External Influences Flashcards
INFLATION
An increase in the general levels of prices within an economy.
EXCHANGE RATES
The price of one currency in terms of another – in other words, the purchasing power of one currency against another.
INTEREST RATES
The reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed.
THE BUSINESS CYCLE
The observed pattern of increases and decreases in economic growth (measured by % change in GDP) over the long term.
APPRECIATION (increase in value) OF THE POUND AGAINST THE DOLLAR
Exports will become more expensive and therefore the business might need to lower prices.
Imports will become cheaper and therefore the business can either buy more for the same, the same for less, either way reducing costs
DEPRECIATION OF THE POUND AGAINST THE DOLLAR
Exports will become cheaper and therefore the business might need to gear up to produce more as demand should increase.
Imports then become more expensive and therefore the business will have to buy less, spend more or seek goods elsewhere.
Two possible effects of economic uncertainty on the business environment:
Lower levels of investment from banks and businesses which reduces output
Lower levels of demand which reduces consumer spending
Effect of CUSTOMER PROTECTION
Might lead to increases in costs such as product returns and increased attention to quality
Effect of employee protection
Increased costs in terms of wage structures and additional time to manage conflict and disputes
Effect of environmental protection
Enhanced reputation from committing to reducing carbon footprint
Effect of competition policy
Increased chance of survival for smaller businesses protected from large firms using unfair tactics such as predatory pricing
Effect of health and safety legislation
Increased costs to comply with and implement effective policies to protect employees and/or customers
Three ways in which a business could respond to increased competition in the market:
Lower prices
Differentiate/ create USP
Add more value
Two ways in which market size can influence competition:
Larger markets are more likely to attract new entrants
Smaller markets are more attractive to niche products where value is more relevant than price
