2.3 How Changing Economic Circumstances Impacts Different Businesses

Question 1

Change to interest rates - effect on business

Answer 1

If interest rates rise then the cost of borrowing will rise and this will mean that the costs for a business may increase, this could lead to a fall in profits

A fall in interest rates means that the cost of paying loans will fall, which may lead to an increase in profits

Question 2

Interest rates – impact on consumer spending

Answer 2

If consumers can borrow they can buy; clothes, cars, washing machines, houses, caravans, holidays, and just about everything else

If the cost of borrowing goes up then consumers decide to save instead of spend

Question 3

How unemployment affects business

Answer 3

It encourages entrepreneurship.

Many unemployed people start their own business
instead of looking for jobs, they become self-employed

Sites like Ebay and Ebid have helped many people to set up their own online business

Lower wage costs – as there are more people out of work looking for work, a business can pick and choose the candidates, it can also lower the wage rates

This is called downward pressure on wages

Question 4

Types of consumer spending

Answer 4

Inferiorgoods
– As income rises&raquo_space;»demand will fall (we don’t buy so many poor quality goods when our income goes up)

Normal goods
– As income rises»»demand will rise – As income falls»»demand will fall

Luxury goods
– As income rises»»demand will rise (we choose to buy holidays, cars and jewellery when we have more money)

Question 5

The economy meaning

Answer 5

The economy is made up of millions of individuals consumers, many thousands of businesses and governments. All take decisions on what to buy and produce

Question 6

Consumers meaning

Answer 6

Consumers are individuals who buy goods and services from businesses

Question 7

Economic climate meaning

Answer 7

The economic climate describes the state of key factors within a country such as the level of goods and services produced and the number of jobs availiable

Question 8

Interest rates meaning

Answer 8

Interest rates refer to the cost of borrowing money or the reward for saving money, expressed as a percentage

Question 9

Overdraft meaning

Answer 9

An overdraft is a flexible loan which businesses can use, whenever necessary, up to an agreed limit

Question 10

Consumer spending meaning

Answer 10

Consumer spending refers to the value of goods and services bought by consumers over a time period, usually a month or a year

Question 11

Income elastic products meaning

Answer 11

Income elastic products are those whose sales are sensitive to changes in consumers’ income