2.5 - External Influences Flashcards
Inflation
The general rise in prices in an economy over time.
5 problems caused by inflation
Increased costs
Higher repayment on loans
Consumer change spending habits
Increased costs (inflation)
Workers demand higher wages to compensate for increased cost of living
Suppliers increase cost of raw materials.
Utilities like electricity become more expensive.
Higher repayment on loans (inflation)
Bank of England use base rate to control inflation, making new and variable borrowing more expensive.
Exchange rate
The value of one currency expressed in terms of another.
3 reasons exchange rates fluctuate
Changing demand for a currency.
Economic growth.
Changes to interest rates.
Interest rates
Percentage reward offered for saving money, percentage charged for borrowing money.
Cost of borrowing, reward of saving.
Direct taxes
Levied on income, e.g. income tax and corporation tax.
Indirect taxes
Levied on spending, e.g. value added tax (VAT).
Business Cycle
Describes the upturns and downturns in the level of a country’s economic activity (GDP) over time.
A boom and recession
BOOM - period of time where an economy experiences high rates of economic growth.
RECESSION - When an economy experiences two consecutive quarters of negative economic growth.
Characteristics of a recession
High unemployment
Low confidence for businesses
Low inflation (low price level of goods/services)
Increase in government expenditure.
Less disposable income for customers, so reduced spending.
Characteristics of a boom
Decreasing unemployment.
High confidence and more risky decisions taken.
Increasing rate of inflation.
Improvement in the government budget as tax revenues rise and government expenditure falls.
More disposable income so higher sales revenue.
Staff retention difficult due to higher wage demand.
Legislation
Refers to the laws and regulations passed by governments that require businesses and individuals to conduct their behaviour in a particular manner.
5 areas of legislation
Consumer protection, employee protection, environmental protection, competition policy and health and safety.
Consumer protection laws
Safety of products, standard and quality of products, refunding, product information given to customers.
Employee protection laws
Prevent the exploitation of workers.
Pay and working conditions, equality of marginalised groups, contracts.
Enviromental protection laws
Responsible for environmental impact.
Pollution, destruction of wildlife, traffic congestion, air quality, resource depletion.
Competition policy laws.
Protect the interests of both consumers and businesses by restricting anti-competitive practices
Health and Safety legislation
Protects the physical and mental wellbeing of its employees and contractors, as well as its customers.
Adequate breaks and rest periods, provision of safety equipment, hygienic, safe and sanitary conditions.
5 ways businesses can deal with a competitive market
Focus on their USP.
Adjust their pricing strategy.
Enhance customer service.
Expand product range.
Collaboration.
Market size
The number of customers and sellers in a particular market.
