(2.5) External Influence

Question 1

What is inflation?

Answer 1

When the general price of things increase overtime

Question 2

What is deflation?

Answer 2

When the general price of things decrease over time

Question 3

What is exchange rates?

Answer 3

The price of one currency for another

Question 4

What is interest rates?

Answer 4

The cost of borrowing or the reward for saving money

Question 5

What are the 4 stages of the business cycle in order and what do they mean?

Answer 5

Boom
Downturn
Recession
Recovery/ Upswing

Question 6

How does changes of inflation effect businesses?

Answer 6

Increased costs - changing prices costs money
Uncertainty - fluctuations
Borrowing and lending - increased interest
Consumer reactions - save more
International competitiveness - overseas companies may not want to pay higher prices and home country people many shop overseas

Question 7

How does changes of exchange rates effect businesses?

Answer 7

Impacts businesses costs if the are buying from overseas

Could help selling goods in overseas

Question 8

How does changes in interest effect businesses?

Answer 8

Makes borrowing expensive if ingress increases, therefore, less likely to borrow and more likely to save

Consumers and more likely to save if ingress increases

Question 9

How does changes of taxation and government spending effect businesses?

Answer 9

Increased tax may make customers save their money

When the government spends money road works can improve and education when could help businesses transport

Question 10

How does the business cycle effect business?

Answer 10

Output - Increase output during a boom, decreased output during recession
Profit - Increased profits during a boom
Business confidence - high confidence during the boom and recovery stage
Employment - employees more during a boom
Business start ups/closures - more business start ups in a boom and closures during a recession

Question 11

What is the effects of economic uncertainty on the business environment?

Answer 11

Decision making - unpredictable behaviour
Unexpected events -
Business confidence -

Question 12

How does customer protection affect businesses?

Answer 12

Increases costs - Changing products to ensure safety
Quality control - Customers must get what’s expected. Eg drink companies not consistently filling up the bottles to the amount stated on the bottle
Dealing with customers complaints - Businesses have customer service departments to counter customers complaints
Changes in business practice - Ensure businesses are treating their customers fairly

Question 13

How does employee legislations affect businesses?

Answer 13

Negative:
Compliance costs - Background checks and right to work checks, insurance policies, provide financial details to the HMRC
Higher labour costs - Businesses have to meet national minimum wages
Changing working practices - Having recruitment procedures that help prevent discrimination
Loss of flexibility - Employees may ask for flexible working which may disrupt the businesses work flow
Penalties - Businesses who fail to comply may face penalties which could damage their reputation

Positive:

• Businesses are unable to exploit customers by lowering their wages
• Improves employee motivation which could improve motivation
• Improve businesses culture which could improve their image

Question 14

How does environmental legislations affect businesses?

Answer 14

Marketing - By businesses adapting environmental legislation it could help with marking to encourage more people to purchase environmentally friendly products. However this may not be the case for oil companies
Finance - The upfront costs may be expensive. It can help a business reduce their costs which could help gain a competitive advantage.
Operations Management - Could lead to businesses changing their materials to become more sustainable
Human Resources - Staff may need to be retrained or higher skilled workers may be required.

Effects businesses most who are high polluters.

Question 15

How does competition policy affect businesses?

Answer 15

Positive:
Designed to promote competition which firms can benefit from. Eg lower barriers of entries may make it easier for new businesses to get into the market
May help benefit the economy as it encourages innovation and efficiency. This could encourage businesses to develop new products, reduce costs and make progresses into overseas markets. This could help generate more revenue and profit from exports. This could also raise income and employment.

Negative:
Can slowdown the process of mergers and takeovers which can cost the businesses a lot of money.

Question 16

How does health and safety legislations affect businesses?

Answer 16

Costs:
Training costs, health and safety officer,

Penalties:
Failure to comply could lead to accidences and fines

Benefits:
Good health and safety record could lead to a positive reputation, which could make it easier to recruit.
Makes employees feel protected.
Increased productivity as employees aren’t worried to get any injuries which helps reduce absences.

Question 17

What are the 4 government objectives?

Answer 17

Low and stable inflation
Full employment (low unemployment)
Keep borrowing down (balance of payments equilibrium)
Help the economy grow (increase output, spending and investment)

Question 18

What is the economic growth (GDP)?**

Answer 18

The total market value of all final goods and services produced within a country in a given period

Question 19

What is the impact of legislations on businesses?

Answer 19

Can increase costs, limit competitiveness, damage business reputation

Can create opportunities for some businesses and encourage innovation.