2.5 external influences

Question 1

what are economic influences?

Answer 1

changes in the economy as a whole and how they affect businesses

Question 2

who is involved in the economy?

Answer 2

businesses, consumers and the government

Question 3

what are the five external factors

Answer 3

• business cycle
• taxation by the government
• interest rates
• exchange rates
• inflation

Question 4

what happens in a boom?

Answer 4

• high consumer spending and low employment

- prices start to rise due to demand

Question 5

what happens in a recession?

Answer 5

• falling consumer spending means lower profits for a business
• unemployment rates increase

Question 6

what happens in a slump/depression?

Answer 6

• prolonged period of decline

- lack of investment and prices start to fall

Question 7

what happens in a recovery?

Answer 7

• consumers begin spending and businesses’ confidence increase
• investment and employment starts rising

Question 8

what is inflation?

Answer 8

percentage annual rise in price levels

Question 9

what is inflation measured with?

Answer 9

CPI - consumer prices index

Question 10

process of CPI for inflation

Answer 10

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

Question 11

effects of inflation on businesses

Answer 11

• benefit firms with large loans as it erodes the real value of money
• however, damages profitability - less profit to cover fixed costs

Question 12

interest rates

Answer 12

• cost of borrowing or reward for saving

Question 13

how do rising interest rates affect businesses?

Answer 13

• less consumer spending due to borrowings attractiveness
• prices rise due to lower demand
• increases business liabilities

Question 14

exchange rates

Answer 14

the expression of one currency in terms of another

Question 15

appreciation and depreciation?

Answer 15

AP - rise in value

DP - fall in value

Question 16

Taxation and government spending

Answer 16

• if governments increase income tax, consumers will have less disposable income
• also if governments see prices rising they may decrease their spending

Question 17

What is legislation?

Answer 17

laws initiated by the government that relate to business operations, consumers and the environment

Question 18

what is the laissez-faire approach?

Answer 18

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

Question 19

what are the 5 main areas in which law affects business?

Answer 19

• consumer protection
• employee protection
• environmental protection
• competition policy
• health and safety

Question 20

CONSUMER PROTECTION outline sales of goods and trade descriptions act

Answer 20

sales of goods
- must be fit for purpose and if not refund available
trade descriptions
- ensure claims are true about the product

Question 21

EMPLOYEE LEGISLATION areas

Answer 21

• minimum wage
• contract of employment
• sick pay/maternity
• redundancy
• trade union

Question 22

ENVIRONMENTAL PROTECTION landfill tax and environmental protection act

Answer 22

landfill tax
- £90 per tonne of waste
EP act
- emissions control

Question 23

COMPETITION POLICY

CMA

Answer 23

• investigates takeovers and mergers (to prevent unfair competition)
• investigating anti-competitive practices

Question 24

what is collusion?

Answer 24

• agreements and negotiations between competitors to disrupt the markets equilibrium - unfair competition

Question 25

HEALTH AND SAFETY ACT

Answer 25

• protection of employees from harm (physical conditions must be safe)