2.5 - External Influences Flashcards
Inflation
A sustained increase in the general price level
Factors in PESTLE analysis
- Political
- Economic
- Social
- Technological
- Legal
- Environmental
Examples of political factors in PESTLE
- Competition policy
- Industry regulation
- Business policy and incentives
- Government spending and polcies
Examples of economic factors in PESTLE
- Interest rates
- Consumer spending and income
- Exchange rates
- Business cycle
Examples of social factors in PESTLE
- Demographic change
- Impact of pressure groups
- Consumer tastes and fashions
- Changing lifestyles
Examples of technological factors in PESTLE
- Disruptive technologies
- Adoption of mobile technology
- New production processes
- Big data and dynamic pricing
Examples of legal factors in PESTLE
- Employment law
- Minimum wage
- Health and safety laws
- Environmental legislation
Examples of ethical factors in PESTLE
- Sustainability
- Tax practices
- Ethical sourcing
- Pollution and carbon emissions
Business cycle
Natural fluctuations in economic activity over time, which reflects changes in output, employment, investment, and consumer spending
Phases of the business cycle
- Boom
- Recession
- Slump
- Recovery
Characteristics of a boom
- High levels of consumer spending and business investment
- Low unemployment rates
- Rising inflation due to strong demand
Characteristics of a recession
- Falling consumer spending and business investment
- Rising unemployment
- Declining confidence in the economy
Characteristics of a slump
- Economic activity at its lowest point
- High unemployment rates
- Very little investment and spending
Characteristics of a recovery
- Increasing consumer spending and business investment
- Improving confidence in the economy
- Falling unemployment rates
Real income
Measure the amount of disposable income available to consumers
Factors affecting real incomes
- Inflation
- Wage growth
- Employment levels
- Interest rates
- Tax policies
Interest rates
Reward for saving and cost of borrowing expressed as a percentage of the money saved or borrowed
Exchange rates
Price of one currency expressed in terms of another currency
Impacts of a decreased interest rate
- Cost of loans and debt is reduced, boosting consumer spending
- Consumer confidence likely to rise
- Business investment should be boosted
Effect of a stronger pound
Stronger Pound makes Imports Cheaper and Exports Dearer
Demand pull inflation
When aggregate demand (total spending in an economy) exceeds aggregate supply (the economy’s ability to produce goods and services), leading to rising prices
Causes of demand pull inflation
- Depreciation of the exchange rate
- Reduction in direct or indirect taxation
- Rising consumer confidence
- Faster rates of economic growth in other countries
Cost push inflation
When rising production costs (e.g., wages, raw materials, energy) force businesses to increase prices, leading to overall inflation in the economy
Consequences of inflation
- Reduced purchasing power
- Uncertainty and reduced investment
- Loss of international competitiveness
- Higher interest rates
Fiscal policy
Use of government spending, taxation and borrowing to influence the level and growth of aggregate demand, output and jobs
Direct tax
Tax that is paid directly to the government by individuals or businesses on income, wealth, or property rather than being passed on to another party
Indirect tax
Tax levied on goods and services rather than directly on income or profits. It is collected by businesses and passed on to the government. Consumers pay the tax when they purchase a product or service
Transfer payments
Payments made by the government to individuals or groups without receiving any goods or services in return, such as state pension and job seeker’s allowance
Current spending
Day-to-day expenses of the government on public services and the running of the economy. These are short-term, recurring costs that ensure essential services function properly, such as education and health
Capital spending
Government investment in long-term assets and infrastructure that helps improve economic growth and public services over time, such as new roads or hospitals
Key areas of employment legislation
- Minimum wage
- Anti discrimination
- Health and safety requirements
- Maternity and paternity leave
- Fair working hours and breaks
Advantages of employment legislation
- Protects workers’ rights
- Improves workplace safety
- Encourages fair pay
- Boosts employee morale and productivity
Disadvantages of employment legislation
- Increases business costs
- Reduces flexibility for employers
- Can discourage business investment
Key areas of consumer protection legislation
- Consumer rights
- Product safety
- Fair trading and advertising
Advantages of consumer protection legislation
- Prevents exploitation
- Improves consumer confidence
- Ensures product safety
Disadvantages of consumer protection legislation
- Increases business costs
- Strict regulations can limit innovation
- Legal disputes
Key areas of environmental legislation
- Waste management and recycling
- Pollution control
- Carbon emissions and climate change regulations
- Sustainable resource use
- Protection of natural habitats and biodiversity
Advantages of environmental legislation
- Reduces pollution and protects nature
- Encourages sustainable business practices
- Improves brand image and customer loyalty
Disadvantages of environmental legislation
- Potential fines and legal issues
- Competitiveness issues
- Increases business costs
Key areas of competition policy legislation
- Preventing anti-competitive agreements
- Preventing abuse of market power
- Regulating mergers and takeovers
- Promoting consumer choice and fair pricing
- Encouraging market entry and innovation
Advantages of competition policy legislation
- Prevents exploitation
- Encourages innovation
- Protects consumer choice
Disadvantages of competition policy legislation
- Can slow business growth
- Difficult to enforce
- Increased regulation costs
Key areas of health and safety legislation
- Employer responsibilities
- Employee responsibilities
- Risk assessments and hazard control
- Workplace conditions and safety equipment
- Training and emergency procedures
Advantages of health and safety legislation
- Reduces workplace accidents
- Improves productivity
- Avoids legal fines and lawsuits
- Enhances business reputation
Disadvantages of health and safety legislation
- Increases business costs
- Time-consuming compliance
- Can limit business flexibility
