2.5 external influences Flashcards
what are economic influences?
changes in the economy as a whole and how they affect businesses
who is involved in the economy?
businesses, consumers and the government
what are the five external factors
- business cycle
- taxation by the government
- interest rates
- exchange rates
- inflation
what happens in a boom?
- high consumer spending and low employment
- prices start to rise due to demand
what happens in a recession?
- falling consumer spending means lower profits for a business
- unemployment rates increase
what happens in a slump/depression?
- prolonged period of decline
- lack of investment and prices start to fall
what happens in a recovery?
- consumers begin spending and businesses’ confidence increase
- investment and employment starts rising
what is inflation?
percentage annual rise in price levels
what is inflation measured with?
CPI - consumer prices index
process of CPI for inflation
700 items we buy most often, measures changes in the price charged in different stores and locations and then converted into an index`
- allow to see trends and comparisons
effects of inflation on businesses
- benefit firms with large loans as it erodes the real value of money
- however, damages profitability - less profit to cover fixed costs
interest rates
- cost of borrowing or reward for saving
how do rising interest rates affect businesses?
- less consumer spending due to borrowings attractiveness
- prices rise due to lower demand
- increases business liabilities
exchange rates
the expression of one currency in terms of another
appreciation and depreciation?
AP - rise in value
DP - fall in value
Taxation and government spending
- if governments increase income tax, consumers will have less disposable income
- also if governments see prices rising they may decrease their spending
What is legislation?
laws initiated by the government that relate to business operations, consumers and the environment
what is the laissez-faire approach?
conservative governments are happy with relaxed laws on businesses and trust them to treat employees and consumers fairly. They let the market regulate business activity
what are the 5 main areas in which law affects business?
- consumer protection
- employee protection
- environmental protection
- competition policy
- health and safety
CONSUMER PROTECTION outline sales of goods and trade descriptions act
sales of goods
- must be fit for purpose and if not refund available
trade descriptions
- ensure claims are true about the product
EMPLOYEE LEGISLATION areas
- minimum wage
- contract of employment
- sick pay/maternity
- redundancy
- trade union
ENVIRONMENTAL PROTECTION landfill tax and environmental protection act
landfill tax
- £90 per tonne of waste
EP act
- emissions control
COMPETITION POLICY
CMA
- investigates takeovers and mergers (to prevent unfair competition)
- investigating anti-competitive practices
what is collusion?
- agreements and negotiations between competitors to disrupt the markets equilibrium - unfair competition
HEALTH AND SAFETY ACT
- protection of employees from harm (physical conditions must be safe)
