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Flashcards in Unit 9 Deck (54):

Why is trade between memebers states easy?

The European Single Market means there are very few trade barriers between the EU memeber states. Firms don't take pay tax when they import goods with EU countries, so the EU provides easy export opportunities for UK firms.

The single markets smooths out price diffreences between memeber states. Producers can look for the highest selling prices within the EU and consumers can look for the lowest purchase price within the EU. When the price in part of the EU is high, producers flood the area with their product, driving down prices. Low prices attract more buyers in the market, pushing prices up.


What is fair competition?

Fair competition means companies are motivated to provide good quality products for reasonable prices. If they don't constumers will be simply go elsewhere. Competition also encourages companies to innovate and develop new products, as well ad providing customers with choice by procuct diffrentiation.


What is the competition law?

Competition law includes:

Businesses can't conspire to fix prices, where an aggreement s made to keep the price of the good above a fixed amount.

Businesses can't conspire with competitiors to limit production so that the higher prices can be charged due to a shortage

Businesses can't divide up the market to avoid having to compete.


What are some laws that are about a business abusing a dominant position?

Businesses have a dominant position if they have aboive 50% of the market share

Some laws that stop businesses abusing their position is:

Dominant businesses cac't demand 'exclusivity,' that wholsealers only buy from them

They can't demand that retailers must buy a second type of product in order to buy the popular product they actually want (tying)

Businesses can't sell goods at a loss to force smaller competitiors out of the market (predatory pricing)


What is a monopoly?

A monopoly is when one business had complete control of the market. There is no competition and if customers need the product they have to pay whatever the price the monopoly sets.

The CMA can prevent monopolies from iccurring by stopping takeovers and mergers which will affect the strategy pf a business as they will have other methods of growth of expanding their business.


What law protects the community and the environment?

Industries which release waste into the water or land are regulated by the environment agency. Businesses have to ensure that their production processes dont cause unenecessary pollution.

Industrial processes which only release pollution into the air are regulated by local authorities.

Some laws include:

The landfill tax, (1996) was introduced to reduce the amount of waste being dumped into landfills

The Climate change act requires UK plcs to report their greenhouse gas emissions in their annual reports. The ides is that if these are made public, companies are more likely to try and reduce them.


What laws protects against consumers and customers?

Certain laws protect consumers and customers which affect the functional decisions made by different departments.

The trade description act (1968) ensures that businesses don't mislead consumers with false descriptions on packaging and advertising materials.

The sale of goods Act (1979), the supply of goods act (1994) set out rights of customers. These laws mean that goods must be fit for their purpose and of satisfactory quality.

The consumer protection act (1987) says that new consumer goods must be safe. There are also other more specific regulations.


What are the labour laws?

An employee has a legal right to fair treatment while at work, and also while looking for employment.

The equality act 2010 protects employees from discrimnination based on age, gender, race, religion etc.


What are the 2 types of discrimination

Direct discimnation is treating someone less favourably because they have a protected characteristic

Indirect discrimination is when everyone is treated the same but it has a worse effect on one group of people than on others.


How does discrimination laws affect recruitment?

Recruitment -
Employers arent allowed to state the job adverts that candidates must be particular age, race etc and cant use discrimatory language

Businesses arent alowed to adverise for a particular race etc

Businesses have to make decisions on who to employ without discriminating and have to justify a particular candidate.


How does discrimnation affect Pay?

Businessea have to give male and female employees the same par for work of equal value. They are entitled to the same benefits too.

Not paying fairly can resul in in a fall in the quality of work and poor staff retention, as well as having to pay compensation and legal fees to tribunals.


How does discrimination affect Promotions and redundancies?

Discrimnation laws mean that everyone should have the same opportunity to get promoted.

If businesses need to make redundancies, they cant deliberately select staff who are older, disabled.


What is employment tribunal?

If employees feel that they have been treated unfairly by their employers they can make a claim to a tribunal.

At a tribunal, representatives of the employer and the employee put forward their cases, and at a tribunal judge.

The employer might have to pay compensation or give the employee their job back in an unfair dismissal case.


What is the national minumum wage?

The national minumum wage was introduced in 1999 to prevent employees from being paid unfairly low wages.

The minumum wage rises every year.

That national living wage is controversial because it is lower than the independently calculated living wage. Some employers voluntarily pay employees the independently calculated living wage, this can increase motivation, reduce absenteeism and allows the company to market themselves as an ethical employer.


What is an employment contract?

A contract of employment is a legally - binding agreement between the employer and the employee about what the duties and rights of the employee and the employer are.

Employees are entitled to receive a written statement of employment within 2 months of starting work.


What is the state of pension?

The state pension means that everyone has some money to live on in their old age.

For years men have been to claim state pension from 65 and women from 60, but because people are living longer, the age is being increased gradually.

A new law means that employers must enrol most employees in a workplace pension and pay into it.


What government policies encourage enterprise?

The UK government encourages entrepreneurs to set up businesses because enterprise benefits the economy, new businesses increase productivity and create jobs. The government is especially keen to promote enterprise in areas that need economic regeneration which provides lots of opportunities for new businesses.


What is the business enterprise policy?

Government schemes allow enterprises to borrow money at low interest rates and encourage private investment in businesses.

To make it easier for small businesses to succeed, they don't have to pay business rates and an employment allowance means their national insurance contribution bill is reduced by £200.

The great business website has been launched to advise young people on setting up and running a business.


Why do many businesses need regulation?

Some industries are natural monopolies (like Thames water) so when privatizing a natural monopoly the government needs to build in regulations to prevent the new owners from exploiting their position and raising prices or cutting quality.

There are lots of regulated industries, and the regulations affect the decision making of all businesses operating in that industry.


Why is infrastructure vital to a business?

It is vital as the UK's infrastructure is is made up of physical things such as the transport network and piped and wires that allow water and energy to move about.

Improvements in infrastructure are good for the economy as they make businesses more productive, as well as making data move faster, as well as making data transfer through the broadband network quicker and can provide jobs in the short term.

In the UK it is mainly the private sector that looks after the infrastructure, but the government has overall policies, laid out in its annual national insurance plan.


What are some government policies that aim to protect the environment?

The UK is part of the EU's 'Emissions trading system.' This gives greenhouse gas emissions allowances to businesses such as oil refineries, power stations etc. Companies can trade their allowances, giving companies an incentive to choose greener processes.

The government has some 'green subsidy schemes.'

The government and the EU fund organisations that encourage more efficient use of raw materials, such as the Waste and resources action Programme (WRAP). WRAP works with businesses to achieve circular economy, which keeps resources in use for a long as possible. as well as protecting the environment and helps businesses save money.

Also businesses breaking the law will be fined and prosecuted.


What is a tariff?

Tariff (taxes on imports) discourage international trade. Removing or reducing tariffs between countries provides opportunities for businesses by making international trade easier and cheaper.


What is a quota?

Quotas are trade restrictions set by government that put limits on imports and exports. Countries sometimes use import quotas as a way of trying to protect their own economies and jobs which is called a protectionist policy. Sometimes two or more countries sign a free trade agreement which removes (or reduces the number of) quotas between them to encourage international trade.


What is a trade embargo?

They ban trade with a particular country.


What is GDP?

Gross domestic product is the total market value of goods and services produces within a nation over a period of time (usually a year).

Total consumer spending + business investment + govt spending + (value of exports - value of imports) = GDP

GDP is used to measure the economic performance of a country.


What is economic growth?

Economic growth is an increase in an nation's production of goods and services.

It is measured as the rate of increase in GDP.

Economic growth means the same thing as "an increase in economic activity" growth means there's demand in the economy and more output to meet the demand.


What is economic growth determined by?

The growth potential of an economy depends o the amount and quality of economic resources available.

Quantity of labour depends on population size and age.
The quality of labour is the level of education and training that workers have reached, high quality labour enables an economy to grow faster.

Investment increases the amount of productive assets (machinery). For the value of productive assets to grow, the level of investment in productive assets has to be greater than the amount of depreciation.


What are the positive affects of economic growth?

On the whole growth in GDP means higher revenues and higher profitability for businesses.

Economic growth gives the potential for economies of scale.

Sustained growth increases confidence and helps businesses plan for the future.

Economic growth affects the type of strategic decisions, that business makes. In periods of sustained growth senior managers might decide to expand the business, launch new products or try to break into new markets.

On the down side, fast growth may cause shortages of raw materials and skilled labour.

If growth is too fast, it is usually followed by a recession, a general slowdown in economic activity.


How can business deal with changes in economic activity locally and globally?

During a boom phase, business can raise prices. This increases profitability, and it slows down demand a bit. In a long lasting boom, businesses invest in production facilities to increase capacity. They may come out with new products to take advantage of increased consumer income.

During a recession, businesses may make workers redundant to save wage costs and increase capacity utilisation. During a local recession, businesses can market their goods elsewhere in the country, a local shop could market online, In a national recession, businesses can market their products overseas. When a national recession or slump lasts a long time, some businesses choose to relocate abroad.


What is inflation?

Inflation is a general increase in the price of goods and services over a period of time.

When inflation is high, spending may go up temporarily so people rush to buy more before prices go up even more. If wages don't go up in line with inflation spending then goes down as people can afford less.

Expectations of inflation can make inflation a lot worse. A businesses which expects its suppliers to put their prices up will put its own prices up to cover increased costs. Employees' expectations of rising prices makes them demand higher wages, so prices go up which is the wage price spiral.


What is demand pull inflation?

This is a type of inflation. Demand pull inflation can be caused by too much demand (more then the economy can supply). It happens when there's an increase in disposable income so people buy more and companies can't supply goods quickly enough and increase their prices. This is demand pull inflation can actually make profit margins go up. Businesses can put up prices in response to high demand without their costs going up by as much.


What is cost push inflation?

Rises in inflation can be due to rising cost pushing prices, this is cost push inflation. Wage rises can make prices go up especially if productivity isn't rising. Cost push inflation can make profit margins go down if business decide not to push up prices.


How does inflation affect business strategy?

Companies producing premium goods are the most likely to be affected by inflation because if customers have less to spend the start to look cheaper alternative products. Manufacturers of premium products can react by reducing prices (although they have to be careful not to reduce them so far that the product loses it premium image) or by investing heavily in advertising.

Periods of high inflation can be good time for firms to expand, if interest rates are lower than the rate of inflation it's cheap for them to borrow money to invest in new premises or machinery. The interest they'd earn on their savings would be less than the amount of prices would have gone up by in the same time, so it makes sense to spend rather than save. However the BOE often raises interest rates in high inflation to encourage saving so businesses dont always from high inflation.


What is deflation?

Deflation is a decrease in the price of goods and services over a period of time.

Deflation is the opposite of inflation, it is when there is not enough demand so companies reduce their prices.

Deflation causes a fall in productivity because when companies won't keep endlessly supplying the market with goods that nobody wants. Lower productivity usually means firms dont need as many workers, so deflation often leads to a rise in unemployment.


What is the exchange rate?

Exchange rate is the value of one currency in terms of another currency.

When the exchange rate is high, UK exports are relatively expensive abroad and imports into the UK are relatively cheap to buy. When the exchange rate is low, UK exports are relatively cheap for other countries into the UK are relatively expensive to buy.

A strong pound is bad for UK exporters because their goods arent competitively priced abroad. Also a strong pound and cheaper imports mean lower costs for UK businesses importing raw materials from abroad, but they are bad news for UK manufacturers who export goods.

Cheaper exports should lead to increased demand and therefore higher output.


How does taxation rates affect economic activity?

Individuals are taxed on income. high taxes reduce consumer disposable income so people tend to spend less which is bad news because it is likely to reduce their turnover. Low taxes rates encourage people to spend, so businesses make bigger profits.

High tax rates for businesses mean that their net profits (after tax profits) are reduced. Businesses also pay business rate based on the value of their premises and the rate is the same all over the country.

Businesses want to minimise costs so tax rates affect their decisions. High tax rates discourage individuals from spending, and businesses from expanding. Increasing income tax reduces spending, cuts demand and lowers economic activity.


What is fiscal policy?

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.


What is expansionary fiscal policy?

It is done when there is an economic slowdown and high unemployment, and it is done by cutting taxes or raising spending. It also increases government borrowing and demands for goods and services increases.


What is contractionary fiscal policy?

It is done when production at 100% capacity, risk of high inflation and it is done by raising taxes and or cutting spending. It also decreases government spending and demand for goods and services decreases.


What is monetary policy?

Monetary policy means tweaking the interest rates to control inflation and exchange rates. When interest rates are high, foreign investors want to save money in UK banks. To do this, they buy British pounds, which boosts demand for the currency and makes the exchange rate go up, affecting imports and exports. When interest rates are low investors prefer to invest abroad, so they sell their pounds and the exchange rates falls.


What is protectionism?

Protectionism is when government protects domestic business and jobs from foreign competition by giving subsidies while imposing tariffs on imported products.


What is open trade?

Open or free trade is when imports and exports are not restricted.


What are the advantages and disadvantages of protectionism?

Countries develop a variety of new industries adding local jobs and boosting economic growth.

Allows small businesses to grow as they font have to compete with multinationals.

Prices of imported goods rise due to decreases supply, prices of domestic goods rise without a change in quality as there is less competition.

If you restrict a country's trading in your country, they might restrict your trading in theirs.


What are the advantages and disadvantages of open trade?

Countries specialise in what they're good at
Countries benefit from economies of scale
More choice and lower prices for consumers

Fewer local jobs as multinationals expand abroad
Employee skills are concentrated around certain jobs


What is globalisation?

Globalisation has realised in businesses operating in lots of countries across the world. Thy can be based anywhere, and can buy from and sell to any country.


Why is globalisation rapidly increasing?

The internet allows businesses to communicate between countries very quickly and cheaply.

There has been a shift from separate national finance markets towards a global finance market meaning it is easy to move money securely around the world.

Giant cargo ships make it cheaper to transport goods around the world

Cheap, fast air travel means goods and people can move around the world easily for work.


Why are businesses looking for opportunities in emerging economies?

Emerging economies are a good opportunity for businesses as they offer good returns due to their rapid growth.

As jobs are created, people move out of poverty and a new middle is formed. People are eager to spend money on luxuries they've never been able to afford before, creating economic activity.


Disadvantages of globalisation?

Language and cultural barriers can prevent UK businesses from trading with India and China. These barriers are particularly difficult to overcome in China, in India more people speak English, and the culture is more similar to UK culture because it is a former British Colony.

Emerging economies use different currencies to the UK, so UK businesses are vulnerable to changes in currency values. A strong pound makes British exports more expensive abroad, which would reduce demand for products from UK companies in India and China.


What is urbanisation?

Urbanisation is an increase in the proportion of the population living cities.

Opportunities include:
There are new markets with concentrated demand, businesses might focus on their distribution networks in these areas in these areas at the expense of their wider distribution network.

Infrastructure, housing and communication technology will be needed, so there will be lots of opportunities for new and existing businesses to expand into these industries.


What is migration?

Migration is the movement of population from one area or country to another. There are currently more people moving into the UK than moving out of the UK.

When there is a shortage of labour, migrants can help some businesses overcome labour shortages and allow them to expand into new and current markets,

Migrants can create demand for certain products which creates new markets for businesses to move into.


How can environmental issues affect businesses strategy?

Customers, investors and the government can put pressure on businesses to be more environmentally friendly.

Businesses can choose to do environmental audits, these compare the firms activities with those required. This will please customers as the business is seem to be conscious of its environmental impact.


What is corporate social responsibility?

This i s the idea that a company should go above and beyond what is required by law to help society, its workforce quality of life and the environment.

The public are more aware of what companies do now more than they were in the past. Companies face pressure to act responsibly if not consumers are not going to buy goods from a competitor that they believe to be more ethical.


Advantages of CSR?

It improves brand loyalty and attracts new customers through positive publicity - even though the public may be sceptical and think it is just a pr stunt.

People will choose to work for firms with good CSR records over firms with bad ones so they will attract more talented applicants.

Employee morale will improve and they will be more motivated to work for and stay with the company.


Disadvantages of CSR

CSR has costs, which shareholders may see as a misuse of funds. This can lead to them withdrawing their investment, or pressuring firms to stop CSR activities.

The costs may be passed on to customers. Most customers are prepared to pay for 'socially responsible' products, however if the market is price sensitive, sales will fall.