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Business > 2.5 External Influences > Flashcards

2.5 External Influences Flashcards

1
Q

What is inflation

A

A general rise in prices over time

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2
Q

How are interest rates measured

A

Through the consumer price index (CPI)

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3
Q

What is the target inflation rate for the uk

A

2%

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4
Q

What effect will increased inflation have on customers

A

May not be able to afford things

May have to shop elsewhere for cheaper substitutes and inferior goods

Demand less products due to less disposable income

Consumers on fixed incomes

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5
Q

What effect will increased inflation have on businesses

A

Disrupts planning, lower investment

Demand might fall if people can’t afford products

Customers may go to cheaper places

Workers demand high wages

Demand may fall for luxury products

Higher demand for inferior product retailers

Prices of supplies rise-> higher costs -> cash flow problems -> less gross profit

Affects gross profitability and operating profit

Revenues may grow depending on PED

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6
Q

What affect will low inflation have on businesses

A

Businesses feel confident in a stable economic environment

They may look to invest and grow

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7
Q

What are exchange rates

A

The value of one currency expressed in terms of another

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8
Q

What is a pound appreciation

A

The currency is getting stronger or going up in value against another

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9
Q

What’s a pound depreciation

A

Currency becomes weaker or decreases in value

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10
Q

What does SPICED stand for

A 
Strong
Pound
Imports
Cheap
Exports
Dear
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11
Q

What does WPIDEC stand for

A 
Weak
Pound
Imports
Dear
Exports
Cheap
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12
Q

What are imports

A

Buy goods or services from a foreign country

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13
Q

What are exports

A

Selling abroad

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14
Q

What does the effect of exchange rates depend on

A

The rage of change and stability of the currency.

If it’s unstable it’s harder to plan

Depends on how adaptable the businesses is if they need to change suppliers

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15
Q

What does imports cheap exports dear mean

A

That is it expensive for foreign customers -> demand may fall in foreign countries

It’s cheaper for the business to import from overseas -> may get more for your money-> encourages you to buy in bulk -> variable costs decrease -> gross profit can increase -> can maximise shareholder wealth

Variable costs decreasing can also lead to lower prices-> more competitive and more market share

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16
Q

What does imports dear exports cheap mean

A

It’s expensive for businesses to import materials from overseas-> may have to increase the price for domestic customers -> cheaper for foreign customers so demand may increase overseas

May be encouraged to buy supplies from domestic businesses

Depends how much they trade abroad

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17
Q

What’s an interest rate

A

The reward for saving and cost of borrowing

Always expressed as a %

18
Q

What is likely to happen if interest rates are high

A

People are less likely to borrow so businesses may not be able to buy things to improve the business, especially if they don’t have enough internal finance

They may see lower demand but only impacts certain businesses eg luxury item retailers

19
Q

What’s likely to happen if the interest rate is low

A

Demand will be higher, more people will be borrowing due to it being cheap and there being no incentive to save. Stimulates spending

Business will be able to get the capital to finance innovation and buy things like land, property, machinery -> the more investment in this, the more growth-> more jobs, higher output

20
Q

What is taxation

A

Paying tax to the government
Eg corporation tax, VAT, income tax

In return they should spend it on things like education, the NHS, infrastructure ect

This should benefit businesses because the workers will be better skilled, healthier and be able to get work easier-> less absenteeism

21
Q

What’s corporation tax

A

Tax on businesses

Payed by ltd and plc

May have to increase prices to get more profit

22
Q

What’s income tax

A

Tax payed on income

Sole trader and partnership pay this as they’re unincorporated

23
Q

What’s direct taxation

A

Tax on income, wealth and profit

Eg income tax, national insurance contributions, corporation tax, capital gains tax

24
Q

What’s indirect taxation

A

Levied on spending by consumers on goods/ services

Eg VAT (20%), excise duties on fuel, alcohol, car tax, TV licence

25
Q

What’s the business cycle

A

A graph with level of GDP up the side and time on the bottom

Boom- economy growing really well. Lots of employment, demand for goods/ services, more disposable income, more spending, businesses are investing

Recession- two consecutive periods where the economy doesn’t grow, high levels of unemployment, less disposable income, less spending and investing, demand slows

Decline- sales decrease

Recovery- increasing consumer confidence, businesses start to invest, spare capacity is used up

Peak- lots of sales

Trough- demand is low

26
Q

What’s economic uncertainty

A

If the business is experiencing economic uncertainty they may be less likely to spend as it may be safer to save

When it’s difficult to plan for the changes in economic circumstances, start to see instability-> higher the uncertainty, higher the risk-> business may become risk averse -> less likely to invest

27
Q

What’s legislation

A

Laws and regulations a business has to follow

28
Q

What’s consumer legislation and give examples

A

To do with those who consume the product

Eg
Sales of goods act 1979- products must be of a merchantable quality and fit for purpose

Trade descriptions act- stops businesses from presenting its goods in a misleading way

29
Q

How does consumer legislation affect businesses

A
  • increase in costs- description must be accurate, takes longer, must be of a certain standard
  • quality control- checking product after it’s been produced
  • dealing with customer complaints- gives power to the consumer. They may have to change the way they operate
  • changes in business practice
30
Q

What’s employee legislation

Eg?

A

Prevents exploitation of workers

31
Q

How does employee legislation impact a business

A

Compliance costs- eg brail for someone blind
Higher labour costs- minimum wage
Changing working practices- equal pay
Loss of flexibility
Penalties- if you don’t comply you’re fined

If they’re not followed it will impact brand reputation and people may not want to work there. Realistically is won’t affect sales and it won’t affect customers

32
Q

What’s environmental protection

Eg?

A

Aims to to prevent pollution, destruction of wildlife, traffic congestion and resource depletion ect

The environmental act 1995

Pollution permits
May have to provide another green space to prevent damage to wildlife habitats
Not cutting down trees

33
Q

How does environmental protection impact a business

A

Finance - costs higher in short term but reduced in long term and you’re more efficient

Human Resources- train staff how to use environmentally friendly techniques

34
Q

What’s competition policy

Eg?

A

Monitoring of monopolies, duopolies and oligopolies

Stops anti competitive practices or restrictive practices to reduce competition

Eg:

Increasing prices
Restricting customer choice-> mergers, takeovers
Raise barriers to entry
Market sharing

Competition act 1998

35
Q

Give an example of a monopoly, duopoly, oligopoly

A

Monopoly- train lines

Duopoly- Pepsi, Coca-cola

Oligopoly- uk grocery market

36
Q

What’s health and safety

Eg?

A

Ensures businesses provide a safe and healthy workplace

Eg

37
Q

How does health and safety affect businesses

A

Costs- to make things safe

Penalties- fines

38
Q

What are the factors affecting competitiveness in a market

A

The profit margin that businesses can generate

The growth rate of the market

The level of regulation within the industry

The number and size of competitors in the market

The volatility of costs incurred by businesses

The pace of innovation and new product development

The bargaining power of suppliers and customers

The level of differentiation between competitors

The seasonality of the product

39
Q

What’s the impact of competition on businesses

A

It can lead to :

A fall in prices ( leading to lower profit margins)

Increased costs of promotion

Improved efficiency ( to reduce average costs)

Increased innovation

Wider product ranges

Higher levels of competition can sometimes lead to some businesses acting unethically

40
Q

How does the size of the market affect the level of competition

A

The level of competition is likely to be less in smaller markets but this isn’t always the case. Small markets may have a limited population therefore any two businesses can have significant rivalry.

Small businesses can also access global markets owing to online sales

Large markets have:
A wider customer base
Less volatility than small markets
More regulation and scrutiny
Potential for international competition
Small markets have:
Less competition
Opportunities for expansion 
Easier to build loyal customer relationships
Threat of new entrants
Few economies of scale

Business (18 decks)

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