Chapter 6 and 7(external influences on business activity) Flashcards
other factors that can affect the business are
Social – how consumers, households and communities behave and their beliefs. For instance, changes in attitude towards health, or a greater number of pensioners in a population.
Legal – the way in which legislation in society affects the business. E.g. changes in employment laws on working hours.
Economic – how the economy affects a business in terms of taxation, government spending, general demand, interest rates, EXCHANGE RATES and European and global economic factors.
Political – how changes in government policy might affect the business e.g. a decision to subsidise building new houses in an area could be good for a local brick works.
Technological – how the rapid pace of change in production processes and product innovation affect a business.
Ethical – what is regarded as morally right or wrong for a business to do. For instance should IT TRADE with countries which have a poor record on human rights.
main reasons why markets change rapidly
Customers develop new needs and wants.
New competitors enter a market.
New technologies mean that new products can be made.
A world or countrywide event happens e.g. Gulf War or foot and mouth disease.
Government introduces new legislation e.g. increases minimum wage.
Types of competition in the market?
Many small rival businesses – e.g. a shopping mall or city centre arcade – close rivalry.
A few large rival firms – e.g. washing powder or Coke and Pepsi.
A rapidly changing market – e.g. where the technology is being developed very quickly – the mobile phone market.
A business could react to an increase in competition (e.g. a launch of rival product) in the following ways
Cut prices (but can reduce profits) Improve quality (but increases costs) Spend more on promotion (e.g. do more advertising, increase brand loyalty; but costs money) Cut costs, e.g. use cheaper materials, make some workers redundant
Social change
Social change is when the people in the community adjust their attitudes to way they live. Businesses will need to adjust their products to meet these changes, e.g. taking sugar out of children’s drinks, because parents feel their children are having too much sugar in their DIETS.
social responsibilities
These are the way they act towards the different parts of society that they come into contact with.
social benefit
is where a business action leads to benefits above and beyond the direct benefits to the business and/or customer. For example, the building of an attractive new factory provides employment opportunities to the local community.
A social cost
is where the action has the reverse effect – there are costs imposed on the rest of society, for instance pollution.
business cycle
Economies go through a regular pattern of ups and downs in the value of economic activity (as measured by gross domestic product or GDP
The business cycle is characterised by four main phases
Boom: high levels of consumer spending, business confidence, profits and INVESTMENT. Prices and costs also tend to rise faster. Unemployment tends to be low as growth in the economy creates new jobs
Recession: falling levels of consumer spending and confidence mean lower profits for businesses – which start to cut back on INVESTMENT. Spare capacity increases + rising unemployment as businesses cut back and reduce stocks
Slump / depression: a prolonged period of declining GDP - very weak consumer spending and business INVESTMENT; many business failures; rapidly rising unemployment; prices may start falling (deflation)
Recovery: things start to get better; consumers begin to increase spending; businesses feel a little more confident and start to INVEST again and build stocks; but it takes time for unemployment to stop growing
Businesses whose fortunes are closely linked to the rate of economic growth are referred to as “cyclical”businesses. Examples include
Fashion retailers Electrical goods House-builders Restaurants Advertising Overseas tour operators Construction and other infrastructure firms
Government Spending
Government spending is also known as public spending and in Britain, it takes up over 45% of GDP. Spending by the public sector can be broken down into three main areas
what are the 3 main areas of government spending?
Transfer Payments
Current Government Spending
Capital Spending
Transfer Payments
Transfer payments are welfare payments made available through the social security system including the Jobseeker’s’ Allowance, Child Benefit, State Pension, Housing Benefit, Income Support and the Working Families Tax Credit. The main aim of transfer payments is to provide a basic floor of income or minimum standard of living for LOW INCOME households.
Current Government Spending
This is spending on state-provided goods & services that are provided on a recurrent basis every week, month and year, for example salaries paid to people working in the NHS and resources for state education and defence. The NHS claims a sizeable proportion of total current spending
Capital Spending
Capital spending includes infrastructure spending such as new motorways and roads, hospitals, schools and prisons.
government spending has direct and indirect effects on firms selling goods and services to individual consumers and to other firms. what are they?
Increased government spending may mean higher taxes
Higher taxes reduce the ability of customers to purchase goods and services, which is likely to reduce consumer spending
businesses that supply services to the public sector, demand is directly linked to how much government is spending. Good examples include
Construction firms that build and repair the road network
Publishers who supply schools and colleges
IT systems consultants who develop computer systems for public sector organisations
EXCHANGE RATE
is the value of one currency expressed in terms of another. So £1 may be worth $1.55 and €1.33.
labour market
is where businesses hire workers.
