3.1.3 Flashcards
are external factors controllable
no - adapt and respond to pressures
if a business responds quickly to changes one external environment =
gain advantage over its competitors
external factors
competition
economic factors
such as consumer incomes, interest rate changes
demographic factors such as birth rates, migration, consumer tastes
environmental issues
such as consumer preference for fair trade products and
green business practices
market conditions
such as consumer incomes, competition, growth in demand
There are a range of factors that might determine how attractive or changeable a market is. These factors may determine how responsive and flexible a business needs to be in order to succeed within its market. Some of these factors include:
- the growth rate of the market
- the typical profit margin that businesses can generate
- the number and size of competitors in the market
- 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
- the volatility of costs incurred by businesses, such as commodity prices.
economic factors
A key economic factor is the income of consumers. Incomes are determined by the gross domestic product (GDP). GDP is a measure of the output of an economy in terms of the goods and services it produces over a year.
high GDP =
will increase the incomes of consumers leading to increased spending on a range of goods and services.
luxuries vs necessities
Remember that consumer spending on luxuries will respond differently to that on necessities to a change in
incomes. Consumers may purchase more luxury items as their incomes rise, but there may be little change in demand for necessities as incomes fall.
low GDP =
Low GDP may result in unemployment and falling incomes. Spending will fall for certain goods and services
what is an interest rate
cost of borrowing money or the reward for saving
high interest rates
- cost of existing loans may increase
- consumers may have less disposable income (consequence of increased
mortgage payments) - demand for products bought on credit may fall
- consumers more likely to save their money
low interest rates
cost of existing loans may fall
* demand for products bought on credit may rise e.g. luxury goods
* consumers more likely to spend
* disposable income rises
* savers lose out on earnings from investments
demographic factors
the UK population is growing, leading to an increase in demand for most goods and services.
* migration to the UK from Eastern European countries is growing, fuelling growth in the labour market.
* the UK population is getting older, changing the demand for different products and services.
population forms what 2 key stakeholder groups
Changes in the population will impact the size of a potential market and their wants and needs.
Changes in the population will impact the size of the labour market and the skills of those workers.
what does the government try to ensure
businesses pay for the total cost of production including the external costs, such as pollution, which ultimately has to be paid for by society
benefits of being environmentally friendly
avoid negative publicity from the media
opportunity for differentiation
avoids fines or penalties imported through environmental legislation
opportunity for government incentives such as tax relief
creates a sustainable business
