2.5 External Influences

Question 1

What are external influences

Answer 1

Are factors that happen outside the business . These include economic, legal and competitive influences.
How businesses manage these influences will effect their ability to succeed in their market

Question 2

Name the economic influences which can effect a business

Answer 2

Taxation
Government spending
Inflation
Interest rates
Exchange rates  
Business cycle

Question 3

What is a recession

How does it effect a business

Answer 3

Can cause a downfall in the economy

It causes decreased consumer spending , decreased business confidence and decreased profits and investment.

Question 4

What is a boom

How does it effect a business

Answer 4

Is where consumer spending and business confidence to rise along with profit and investment.

Allows a business to increase prices whilst maintaining demand

Question 5

What is taxation

Answer 5

Are taxes which can effect supply and demand of a product.

Question 6

What is inflation

Answer 6

Is the sustained increase in the cost of living or general price leading to a fall in purchasing power

Question 7

What is the relationship between businesses and economic influences

Answer 7

Businesses want to predict with certainty the economic environment where they operate. This is very difficult to do accurately but requires that an amount of cash or retained profit is put aside in case the economic environment worsens

Question 8

What are the effects of inflation on a business

Answer 8

A firms costs will increase and damage profitability
A firm with long term loans will have higher interest rates to pay back if its not fixed
If inflation in the UK is higher than other countries, other countries will gain a competitive advantage

Question 9

Define exchanges rates

Answer 9

Is the value of one currency expressed in terms of another

Question 10

What is the effect of exchange rates on a business

Answer 10

Strong 
Pound makes
Imports
Cheaper
Exports
Dearer

Question 11

Define interest rates

Answer 11

Is the amount charged by a lender per year for borrowing money, expressed as a percentage of the total money borrowed

Question 12

What are the effects of interest rates on a business

Answer 12

Consumers are less likely to have money to spend as the cost of borrowing will increase , reducing demand
The amount of interest for borrowing will increase, increasing costs
A firm is less likely to invest as the opportunity cost of investment will be greater

Question 13

Define the business cycle

What are its effects on a business

Answer 13

Is where the economy has a boom followed by a recession meaning demand changes.

Strongly dependent on the income elasticity of demand

Question 14

Define legislation

Answer 14

Is a set of laws suggested by governments and passed by parliament

Question 15

What are the types of legislation

Answer 15

Consumer protection laws
Employee protection 
Environmental protection 
Competition policy 
Health and safety at work act

Question 16

What is the consumer protection law

What do they involve

What is the effect on a business

Answer 16

Protect consumer rights when they buy a good or service

Involves : broken or damaged goods, unusable goods and goods that are not what was advetised

If under the act consumers can get a refund, increasing costs and damaging profitability

Question 17

What is the employee protection law

What does it involve

Answer 17

Is designed to help and protect the worker

Involves : paternity/maternity leave, workers being paid when they are sick, fair wage and treated equally

Question 18

What is the environmental protection law

What does it involve

Effect on the business ?

Answer 18

Attempts to control pollution in terms of waste that is disposed of in air, land or water

Involves : polluted air, noise pollution and chemical spills

Increases cost of production

Question 19

What is the competition policy

Who is involved

Answer 19

Is a government policy which seeks to promote competition and efficiency in different markets and industries
The CMA tries to promote competition for the benefit of the consumer and to control market share

Question 20

What is the health and safety at work act

Effect on the business

Answer 20

Is done to give all workers a place which is safe and comfortable to work in.

Increases costs as the business have to implement health and safety workers

Question 21

What is the impact of legislation on business costs

Answer 21

Training staff
Protection equipment for staff
Cost of returns
Paying higher wages

Question 22

What is the impact of legislation on Recruitment

Answer 22

Discrimination (sex, religion, disability) is illegal when recruiting
Equal pay and promotion opportunities must be equal

Question 23

Define competition

Answer 23

Is where more than one seller seeks to sell goods or services to a customer

Question 24

In which ways can competition effect a business

Answer 24

Nature of business ownership
Nature of product or services produced 
Nature of the product range 
Pricing strategies used
Marketing methods used

Question 25

How will competition effect the nature of business ownership

Answer 25

Will have an impact on the decision to become a private limited company or a public limited company.

Question 26

How will competition effect the nature of products or services provided

Answer 26

May cause a business to change what they sell.

For example smaller coffee shops sell Lattes because Costa do

Question 27

How will competition effect the nature of the product range

Answer 27

Competition can change their product range in response to consumer demand.
Leads to constant innovation and change

Question 28

How will competition effect pricing strategies used

Answer 28

Can force a firm to change their pricing strategy to attract customers and remain competitive.
May use competitive pricing to compete on non-price competition

Question 29

How will competition effect marketing methods used

Answer 29

Competition means that marketing campaigns must be exciting and up to date , costly.
Important when there are many sellers with the same products

Question 30

What is the impact on businesses of being in a competitive market

Answer 30

Forces prices down resulting in falling profit margins
Promotes the need to innovate
Increased marketing spends to gain a competitive advantage

Question 31

Define Intangible assets

Answer 31

Are non-physical assets, such as brand names and patents

Question 32

Define payables

Define receivables

Answer 32

Is money owed by the business to suppliers and utilities

Is money owed to the business by customers

Question 33

Define Division of labour

Answer 33

Is the specialisation by an individual in specific tasks and skills

Question 34

Define specialisation

Answer 34

Is the production of a limited range of goods

Question 35

Explain the effect on businesses of changes in taxation (5)

Answer 35

Consumer spending changes
Increased prices for consumers 
Increased costs and likely less profits
Decreased investments due to less retained profits
Changes in imports and exports