2.5 Economic Influences Flashcards by Isabel Thornton

Define competitiveness

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

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Define competitive advantage

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

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Factors affecting competitiveness

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

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Define perfect competition

Firms compete on an equal basis - products similar

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Define monopolistic competition

Competition between firms producing differentiated goods

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Define oligopoly

Small number of large firms dominate the market charging similar prices

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Define Monopoly

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

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Define Legislation

Rules and regulations which a business has to comply with

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What are the main legislations influencing businesses?

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

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Describe the Consumer protection law

-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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Describe the employee protection law

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

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Describe Environmental protection laws

-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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Describe competition policy laws

-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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Describe Health & Safety legislation

-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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Define Price fixing

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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Penalties for getting caught breaking legislations?

-Criminal prosecution
-Fines
-Investigations by officials

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What is the business cycle/ economic cycle?

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

what happens in a Boom?

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

What happens in a recession?

-High unemployment
-Low inflation
-Low business confidence

What happens in a slump/depression?

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

What happens in a recovery?

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

Define Interest rate?

Percentage reward offered for saving and percentage charged for borrowing.

What happens when interest rates fall?

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

What happens when interest rates rise?

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

What is an exchange rate?

The price of one currency expressed in terms of another

What causes exchange rates to change?

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

What happens during an Appreciation on an exporting business?

-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.

Effect of an Appreciation on an Importing business?

-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.

Impact of Depreciation on an importing business?

-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.

Impact of Depreciation on exporting businesses?

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

Impact of increased taxes on revenue

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

Impact of increased taxes on costs

-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

Define direct tax

Levied on income eg corporation tax

Define indirect taxes

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

Impact of economic influences on business decisions

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

How can businesses be prepared for economic uncertainty?

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

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

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

Define market size

Number of customers and sellers in a particular market

What might an increase in compeition mean for businesses?

-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

How does competition benefit customers

-Choice -Lower prices -Good quality products

Why do levels of compeition change?

-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