2.5- external influences Flashcards
What is legislation
process of making/ enacting laws
Name the 4 aims of legisaltion
-regulates rights & duties of ppl carrying out business to ensure fairness
-ensure treatment of employees is a
What is employee protection
-aims to state & uphold minimum standards of treatment employees can expect from employer
What issues does employee protection cover
-fair pay
-sick leave
-maternity, paternoty leave
-employment contracts
-relationships with trade unions
-ability of businesses to get rid of staff
-responsibilities of businesses to employees whp are made redundant
what are the 5 areas covered by employee protection laws
-minimum wage
-right to contract of employment
-increased right to sick
-redundancy
-trade union rights
what are the two different laws for the environment
environmental protection act 1990
environment act 1995 (which established the environmental agency)
What is inflation
% rate which average prices rise during a year within the UK economy
Name the 3 circumstances in which inflation has a major effect
-when rates of inflation are significantly above 2%
-when prices are rising faster than average earnings
-when UK inflation is ^ than other countries
Name the 3 effects of inflation on businesses
-firm with long-term fixed price contract -> find if costs ^ whike contract is being completed -> fixed price doesnt cover ^ level of costs -> damaging profitability
-firms with long-term borrowing -> find real value of money they repay will be lower following period of high inflation
-if inflation = ^ in UK -> UK businesses may lose competitiveness to foreign rivals -> foreign firms can charge lower prices
What is an exchange rate
value of one currency expressed in another
Which businesses would be affected by the exchange rate of the pound
UK businesses
Give the acronym explaining the effect of a stronger pound
SPICED
-Strong
-Pound
-Imports
-Cheaper
-Exports
-Dearer
Explain what happens to importants and exports when the pound appreciates
-e.g -> £1 was $1.60 but now buys $1.80
exports -> UK exports get pricier -> sales vol fall
imports -> imports to UK get cheaper -> harder for UK firms to compete
Explain what happens to importants and exports when the pound depreciates
e.g. £1 was at $1.30 but now falls to $1.15
exports -> UK exports get cheaper -> sales vol rise
imports -> to UK -> more expensive -> UK firms can compete better
What are interest rates
amount charged by lender per year for borrowing money
Name 4 effects of an increase in interest rates on businesses
-consumers -> have less money to spend as payments -> mortgages will ^ -> reduce demand
-costs ^ -> price of borrowings ^ for business
-consumers less likely to ‘borrow to buy’ -> e.g. cars -> brought on credit -> will ^ -> demand falls
-businesses less likely to invest
Why do the government change levels of taxation and government spending
to manage the economy and keep it under control
What would occur in terms of government spending and taxation to reduce level of unemployment
government spending ^ -> extra spending on road building, health services
taxation down -> enables fams to have more money avaliable
Name the 3 effects of the business cycle on businesses
-if economy slows -> consumers reduce spending
-in boom periods -> consumer demand ^ rapid
-changes in consumer income result due to changes in wages/ unemployment
Explain the effect on inferior goods when real incomes increase & decrease
-incomes ^ -> demand decreases -> consumers stop buying cheaper products
-incomes decrease -> demand ^ -> consumers switch to cheaper goods -> save money
What is the point of laws within business
ensures businesses behave in an acceptable way
What is the purpose of consumer protection legislation
ensures business actually deliver what they promise to the consumer
Name the 2 major acts of parliament covering consumer protection
-sale of goods act
-trade descriptions act
What is the purpose of employee protection
states the minimum standard of treatment employees can expect from their employer
Name the issues employee protection covers
-fair pay
-sick leave
-maternity/ paternity leave
-employment contracts
What might minimum wage as part of employment law lead to for firms
-^ labour costs
-more motivated staff -> fair wage satisfies basic needs
What might right to contract of employment as part of employment law lead to for firms
-meets employees security needs
-reduces businesses flexibility in how they use staff
What might increased right to sick, maternity leave as part of employment law lead to for firms
-^ cost of paying for cover staff
-staff may feel more valued -> reducing staff turnover -> decreases costs of recruiting new staff
What might redundancy as part of employment law lead to for firms
-expensive -> could impact cash flow
How has environmental legislation laws affected the way businesses run
-materials for products have changed
-recyclable materials
-landfill taxes
Why do governments ensure there is competition in all markets
-as if markets didn’t have competition -> prices would be high, service standards poor, no innovation
What are the government funded body Competition and Market Authority (CMA) responsible for
-investigating takeovers, mergers
-investigating allegations of anti-competitive practices
-taking legal action against those charging high prices within market
What does the work of the CMA ensure
ensures:
-comapnies set competitive prices
-prevention of powerful mergers/ takeovers forming
What is the purpose of the health and safety law
designed to protect employees & customers within workplace
Name the 3 key aspects of the health and safety at work act 1974
-safe physical conditions
-precautions firms are required to take when planning their work
-way in which hazardous substances are treated within workplace
Name 3 positives of the health and safety act on businesses
-prevents incidents that create negative publicity
-motivates employees -> feel safe
-avoids delayed production as a result of accidents
Name 3 negatives of the health and safety act on businesses
-extra paperwork
-^ costs
What is the competitive environment
refers to how other firms products are in competition and how fierce rivalries are
Name the3 types of compeitition evident in markets
-one dominant business (market dominated by 1 business)
-competition between a few giants
-fireccely competitive market (markets characterised by many small businesses)
What is competition dmoniated by one business bad for consumers
-consumers have little choice
-high prices
-little innovation
-little customer service
What is a monopoly
single business that dominates supply in given market
Name 3 barriers to entry sued by a business if they want to become an effective monopoly
-patents
-strong brands, high advertising budgets
-^ spending on infrastructure
What is an oligopoly
market dominated by a few major suppliers
Why do companies in an oligopoly rarely compete on price
fear a price war would start -> prices becoming lower & lower -> lower profit margins
this leads to non-price competition existing
Explain the 5 aspects of non-price competition
-advertising
-product design
-product features
-branding
-technical innovations
Describe the characteristics of a fiercely competitive market
-consist of many small businesses competing on basis of price
-keeps profit margins low
-consist of commodity products
What is competition like within big markets
-fair degree of competition
-dominant producers recognise they must offer good service to prevent opening opportunity to rival
What is competition like within small markets
-easier to build up barriers to entry
-due to fewer customers, lower sales
What occurs in terms of competition for growing markets
growing markets -> attracts new entrants -> higher profits
What occurs in terms of competition for shrinking markets
shrinking markets -> established firms exiting -> due to low profitability
What is collusion
occurs when 2 or more rivals agree to fix supply/ prices within market
-illegal
