Ch7 External Economic Influences On Business Activity Flashcards
Govt ways to assist small firms
- reduce profit tax rate
- loan gaurantee scheme
- info, advice, training
- finance shops etc which given/rented
- reduce paperwork/legal formalities
- loan gaurantee scheme
Loan gaurantee scheme
- govt funcded scheme where govt agrees to pay %of loan if business fails.
- Makes banks more likely to give loans to the business
Examples of mkt failiure
- unrealised external cost/benefit
- untrained labor
- monopoly (output restriction)
How does monopoly effect consumers
- lack of choice
- low quality as no competition
- high prices
Macro goals of govt
- economic (gdp) growth
- low & stable price inflation
- low unemployment
- BOP balance longterm
- ER stability
GDP
total VALUE of goods & services produced in a country in 1 yr
(Revenue - depreciation)
GDP impact
- increases living standards (granted pop not rising as much)
- employment (and income)
- govt resources can be directed to other projects
- if sprad to whole econ absolute poverty fall
- demand rise (dont ignore PED tho)
- more income tax
Causes of econ growth
- technology
- increased production
- increase productivity
- increase in resources to produce at max efficiency
Business cycle
Swings in output measured by real GDP. (Boom to recession)
Boom
Period of rapid econ growth
- inflation rises
- shortage in workers lead to wage rise
Recession
6+ months of declining real gdp (some businesses fail some make loss)
Slump
Very serious longterm recession
Recession impact
- deflation
- cheaper capital assets (firms invest)
- inferior demand rises
- bad businesses exit
- business increase efficiency
Luxury strategy in growth and recession
GROWTH
- increase range of goods
- raise prices
- promote exclusivity
- produce more
RECESSION
- May not reduce prices to not harm exclusive brand image
- offer credit terms to make affordable
- offer promotions
- widen range with lower price models
Basic good strategy in growth and recession
GROWTH
- Add value (better ingredients)
- charge higher etc
- do nothing if sales not affecred (eg water company)
Recession
- lower prices
- offer promotions
- do nothing
U can cook up more
Inferior strategy in growth/recession
GROWTH
- Add value
- target low income niches
- extend product range for better (non inferior goods)
RECESSION
- promote value and prices
- offer promotions
- increase distribution outlets
- push for more shelf space
Causes of inflation
Cost push
D pull
Inflation impact
- cost increase (goods AND raw material)
- real value of debt falls
- real profit margin increases for firms that buy stock at lower proces before
Impact of high inflation (6%+)
- workers demand more wages
- consumers will look for cheaper alternatices (inferior)
- high ROI by govt (highly geared companies will have problems)
- cash flow problem
- if country has inflation itll be less competitive in export mkt
- creditors less likely to give credit
Rapid inflation business strategy
- cut back on investment spending
- cut profit margins
- widen product range to inferior, high value goods
- reduce borrowing so interest rate hikes dont hurt you
- lower COP
- lower trade recievables time period
Delation drawbacks
- xonsumers wil delay impt purchases in hopes prices fall lower
- creditors gain (debtors hurt)
- mkt feels iffy on future profitibality
- inventory loses value
