3 External Business ENVIRONMENT Flashcards
Microeconomics
How decisions on supply/demand made by consumers,firms, industries effect market/industry prices
Demand
How much of goods/services someone intends to buy at different prices. Higher at low price, lower at high price
Expansion/Contraction in demand
Expansion - Demand rises because prices fall
Contraction - Demand falls because prices rise
For most goods, low price=high demand because
1) Substitution effect - consumers switch to cheaper alternatives
2) Income effect - Spend less if income drops
Supply shows?
How many units producers would be willing to offer for sale at different prices.
Factors which can effect supply
1) Change in production costs
2) Indirect taxes
3) Technological innovations
4) Efficient uses of existing factors of production
The profit motive
Selling product/service at a market price higher than production cost
Considerations when selling goods and services
1) How to make production efficient
2)What premises are necessary?
3)Staffing needs
4)Selling price
Business risks
1) Demand not high enough
2) Production costs too high
3) Competitors with similar product and lower price
4) Technology making product obsolete
Globalisation
Buying and selling in any country.
Measures of steady economy
Economic growth aka GDP
Inflation
Level of employment
How can government influence economy
1)Extra spending
2) Changing tax rates
3) Legislation with economic effects eg smoking ban
Characteristics of good taxes?
1) Fair
2) Absolute
3) Convenient
4) Efficient (low collection costs)
3 Principles of good Tax policy
1) Equity - Fairly levied between one taxpayer and another
2) Efficiency
3) Economic effects - Should reflect ability to pay
Types of Tax
1) Progressive tax - Higher income Higher rate
2) Proportional taxes, same proportion of income
3) Regressive taxes - Higher income, lower tax rate
