(3)External Influences Flashcards
What is the definition for supply?
The amount of a good or service that sellers are willing and able to sell at any given price.
What is the definition for demand?
The amount of a good or service that consumers are willing and able to buy at any given price
What is equilibrium?
Where supply equals demand
What will happen if there is excess demand in the market?
Prices will increase.
What happens to demand when price goes down?
Demand increases
What happens to demand if incomes rise?
Demand will increase
What factors effect demand?
- income
- population
- price of substitutes
- price of complements
- expectations
- tastes
- wealth
- advertising
- habitual behaviour
What factors determine supply?
Price
Costs
Taxes and substitutes
When costs increase what happens to supply?
Supply decreases
What happens to supply if interest rates fall?
Costs decrease so supply increases
What is the definition of elasticity of demand?
The responsiveness of demand to a change in price
What is an example of an inelastic product?
Petrol
What determines whether the good is elastic or not?
If the good is a necessity or if there are many substitutes
What is the definition of competition?
Rivalry amongst sellers
What is the definition of a market?
A situation where buyers and sellers are in contact in order top establish price.
Why have non physical markets grown?
Because of the convenience that they offer. (E-commerce)
Why do physical markets continue to exist?
Because of the personalisation that they offer.
What is the definition of market price?
The price range at which consumers are prepared to pay.
What is the definition of mark up?
Difference of producing a product and the price at which it is sold
How does competition effect market supply?
If there were more producers then the market would be more saturated therefore they would lower their prices to compete on price.
What is a competitive market?
A market which there are large number of firms.
Competition is usually based on price.
What is a monopoly?
A market dominated by one seller
What market share do firms need to be classed as a monopoly?
25% market share
What are economies of scale?
Where unit costs fall when output rises
What is an oligopoly?
A firm dominated by few firms. Competition is usually based on non-price differences such as package deals etc.
They have very similar products and price.
What is collusion?
Where firms cooperate in the manipulation of production and supply to influence price levels for their own mutual benefit, preventing fair competition.
How might oligopolys force new entrants out of the market?
By lowering prices
What is the definition of a monopolistic competition market?
A market with many competing firms each of whom supplies a slightly differentiated product.
E.g. bars and night clubs.
What is the definition of market size?
The collective value of sales in that market.
What is the definition for market growth?
The percentage change in the total value of sales in that market.
What is the definition of market share?
The percentage of total sales (by value) that a business has in a specified market.
What are barriers to entry? And examples.
Factors that could prevent a firm from entering and competing in a market even if they choose to do so. E.g. start-up costs - price wars - legal restrictions - inability to gain economies of scale.
What are barriers to exit and examples?
Factors that could prevent a firm from leaving a market, even if it wanted to.
E.g. contracts with suppliers
- redundancy payments
- difficulty selling off capital
What is the correlation between market power and barriers to entry?
Low market power = low barriers to entry
How might you increase market share?
- sell more to existing customers
- get rid of less profitable items
- advertising
- merge or takeover another firm.
What is the definition of market dominance?
A measure of market share compared to competitors.
What is the definition of market power?
The ability of a firm to influence or control the terms and conditions on which goods are bought and sold
What is the definition of a merger?
Where two companies join together to form a new larger business.
What is the definition of an acquisition?
When one company buys another companies majority shares.
What is the definition of a hostile take over?
When another business goes through the shareholders not the board of directors
What are the disadvantages of a hostile takeover?
- may suffer from diseconomies
- redundancies
- could result in higher prices.
What does the CMA stand for?
Competition markets authority
What is the European body called that also investigates mergers etc.
The European regulatory commission
What does the CMA do?
Promote competition for the benefit of consumers, both within and outside of the UK. Making markets work well for consumers, businesses and the economy.
What are the CMA responsibilities?
- they investigate mergers which could restrict competition
- conducting market studies
- bring cartel offences to justice
- enforce consumer protection .
What is organic growth?
Growth from within the business
What are examples of organic growth??
Launch new products, franchising, exporting and opening new stores.
What is globalisation?
The increased integration and interdependence of national economies.
What are the reasons for increased globalisation?
- reductions in trade restrictions
- cost of production abroad
- ease transportation
What have facilitated globalisation?
- e-commerce
- communication technology
- easy movement of capital
What are multinationals?
A business that has operations in more than one country.
What are the advantages of being a multinational?
- benefit from economies of scale
- ability to take advantage of a lack of legal constraints
- new markets with less competition
- ability to take advantage of lower wages.
What are the benefits multinationals give to LEDC’s ?
- creates jobs for LEDC’s
- develops a skilled workforce
- reduces poverty
- investment in local infrastructure
- utilisation of local materials
What are the negative effects multinationals have on LEDC’s?
- most jobs are unskilled
- wages are low
- unsafe working practices and conditions
- child labour
- local companies usually driven out
- income goes back to the domestic market
What is a global strategy?
Companies that are keen to operate on a global scale must consider how to build a competitive global advantage i.e. choose the best locations to produce products in.
What is glocalisation?
- globalisation but taking into account local needs.
What is a brand?
- a distinctive product created by the use of a logo, symbol, name, design, packaging. The key in designing and building a brand is to differentiate from competitors.
What is the definition of a global brand?
Global brands that are recognised throughout much of the world.
What are the opportunities created by globalisation?
- more affluent customers looking to buy more expensive goods
- out source abroad
- off shoring
What threats does globalisation create?
- threat to secondary selector jobs
- cultural difference
What is the European single market?
It seeks to guarantee the free movement of goods, capital, labour and services (the four freedoms)
How do Uk businesses currently benefit from the European single market?
Free to trade with other members at no additional taxation helping keep prices low.
What does STEEPLE stand for?
Social Technological Environmental Ethical Political Legal Economic
What does the STEEPLE model do?
Assesses the changes in the external environment.
What is the EU?
It is the economic and political union of most European states aimed at reducing trade barriers and harmonising Europe.
What is the eurozone?
Countries in the EU that use the euro as their currency.
What are tariffs?
A duty paid on imports.
What are quotas?
A limit on the quantity of a good that can be imported into a country at a given time.
What is the definition of demographics?
The characteristics of human population groups e.g. size of the population.
What are examples of social changes?
- more Ethnic diversity
- population growth
- increased women participation in the labour market.
- more old people
Examples of social factors
- social habits i.e. eating out more
- changes in employment patterns
- changing role of women
- changing attitudes to work
- educational changes
What is the definition for ethics?
Whether something is morally right or wrong.
What are examples of ethical issues?
Animal testing
Medicine costs
Guns
Child labour
What are the benefits of ethical behaviour?
- attract new customers
- encourages investment
- positive publicity
- increased sales and profit
Examples of political factors that could effect a business?
Brexit EU CMA Privatisation Minimum wage decisions
How would political uncertainty impact businesses?
Customer confidence effects sales as people would be less confident which means less sales for the business
What are the disadvantages of ethical behaviour?
- increases costs
- less competitive in term of price
- lowers output
What does sustainability mean?
The endurance of resources refers to preventing negative impacts from economic systems and production on the earth and its environment.
What is GDP?
Total value of output produced in an economy in one year
What is economic growth?
The annual percentage change in GDP.
How might the government increase GDP and economic growth?
- encourage investment in capital by offering subsidies or lowering taxation.
- improve infrastructure
- improving the quality of human capital by investing in education
What is the definition of inflation?
Persistent general tendency of prices in the economy to rise.
What is CPI?
A measure that examines the weighted average of prices of a basket of consumer good/services
(Consumer price index)
What is standard of living?
The amount for goods and services a person can bu with their income in a year.
Why does high inflation make UK exports uncompetitive?
Because they appear more expensive to foreign buyers
Why does inflation create uncertainty around profits?
Because the value of the profit falls
What is an exchange rate?
The value of one currency in terms of another.
Where does capital go in an export and import?
Export - money enters the UK
Import - money exits the UK
What does SPICED stand for?
Strong Pound Imports Cheap Exports Dear
What determines the value of the pound?
Hot money flows
What are hot money flows?
Where people put their money in bank accounts to take advantage of the high interest rates.
E.g. high interest rates = increased hot money flows which increases the value of the pound because demand for the pound has increased.
What are interest rates?
The cost of borrowing ad the reward for saving expressed as a percentage.
Who sets interest rates in the UK?
The Bank of England (MPC)
What happens to inflation if the MPC increases interest rates?
Interest rates go up, people have a greater incentive to save to demand decreases, therefore inflation decreases
What is unemployment?
A situation in which people who are able and willing to find work are not able to find employment.
What is the balance of payments?
The difference between the value of exports and imports
Why might a government want low levels of unemployment?
- high levels of employment aids economic growth
- reduce welfare payments
- more tax revenue
- waste of Human Resources.
What does a trade deficit mean?
If imports are greater than exports.
What is an indirect tax? And an example of an indirect tax?
Taxes on expenditure, paid to the tax authorities not by the consumer, but indirectly the suppliers of the good or service.
E.g. VAT
What is a direct tax?and an example of a direct tax?
These are taxes on income and profit paid directly to the tax authorities.
E.g. income tax and corporation tax
What is income tax?
A tax taken out of a persons income, it is a progressive tax (earn more you get taxed more)
What is national insurance?
Taken as a contribution towards state pension and treatment under the NHS.
What is VAT? And how do businesses benefit from being VAT registered?
Value added tax it is included into the price of goods, and business can reclaim VAT, competitors also don’t know your annual income.
What is the standard rate of VAT?
20%
What is corporation tax and what is the current rate?
A tax on profits made by companies.
19% in the UK.
What is a duty?
A tax on products.
What is stamp duty?
Tax on newly bought homes. Also used to increase and decrease the demand for houses.
What is a levy?
It is a tax on products such as alcohol that depends on factors such as how much the price rises and other things such as consumer attitudes.
What is a subsidy?
Payments by the government to suppliers that reduce their cost - the effect of a subsidy is to increase supply and therefore reduce the market price.
What are the benefits of subsidies?
- lowers costs
- decreases prices
- helps business survival
What is monetary policy?
Manipulation of the level of demand in the economy using the rate of interest.
Controlled by the MPC
What is fiscal policy?
Conducted by the government through taxation and government spending controlled by the government and led by the chancellor of the exchequer.
Affects the levels of demand.
What is the multiplier affect?
The effect of changes in economic activity in one factor on other factors, if one business experiences a fall or rise in demand for its products, this has a knock on affect on the business supplying it.
What are supply side policies designed to do?
They aim to improve the economies overall productive capacity.
What are examples of supply side policies?
- investment in education and training - increasing output
- reducing welfare benefits - encouraging more people to get a job
In the business cycle where will spending, confidence, inflation and income be high?
During a boom period
During slump and recession periods what do firms do? And what does the MPC do?
- cut back on investment - as they will be getting less of a return
- make redundancies
- MPC lowers interest rates to stimulate spending.
What do firms do during a recovery/boom period?and what are the characteristics of this period? And what does the MPC do?
- firms increase investment
- inflation is high because of demand pull inflation
- the MPC may increase interest rates to reduce demand
How can a business use the business cycle to its advantage?
- business could buy shares during a slump and sell them for a profit when the economy picks up
- could launch essential products during a slump
- expand during a slump or recession stage when its cheaper. (Buy real estate)
What is a legal factor a business has to comply with?
The national minimum wage
What is the national minimum wage?
It is the minimum pay per hour workers of school leaving age are entitled to . Reviewed annually by the government.
What is the national living wage?
This is a new minimum wage for those aged 25 and over
What happens if a business breaches civil law?
They can be fined
What is copy right?
Legal ownership of materials such as; books,music and films which prevent these being copied by others
When would you need planning legislation?
If you build something new.
Make a major change to a building
Change the use of the building
What would happen if you failed to comply with planning legislation?
Undo the work done
Example of environmental legislation and what does it do?
Clean air act.
- designed to protect human health and the environment from the effects of air pollution.
It stops dark smoke from chimneys etc
What is the consumer rights act?
Consumers have the right to complain for up to 6 years after buying.
- this can happen if a good isn’t as described or fit for purpose.
What is the data protection act and what happens if businesses fail to comply with it?
It is where all data given to a business must be kept confidential and not sold to third parties.
- could be fined up to 500,000 pounds
What is a trade mark?
Stops others using same colours, names, fonts or slogans.
What is the FCA?and what do they do?
It is the financial conduct authority, they regulate the conduct of businesses, making markets work well.
They regulate 58,000 businesses.
- regulate financial institutions
What are the FCAs main objectives?
- protect consumers
- protect financial markets
- promote competition
What is PPI?and what does it do?
Payment protection insurance, protects a market if a consumer falls ill or loses their job, it gives them the chance to shop around and make a rational decision.
What are examples of technological factors?
- computer hardware
- computer software
- computer calculation
- internet connectivity
- wireless charging.
How could technology be used at Starbucks?
Free WiFi
Automation
Starbucks app
What is international trade?
Refers to the selling across borders
Why is it beneficial for countries to trade internationally?
- increases the variety of goods that can be obtained
- economic efficiency (economies of scale)
- growth (bigger markets)
- specialisation
- international co-operation
What is free trade?
Trade without barriers.
Why are trade barriers put into place?
To promote domestic trade as it avoids additional costs
What are the purpose of trade barriers?
Make it less attractive to import goods, promoting domestic trade.
Effectiveness of trade barriers depends on other countries trade barriers, income tax rates and the state of other economies
What is the relationship between increased globalisation and international trade?
- globalisation increases competition so firms need to buy cheaper materials from other countries, leading to firms buying resources from other countries
- globalisation increases infrastructure investment making it easier to trade.
- globalisation increases communication and awareness of business opportunities making it easier to trade
Source of financial support for businesses who trade internationally
Export factoring
Export insurance
What is export factoring?
Provided by most banks. The bank arranges to obtain payment directly from the importer and agrees to pay the exporting company the value of the invoice
What is export insurance?
Uk government offers assistance in the form of insurance to uk exporters against the rise of non payment by overseas buyers
What is free trade?
Trading with no barriers
What are the advantages of free trade?
- cheaper to import materials
- makes businesses work more efficient
- increased competition means lower prices (consumers)
- economies of scale
Disadvantages of free trade?
- reduces jobs in domestic industries
- businesses may not be able to compete on price
- puts local businesses out of business
- environmental damage
What is an example of non-financial support?
Passport to export
What does passport to export do?
Offers to help small and medium sized businesses that want to start exporting.
- includes help with market research
- includes an action plan for exporting
- helps visit potential markets
Reasons for the government deciding to make imports tariff free?
- stops costs being passed onto consumers
- prevents monopolies
- stops increases in business costs
How do tariffs provide protection to some industries?
- encourages domestic trade (steel industry)
What are trade blocs?and an example?
A group of countries within a particular geographical region that protect themselves from imports from non-members. E.g. NAFTA, EU
What are the benefits of trading blocs?
- trade creation - access to new markets
- cost of production will bee cheaper
- increases a business stability (Spreading the risk)
- economies of scale
What are the Disadvantages of trade blocs?
- membership may hinder trade with other countries
- easier for domestic countries to be taken over
- have to abide by the rules of the bloc
- more competition from foreign companies
What is an emerging market?
A country that is achieving rapid growth and industrialisation.
What does BRICS stand for?
Brazil Russia India China South Africa
What are the advantages of emerging markets to businesses?
- take advantage of lack of legislation
- can move production into these markets and take advantage of cheap labour
- move production closer to the markets being served
- can access markets possibly with higher incomes
What are the disadvantages of emerging markets?
- unskilled workforce
- goods can be made more cheaply making it hard to compete on price
- reduces jobs in devolved countries
- emerging markets are no longer reliant on developed countries for their products.
What is the digital revolution?
Shit from analog and mechanical technology to digital technology
Examples of digital technology?
- VR
- QR codes
- mobile wallets
- digital price tags
- video conferencing
What is the Information Age? And an example of a business using it?
A time where large amounts of information is widely available.
E.g. Tesco pulls information from customers smart phones to create a data base where they walk in stores.
What are the opportunities for businesses that have arisen due to the digital revolution?
- cost savings for information
- market research is easier
- feedback from customers is easier.
What are threats to the business that have arisen due to the digital revolution?
- expensive to prevent fraud on security systems
- requires training
- may provide reputation as damage (false reviews)
Why are some businesses more affected by the digital revolution than others?
- the market in which a business operates
- how rivals responded to the digital revolution
- the type of product that is being sold
- the budget of the business
What are 2 advantages of technological change for customers?
- better and easier shopping experience
- lower prices
What is a market?
a situation where buyers and sellers are in contact in order to establish a price
What is markup?
The difference between the cost of producing an item and the price at which it is sold.
What is a physical and non physical market?
Physical - where buyers and sellers come into contact face to face
Non physical - where sellers compete with each-other but do not meet or interact physically with buyers at all
What are the characteristics of a competitive market?
- large number of firms
- price takers
- competition is based on price
- homogenous products
What are the characteristics of a monopoly?
- one supplier of a product
- high prices
- little choice
- high barriers to entry and exit
- 25% of market share
What are the characteristics of a monopolistic competitive market?
- products are very similar
- competition is based on non-price differences e.g. loyalty cards
What are the characteristics of an oligopoly?
- market dominated by a few large firms
- very similar prices
- interdependence between firms
- firms compete on non-price differences
Why is competition regarded as beneficial?
Because it forces businesses to be efficient in terms of keeping costs as low as possible.
How might a business increase its market share?
- being aware of customer needs and meeting them
- selling more to existing customers
- finding out why “old” customers no longer use your products
- having a clear marketing plan
- using promotion techniques
What are examples of barriers to entry?
- start up costs
- marketing budgets
- legal barriers (patents)
- inability to gain economies of scale
- price wars
What are examples of barriers to exit?
- difficultly of selling off capital
- redundancy costs
- contracts with suppliers
What are the definitions of barriers to entry and exit?
Entry - factors preventing a business from entering and competing in a market
Exit - factors preventing a business from leaving a market, even if it would like to
What is free trade?
Trade without tariffs or quotas being imposed
What is a single market?
A market in which there is a single Set of laws and regulations relating to the movement of products, people and money; all businesses in the single market have to abide by these rules
What is the eurozone?
The name for all the countries that have adopted the euro as their single currency.
What are the disadvantages associated with UK businesses joining the Euro?
- loss of control over monetary policy
- outer countries get left behind
What is the definition for an emerging market?
Refers to developing countries that are achieving rapid growth and industrialisation.
What are the disadvantages of globalisation?
- benefits felt by developed countries
- lack of laws mean LDC’s have poor working conditions
- pollution
- loss of culture
- local businesses cant compete
What determines the demand for a currency?
- Hot money flows
- demand for exports
- FDI
What determines the supply of Pounds?
- U.K. investment abroad
- demand for imports
- hot money flows going abroad
What are some examples of effects of political factors on functions of business?
- marketing - marketing legislation
- financial - government economic policy
- people - employment policy
- operations - “price freezes”
What are examples of the effects of social issues on areas of business?
- Marketing - age and income distribution will effect the type of product sold
- financial - changes in social habits will effect sales
- people - changes in employment patterns
- operations - changing attitudes to work
What is a trading bloc?
Where countries in a particular area agree to remove tariffs, quotas and in exchange they can trade freely with eachother
What is the circular flow of income?
Shows the continuous flow of income from businesses to households as payment for work, and from households to businesses as payment for products.
What is the business cycle?
Rises and falls in economic activity; these follow a pattern that can be identified as boom, recession, slump and recovery.
What is the balance of trade?
Difference between the value of exports and imports
What are the effects of a fall in the rate of interest on businesses?
- investment will increase
- consumer spending will increase
- exchange rate will fall
How might you evaluate the effects of a change in economic policy?
T - trend in variable
E - extent of the change
D - duration of change
What is civil law?
Law concerned with the rules that govern the relations between businesses and people
What is a contract?
Legally binding agreement between two or more parties. Most business relationships are of contractual nature.
What are the conditions under the sale of goods act?
The product must be:
- satisfactory quality
- as described
- fit for purpose
What are the benefits to the business of complying with the law?
- avoidance of fines
- avoidance of compensation
- avoidance of bad publicity
What does obsolescence mean?
Existing capital equipment is replaced by new developments in technology.
What does sustainability mean?
The endurance of systems and processes. It refers particularly to preventing a negative impact from economic systems and production on earth and its environment
What is an employment tribunal?
A special type of court that only deals with employment related issues such as victimisation by an employer, unfair dismissal and discrimination
What are some threats that have arisen due to the digital revolution?
- hard to keep up
- involves trining staff
- allows customers to make an informed decision
- fraud and crashing
What is the digital revolution?
Shift from analog and mechanical technology to digital technology.
