Busines And The External Environment Flashcards
What are market conditions?
Market conditions cover a range of factors that affect a market e.g level of sales, rates of growth, level of competition, strength of competition
What is income?
Consumer incomes are determined by the nation’s GDP. A rise in GDP will increase the incomes received by many consumers
Sectors of the economy?
-primary contributes the least to GDP whereas tertiary contribute up to 76% in 2009
-the UKs secondary manufacturing sector is declining as manufacturing is now out sourced as it is cheaper so they are coming from overseas
-tertiary sector rises as with rising income people spend more on services like the cinema
What is inflation?
Inflation measures the rise in price change in the last 12 months
What are real incomes ?
Real incomes are incomes that are adjusted for the rate of inflation( measures rises in prices) to show purchasing power
Explanation for real income:
-if incomes rise by 6% but inflation is 2% then real incomes have risen by 4% but if incomes rise by 2% and inflation is at 6% real income has dropped by 4%
What are interest rates?
Interest rates are the cost of borrowing and the reward for saving. Shown as a percentage. The Bank of England sets the base rate and other interest rates in the bank relate to this. The current base rate is 4.5%
What is demography?
Demography is the study of human populations eg age, size, immigration.
UK: increasing population, ageing population, more immigration
What is fair trade?
Fair trade promotes improving trading conditions for producers in less developed countries.
How do businesses affect the environment?
Businesses contribute to global warming, air pollution, road congestion, water pollution, deforestation etc
Why do we have government legislation?
We have government legislation to protect the environment. This legislation affects businesses.
Examples of government legislation?
-environmental protection act 1991: this requires businesses to minimise all types of pollution
-environment act 1995: this established the Environment Agency. Their role is to co-ordinate and oversee environmental protection. The act also covers conservation and restoring contaminated land.
How do market conditions affect cost and demand?
Cost:
-new competitor causes firms to increase promotion, increasing cost
-competitor launches new product=higher cost to develop new product to compete with
Demand
-new competitor can reduce demand
-product goes out of fashion= lower demand
-merger/takeover= larger firm who can take demand away from others
-competitor launches new product= less sales
How does income affect costs and demand?
Costs:
-if GDP increases so do wages, increasing a firms costs (makes it difficult to keep price the same)
Demand:
-a fall in GDP leads to less employment and lower wages for those in work( eg no overtime)= fall in demand
-increasing incomes particularly increases demand for luxury produces( less so for necessities)
How do interest rates affect costs and demand?
Costs:
-if a firm has a loan then a rise in interest rates increases repayment
-if interest rates rise the uk currency becomes attractive causing the exchange rate to rise( strong pound) so spiced occurs
Demand:
-rising interest rate: saving us more attractive than spending and loans are expensive so demand tends to fall
-rising interest rates make mortgage repayments increase, leaving less to spend in businesses, reducing demand
- pensioners income comes from pensions and saving therefore their income is determined by interest rates which is important as we have an ageing population
How does demography affect costs and demand?
Costs:
-immigration means there are less shortages of labour which helps control wage costs
Demand:
-bigger population=more demand
-ageing population means more demand for products bought or used by older age groups. There is a projected rise in the over 70s of 33% between 2014-2025
How does environment affect costs and demand?
Costs:
-disposing of waste properly, using supplies from sustainable sources or altering production methods can increase costs
-being energy efficient and recycling can reduce a firms costs
- grants for greener production methods reduce costs
Demand:
-being environmentally friendly can attract customers
How does fair trade affect costs and demand?
Costs:
-the movement supports the paying of higher prices to producers. If firms in developing countries purchase these products, it increases their costs
Demand:
-fair trade products can attract customers( who are willing to pay a higher price
