External environment Flashcards
What is the external environment?
External forces that can influence business activities but the business has no control over.
What are some positive factors of the external environment?
A product becomes popular or fashionable, raising demand.
A major competitor leaves a market.
The number of consumers in the country increases.
Interest rates fall, making it cheaper to borrow money to buy products.
Consumers enjoy steadily rising incomes, increasing demand for products.
What are some negative factors of the external environment?
Consumers demand environmentally friendly products, increasing businesses’ costs.
New businesses enter a market increasing the degree of competition.
A market is oversupplied with products, depressing prices.
More people become unemployed, reducing consumer incomes and spending.
What are market conditions?
Market conditions refer to a number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors.
Demand is a term used by economists to indicate the amount of a particular good or service that consumers or organisations want and can afford, to buy at given prices. It shows the level of sales a business can expect.
What would be market conditions for a business?
Number/size/power/supply of competitors Fashion and technology - more open to drastic changes in tastes and preferences - more products are launched more frequently Suppliers Consumer income Innovation
What impact does income have?
Income is determined by Gross Domestic Product(GDP) measures the value of a country’s total output of goods and services over a period of time normally a year
Real incomes are incomes that are adjusted for the rate of inflation (or increase in prices) to show changes in purchasing power
Types of goods:
Inferior
Normal
Luxury
How to work out income elasticity of demand?
Income elasticity of demand (YED) = percentage change in QD / percentage change in income
If the YED > 1 = luxury
If the YED 0-1 = normal
If the YED < 1 = inferior
Normal good inelastic whereas luxury and inferior are elastic
What are wages and real wages?
Wage increases such as an increase in national minimum wage is known as nominal.
Due to business costs going up prices have increased shown by inflation.
The difference between the nominal increase and inflation is the real wage, so if wages increase by £0.60 and inflation increases by £0.70 my real wage has gone down by £0.10
Products for which demand is strongly influenced by income levels
Jewellery Luxury electrical items Restaurant meals Long-haul holidays Household furniture
Products for which income has little influence on demand
Bread, milk and other basic foods Cigarettes and tobacco Petrol Water Lottery tickets
How do you work out interest?
How can interest affect the market?
What is it?
Price of borrowing money/return on savings
Interest rates increase - people save more spend less
Interest rates decrease - people borrow more (spend more) save less
Inflation is the gradual increase in the price level
How can inflation affect the market?
High inflation = high-interest rates which means the £ appreciates making exports more expensive and imports cheaper
Low inflation = low-interest rates which means the £ depreciates making exports cheaper and imports more expensive
Appreciation makes the pound stronger depreciation makes the pound weaker
What is demography?
Demography is the study of the human population.
How do businesses pollute?
Emission of gas in the production process
Pollution when transporting goods, congestion and noise.
Dumping
Destroying natural environments ie Amazonia and building homes on greenfield sites
LIGHT POLLUTION!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
