6. External influences on business activity Flashcards
1
Q
What is GDP
A
The total value of output and goods and services in a country in one year
2
Q
Business cycle/trade cycle
A
The cycle of GPD in an economy
Growth - when the GDP is rising, unemployment is also falling and business usually do well in this time
Boom - this is caused by to much spending, prices rise quickly and their is a lack of skilled workers
Recession - often caused by too little spending this is a period when GDP actually falls business will experience falling demand and workers start to lose their jobs
Slump - a serious and long drawn out recession. Unemployment reaches very high levels and prices may fall many business are unable to survive here
3
Q
Inflation
A
The increase in the average price level of goods and services over time
4
Q
Unemployment
A
When people who are willing and able to work cant find a job
5
Q
Economic growth
A
When a country’s GDP increases more goods and services are produced than in the previous year
6
Q
The effects of unemployment on a business
A
business can more easily recruit new workers
customers have no jobs so they cant buy your products if its high
low priced goods are more likely to have sales instead
7
Q
The effects of inflation for a business
A
business costs will increase so prices have to increase to pay off their costs
Which will lead to less sales if the business is not careful
non essential products will likely to lose sales more rapidly
essential products will still have sales
8
Q
Government economics objectives
A
low inflation , business are more likely to expand selling more exports
low unemployment, employed people are more likely to produce goods and services for exports
economic growth,
balance of payments (imports and exports)
9
Q
Imports vs exports
A
Exports are goods and services sold from one country to other countries
Import are goods and services bought in by one country from other
10
Q
Exchange rate
A
Exchange the price of one currency in terms of another for example £1: $2 (one pound = two dollars)
11
Q
Exchange appreciation
A
When the pound has appreciated this means that the pound is worth more in terms of another currency
£1 = $2
£1 = $2.50
12
Q
Exchange rate depreciation
A
When the pound has depreciated means it has lost worth in terms of another currency
£1 = $2
£1 = $1.50
13
Q
The effects of exchange rates
A
£1 = $2
£1 = $2.50
When the pound has appreciated exports are now more expensive for the USA and Imports are more cheaper for the UK
£1 = $2
£1 = $1.50
When the pound has depreciated, exports are now more cheaper for the USA and imports are more expensive for the UK
14
Q
Direct taxes and indirect taxes
A
direct taxes - when the government taxes your income
Indirect taxes - when the government tax goods and services that customers buy
15
Q
Tariffs and quotas
A
Tariffs - a tax on an imported good so customers are more likely to buy locally
Quotas - a physical limit on the quantity of a product that can be brought in
16
Q
The effects of tariffs and quotas for business
A
local businesses will benefit if they are competing with imported goods
business will have higher costs if they have to import raw materials may encourage them to buy locally which may be lower quality
other countries may add tariffs and quotas in retaliation
17
Q
Changes in government spending, what does the government use their tax revenue on
A
Governments like to spend their their revenue on programmes that boost the economy and maximise economic growth as it creates more demand in the economy, more jobs and GPD will increase
Some of the programmes they spend on is
- education
- health
- defence
- law and order
- transportation
18
Q
what is the definition of ethics
A
where a business makes decisions based on what is morally right rather than what’s more profitable
19
Q
where a business makes decisions based on what is morally right rather than what’s more profitable
A
child labor
pay low wages
pollution
buying supplies that left damage to the environment
20
Q
advantages of being ethical
A
customer loyalty
brand awareness/image
USP
attract more customers
21
Q
disadvantages of being ethical
A
harder to grow
higher costs
bad publicity if the business is found out to be unethical
22
Q
businesses impact on the environment
A
laws about the pollution increased
- high cost for the business, charge higher prices
business activity can permanently decrease the environment
- using scarce resources leaving none for the future
23
Q
pressure groups
A
an organization to influence government policy or put “pressure” on a business activity this could harm the business reputation and reduce sales
24
Q
sustainability
A
the idea that goods and services should be made of resources that are renewable and can be replaced
25
Private costs and benefits vs external costs and benefits
Private costs/benefits are costs and benefits that the business has to pay/gain to a certain activity eg: cost of land (the business has to pay for the land)
However.. external costs/benefits are the the costs and benefits that society has to pay/gain to a certain activity eg: waste products causing pollution (the business creates pollution and the world has to pay for it)
26
How can a business be sustainable
use renewable energy
recycle waste
develop new environmentally friendly products
27
Social costs/benefits
This is a cost/benefits that governments use in order to analyse which is better for the planet and the business (social costs = external costs/benefits + private costs/benefits) if the social benefit is greater than the social cost that activity is usually accepted,
such as getting rid of a parking space that children play on and building a library, in this case the library would be better as it can create jobs and everyone can benefit from the library especially schools and children can learn and also play
28
Globalisation
The term now widely used to describe increase in worldwide trade and movement of people and capital between countries
29
Multinational company
Business with factories, production or services operation in more than one country
30
Benefit to a business of becoming a multinational company
can sell to foreign markets , potential sales
open factories in a different countries, cheaper
import materials - higher quality materials
move products to shops so they can sell in their ‘home country’
avoid barriers set up by the government
31
Impacts on the countries economy when going multinational
Jobs are created
Increased exports
Decreased imports
However..
Jobs are usually unskilled assembly lines
Reduced sales of local businesses
May have more influence on the government as they are very large
Multinationals usually use scarce and non environmental friendly resources
Profits can be send back to “home” country
32
balance of payments
the difference between the value of export and import goods and services of a country over a year
33
inflation
the price increase of goods and services over time
34
level of unemployment
the proportion/percentage of the population that are capable of working but are unable to find a job
35
gross domestic product (GDP)
the value of all goods and services produced by a country in a year
36
direct tax
the tax charged on personal income or tax on the profit made by a business
37
indirect tax
the tax charged on the price of goods and services, which is added to the price of goods and services before they are bought
38
disposable income
the amount of income left for individuals after taxes have been paid
39
externalities
the effect of business activity on unrelated parties
40
social cost
the negative impact of a business decision on society
41
social benefit
the positive impact of a business decision on society
42
cost-benefit analysis
analysis of the costs and benefits of a project, the focus being on the social costs and benefits
43
sustainable development
a business activity is said to be sustainable if it has a positive overall impact on the environment and its stakeholders, ensuring its survival in the future
44
multinational company
an organisation that has operations in more than one country
45
globalisation
the process by which countries are connected with each other because of the trade of goods and services
46
trade bloc
a group of countries that trade with each other and are usually part of a free trade agreement
47
home country
the domestic country where a multinational starts/first establishes its operations
48
host country
the foreign country where a multinational sets up its operations
49
tariff
a tax applied to the value of imported and exported goods
50
quota
a physical limit on the quantity of goods that can be imported and exported
51
quota
a physical limit on the quantity of goods that can be imported and exported
52
exchange rate
the rate at which one country’s currency can be exchanged for that of another
53
depreciation
a currency is said to depreciate if the value of the currency goes down with respect to another
54
appreciation
a currency is said to appreciate if the value of the currency increases with respect to another currency
55
growth analysis
increase in national output
lower unemployment
better living standards
56
boom analysis
economy has reached peak output
excessive spending
businesses unsure about future
rapid inflation
low supply of labour
57
recession analysis
decrease in national output
fall in demand
increased unemployment
58
slump analysis
long period of recession
high unemployment
difficult period for firms
59
changes in employment impact
increased unemployment means easier to employ staff as wider pool candidates
no need to pay high wages
workers have increased incomes so can pay for businesses products
60
rapid inflation impact
increased costs of production
passed on as increased prices
could see loss of demand
61
increased national output impact
increased incomes as higher production
people can afford to spend
reflects increasing demand
62
low inflation impact
rapid inflation will reduce people’s purchasing power
rising domestic prices means people buy imported products which are cheaper
fall in demand for local products leads to lower wages, less expansion, less employment and lower living standards
63
low employment impact
unemployed people do not contribute to the output of an economy
the government must pay unemployment benefits as these people have no incomes
this leads to lower outputs and decreased living standards
64
economic growth impact
falling output means less employees required so increased unemployment
this means lower incomes and decreased standards of living
this means businesses cannot expand
65
balance of payments impact
nation would have to borrow as they have exceeded their limit of spending
the value of currency will decline meaning less goods and services can be purchased from abroad
66
impact of increased government spending
increased economic growth
increased output
increased employment
increased tax & revenue generated
increased standard of living
67
increased income taxes impact
increased taxes means lower disposable income so less spending
lower sales due to lower demand means decreased production
this leads to unemployment and its consequent effects
68
increased corporate taxes impact
less money available to fund expansion plans
less money to pay to shareholders as dividends
employees unable to get a pay rise which affects the motivation of the workforce
69
indirect taxes impact
prices of products increase
lower demand and sales
lower production
employees start demanding more money to afford higher prices
70
import tariffs impact
prices of imports more expensive
demand for locally produced goods increases
if businesses import raw materials they will face increased costs of production
this will lead to increased prices
other countries may also start to introduce these tariffs
71
import quota impact
protect competition from foreign countries
protect employment
72
interest rates impact
reduced profits for businesses that have taken out bank loans
owners delay expansion plans because cost of borrowing capital for expansion has increased
fewer entrepreneurs would start new businesses as the capital for this is now more expensive to acquire
fall in demand as fewer customers borrow money to spend on goods and services
increase in demand for currency as foreigners can earn money from depositing
73
currency appreciation/depreciation impact
prices of domestic products higher/lower than foreign products
demand falls/rises from both local and foreign customers
businesses that import raw material will see decreased/increased costs of production
74
how does business activity impact the environment
pollution from production processes that harm air quality
disposal of toxic material into rivers
excessive fossil fuel usage which emit pollutants that lead to global warming
75
arguments for socially responsible production
global warming and climate change affect everyone
using up scarce resources leaves nothing for future generations
increased social awareness is leading to increased demand for these products
pressure groups are taking actions against businesses that are not environmentally friendly
76
arguments against socially responsible production
methods to achieve this are expensive and reduce profits
products may have higher prices
businesses will become less competitive
they may face a fall in demand
governments should engage in protecting the environment
77
how can businesses contribute to sustainable development
using renewable energy to slow the depletion of resources
recycling reduces the amount of resources used
efficient use of resources so they can be conserved
developing new production methods or using non toxic materials that do not harm the environment
78
environmental pressures & consumers
consumers are more socially aware and are demanding products for the same
some consumers are willing to pay higher prices in order to do their part
if people stop consuming products made at the expense of the environment the business would get bad publicity
businesses might have to therefore adopt environmentally friendly products to maintain a good brand image
79
when will pressure groups be successful
public support for instance through media coverage
consumer boycotts are impactful
the pressure group is funded and organised
80
when will pressure groups be unsuccessful
firms activities are legal even if unpopular
firm sells to other businesses not consumers
cost of changing production methods exceeds the loss of sales
81
policies that governments could impose to encourage businesses to be environment friendly
business production banned in certain places
banning single use plastic
banning dumping of waste into water bodies
banning production of non recyclable products
financial penalties through pollution permits
82
benefits of ethical decisions
could see an increase in sales
good publicity
increased capital as investors may want to be linked with such businesses
less risk of legal action
83
limitations of ethical decisions
higher costs of production
prices have to increase
sales may fall
short term profits will decrease
84
reasons for globalisation
rise in the number of free trade agreements between geographically close countries
improved communication and transport links makes it easier to transport products and resources
industrialisation of medium income countries makes it cheaper to produce products in those countries and export them at reasonable prices
85
benefits of globalisation
exporting to other countries increases sales of a business
opening operations overseas could reduce cost of production
free trade agreements makes it possible for businesses to import and sell in domestic markets
importing cheaper raw materials means reduction in costs
86
threats of globalisation
rise of imports from foreign markets increases competition for businesses
workers may shift to other businesses with more attractive employment conditions
some firms selling primary products may not benefit from free trade agreements
87
advantages of multinationals to the business
lower costs of production in low income countries
new sources of raw materials
goods produced and directly placed on market avoiding transportation costs
reduce/avoid trade barriers and protectionist measures
increased market share so sales and profits increase
government grants enable lower setup costs so higher profits
88
advantages of multinationals to the country
creation of jobs means lower unemployment
large amounts in taxes paid
increased choice of products means increased standards of living
increased exports so source of income for government
increased financial and technological investment improves living standards
89
disadvantages of multinationals to the country
jobs created could be low skilled which decreases living standards
may send profits to home country
depletion of natural resources
local businesses threatened due to increased competition
the businesses may demand unreasonable policies in their favour
90
impacts on stakeholders of multinational companies
shareholders: increased dividends due to increased sales and profits
employment: better employment conditions and higher wages due to increased profits
suppliers: could see an increase or decrease in resources supplied depending on whether the company moves in or out of economy
owners: increased status and recognition
government: increased tax revenue and economic objectives like growth and unemployment achieved
91
currency appreciation impact
raises prices of exports as foreign customers need to pay more to buy products
fall in import prices as currency stronger and can buy more products from overseas
exporting businesses will face reduced sales
importing businesses enjoy lower production costs
92
several reasons for the increase in global trade and movement of products, people and capital (globalization) (3)
* Increasing numbers of free trade agreements and economic unions between countries have reduced protection for industries. Consumers purchase goods and services from other countries with few or no import controls such as tariffs.
* Improved and cheaper travel links and communications between all parts of the world have made it easier to transport products globally. The internet allows easy price comparisons between goods from many countries.
* Many emerging market countries are industrializing very rapidly. China and countries in Southeast Asia used to import many of the goods they needed. Now their own manufacturing industries are so strong they can export in large quantities – at very competitive prices.
93
opportunities of globalization for business (4m, sub-2each)
* Start selling exports to other countries – opening up foreign markets:
* This increases potential sales, perhaps in countries with fast-growing markets. Online selling allows orders for goods to be sent in from abroad.
* However, it can be expensive to sell abroad, and will foreign consumers buy products?
* Open factories/operations in other countries:
* It could be cheaper to make some goods in other countries than at home.
* But will the quality be as good? Might there be an ethical issue? Etc.
* Import products from other countries to sell to customers in home country:
* With no trade restrictions, it could be profitable now to import goods and services from other countries and sell them domestically.
* However, the products will need maintenance and perhaps, repairs – will the parts and support be available from the producer in the foreign country?
* Import materials and components from other countries – but still produce final goods in home country:
* It could be cheaper to purchase these supplies from other countries now that there is free trade – this will help to reduce costs.
* However, will the suppliers be reliable?
94
threats of globalization for businesses (3m, 6s)
* Increasing imports into home market from foreign competitors:
* If these competitors offer cheaper products (or of higher quality), sales of local business might fall.
* However, the increased competition could force the local businesses to become more efficient.
* Increasing investment from multinationals to set up operations in home country:
* This will create further competition – and the multinational may have economies of scale and be able to afford the best employees.
* However, some local firms could become suppliers to these multinationals and their sales could increase.
* Employees may leave businesses that cannot pay the same or more than international competitors:
* Employees will now have more choice about where they work and for which business – businesses will have to make efforts to keep their best employees.
* However, this might encourage local businesses to use a range of motivational methods to keep their workers.
95
why governments might introduce import tariffs and import quotas (4)
* Import tariffs were explained as being one form of taxes that governments can use to raise revenue. There is another important reason why governments might introduce tariffs and quotas on imports.
* They are forms of protectionism – to protect domestic industries from competition that might otherwise close them down.
* Foreign competitors might be able to produce products much more cheaply and if they were allowed to import without any restriction, then local companies might be forced out of business.
* An import tariff is a tax on the imported goods when they arrive into the country. They usually lead to the price of the imported goods being increase, making them less competitive than locally produced goods.
* An import quota is a regulation which limits the import of a good to a certain fixed quantity. This reduces the amount of these goods that can be imported and often leads to an increase in the price of imported goods as they become less available.
96
benefits to a business of becoming a multinational (4)
* Produce goods in countries with low costs, such as low wages.
* Extract raw materials which the company mayneed for production or refining.
* Produce goods nearer the market to reduce transport costs.
* Avoid barriers to trade put up by countries to reduce the imports of goods.
97
impacts on a business’s stakeholders of a business becoming multinational
* Shareholders are likely to receive increased dividends from higher profit.
* Employees may have increased opportunities to gain promotion as the business gets larger and has operations across many countries; opportunity to live and work abroad.
* Suppliers may have increased or decreased sales to the multinational, depending on where it operates and is located.
* Government may gain higher tax revenue if profits from operations abroad are repatriated, or it may lose tax revenue if the multinational locates its head office elsewhere.
98
potential benefits to a country’s economy where a multinational operates (5)
* Increased investment – new investment in buildings and machinery increases output of goods and services in the country. New technology can benefit the country by bringing in new ideas and methods.
* Increased exports – some of the extra output may be sold abroad, which will increase the exports of the country. Also, imports may be reduced as more goods are now made in the country.
* Taxes are paid by the multinationals, which increased the funds to the government.
* Increased consumer choice – there is more product choice for consumers and more competition.
99
potential drawbacks to a country’s economy where a multinational operates (5)
* The jobs created are often unskilled assembly-line tasks. Skilled jobs are not usually created in the host countries receiving the multinationals.
* Reduced sales for local businesses – local firms may be forced out of business/ multinationals are often more efficient and have lower costs than local businesses.
* Repatriation of profits – profits are often sent back to a multinational’s home country and not kept in the country where they are earned.
* Multinationals often use up scarce and non-renewable primary resources in the host country
* As multinational businesses are very large, they could have a lot of influence on both the government and the economy of the host country. They might ask the government for large grants to keep them operating in the country.
100
describe depreciation of exchange rate when the euro falls from 1 euro = 1.50 USD to 1 euro = 1USD (3)
It means the currency euro buys less of the other currency, US dollar. The effect of this is to:
* Make exports cheaper, for example, from Europe sell for a lower price in America as it takes fewer dollars to buy each euro. People in America do not have to spend as many dollars buying euros to buy the exports from Europe.
* Imports are more expensive and do the opposite, for example, imports into Europe now cost more to buy from America, as more euros have to be given to buy the dollars needed for the same amount of imports.
101
describe the appreciation of exchange rate when the euro rises from 1 euro = 1USD to 1euro = 1.50 USD (3)
It means the currency euro buys more of the other currency, US dollar. The effect of this is to:
* Raise the price of exports, for example, exports from Europe sell for a higher price in America as it takes more dollars to buy each euro. People in America have to spend more dollars buying euros to buy the same amount of exports from Europe.
* Import prices fall and demand for them might rise, for example, imports into Europe now cost less to buy from America, as fewer euros have to be given to buy the dollars needed for the same amount of imports.
102
How exchange rate changes can affect businesses
as importers and exporters of products,
e.g. prices, competitiveness, profitability
An importing firm will have higher costs if the exchange rate of its currency depreciates but will lower costs if the exchange rate appreciates. However, an exporting firm will be able to reduce its
103
Gross Domestic Product (GDP)
the total value of output of goods and services in acountry in one year
104
Recession
when there is a period of falling GDP
105
Inflation
the increase in the average price level of goods and services over time
106
Unemployment
when the people who are willing and able to work cannot find a job
107
Economic growth
when a country’s GDP increases- more goods and services are produced than in the previous year
108
Balance of payment
records the difference between a country’s exports and imports
109
Real income
the value of income and it falls when prices rise faster than money income
110
Export
goods and services sold from one country to other countries
111
Import
goods and services bought in by one country from other countries
112
Exchange rate
the price of one currency in terms of another
113
Exchange rate appreciation
the rise in the value of a currency compared with other currencies
114
Exchange rate depreciation
the fall in value of a currency compared with other currencies
115
Fiscal policy
any change by the government in tax rates or public sector spending
116
Direct tax
paid directly from incomes, eg- income tax or profits tax
117
Indirect tax
added to the prices of goods and taxpayers pay the tax as they purchase the goods, e.g. VAT
118
Disposable income
the level of income a taxpayer has after paying income tax
119
Monetary policy
a change in rates by the government or central bank
120
Supply-side policy
aim to increase supply and make the economy more efficient
121
Private cost
an activity are the costs paid for by a business or the consumer of the product
122
Private benefit
an activity are the gains to a business or the consumer of the product
123
External cost
costs paid for by the rest of society, other than the business, as a result of business activity
124
External benefit
the gains to the rest of society, other than the business, as a result of business activity
125
Social cost
external costs + private costs
126
Social benefit
external benefits + private benefits
127
Globalization
the term used to describe increases in worldwide trade and movement of people and capital between countries
128
Free trade agreement
exist when countries agree to trade imports/exports with no barriers such as tariffs or quotas
129
Import tariff
a tax placed on imported goods when they arrive into the country
130
Import quota
a restriction on the quantity of a product that can be imported
131
Protectionism
when a government protects domestic businesses from foreign competition using tariffs and quotas
132
Multinational business
those with factories, production or service operations in more than one country
