social indicators.
- Economic indicators.
146
What are the environmental indicators?
- Conservation of natural resources.
- Conservation of forest in habitats for endangered, animals and plants.
- Renewable sources of energy for business activities, such as solar and wind power.
- Reduction of greenhouse gas emissions by using greener sources of energy.
- Proper waste management, business activity, so that pollution levels can be controlled, for example, recycling.
147
What are the social indicators?
- High life expectancy by generating less pollution.
- Gender equality by having relevant human resource policies in place.
- Ethical business decisions by conducting a social cost-benefit analysis of a project.
- Fair compensation to employees.
148
What are the economic indicators?
- Low unemployment by providing work to people.
- High literacy rates by setting up training and knowledge-sharing programs for employees.
- Growing GDP by generating products and services
- Improve standards of living by paying employees fairly and improving work conditions.
149
What do businesses have to respond to?
To the threat, they face from environmental pressures.
150
Do environmental pressures just offer threats?
No, they can also be positive and offer opportunities for established new firms.
151
What is a pressure group?
It is a group of people who join together for a common cause, ethical or environmental. It aims to change the way the business is function.
152
How do businesses plan on changing the way that businesses function?
By trying to influence government policy.
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What methods do pressure groups use to make their points?
- Demonstrations.
- Boycotting.
- Petitioning.
- Lobbying.
- Increasing awareness of the issue.
154
What are demonstrations?
This involves a group of people protesting about a businesses, actions or policy, either at a rally, or outside the companies offices.
155
What is boycotting?
Refusing to buy a businesses, products or services, and trying to influence other consumers to do the same.
156
What is petitioning?
Making an oral or written official complaint to the government or concerned authority on an issue.
157
What is lobbying?
Attempting to influence the policy, making of the government.
158
How do they increase awareness of the issue?
This is done through the pressure group website and possibly causing negative publicity with a help of the media.
159
How do businesses respond to environmental pressures?
They respond by:
- Using green manufacturing methods, which produce less waste and pollution.
- Reducing their use of energy.
- Obeying government regulations and standards.
- Following sustainable business practices.
- Taking legal action against pressure groups.
- Defending business decisions in order to improve their image, which may have been damaged by pressure groups.
160
Why do businesses respond to environmental pressures?
If a business fails to respond to environmental pressures, then it may face the following threats:
- The businesses reputation may be damaged. It may lose customers employees and investors.
- The business may be closed down if government regulations to use screener methods of production are not followed.
- Inability to meet government regulations may create legal problems for businesses.
- Pressure groups may oppose the business producing negative publicity and prevent a companies growth.
161
How may pressure groups have positive influences?
They may approve businesses that have environmentally friendly practices, which gives businesses, good publicity.
162
What are the benefits presented by environmental pressures, environmentally friendly practices?
- Recycling and using energy, efficient machines may lead to cost savings
- Governments may provide financial incentives to encourage firms to use environmentally friendly methods of production.
- Publicity gained from greener methods can attract new customers, employees and investors and keep existing ones.
- Telecommuting (Working from home) benefits, the environment and is a great motivator for employees.
- The revolution has led to the growth of new businesses dealing with environmental management.
- Following government regulations and standards can give a firm, a competitive advantage over other businesses.
163
What are some examples of legal controls that the government uses to limit the negative effects of business activity on the environment?
- Governments may impose penalties, and the form of fines, closure of facilities, and imprisonment, on businesses that ignore pollution, targets or waste disposal regulations.
- They may charge a levy or tax on the commercial use of energy. It is hope that this will encourage businesses to be more energy efficient.
- They may set standards that businesses have to meet when using natural resources; for example, a certain percentage of this must come from renewable sources.
- Businesses may not be permitted to set up in some areas.
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What is another way that governments could also help businesses to be environmentally friendly by?
- Making environmental information more accessible. This can be done by setting up organisations to provide environmental management advice.
- Enabling recycling by providing waste collection, vehicles, containers and coordinating collection of waste for businesses.
165
What are government incentives that encourage businesses to be environmentally friendly?
- The government can reward the greenest companies with tax credits. This encourages businesses to go green as this will help improve their profits.
- The government can make policies that allow tax exemptions for companies using renewable sources of energy and being energy efficient.
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What must businesses make sure that they satisfy?
The interests of all stakeholders, whether they are individuals, organisations or the community.
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How do we expect businesses to behave when carrying out activities?
Responsibly.
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What is the name given to when businesses behave responsibly when carrying out these activities?
Business ethics.
169
Why are business ethics important?
As they play a vital role in decision-making.
170
What are some examples of unethical practices in the finance sector?
- Failing to tell customers about extra/add-on costs.
- Insider trading (trading accompany stocks by individuals who have knowledge of non-public information).
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What are some examples of unethical practices in the marketing sector?
- False advertising of products and services.
- Providing products and services that are unsafe for use.
- Non-disclosure of risks associated with the products or services.
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What are some examples of unethical practices in the human-resources sector?
- Unfair payment to employees, for example, unequal pay for the same work done by different groups of people.
- Use of child labour.
- Production in sweatshops, where the working environment and hours do not meet health and safety standards
- Discrimination against employees based on gender, ethnic group, religion, or age.
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What are some examples of unethical practices in the operations sector?
- Dumping: selling products at a very low cost internationally so as to drive out competition.
- Improper waste disposal
- Exceeding pollution limits by the government.
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Are all businesses unethical?
No, some businesses will always aim to provide goods that are safe to use and not try to mislead customers come. Legislation exists as a form of protection against those businesses that try to exploit other stakeholders.
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What must businesses do when trying to become ethical?
Businesses also need to make sure that ethical practices are followed by all parts of their supply chain, from suppliers and distributors to the sales agents who sell their products.
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Why may businesses face conflicts between profits and ethics?
Businesses may find that achieving ethical objectives increase their costs. Greater costs mean, lower profits, so businesses often face conflict between profits and ethics.
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Why is it important that the right balance is found (between profits and ethics)?
Earning profit by unethical means is not good for the long-term survival of business.
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What is a good example of the conflict between profits and ethics in an industry?
The outsourcing industry. outsourcing is the relocation of business functions, such as finance or manufacturing operations, to other countries. This means that jobs may be lost in one country and gained in another.
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What are the advantages of ethical behaviour?
- Improved image and reputation, which helps in attracting new investors which can help a business grow.
- Can be a motivating factor for existing staff which will help with retaining them
- Customers these days demand eco-friendly products that have been made fairly. Businesses can use this to improve their brand awareness and recognition.
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What are the disadvantages of ethical behaviour?
- High cost may be involved when choosing raw materials ethically (such as using recycled materials) as opposed to choosing those with the lowest price, leading to lower profits.
- Costs may be increased by improving working conditions and pay for employees, and not using cheap child labour. All this leads to lower profits.
181
Why should a business act ethically?
Overall, it is in the long-term interests of a business to act ethically for its survival. Although there is a cost involved initially, it pays off overtime and society as a whole is likely to benefit. For some businesses, their failure to follow ethical policies may bring unwelcome publicity, which can damage their reputation.
182
What is a multinational company?
An organisation that has operations in more than one country.
183
What is globalisation?
The process by which countries are connected with each other, because of the trade of goods and services.
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What are the reasons for globalisation?
- The use of information and communication technology has helped to make international expansion easier for many companies
- More efficient methods of communication and international transportation have helped to break down, geographical and language barriers
- Free trade agreements, also assist business operations by improving economic and technical cooperation.
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What have governments done to promote the likelihood of globalisation occuring?
Many governments have realised the importance of international trade to their economies and have change their economic policies to allow foreign companies to set up operations in their countries. This has helped some large companies to grow into multi nationals. Many governments have also reduced or remove trade barriers so that it is easier for good services to move from one country to another.
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What are the characteristics of globalisation?
- Growth in international trade
- Dependency on the global economy
- Greater movement of products, services and money
- Companies operating in more than one country
- Global recognition of brands.
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What factors have increased the pace of globalisation?
- Migration.
- Improvement of technology.
- Free trade agreements.
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What is migration?
Movement of people from one place to another.
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What is the improvement of technology?
Leading to faster, and more effective, telecommunication and transportation.
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How have free trade agreements helped?
Most free trade agreements, aim to reduce trade barriers between member countries by creating favourable trade and investment policies. They also help business operations by improving economic and technical cooperation.
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What do countries want to trade with each other form?
A trade bloc.
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What is a trade bloc?
A group of countries that trade with each other, and are usually part of a free trade agreement.
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What is the home country?
The domestic country, where a multinational starts/first establishes its operations.
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What is the host?
The foreign country, where a multinational set up its operations.
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What are some opportunities of globalisation?
- Businesses can access more markets which may lead to an increase in sales.
- Labour may be cheaper in host nations and so businesses can gain from lower costs.
- Due to increase competition, businesses operate more efficiently and reduce costs due to cost-effective innovations and economies of scale. Reduction in costs will lead to greater profits for they can also offer their products at reduced prices, e ncouraging sales
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What are some threats of gloabalisation?
- Local businesses in the host country may suffer as foreign companies start to sell their products at a cheaper price
- Exchange rate fluctuations may cause lowering of profits
- Competition will increase for both local and international businesses
- The marketing and distribution costs for the international business will increase.
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What effects does globalisation have on the host country?
If multinational start to take over the trade in the host country, this can have a damaging effect on the local economy. As local businesses and shops close, there will be less choice for consumers and unemployment may rise.
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Why do governments impose tariffs and quotas?
To reduce the spike and unemployment, and to lessen the effects on the local economy.
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What is a tariff?
A tax applied to the value of imported and exported goods.
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Why are tariffs used?
A government may place a tariff on imports so as to reduce imports into the country, the tariff increases the cost of the imported goods and businesses. Then have to sell the goods at a higher price. This reduces local demand for the goods and benefits local businesses as they have less competition.
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Why are restriction on imports so important?
Restriction on imports and exports is important because every countries economic objective is to have a positive balance of payments. The import tariff also earns revenue for the government.
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What is a quota?
A physical limit on the quantity of goods that can be imported and exported
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Why are quotas used?
Quotas on imports benefit local producers as there are fewer foreign goods in the market and they face less competition.
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What kind of countries suffer when exporting to other countries with quotas?
Exporting countries may suffer as they will only be able to sell a limited amount of goods to the country that has a quota.
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When is a company considered to be multinational?
When the company has operations overseas, it is known as a multinational company.
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Why would some businesses decide to become multinational, and others just international?
It all depends on their objectives.
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What is needed for an MNC to be successful?
The host country needs to provide a positive environment in which the business can establish and grow.
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What are the four main factors that are required for an MNC to be successful?
- Economic factors.
- Social and political factors.
- Infrastructure.
- Operational factors.
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What are the economic factors required for an MNC to be successful?
- There should be little or no restrictions on foreign investments so that the foreign company that is going to start operations will have few regulations to deal with and will be able to establish itself easily.
- Tax incentives and stable currencies of the host, country or aid, the MNC, financially and help increase overall profits.
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What are the social and political factors required for an MNC to be successful?
- Security and safety in the host country must be considered, so that the physical assets of the MNC, as well as it employees are safe.
- Productivity of the workforce is very important if the MC wants to deliver goods on time and be profitable.
- Skilled employees need to be available and lower paid than in other locations to help the firm perform efficiently as well as keep its labour costs low.
- Political stability and legal controls are required. A change in government may change the legal framework or change policies that may affect the business, for example, the corporation tax rate or the minimum wage rate may be changed.
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What is the infrastructure required for an MNC to be successful?
- Good infrastructure, such as roads, transportation and communication can help the firm operate more efficiently.
- Reliable power supply with as little downtime as possible is a key resource needed for the business to operate.
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What are the operational factors required for an MNC to be successful?
- It must be close to the source of material resources and sales outlets. This will reduce the firms transportation costs.
- Cost of factory lease, space and land use must be considered. The lower the cost the more profit the MNC will make.
- A reliable supply of raw material at a reasonable price is important. This will ensure timely production of goods at reasonable prices.
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What are the benefits of a business becoming multinational?
- Easier access to raw materials.
- Lower cost of labour.
- Economies of scale.
- Access to bigger markets.
- Lower production costs.
- Spreading of risk.
- Premium pricing.
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What are the threats that the host country can have to the business, in turn with it being multinational?
- Shortage of labour.
- Lack of information about the local market.
- Language barrier.
- Cultural differences.
- Strict regulations.
- Hostile business environment.
- Expensive labour costs.
- Local opposition or threat from pressure groups.
- Little brand awareness.
- Currency fluctuations.
- Political instability in the host country.
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What is a solution that can be used to resolve all of these threats?
- Local joint ventures.
- Strategic alliances.
- Use of local agents.
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What are some benefits of a multinational to the host country?
- Increases the choice and quality of goods and services.
- Improves the country's reputation.
- Increases employment opportunities.
- Generates income in the form of tax.
- Improves infrastructure.
- Knowledge-sharing.
- Improves the balance of payments.
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What are some drawbacks of a multinational to the host country?
- Undue influence on the government.
- Increased competition.
- Environmental damage.
- Exploitation of labour.
- Repatriation of profit.
- Exploitation of natural resources.
- Negative social impact.
- Less sense of social responsibility.
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What does the success of international trade depend on?
The exchange rate.
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What is the exchange rate?
The rate at which one country's currency can be exchanged for that of another.
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What is the main factor that affects the exchange rate?
Demand and supply. If demand for a currency is high, the exchange rate will rise.
221
What can exchange rates affect?
A business in terms of sales, costs and profits.
222
What is the effect of the depreciation of currency on exporters?
- Exports are relatively cheaper overseas; this should increase the demand for them.
- Businesses which export will benefit from increased sales.
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What is the effect of the depreciation of currency on importers?
- Imports will appear to be more expensive.
- Businesses which rely on imports will have to pay more.
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What is depreciation?
A currency is said to depreciate if the value of the currency goes down with respect to another.
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What is the effect of appreciation of currency on exporters?
- Exports are relatively more expensive over seas; this may decrease their demand.
- Businesses which export may suffer from reduced sales; if so then exporters may chose to cut their prices, reduce output and cut back employment levels.
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What is the effect of appreciation of currency on importers?
- Imports will appear to be cheaper.
- Businesses selling imported goods or relying on imported raw materials will benefit from reduced costs.
