Component 3 - PEST factors Flashcards
Political - Explain : Political factors affect on business activity, including;
1) 3 types of Government Policy/Regulation
3) 3 types of Trade Policy
4 ) 2 types of Government Spending
1 - Government Policy/Regulation -
1 ) Impose taxes - Changes Cost of production
2 ) Environmental regulations - affect Market access
3 ) Labour laws - Change Employment practice
3 - Trade policies - Trade policies such as:
- Tariffs
- Import and Export quotas
- Trade agreements
4 - Government Spending - Government Contracts or Subsidies
Political - Explain : The 4 ways the government provides a good framework in which businesses can operate
The government plays an important role in providing a stable framework in which businesses operate, Including.
1) Creating laws and regulations
2) Providing infrastructure
3) Supporting economic growth
4) Taxation
By providing a stable framework for businesses to operate within, the government helps to create an environment in which businesses can thrive and contribute to economic growth.
Political - Explain : How Laws and Regulation provides a good Business framework.
Laws and Regulations - Rules that businesses must comply with, such as laws on;
1) Health and Safety
2 ) Employment practices
3 ) Environmental regulations
Political - Explain : How Providing Infrastructure provides a good Business framework.
Infrastructure, such as;
1) Roads
2) Railways
3) Communication networks
Political - Explain : Types of Tax
Income Tax
Corporation Tax
Value Added Tax
Political - Explain : How businesses are affected by taxation and subsidies
Taxation - The government can generate revenue and Influence economic behaviour.
- Higher taxes decrease profits and limit
investment, - Lower taxes provides Firms with more
capital to invest in growth and expansion.
Subsidies - Financial grants provided to firms by the government, They can help businesses to reduce costs and make them more competitive, but they can also create distortions in the market.
Political - Explain : How fiscal and monetary policies affect businesses
.
Fiscal policies can affect businesses in several ways:
1) Taxation
2) Government spending
3) Inflation - If the government spends too much money, it can lead to inflation.
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Monetary Policy
1) Interest rates
2) Exchange rates
3) Credit availability
Political - Explain : Why governments legislate and regulate business activity
Legislation and regulation can take many forms, such as health and safety regulations, environmental regulations, consumer protection laws, employment regulations, and tax laws. By regulating businesses, the government can protect citizens from harm and ensure that businesses operate in a way that is beneficial to society as a whole.
In addition, governments may also legislate and regulate businesses to promote certain policies or values. For example, a government may pass laws and regulations to promote sustainable development, reduce inequality, or encourage innovation. By doing so, governments can help create an environment in which businesses can thrive and contribute to society in a positive way.
Overall, the government’s role in legislating and regulating business activity is to balance the interests of businesses and the wider society, and to promote economic growth and development in a responsible and sustainable way.
Political - Explain : The importance of the government as a purchaser of goods and services from the private sector
The government is a major purchaser of goods and services from the private sector, and this can have a significant impact on businesses. The government’s purchasing power can create opportunities for businesses to sell to the government, which can lead to increased revenue and profitability. Additionally, government contracts can provide a source of stable, long-term business relationships.
However, the government as a purchaser can also have significant implications for businesses in terms of competition and regulation. In many cases, the government sets stringent standards for products and services, which can be costly for businesses to meet. Furthermore, the government’s purchasing decisions can have an impact on the broader market, as businesses compete for government contracts and seek to comply with government regulations.
Overall, the government’s role as a purchaser of goods and services from the private sector can have both positive and negative effects on businesses, and it is important for businesses to be aware of the potential impacts and to adapt their strategies accordingly
Political - Evaluate : The relationship between government and businesses
The relationship between government and businesses is complex and multifaceted, and can have a significant impact on the success or failure of businesses.
On one hand, governments can create a stable framework in which businesses can operate by providing infrastructure, protecting property rights, and enforcing contracts. This can create a favorable environment for businesses to grow and thrive, and can help to attract investment from both domestic and foreign sources.
However, governments can also regulate and legislate business activity, which can create additional costs and administrative burdens for businesses. This can make it more difficult for businesses to compete and can limit their ability to innovate and grow. In addition, governments can also use their power as a purchaser of goods and services to influence the behavior of businesses, which can create both opportunities and challenges for businesses.
Overall, the relationship between government and businesses is an important one, and both parties need to work together to ensure that the economy is healthy and that businesses can succeed. This requires ongoing communication and collaboration, and a willingness to find common ground and work towards shared goals. It also requires a recognition that the needs and priorities of businesses and governments may sometimes conflict, and that there may be trade-offs that need to be made in order to create a sustainable and prosperous economy.
Economic - Explain : How economic factors affect business activity
Economic factors are those aspects of the broader economy that impact business activity. These factors include a range of issues such as interest rates, inflation, economic growth, exchange rates, and government policies. Economic factors can have a significant impact on the success of a business, influencing everything from sales and marketing to operations and finances.
For example, changes in interest rates can impact the cost of borrowing for businesses, making it more or less expensive to finance operations or investments. Inflation can also have an impact on businesses, with rising prices affecting both the cost of production and consumer purchasing power. Economic growth and consumer confidence can also affect business activity, with strong economic conditions generally leading to increased demand for goods and services.
Exchange rates can also play a role, particularly for businesses that operate in multiple countries or engage in international trade. Changes in the value of a country’s currency can impact the cost of importing or exporting goods, influencing everything from pricing to profits.
Overall, businesses must be aware of the economic factors that may impact their operations and plan accordingly. This may involve developing strategies to mitigate risks associated with economic volatility, identifying opportunities for growth in strong economic conditions, and adjusting operations or investments in response to changes in economic conditions.
Economic - Explain : What is meant by economic growth, the business cycle and their measurement (GDP)
Economic growth refers to the increase in the production of goods and services in an economy over a period of time. It is an important measure of the overall health of an economy, as it indicates an increase in the standard of living and the availability of goods and services.
The business cycle refers to the cyclical pattern of economic activity, including periods of expansion, contraction, and recovery. It is characterized by changes in output, employment, and other economic indicators.
Gross Domestic Product (GDP) is a widely used measure of economic activity that represents the total value of goods and services produced in an economy over a specific time period. It is typically used as an indicator of economic growth and is calculated by adding up the value of all final goods and services produced in an economy. GDP can be measured in different ways, such as nominal GDP (which measures the value of goods and services at current prices) and real GDP (which adjusts for changes in the price level over time).
Economic - Explain : What is meant by inflation including its measurement
and causes
Inflation refers to the persistent increase in the general price level of goods and services over a period of time. It is typically measured using an inflation index, such as the Consumer Price Index (CPI) or the Retail Price Index (RPI), which tracks the prices of a representative basket of goods and services.
Inflation can be caused by a variety of factors, including:
Demand-pull inflation: This occurs when there is excess demand for goods and services relative to their supply, leading to an increase in prices.
Cost-push inflation: This occurs when the cost of production increases, leading to an increase in prices. For example, an increase in the price of raw materials or labour can lead to cost-push inflation.
Structural inflation: This occurs when there are long-term structural imbalances in the economy, such as supply shortages or bottlenecks, leading to persistent inflation.
Imported inflation: This occurs when inflation in other countries leads to an increase in the price of imported goods.
Inflation can have a significant impact on businesses, as it affects their costs, revenues, and profitability. When prices are rising, businesses may need to pay more for raw materials, labour, and other inputs, leading to higher production costs. This can reduce their profit margins and make them less competitive. In addition, inflation can erode the value of money, making it more difficult for businesses to plan for the future and invest in long-term projects. As a result, businesses need to monitor inflation closely and take steps to mitigate its impact on their operations.
Economic - Explain : What is meant by interest rates
Interest rates refer to the cost of borrowing money, and the return on lending money, usually expressed as a percentage. In the context of the economy, interest rates are set by the central bank of a country, and play a significant role in influencing economic activity, particularly investment and consumption.
When the central bank lowers interest rates, it makes borrowing cheaper, which encourages investment and consumption, leading to economic growth. Lower interest rates can also lead to increased inflation, as more people are able to borrow and spend. On the other hand, when the central bank raises interest rates, it makes borrowing more expensive, which can lead to lower investment and consumption, and slower economic growth. However, higher interest rates can also help to control inflation, as it reduces borrowing and spending.
Interest rates can also impact the financial performance of businesses, as changes in interest rates can affect the cost of borrowing for businesses, impacting their profitability and investment decisions.
Economic - Explain : What is meant by exchange rates
Economic - Explain : What is meant by exchange rates