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A LEVEL BUSINESS - TH > 2.5 external influences > Flashcards

2.5 external influences Flashcards

1
Q

what does GDP stand for?

A

gross domestic product

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2
Q

what is GDP?

A

a measure of a country’s total output of goods and services over a period of time

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3
Q

how are GDP changes over time respresented?

A

the business cycle

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4
Q

what are the different descriptors for levels of gdp?

A

peak = high level of GDP
trough = low level of GDP
expansion = increase in GDP
contraction = decrease in GDP

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5
Q

stages in the business cycle:

A

-boom
-recession
-slump
-recovery

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6
Q

what is a boom?

A

high rates of economic growth and production

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7
Q

features of a boom:

A

-high profits
-low unemployment
-high inflation
-shortages in supply
-high confidence

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8
Q

the impact of low unemployment in a boom:

A

-customers’ disposable income increases leading to higher sales revenue

-recruitment and staff retention may become more challenging, businesses may need to pay higher wages

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9
Q

the impact of high confidence in a boom:

A

-businesses look to expand and maximise profit
-production levels are likely to be increased

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10
Q

the impact of high inflation in a boom:

A

-interest rates are likely to rise
-the risk of capital investment rises

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11
Q

what is a recession?

A

output starts to fall & growth declines

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12
Q

features of a recession:

A

-production declines as demand falls
-governments use policies to stimulate growth
-consumer/business confidence starts to fall
-high unemployment

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13
Q

the impact of high unemployment in a recession:

A

-customers have less disposable income and are likely to reduce spending

-businesses may find it relatively easy to recruit workers due to a larger pool of candidates

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14
Q

the impact of low confidence in a recession:

A

-businesses may delay spending decisions and focus on reducing risk
-production levels are likely to be reduced
-businesses will stockpile products

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15
Q

what is a slump?

A

a prolonged period of economic decline

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16
Q

features of a slump:

A

-high levels of unemployment
-high rates of business failure/ closure
-low interest rates
-low levels of spending and investment

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17
Q

impacts of high rates of business failure during a slump:

A

-businesses adopt a strategy of rationalisation
-redundancies, scale down of production and reduction in capacity.
-businesses reduce prices and focus on their most profitable product lines

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18
Q

what is recovery?

A

economy starts to pick up after a period of decline

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19
Q

what is the exchange rate?

A

the price of one currency expressed in terms of another

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20
Q

why are exchange rates important for businesses?

A

-important for businesses that import raw materials and components
-important for businesses that export their products

(a UK business will purchase a foreign currency in order to buy products and services from overseas)

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21
Q

why do exchange rates fluctuate?

A

-changing demand for a currency
-economic growth
-changes to interest rates

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22
Q

what happens if the pound increases in value against other currencies?

A

it strengthens
(one pound can buy MORE of the currency)

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23
Q

what happens if the pound decreases in value against other currencies?

A

it weakens
(one pound can buy less of the currency)

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24
Q

what is the impact on exporting businesses when the currency appreciates?

A

-sales are likely to fall as products become more expensive when compared to overseas competitors
-in order to remain competitive exporting businesses may need to lower prices and accept lower profit margins

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25
Q

what is the impact on importing businesses when the currency appreciates?

A

-costs are likely to fall as supplies from overseas become cheaper when compared to those domestically-produced

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26
Q

what is the impact on importing businesses when the currency depreciates?

A

-sales are likely to rise as products become cheaper when compared to overseas competitors
-businesses may choose to increase selling prices to increase profit margins

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27
Q

what is the impact on exporting businesses when the currency depreciates?

A

-costs are likely to rise as supplies from overseas become more expensive when compared to those domestically-produced
-businesses may seek domestic suppliers to reduce costs and maintain profit levels

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28
Q

what is inflation?

A

the general rise in prices in an economy over time

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29
Q

how is inflation measured?

A

inflation is measured by the consumer price index (CPI)

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30
Q

is low or high inflation more manageable for a business?

A

-low rate of inflation, as it can be managed by businesses
-a high rate of inflation will increase costs and reduce demand

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31
Q

what is the CPI?

A

it measures monthly changes in the prices of a range of goods and services and compares these changes to earlier periods, calculating the rate of inflation

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32
Q

what is deflation?

A

a decrease in the general price level of goods and services

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33
Q

what are the impacts of deflation?

A

-businesses may struggle to pay debts - assets may have to be sold to pay off debts
-low demand may lead to redundancies

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34
Q

what are the impacts of low inflation?

A

-businesses feel confident in a stable economic environment
-businesses may look to invest and grow

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35
Q

5 issues caused by inflation:

A

-increased costs
-higher repayments on loans
-consumers change spending habits
-international competitiveness reduces
-uncertainty

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36
Q

issues caused by inflation: increased costs

A

-workers often demand higher wages to compensate for the increase in the cost of living
-suppliers increase the cost of raw materials and components
-utilities become more expensive

-businesses may have to increase prices

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37
Q

issues caused by inflation: higher repayments on loans

A

borrowing is more expensive

38
Q

issues caused by inflation: consumers change spending habits

A

-deters consumers from making significant purchases
-may reduce demand for usual lower priced wants too

39
Q

issues caused by inflation: international competitiveness reduces

A

-domestic inflation rates are higher than those in other countries
-UK businesses are less likely to be competitive and lose sales
-imports of overseas competitors are likely cheaper than domestic goods

40
Q

issues caused by inflation: uncertainty

A

-occurs when businesses cannot predict prices even in the short term
-survival may need to become the key business objective until stability returns

41
Q

what is the interest rate?

A

a percentage reward offered for saving money and the percentage charged for borrowing money

42
Q

impact of high interest rates on business activity:

A

-business spending falls
-inflation falls
-stronger £
-less demand overseas

43
Q

impact of high interest rates on consumer activity:

A
44
Q

impact of low interest rates on consumer & business activity:

A

-consumer and business spending rises
-inflation may rise
-weaker £

45
Q

government spending and taxation is a means of…

A

controlling economic activity

46
Q

what is the budget balance?

A

the difference between government income (mainly taxes) and expenditure in a fiscal year

47
Q

what two types of tax do the government impose?

A

direct and indirect

48
Q

what are direct taxes?

A

levied on income

49
Q

what are indirect taxes?

A

levied on spending (eg: VAT)

50
Q

what does expansionary policy do?

A

reduces direct and indirect tax to increase disposable income
(Iincreases borrowing)

51
Q

what does contractionary policy do?

A

increases direct and indirect taxes to slow down growth

52
Q

examples of government expenditure:

A

infrastructure, human capital, goods, services

53
Q

impact of an increase in taxation on revenue:

A

disposable income will decrease →
demand for products may fall →
revenue may fall for businesses

increased VAT will make products more expensive → customers may switch to alternative products

54
Q

impact of an increase in taxation on costs:

A

-operating costs will rise → charge higher prices → lower sales & profit

55
Q

when does economic uncertainty occur?

A

when it is difficult to forecast the level of supply and demand in an economy

56
Q

what will change about businesses due to economic uncertainty?

A

-planning will be difficult
-they will bev reluctant to make significant decisions (especially about capital expenditure)

57
Q

how can businesses be ready for economic uncertainty?

A

-building up cash reserves when times are good
-keeping informed about the economic climate
-being ready to take advantage of opportunities when they arise

58
Q

define legislation:

A

laws and regulations passed by governments that require businesses and individuals to conduct their behaviour in a particular manner

59
Q

five areas of legislation that have significant impacts on businesses:

A

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

60
Q

what does consumer protection aim for?

A

ensure that consumers are treated fairly by the companies they buy from

61
Q

what areas does customer protection cover?

A

-the safety of products
-the standard and quality of products
-the rights of customers if they are unhappy with their purchase
-the product information that must be given to customers

62
Q

downsides of customer protection:

A

meeting the legislation results in increased business expenditure, which may reduce profitability

63
Q

what does employee protection aim for?

A

to prevent the exploitation of workers

64
Q

what areas does employee protection aim cover?

A

-pay and working conditions
-equality of employment rights for marginalised groups (e.g. those with disabilities) to avoid discrimination
-the right to belong to a trade union and take industrial action
-contracts and termination of employment

65
Q

what are the 4 impacts of employee protection legislation on businesses?

A

-changing working practices
-compliance costs
-potential penalties
-rewards through workforce
-higher labour costs

66
Q

impacts of employee protection legislation: changing working practices

A

-recruitment and selection procedures require regular review to avoid unlawful or discriminative practice
-working conditions may need to improve

67
Q

impacts of employee protection legislation: compliance costs

A

-frequent training & specialist HR advice
-legal advice or representation

68
Q

impacts of employee protection legislation: potential penalties

A

fines may be issued and the businesses reputation may be damaged if employment legislation is broken

69
Q

impacts of employee protection legislation: rewards through workforce

A

businesses that operate legally are likely to have high staff retention, motivated and productive staff

70
Q

impacts of employee protection legislation: higher labour costs

A

-business must ensure that workers receive the minimum wage
-safety equipment
-provision of rest breaks

71
Q

what do environmental protection laws aim for?

A

to hold businesses responsible for their environmental impact

(making business pay for the full cost of cleaning up or repairing any damage to the environment caused by their production process)

72
Q

which areas do environmental laws cover?

A

-pollution
-destruction of wildlife
-air quality
-resource depletion

73
Q

what may happen if a business doesn’t follow environmental legislation?

A

they may be fined or forced to cease commercial activity until they resolve problems they have caused

74
Q

what does competition legislation aim to do?

A

protect the interests of both consumers and businesses by restricting anti-competitive practices

75
Q

what areas do competition legislation cover?

A

-cartel activity & collusion
-anti-competitive practices
-abuse of market power

76
Q

what does health and safety legislation aim to cover?

A

tells businesses to operate in a way that protects the physical and mental wellbeing of its employees and contractors as well as its customers

77
Q

what areas do health and safety legislation cover?

A

-adequate breaks
-temperature and noise levels
-safety equipment
-hygienic, safe and sanitary conditions
-preventing stress

78
Q

the effects of a business following health and safety legislation:

A

financial and time costs:
-staff training and supervision
-changes to working hours and rest provisions
-arrangement of manuals, signage and safety documentation
-purchase and maintenance of safety equipment

79
Q

consequences of not following health and safety legislation:

A

-fines
-investigation by the health and safety executive
-some cases can lead to prosecution

80
Q

what is the competitive environment?

A

the degree to which a business is affected by rivals that operate in the same market

81
Q

competition & response speed:

A

-the threat competition presents to businesses operating in a market will determine how quickly the business responds
-the greater the threat, the quicker the response required

82
Q

determinants of competitiveness:

A

-the number and size of competitors in the market
-the pace of innovation
-the growth rate of the market
-the level of differentiation between competitors

83
Q

positive impacts of competition on businesses:

A

-improved efficiency (to reduce average costs)
-a increased innovation
-wider product ranges

84
Q

negative impacts of competition on businesses:

A

-a fall in prices (leading to lower profit margins)
-increased costs of promotion

85
Q

how the size of the market affects competition:

A

-the level of competition is likely to be less in smaller markets, but this is not always the case
-small markets may have a limited population; therefore any two businesses can have significant rivalry

86
Q

define market size:

A

the number of customers and sellers in a particular market

87
Q

advantages of entering a small market:

A

advantages:
-less competition
-easier to get loyal customer
-the specialised knowledge or skills required may well limit the competition
-the higher costs of production may well put off new businesses from launching

88
Q

disadvantages of entering a small market:

A

disadvantages:
-few economies of scale
-businesses may struggle to support a high volume of goods due to limited demand

89
Q

advantages of entering a large market:

A

-wider customer base
-less volatility than smaller markets

90
Q

disadvantages of entering a large market:

A

-competition from established businesses
-higher costs of promotion
-challenges in deciding their pricing strategy

A LEVEL BUSINESS - TH (7 decks)

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