2.5 Flashcards
High inflation meaning
Increased costs of raw materials and wages → reduces profit margins.
Consumers’ real incomes fall → demand for non-essential goods may fall.
Menu costs for firms constantly adjusting prices.
Low inflation meaning
Predictable costs → easier to plan and budget.
Consumers may spend more instead of saving → boosts sales.
High IR meaning
More expensive borrowing → less investment and lower consumer spending (especially on credit).
Consumers save more → less disposable income spent.
Low IR meaning
Cheaper loans → encourages business expansion and consumer purchases.
Consumers may spend more and save less.
What happens in boom,recession,recovery,slump
Boom → High demand, low unemployment, high consumer confidence.
Recession → Low demand, job losses, reduced consumer spending.
Recovery → Increasing growth, investment begins to rise.
Slump → Deep downturn, very low activity.
The Effect of Economic Uncertainty on the Business Environment
Less consumer confidence → reduced spending.
Delays in investment → businesses may postpone major decisions.
Increased risk → makes it harder to forecast, plan budgets, and set long-term goals.
More cautious behavior → affects recruitment, marketing, expansion.
Define consumer protection and give adv and dis
Consumer protection-Laws protecting customers from unfair treatment, poor-quality goods, or misleading marketing. Eg Consumer Rights Act 2015
Positive Effects:
Builds consumer trust and loyalty.
Reduces risk of legal action or fines.
Improves brand reputation.
❌ Negative Effects:
Increases compliance costs (e.g. better customer service, returns policies).
More administration and training required.
Define employee protection and give adv and dis
Employee protection-Laws ensuring fair treatment of employees, including minimum wage, anti-discrimination, holiday/sick pay, and redundancy rights. Eg National Minimum Wage Act.
Positive Effects:
Better motivation and morale.
Reduced staff turnover.
Builds a positive workplace culture.
❌ Negative Effects:
Higher labour costs (e.g. minimum wage, benefits).
Time and money spent on HR processes and training.
Legal risk if laws are breached.
Define environmental protection and adv and dis
Environmental protection-Laws designed to reduce pollution, waste, and environmental harm caused by business activity.
Examples: Environmental Protection Act 1990
Positive Effects:
Promotes sustainability and ethical branding.
Attracts eco-conscious customers and investors.
❌ Negative Effects:
Increases costs of compliance (e.g. eco-packaging, renewable energy).
May require changes to operations, new technology, or production processes
Competition policy
Laws that promote fair competition and prevent anti-competitive practices like monopolies, price fixing, or abuse of market power. Eg CMA
ositive Effects:
Encourages innovation and efficiency.
Prevents dominant firms from abusing power, creating a level playing field.
❌ Negative Effects:
Limits ability to collaborate or merge with other firms.
May face investigations or fines if found in breach.
Health and safety and give adv and dis
Health and safety-Laws that ensure safe working conditions for employees and visitors.
Example: Health and Safety at Work Act 1974.
Positive Effects:
Reduces accidents, injuries, and absenteeism.
Boosts employee confidence and morale.
Avoids legal claims and compensation costs.
❌ Negative Effects:
Costs for training, equipment, inspections.
Time taken to ensure full compliance.
