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Business Theme 2 Managing business activities > 2.5 Economic Influences > Flashcards

2.5 Economic Influences Flashcards

1
Q

Define competitiveness

A

The ability of a business to deliver better value to customers than its competitors

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2
Q

Define competitive advantage

A

The ability to add more value for its customers than its rivals and attain a position of relative advantage

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3
Q

Factors affecting competitiveness

A

-Size of business
-Extent of barriers to entry
-Legal factors
-Extent to which products can be differentiated

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4
Q

Define perfect competition

A

Firms compete on an equal basis - products similar

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5
Q

Define monopolistic competition

A

Competition between firms producing differentiated goods

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6
Q

Define oligopoly

A

Small number of large firms dominate the market charging similar prices

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7
Q

Define Monopoly

A

Where one business has complete control over the market and theres no competition

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8
Q

Define Legislation

A

Rules and regulations which a business has to comply with

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9
Q

What are the main legislations influencing businesses?

A

-Consumer protection laws
-Employee protection laws
-Environmental protection laws
-Competition laws
-Health & Safety laws

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10
Q

Describe the Consumer protection law

A

-Aim to ensure consumers treated fairly by businesses
-Legislation covers: Safety & standards of product, rights if customer not happy, product information must be given

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11
Q

Describe the employee protection law

A

-Prevents the exploitation of workers
-Covers: Pay & working conditions, equality, discrimination, contracts, right to belong to trade union.

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12
Q

Describe Environmental protection laws

A

-Aims to hold businesses accountable for their impact on the environment
-Covers: pollution, depletion, destruction, congestion
-Businesses who fail to comply may be fined or forced to cease commercial activity.

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13
Q

Describe competition policy laws

A

-Aim to protect interest of consumers & businesses by restricting anti-competitive behaviour
-Covers: Abuse of market power, anti-competitive aquisition activity.

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14
Q

Describe Health & Safety legislation

A

-Make sure businesses operate in a way that protects physical and mental well-being of employees
-Covers: Adequate breaks, preventing stress, hygiene, safe & sanitary working conditions
-Serious breaches can lead to investigation, fines and even prosecution

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15
Q

Define Price fixing

A

Agree prices with competitors
-Cut prices below costs in order to force a smaller or weaker competitor out of the market

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16
Q

Penalties for getting caught breaking legislations?

A

-Criminal prosecution
-Fines
-Investigations by officials

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17
Q

What is the business cycle/ economic cycle?

A

Describes the upturns and downturns in the economy eg slumps, recessions, recovery & booms

18
Q

what happens in a Boom?

A

-High levels of consumer spending
-Business confidence
-Decreasing unemployment
-Increasing inflation

19
Q

What happens in a recession?

A

-High unemployment
-Low inflation
-Low business confidence

20
Q

What happens in a slump/depression?

A

Very weal consumer spending and business investment; many businesses fail, rising unemployment; prices may start falling.

21
Q

What happens in a recovery?

A

-Things start to get better
-Consumers begin to increase spending
-Business feel little more confident
start to invest again

22
Q

Define Interest rate?

A

Percentage reward offered for saving and percentage charged for borrowing.

23
Q

What happens when interest rates fall?

A

-Cost of loans/debt is reduced
-Consumer confidence should be increased
-Disposable income rises
-Cheaper exchange rates and exports

24
Q

What happens when interest rates rise?

A

-Cost of borrowing rises
-Repayments increase
-Pound may get stronger
-Exports expensive

25
Q

What is an exchange rate?

A

The price of one currency expressed in terms of another

26
Q

What causes exchange rates to change?

A

-Changing demand for a currency
-Economic growth
-Changing interest rates

27
Q

What happens during an Appreciation on an exporting business?

A

-Sales likely to fall as product more expensive compared to oversea competition
-In order to stay competitive businesses may need to lower prices & accept lower margins.

28
Q

Effect of an Appreciation on an Importing business?

A

-Costs fall as supplies from overseas become cheaper compared to those domestically produced
-Businesses may expand range of oversea suppliers to further reduce costs & maximise profits.

29
Q

Impact of Depreciation on an importing business?

A

-Costs rise as oversea suppliers become more expensive compared to domestically based suppliers
-Businesses may seek domestic suppliers to reduce costs and maintain profit levels.

30
Q

Impact of Depreciation on exporting businesses?

A

-Sales likely to rise as product becomes cheaper compared to oversea businesses.
-Businesses may increase selling prices to increase profit margins

31
Q

Impact of increased taxes on revenue

A

-Revenue may fall, disposable income is less so demands falls
-Increased VAT makes products more expensive so customers may switch to suppliers

32
Q

Impact of increased taxes on costs

A

-Operating costs rise due to tax, may have to charge higher prices which can reduce sales so profit falls
-Import costs increased when duties raised

33
Q

Define direct tax

A

Levied on income eg corporation tax

34
Q

Define indirect taxes

A

Levied on spending by consumers on goods and services e.g VAT

35
Q

Impact of economic influences on business decisions

A

-Spending and investment may be affected
-Operational decisions may be foregone
-Businesses may avoid paying specific taxes or lower rates of taxation

36
Q

How can businesses be prepared for economic uncertainty?

A

-Building up cash reserves when times are good
-Keep informed about economic climate
-Be ready to take advantage of opportunities when they arise

37
Q

What are some ways a niche brand can compete with mass market businesses?

A

-Focus on USP
-Adjust pricing strategy
-Enhance customer service
-Expand product range

38
Q

Define market size

A

Number of customers and sellers in a particular market

39
Q

What might an increase in compeition mean for businesses?

A

-May loose customers to avoid this firms may have to increase marketing costs or spend more on improving their product
-Alternatively businesses may cut costs to keep prices lower than competitiors to increase demand

40
Q

How does competition benefit customers

A

-Choice
-Lower prices
-Good quality products

41
Q

Why do levels of compeition change?

A

-Businesses may leave markets that are small and shrinking
-Businesses move from smaller to larger markets as they allow for growth
-Growing market may attract new entrants

Business Theme 2 Managing business activities (6 decks)

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