6. External influences on business activity

Question 1

What is GDP

Answer 1

The total value of output and goods and services in a country in one year

Question 2

Business cycle/trade cycle

Answer 2

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

Question 3

Inflation

Answer 3

The increase in the average price level of goods and services over time

Question 4

Unemployment

Answer 4

When people who are willing and able to work cant find a job

Question 5

Economic growth

Answer 5

When a country’s GDP increases more goods and services are produced than in the previous year

Question 6

The effects of unemployment on a business

Answer 6

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

Question 7

The effects of inflation for a business

Answer 7

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

Question 8

Government economics objectives

Answer 8

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)

Question 9

Imports vs exports

Answer 9

Exports are goods and services sold from one country to other countries
Import are goods and services bought in by one country from other

Question 10

Exchange rate

Answer 10

Exchange the price of one currency in terms of another for example £1: $2 (one pound = two dollars)

Question 11

Exchange appreciation

Answer 11

When the pound has appreciated this means that the pound is worth more in terms of another currency

£1 = $2
£1 = $2.50

Question 12

Exchange rate depreciation

Answer 12

When the pound has depreciated means it has lost worth in terms of another currency

£1 = $2
£1 = $1.50

Question 13

The effects of exchange rates

Answer 13

£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

Question 14

Direct taxes and indirect taxes

Answer 14

direct taxes - when the government taxes your income
Indirect taxes - when the government tax goods and services that customers buy

Question 15

Tariffs and quotas

Answer 15

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

Question 16

The effects of tariffs and quotas for business

Answer 16

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

Question 17

Changes in government spending, what does the government use their tax revenue on

Answer 17

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

Question 18

what is the definition of ethics

Answer 18

where a business makes decisions based on what is morally right rather than what’s more profitable

Question 19

where a business makes decisions based on what is morally right rather than what’s more profitable

Answer 19

child labor
pay low wages
pollution
buying supplies that left damage to the environment

Question 20

advantages of being ethical

Answer 20

customer loyalty
brand awareness/image
USP
attract more customers

Question 21

disadvantages of being ethical

Answer 21

harder to grow
higher costs
bad publicity if the business is found out to be unethical

Question 22

businesses impact on the environment

Answer 22

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

Question 23

pressure groups

Answer 23

an organization to influence government policy or put “pressure” on a business activity this could harm the business reputation and reduce sales

Question 24

sustainability

Answer 24

the idea that goods and services should be made of resources that are renewable and can be replaced

Question 25

Private costs and benefits vs external costs and benefits

Answer 25

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)

Question 26

How can a business be sustainable

Answer 26

use renewable energy
recycle waste
develop new environmentally friendly products

Question 27

Social costs/benefits

Answer 27

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

Question 28

Globalisation

Answer 28

The term now widely used to describe increase in worldwide trade and movement of people and capital between countries

Question 29

Multinational company

Answer 29

Business with factories, production or services operation in more than one country

Question 30

Benefit to a business of becoming a multinational company

Answer 30

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

Question 31

Impacts on the countries economy when going multinational

Answer 31

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

Question 32

balance of payments

Answer 32

the difference between the value of export and import goods and services of a country over a year

Question 33

inflation

Answer 33

the price increase of goods and services over time

Question 34

level of unemployment

Answer 34

the proportion/percentage of the population that are capable of working but are unable to find a job

Question 35

gross domestic product (GDP)

Answer 35

the value of all goods and services produced by a country in a year

Question 36

direct tax

Answer 36

the tax charged on personal income or tax on the profit made by a business

Question 37

indirect tax

Answer 37

the tax charged on the price of goods and services, which is added to the price of goods and services before they are bought

Question 38

disposable income

Answer 38

the amount of income left for individuals after taxes have been paid

Question 39

externalities

Answer 39

the effect of business activity on unrelated parties

Question 40

social cost

Answer 40

the negative impact of a business decision on society

Question 41

social benefit

Answer 41

the positive impact of a business decision on society

Question 42

cost-benefit analysis

Answer 42

analysis of the costs and benefits of a project, the focus being on the social costs and benefits

Question 43

sustainable development

Answer 43

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

Question 44

multinational company

Answer 44

an organisation that has operations in more than one country

Question 45

globalisation

Answer 45

the process by which countries are connected with each other because of the trade of goods and services

Question 46

trade bloc

Answer 46

a group of countries that trade with each other and are usually part of a free trade agreement

Question 47

home country

Answer 47

the domestic country where a multinational starts/first establishes its operations

Question 48

host country

Answer 48

the foreign country where a multinational sets up its operations

Question 49

tariff

Answer 49

a tax applied to the value of imported and exported goods

Question 50

quota

Answer 50

a physical limit on the quantity of goods that can be imported and exported

Question 51

quota

Answer 51

a physical limit on the quantity of goods that can be imported and exported

Question 52

exchange rate

Answer 52

the rate at which one country’s currency can be exchanged for that of another

Question 53

depreciation

Answer 53

a currency is said to depreciate if the value of the currency goes down with respect to another

Question 54

appreciation

Answer 54

a currency is said to appreciate if the value of the currency increases with respect to another currency

Question 55

growth analysis

Answer 55

increase in national output
lower unemployment
better living standards

Question 56

boom analysis

Answer 56

economy has reached peak output
excessive spending
businesses unsure about future
rapid inflation
low supply of labour

Question 57

recession analysis

Answer 57

decrease in national output
fall in demand
increased unemployment

Question 58

slump analysis

Answer 58

long period of recession
high unemployment
difficult period for firms

Question 59

changes in employment impact

Answer 59

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

Question 60

rapid inflation impact

Answer 60

increased costs of production
passed on as increased prices
could see loss of demand

Question 61

increased national output impact

Answer 61

increased incomes as higher production
people can afford to spend
reflects increasing demand

Question 62

low inflation impact

Answer 62

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

Question 63

low employment impact

Answer 63

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

Question 64

economic growth impact

Answer 64

falling output means less employees required so increased unemployment
this means lower incomes and decreased standards of living
this means businesses cannot expand

Question 65

balance of payments impact

Answer 65

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

Question 66

impact of increased government spending

Answer 66

increased economic growth
increased output
increased employment
increased tax & revenue generated
increased standard of living

Question 67

increased income taxes impact

Answer 67

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

Question 68

increased corporate taxes impact

Answer 68

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

Question 69

indirect taxes impact

Answer 69

prices of products increase
lower demand and sales
lower production
employees start demanding more money to afford higher prices

Question 70

import tariffs impact

Answer 70

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

Question 71

import quota impact

Answer 71

protect competition from foreign countries
protect employment

Question 72

interest rates impact

Answer 72

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

Question 73

currency appreciation/depreciation impact

Answer 73

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

Question 74

how does business activity impact the environment

Answer 74

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

Question 75

arguments for socially responsible production

Answer 75

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

Question 76

arguments against socially responsible production

Answer 76

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

Question 77

how can businesses contribute to sustainable development

Answer 77

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

Question 78

environmental pressures & consumers

Answer 78

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

Question 79

when will pressure groups be successful

Answer 79

public support for instance through media coverage
consumer boycotts are impactful
the pressure group is funded and organised

Question 80

when will pressure groups be unsuccessful

Answer 80

firms activities are legal even if unpopular
firm sells to other businesses not consumers
cost of changing production methods exceeds the loss of sales

Question 81

policies that governments could impose to encourage businesses to be environment friendly

Answer 81

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

Question 82

benefits of ethical decisions

Answer 82

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

Question 83

limitations of ethical decisions

Answer 83

higher costs of production
prices have to increase
sales may fall
short term profits will decrease

Question 84

reasons for globalisation

Answer 84

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

Question 85

benefits of globalisation

Answer 85

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

Question 86

threats of globalisation

Answer 86

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

Question 87

advantages of multinationals to the business

Answer 87

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

Question 88

advantages of multinationals to the country

Answer 88

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

Question 89

disadvantages of multinationals to the country

Answer 89

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

Question 90

impacts on stakeholders of multinational companies

Answer 90

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

Question 91

currency appreciation impact

Answer 91

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

Question 92

several reasons for the increase in global trade and movement of products, people and capital (globalization) (3)

Answer 92

• 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.

Question 93

opportunities of globalization for business (4m, sub-2each)

Answer 93

• 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?

Question 94

threats of globalization for businesses (3m, 6s)

Answer 94

• 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.

Question 95

why governments might introduce import tariffs and import quotas (4)

Answer 95

• 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.

Question 96

benefits to a business of becoming a multinational (4)

Answer 96

• 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.

Question 97

impacts on a business’s stakeholders of a business becoming multinational

Answer 97

• 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.

Question 98

potential benefits to a country’s economy where a multinational operates (5)

Answer 98

• 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.

Question 99

potential drawbacks to a country’s economy where a multinational operates (5)

Answer 99

• 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.

Question 100

describe depreciation of exchange rate when the euro falls from 1 euro = 1.50 USD to 1 euro = 1USD (3)

Answer 100

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.

Question 101

describe the appreciation of exchange rate when the euro rises from 1 euro = 1USD to 1euro = 1.50 USD (3)

Answer 101

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.

Question 102

How exchange rate changes can affect businesses
as importers and exporters of products,
e.g. prices, competitiveness, profitability

Answer 102

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

Question 103

Gross Domestic Product (GDP)

Answer 103

the total value of output of goods and services in acountry in one year

Question 104

Recession

Answer 104

when there is a period of falling GDP

Question 105

Inflation

Answer 105

the increase in the average price level of goods and services over time

Question 106

Unemployment

Answer 106

when the people who are willing and able to work cannot find a job

Question 107

Economic growth

Answer 107

when a country’s GDP increases- more goods and services are produced than in the previous year

Question 108

Balance of payment

Answer 108

records the difference between a country’s exports and imports

Question 109

Real income

Answer 109

the value of income and it falls when prices rise faster than money income

Question 110

Export

Answer 110

goods and services sold from one country to other countries

Question 111

Import

Answer 111

goods and services bought in by one country from other countries

Question 112

Exchange rate

Answer 112

the price of one currency in terms of another

Question 113

Exchange rate appreciation

Answer 113

the rise in the value of a currency compared with other currencies

Question 114

Exchange rate depreciation

Answer 114

the fall in value of a currency compared with other currencies

Question 115

Fiscal policy

Answer 115

any change by the government in tax rates or public sector spending

Question 116

Direct tax

Answer 116

paid directly from incomes, eg- income tax or profits tax

Question 117

Indirect tax

Answer 117

added to the prices of goods and taxpayers pay the tax as they purchase the goods, e.g. VAT

Question 118

Disposable income

Answer 118

the level of income a taxpayer has after paying income tax

Question 119

Monetary policy

Answer 119

a change in rates by the government or central bank

Question 120

Supply-side policy

Answer 120

aim to increase supply and make the economy more efficient

Question 121

Private cost

Answer 121

an activity are the costs paid for by a business or the consumer of the product

Question 122

Private benefit

Answer 122

an activity are the gains to a business or the consumer of the product

Question 123

External cost

Answer 123

costs paid for by the rest of society, other than the business, as a result of business activity

Question 124

External benefit

Answer 124

the gains to the rest of society, other than the business, as a result of business activity

Question 125

Social cost

Answer 125

external costs + private costs

Question 126

Social benefit

Answer 126

external benefits + private benefits

Question 127

Globalization

Answer 127

the term used to describe increases in worldwide trade and movement of people and capital between countries

Question 128

Free trade agreement

Answer 128

exist when countries agree to trade imports/exports with no barriers such as tariffs or quotas

Question 129

Import tariff

Answer 129

a tax placed on imported goods when they arrive into the country

Question 130

Import quota

Answer 130

a restriction on the quantity of a product that can be imported

Question 131

Protectionism

Answer 131

when a government protects domestic businesses from foreign competition using tariffs and quotas

Question 132

Multinational business

Answer 132

those with factories, production or service operations in more than one country