3.1.3 Understanding that businesses operate withing an external enviroment

Question 1

What is external enviroment?

Answer 1

Anything outside of the business that may have an impact on the way it operates.

Question 2

What are PESTLE factors?

Answer 2

Political
Economic
Social
Techonological
Legal
Enviromental

Question 3

Political impact on cost includes:

Answer 3

Corporation tax, VAT, higher rates in taxation means more money for the governemnt and lower profits for businesses

Question 4

Politcial impact on demand includes:

Answer 4

Protectionist policies e.g. tarrifs and quotas

Raises prices for UK customers so they are less likely to demand foreign goods.

Question 5

Economic impact on cost includes:

Answer 5

Growth in the economy means consumer confidence grows so more staff will be employed but in a recession staff may be made redundant.

Question 6

Economic impact on demand included:

Answer 6

GDP, Inflation, Interest rates, Exchange rates.

Question 7

Social impact on cost includes:

Answer 7

Increase in migrant workers means prodicers will have a large supply of workers prepared to work for minimum wage meaning the costs will be lowered.

Question 8

Social impact on demand includes:

Answer 8

Trends and tastes which change over time, demand can change depending on what influencial people wear, drink or use (on social media)

Question 9

Technology impact on cost includes:

Answer 9

Automation, e-commerce, R&D

Question 10

Technology impact on demand includes:

Answer 10

Inovations can provide consumers with more ways to connect with eachother and buy online- increase in demand for wifi/broardband.

Question 11

Legal impact on cost includes:

Answer 11

Consumer laws, employment laws, environmental laws. Each time laws are brought out the business must make sure it complies meaning costs increase.

Question 12

Legal impact on demand includes:

Answer 12

If businesses don’t comply with the consumer rights act 2015 customers will complain and the reputation might be impacted so demands will fall. Another example is hygiene laws (especially after covid)

Question 13

Enviromental impact on cost includes:

Answer 13

Being enviromentally friendly is expensive, sustainable materials cost more, more expensive products means demand falls, so no economies of scale and prices remain high.

Question 14

Environmental impact on demand includes:

Answer 14

Enviromental impact might worry customers:
88% of customers will be more loyal to a company that supports social and environmental issues. 92% will be more likely to trust a company that supports social or enviromental issues.

Question 15

Factors that influence cost and demand:

Answer 15

Competition, market conditions, incomes, interest rates, demographic factors, enviromental issues and fairtrade.

Question 16

Why does competition influence on cost and demand?

Answer 16

As there are many competitors demand is high and they try and keep costs low or customers will switch to alternative brand or suppliers.

Question 17

What happens when there is high competition? (cost and demand)

Answer 17

In a highly competitive market there are many producers who want to supply the same customers with the same goods but no one company can set the prices.

Question 18

What are maket conditions?

Answer 18

Market conditions can be defined as the type of market which a business is going into.

Question 19

What effect does income have on cost?

Answer 19

If incomes raise then wages might have risen which means the costs of a business will have risen.

Question 20

What effect does income have on demand?

Answer 20

If incomes rise then customers will have more disposable income so demand willr ise for products and services.

Question 21

What are interest rates?

Answer 21

In the UK they are thecosts of borrowing money

Question 22

What effect does interest rate have on demand?

Answer 22

If interest rates increase then customers will not be able to afford to borrow on a credit card or loan to buy the goods so demand will fall.

Question 23

What effect does interest rate have on cost?

Answer 23

If interest rates go up then business selling the goods will also be impacted as the cost of repaying any business loans will increase.

Question 24

What effect does demographic factors have on demand? (mobility products)

Answer 24

A shift in demographics in the UK has an older population which means that the deman for some mobility products has increased.

Question 25

What effect does enviromental issues have on cost?

Answer 25

If a business is more eco friendly they end to have higher costs.

Question 26

What effect does enviromental issues have on demand?

Answer 26

Being eco friendly means that they can experience higher demand as customer perception has improved.

Question 27

Using enviromental issues how can businesses improve its customer perception?

Answer 27

Conserving water, reduce single use plastic packaging, recycling, using solar power or going paperless (online).

Question 28

What is fair trade about?

Answer 28

Acording to the fairtrade foundation its is about better prices, decent working conditions, local sustainability and fair terms of trade for farmers and workers in the developing world.

Question 29

What does fairtrade require companies to do?

Answer 29

It requires companies to pay prices no lower than the market price to protect the weakest and poorest farmers in developing countires.

Question 30

What happens to the prices of fairtrade products?

Answer 30

Prices will increase but customers are aware of fairtrade and are prepared to pay a little more for it.