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Business A Level > 2.5 External Influences > Flashcards

2.5 External Influences Flashcards

1
Q

inflation

A

a sustained increase in the average price level of an economy

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2
Q

demand

A

how much of a good or service a consumer wants and is able to pay for

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3
Q

what is GDP

A

measure of the value of output (goods produced) in the economy
its a value used to assess changes in economic growth

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4
Q

what is real GDP

A

is a sustained increase in the average price level of an economy

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5
Q

how is the rate of inflation measured

A

the annual percentage change in the level of prices as measured by the consumer price index (CPI)

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6
Q

what is deflation?

A

sustained fall in the general price level. in this situation the rate of inflation becomes negative

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7
Q

what is the bank of England’s target for inflation? and why?

A

2%
to achieve a sustained period of low and stable inflation. price stability

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8
Q

two main causes of inflation

A
  1. demand pull - when there is excess demand
  2. cost push -when costs rise
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9
Q

when does cost push inflation occur

A

Occurs when costs of production are increasing

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10
Q

Causes of cost push inflation

A
  • External shocks (e.g. commodity price fluctuations)
  • A depreciation in the exchange rate
  • Acceleration in wages
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11
Q

What happens during cost push inflation

A
  • Firms raise prices to protect their profit margins – better able to do this when market demand is price inelastic
  • “Wages often follow prices”
  • A rise in inflation can lead to rising inflationary expectations
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12
Q

when does demand pull inflation occur? what do businesses do during it

A

Occurs when there is excess aggregate demand in the economy or market
Businesses respond to high demand by raising prices to increase their profit margins

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13
Q

Demand-pull inflation is associated with

A

the boom phase of the business cycle

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14
Q

Possible causes of demand pull inflation

A
  • A depreciation of the exchange rate
  • A reduction in direct or indirect taxation
  • Rising consumer confidence and an increase in the rate of growth of house prices
  • Faster rates of economic growth in other countries
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15
Q

A depreciation of the exchange rate as a cause

A

A depreciation of the exchange rate increases the price of imports and reduces the foreign price of UK exports

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16
Q

A reduction in direct or indirect taxation as a cause

A

A reduction in direct or indirect taxation - consumers have more disposable income causing more demand

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17
Q

Faster rates of economic growth in other countries as a cause

A

providing a boost to UK exports overseas

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18
Q

A rise in general inflation:

A
  • Sales revenue should rise
  • But workers likely to demand higher pay to compensate for consumer price inflation
  • Labour intensive industries more at risk
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19
Q

Input cost inflation

A
  • Cost-push inflation will vary from industry to industry
  • Firms that need to buy significant commodity raw materials may find profit margins squeezed if they cannot pass on increased costs to customers
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20
Q

business effects of inflation

A
  • Industry-wide price rises enable revenues to grow
  • Growing revenues + constant gross margin = higher gross profit
  • Makes using debt as a source of finance cheaper in real terms
21
Q

what is the trade cycle

A

level of economic activity fluctuates over time

22
Q

what is real income

A

real income measure the amount of disposable income available to consumers (e.g. household’s/individuals)

23
Q

factors that affect consumer spending:

A
  • real disposable income
  • employment and job security
  • household wealth
  • expectations and sentiments ( economic uncertainty causes spending to fall, weakening demand)
  • market interest rate
24
Q

what are interest rates?

A

the reward for saving and cost of borrowing expressed as a percentage of the money saved or borrowed

25
Q

what is direct tax

A

takes on income:
- firms - corporation tax
- individuals - income tax, national insurance

26
Q

what is indirect tax

A

taxes on spending
e.g. VAT/duty - fuel, alcohol

27
Q

what is fiscal policy

A

involves the use of government spending, taxation and borrowing to affect the level and growth of aggregate demand, output and jobs

28
Q

what can expansionary fiscal policy do?

A
  • cut in personal income tax rates
  • cuts in indirect taxes e.g. VAT
  • cut in corporation tax
  • cut in tax on interest from saving
29
Q

what is pestle

A

political
economical
social
technology
legal
environmental & ethical

30
Q

pestle factors
political

A
  • competition policy
  • industry regulation
  • government spending and tax policies
  • business policy and incentives
31
Q

pestle factors
economical

A
  • interest rates
  • consumer spending & income
  • exchange rates
  • business cycle (GDP)
32
Q

pestle factors
social

A
  • demographic change
  • impact of pressure groups
  • consumers fashion
  • changing lifestyles
33
Q

pestle factors
technological

A
  • disruptive technologies
  • adoption of mobile technology
  • new production and processes
  • big data and dynamic pricing
34
Q

pestle factors
legal

A
  • employment law
  • minimum/ living wage
  • health and safety laws
  • environment legislation
35
Q

pestle factors
environmental and ethical

A
  • sustainability
  • tax practices
  • ethical sourcing
  • pollution and carbon emissions
36
Q

There are five areas of legislation that have significant impacts on businesses

A
  • Consumer protection
  • employee protection
  • Environmental protection
  • Competition policy
    -Health and Safety
37
Q

Environmental Legislation covers areas including

A

aims to hold businesses responsible for their environmental impact
- Pollution
- Destruction of wildlife
- Traffic congestion
- Air quality
- Resource depletion

38
Q

what is employment protection

A

acts that make sure the uk worker gets paid when sick, not discriminated against, fair wage, treated equally

39
Q

additional costs due to legislation

A
  • training staff
  • paying redundancy costs
  • paying minimum wage
  • buying protective equipment
  • paying pensions
40
Q

legislation under the employment law

A
  • equality act 2010
  • national minimum wage act 1998
  • pensions act 2010
  • work time regulations 1998
  • health & safety at work act
  • employment rights act
41
Q

Differentiation

A

business that struggles to differentiate is going to find it difficult to compete. One pizza restaurant must appear to be offering a different pizza to another.

42
Q

Perfect competition

A

Consumers have ‘perfect knowledge’ (know what is being offered by all businesses).
Only able to make normal profits. Prices too high consumers will buy elsewhere.

43
Q

Monopolistic competition

A

imperfect competition meaning there are some restrictions on competition. Large numbers of relatively small firms compete in the market. Differentiated through branding. They are not price takers but may have some degree of control over the prices that they charge.

44
Q

Oligopoly

A

less likely to compete on price as subject to a potential price war – on advertising and service.

45
Q

Barriers to entry into a market

A
  • Legal restrictions such as patents.
  • High start up costs
  • Promotion or advertising required
  • Arrangements between businesses
  • Collusion between cartels.
46
Q

Other influences on the market

A
  • Rivalry among competitors
  • Rate of market growth – fast growing competition less intense and individual firms have more scope to influence the market.
  • Bargaining power of customers – customers influence is likely to be lower.
  • Bargaining power of suppliers
47
Q

what is collusion

A

secret or illegal coorpation

48
Q

what is a competitive market

A

marketplace where there are a large number of buyers and sellers, no single buyer or seller can affect the market

49
Q

what is degree of competition

A

quantity and intensity of businesses operating in the same market, that provide the sae/similar good

Business A Level (12 decks)

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