3.1.3- Understanding that businesses operate within an external environment

Question 1

What factors affect the market?

Answer 1

• Political factors
• Labour supply
• Income and economic factors
• Season demand and supply

Question 2

What are the main factors of political factors?

Answer 2

• If demand is low, government with try to increase it by cutting taxes so people have more to spend.
• Gov reduces demand if too high by raising taxes so people have less money to spend, reducing demand

Question 3

What are the main factors of labour supply?

Answer 3

• When unemployment is high, theres good supply of labour. Can hire staff easily and pay low wages, costs are kept low. People are productive to protect their work.
• A low rate of unemployment means shortage of labour, people available may not have skill needed and will need training, increasing costs.

Question 4

What are the main factors of incomes and economic factors?

Answer 4

• Recession: businesses reduce costs to decrease labour costs. Lower incomes means people have less money to spend, decreasing demand
• Boom: Wages rise, leading to greater costs. High income meanes more money, meaning more demand

Question 5

What are the main factors of seasonal demand and supply?

Answer 5

• Weathers and holidays affect demand. E.g. Christmas and summer
• Variations in supply: strawberries in the summer, reducing costs for shops selling them
• Businesses have strategies to deal with seasonality

Question 6

How can competition reduce demand and increase costs?

Answer 6

• Perfect competition is competing on an equal basis: identical products with similar prices. Need costs low but quality high
• Oligopoly: a small nb of large firms dominating market and charge similar prices. Focus on marketing and branding
• Monopoly: one business has control over its market. Theres no competition, can increase prices with no concern.

Question 7

How does interest rates determine the cost of borrowing money?

Answer 7

Can affect consumer spending. High interest means less disposable income. Low interest means high disposable income

Question 8

How does supply of workers affect business costs?

Answer 8

• Ageing population: Smaller % of population are working age, businesses may have to increase wages to attract workers
• Immigration: If working aged people are migrating into the country supply for workers will increase, reducing wages and business costs.

Question 9

What environmental factors can increase business costs?

Answer 9

• Business pollute environment and use resources in unsustainable ways
• Gov legislations deal with business environmental issues. If they fail to meet them, businesses will get large fines.
• Some businesses minimise impact on environment but it increases business costs
• Being environmentally friendly gives a company an advantage over competitor and increase demand.

Question 10

How do ethical businesses have a great reputation with consumers?

Answer 10

• Consumers are concerned with ethical/unethical behaviours of firms
• Businesses have implemented fair trade policies when purchasing from supplies, business pays higher and fairer prices
• Consumers care about how companies treat their workers: can increase/decrease demand
• A business being ethical can increase reputation therefore increasing demand.

Question 11

How does technological advances influence demand and costs?

Answer 11

• Companies increase demand by using tech to improve marketing
• Use tech to gather information about lifestyles of customers. can target the right people, increasing demand
• New tech can improve production efficiency. Reducing costs in long-term, However is expensive and can take jobs of employees