2.3 The Economy's Impact On Business Flashcards
What is the Economic climate defined?
The general condition of the economy, the way that the resources and the production and consumption of goods in the UK are managed
What are Interest rates
Interest rates are the cost of borrowing money or the reward for saving money.
Interest rates are set by the bank of England, they affect loans and overdrafts.
What are the effects of interest rates on businesses?
If interest rates rise then the cost of borrowing will rise and this will mean that the costs for business may increase. If interest rates fall, the cost of paying loans will fall.
If interest rates rise then consumers are more likely to save instead of spend, meaning less products will be bought.
What is unemployment?
The number of people willing to work but out of work and seeking work.
Unemployment rate - this is the percent of the working population out of work
What is Disposable and discretionary income?
When a worker receives their wages they will have to pay tax and national insurance what is left is called their disposable income.
Now they have to pay all their bills, electric, gas, water, food and rent What is left is called their discretionary income - they can spend this on anything (the cinema)
How does unemployment affects businesses?
It weakens consumer buying as people have less money to spend if they are out of work
How does unemployment affects businesses?
It weakens consumer buying as people have less money to spend if they are out of work.
A business can also lower the wages, due to more people wanting the job - this is called downward pressure on wages.
What are the three types of goods?
Inferior goods, normal good and luxary goods.
How is the demand for inferior goods affected?
As income rises, demand will fall (we don’t buy so many poor quality goods when our income goes up)
How is the demand for normal goods affected?
– As income rises»»demand will rise
– As income falls»»demand will fall
How is the demand for luxary goods affected?
As income rises, demand will rise (we choose to buy holidays, cars and jewellery when we have more money)
