Booket 8 - External Environment Flashcards
What is external environments?
External environment is a summary of all the things outside a business that can have an effect on a business.
External environment: Laws
Laws made by the government cover many areas.
Employment laws and Consumer laws.
Laws often do cost businesses money because they stop them doing something that is bad for employees or consumer.
Employment laws put a limit on the hours people work
Consumer laws stop businesses charging prices too high or selling dangerous goods.
External environment: Taxation
There are two main types of taxation
1. Income tax - tax on people’s income. If it goes up, people have less money to spend so businesses sell less. If it goes down, people have more money to spend so businesses sell more.
2. Corporation tax - tax on a firm’s profit. If it goes up, there is less profit to reinvest. If it goes down, they could reinvest more money.
External environment: Inflation
Inflation is the percentage rate of increase in the price of goods and services. The value of money falls.
If inflation is increasing, prices rise, making materials more expensive for a business so the price of their products increases and due to this they may sell less.
If inflation is low or falling, prices are either falling or not increasing by much, this is better for business as they don’t have to pay or charge high prices.
External environment: Pressure groups
Pressure groups are organisations that try to influence people’s opinions and government policy.
They may go door to door, hold demonstrations or public meetings. They can stop plans proceeding.
External environment: Local Business Organisations
Local Trade Organisations such as trade associations provide support and information to their members.
Local Governments such as Cardiff City Council provide help for a business by offering grants and sometimes cheap factories.
External environment: International trade
The UK trades with other countries because we cannot produce everything we need ourselves.
EXPORTS are the goods we sell abroad.
IMPORTS are goods we buy from abroad.
External environment: European union (EU)
25 countries make up the EU. Within the EU, countries can trade freely without barriers.
adv - free trade, easy movement of labour, help for businesses in poor areas.
disadv -too big, too interfering, inefficient
External environment: The euro
The Euro is adopted in some but not all EU countries, UK is not in the Euro zone.
adv - easier to trade in europe, businesses don’t have to deal with different exchange rates.
disadv - UK lose it’s own currency and the Bank of England will give up control of monetary policy.
External environment: Exchange rates
The price of one currency compared to another.
If the value of the pound falls, you get fewer dollars to the pound.
If the value of the pound gets stronger, you get more dollars to the pound.
External environment: Interest rates
Interest rates is the percentage charger for borrowing money over a period of time.
When interest rates rise, businesses have to pay more per month
When interest rates fall, borrowing money becomes cheaper and businesses are more likely to expand.
This also has an effect on employment.
External environment: Unemployment
High unemployment means businesses find it easier to employ people and often at lower wages.
Low unemployment means there are fewer people available, businesses may have to offer higher wages and find it difficult to recruit.
