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BUSINESS PAPER 3 > external influences > Flashcards

external influences Flashcards

1
Q

Legislation

A

laws passed by parliament which are needed to ensure that businesses behave in what is generally considered to be an acceptable way. Making sure no business can gain an unfair advantage over its rivals.

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2
Q

consumer protection law + examples

A

ensuring that businesses actually deliver on what they promise the consumer.
ACTS = the sales of goods act / the trade description act

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3
Q

Employee protection law

A

This aims to state and uphold minimum standards of treatment that employees can expect from their employer.

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4
Q

Major issues covered in the employee protection

A
  • fair pay
  • sick leave
  • maternity and paternity leave
  • employment contracts
  • relationships with trade unions
  • the ability of businesses to get rid of staff
  • The responsibilities of businesses to employees who are made redundant
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5
Q

Why would businesses prefer less employee protection?

A

it gives them greater flexibility with their staff, and they claim that increased costs are due to the employee legislation - making it harder for them to compete with international rivals who may not have the same laws to follow

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6
Q

The effects of minimum wages for firms

A

increased labour costs, however employees may be more motivated by a fair wage which satisfies basic needs

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7
Q

The effects of right to a contract of employment on firms

A

meets employees security needs by reduces employers flexibility in how they use their staff

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8
Q

effects of rights to sick, maternity and paternity leave on firms

A

increased costs of covering these staff - but staff may feel more valued by the fair treatment of employers - leading to decreased labour turnover levels, saves costs of recruiting new staff

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9
Q

effects of redundancy on firms

A

reducing capacity becomes expensive because of statutory payments to staff made redundant; negative impact on cash flow in short term

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10
Q

effects of trade unions on firms

A

employers can be forced to deal with a trade union if enough staff are members; brining positive and negative impacts

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11
Q

Environmental protection law

A

the need to regulate the effect of business on the natural environment.

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12
Q

Major areas of the environmental legislation covers

A
  • Materials that firms must use for certain products
  • processes firms are allowed to use to make certain products
  • the need to use recyclable materials for certain products
  • landfill tax
  • the need to carry out environmental risk assessments for different parts of a businesses activities
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13
Q

Why businesses resist new environmental legislation

A

they claim it will increase their costs in a way that foreign rivals will not have to cope with

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14
Q

How brexit will bring in new environmental legislation

A

recent legislation on the environment came from the EU, Now that Britain voted to leave the EU, the government will replace those many EU laws that governed the way UK businesses had to treat the environment

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15
Q

competition policy

A

typically, when businesses compete, they tend to keep prices low, provide good service and generate new innovative products. However, in a market with no competition, those standards can slip and prices can rise high. Therefore the government ensure that there is competition in all markets through legislation to avoid this issue from occurring

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16
Q

The competition legislation example

A

created in 2014, a government funded body called CMA (competition and markets authority)

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17
Q

What is the CMA responsible for

A
  • investigating proposed takeovers and mergers
  • investigating possible price-fixing
  • investigating allegations of anti-competitive practices
  • taking legal action against those who collude to maintain high prices within a market, such as cartels
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18
Q

Cartel meaning

A

a group of companies operating in the same market who make agreements to control supply and thus prices

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19
Q

the CMA ensure that..

A
  • companies have to set competitive prices
  • companies do not collude with others in their market to detriment customers
  • mergers and takeovers that will create overly powerful firms are prevented
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20
Q

Health and safety legislation + example

A

designed to protect employees and customers in the workplace. The health and safety at work act of 1974 places the burden on employers

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21
Q

Key aspects of the health and safety act 1974

A
  • safe physical conditions
  • precautions that firms are required to take when planning their work
  • The way in which hazardous substances should be treated in workplace
22
Q

Positive impacts of health and safety legislation on businesses

A
  • should prevent incidents that create negative publicity
  • should help to motivate employees who feel safe
  • accidents delay production so this issue should be avoided
23
Q

Negative impacts of health and safety legislation on businesses

A
  • extra paperwork
  • need to pay for safety equipment
  • need to pay to adjust physical work conditions
24
Q

What are the five economic influence that effect a business

A
  • inflation
  • exchange rates
  • interest rates
  • taxation and government spending
  • the business cycle
25
Q

what does the economic environment in which a business operates in impact

A

both costs and revenues, therefore the determinant of profit

26
Q

inflation

A

the percentage rate at which average prices rise during a year within the whole UK economy

27
Q

what circumstances does inflation have major effect in

A
  • when inflation rate is above 2%
  • when prices rise faster than average income
  • when UK inflation is higher than most other countries
28
Q

what are some effects of inflation on a business

A
  • INFLATION CAN REDUCE REAL VALUE OF MONEY: firms with long term borrowings will find real value of money they repay will be lower following a period of inflation
  • UK firms may be unable to compete against foreign rivals whose costs are rising slower
29
Q

Exchange rates

A

an exchange rate is the value of one currency expressed in terms of another

30
Q

what businesses are effected mostly by the change in exchange rates

A
  • UK firms that export products

- UK firms buying materials/supplies abroad

31
Q

what does the acronym SPICED mean and what does it tell you about exchange rates

A

the value of money effecting imports and exports = strong pound imports cheaper exports dearer

32
Q

interest rates

A

the amount charged by a lender per year for borrowing money. Expressed as a percentage of the amount of money outstanding

33
Q

why is the bank of England an important economic variable

A

most lenders adjust their rates of interest in line with those charged by the bank of England

34
Q

What 4 negative affects does an increase in interest rates have on business?

A
  1. consumers have less money, reducing demand
  2. amounts businesses paid in interest on any borrowing will rise, pushing up costs
  3. consumers less likely to buy on credit as their credit will cost more (e.g cars)
  4. Businesses less likely to invest
35
Q

what are examples of Taxation and government spending in the UK

A

In the UK the government spending accounts for 40% of all spending in the economy - on things like NHS, defence, education

36
Q

why is government spending and taxation constantly changing

A

to try manage the economy and keep it stable

37
Q

The business cycle (the pattern in the UK)

A

it tends to follow a pattern where strong growth (boom) is followed by periods of recession

38
Q

What is the main effect the business cycle has on a business and why

A

effects on demand - if economy slows consumers reduce spending. In booms consumer demand rapidly rises.

39
Q

What is the effect of the business cycle on businesses mainly dependant on

A

income elasticity of demand

40
Q

Business decision makers won’t make any long-term decisions without first thinking about…

A

the state of the economy in the future, business leaders prefer economic stability to the uncertainty that comes with cyclical economic growth.

41
Q

the competitive environment explained

A

refers not just to how many competitors it faces, but to how directly other firms products are in competition and how fierce rivals are.

42
Q

3 types of competition

A

one dominant business (monopoly)
competition between a few giants
the fiercely competitive market

43
Q

what is a monopoly and why is it bad for consumers

A

a single business that dominates supply in a given market, bad because:

  • little choice
  • prices tend to be high
  • little incentive for dominant firm to be innovative or good customer service
44
Q

governments generally try to prevent monopolies occurring. What do monopoly firms strive for?

A

to build barriers to entry that prevent new firms from entering a market, e.g:

  • patents and technological breakthroughs
  • strong brands and high advertising
  • heavy spending on infrastructure
45
Q

what is the name given to competition between a few giants in a market

A

oligopoly - name given to a market dominated by just a few major suppliers

46
Q

although it is a fierce environment of rivals trying to steal market share from one another, what do companies in oligopolies rarely compete on

A

price to avoid price wars which lead to lower profit margins for all in the industry

47
Q

what are some examples of non-price competition

A
  • branding
  • product features
  • product design
  • advertising
  • technical innovations
48
Q

the fiercely competitive market - meaning, what they compete on and the effect of that

A

characterised by many small businesses competing with one another often on the basis of price - meaning profit margins are low and ensures consumers get a bargain

49
Q

in fiercely competitive markets, how does one businesses gain a better chance at success

A

differentiation - however it is harder as most competitive markets are for more commodity based products, so theres little strategy choice other than keeping costs low

50
Q

market size in relation to competition - big markets (what do they offer)

A

larger markets offer scope for new competition by carving out a niche

51
Q

market size in relation to competition - small markets

A

fewer customers and fewer total sales so its easier to build up barriers to entry

52
Q

What are some businesses responses to a tougher competition environment

A
  • price cutting: affects profit margins but can attract new customers and hang onto existing
  • product differentiation: through advertising, branding, features, design and technical innovation
  • Collusion: two or more rivals agree to fix supply or prices within their market

BUSINESS PAPER 3 (10 decks)

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