✓External Influences (Chapters 13 - 21)

Question 1

Chapter 13
What is the difference between a physical and a non-physical market?

Answer 1

•Physical: markets where a buyer has a face-to-face contact with the seller.
•Non-physical: sellers compete with each other, but don’t meet their buyers face-to-face.

Question 2

Chapter 13
What is meant by a market?

Answer 2

Any situation where buyers and sellers are in contact in order to establish a price.

Question 3

Chapter 13
Why is the market price important for a business?

Answer 3

•Because each business has competition, it can’t charge a price that is too far from the market price for the product.
•Market price affects a business’s mark-up.

Question 4

Chapter 13
What is a mark-up?

Answer 4

The difference between the cost of producing an item and the price at which it is sold.

Question 5

Chapter 13
What are the different classes of the market and how do they differ?

Answer 5

•Competitive: large number of firms producing a similar product who are competing to meet the needs of a large number of consumers.
•Monopoly: a market controlled by a single business known as the monopolist, and it can control the market as it is the only supplier of the product.
•Monopolistic competition: a large number of businesses and consumers however, the business are competing not in raising prices but by using non-price methods such as a loyalty card or brand name.
•Oligopoly: a market that is dominated by a few large firms. There might be smaller firms, but the oligopolists are the main players.

Question 6

Chapter 13
What is market dominance and how is it usually calculated?

Answer 6

Market dominance is a measure of the strength of a business and its product(s) relative to the competition. The most obvious way to calculate it is by considering the market share that the product controls in a particular area.

Question 7

Chapter 13
How might a business increase its market share?

Answer 7

•Being aware of and meeting customer needs.
•Selling more to existing customers.
•Having a clear market plan.

Question 8

Chapter 13
What is meant by ‘barriers to entry’?

Answer 8

The factors that could prevent a business from entering and competing in a market

Question 9

Chapter 13
What are some of the known barriers to entry for a business?

Answer 9

•Large start-up costs.
•Legal restrictions (e.g. a patent or government restrictions).
•Inability to achieve economies of scale.

Question 10

Chapter 13
What is meant by ‘barriers to exit’?

Answer 10

The factors that could prevent a business from leaving a market, even if it would like to.

Question 11

Chapter 13
What are some of the known barriers to exit for a business?

Answer 11

•High redundancy/cost.
•Contracts with suppliers need to be respected.
•Difficulty in selling off expensive plants and machinery.

Question 12

Chapter 13
What is meant by organic growth?

Answer 12

A type of growth that is achieved by increasing the firm’s sales, which comes from selling more to existing customers, finding new customers, or both.

Question 13

Chapter 13
What is meant by inorganic growth?

Answer 13

When a business merges with or takes over another business.

Question 14

Chapter 13
What is the difference between mergers and acquisitions (takeovers)?

Answer 14

•A merger involves two companies joining together to form a new larger business.
•A takeover involves acquiring control of another company by buying a majority of its shares.

Question 15

Chapter 13
How can a smaller firm compete in a market which has a dominant firm operating in it?

Answer 15

•Compete in a niche in the market, rather than the whole market.
•Offer better customer service.
•Offer longer opening hours.

Question 16

Chapter 13
What is the CMA and what is its purpose?

Answer 16

Competition and Markets Authority (CMA) investigates dominant businesses in a market and enforces competition laws.

Question 17

Chapter 13
How can a business be punished for using anti-competitive practices in a market?

Answer 17

•The business(es) involved can be fined up to 10% of their global turnover.
•Individuals can be disqualified from being a company director.
•Customers and competitors of the firm(s) involved can sue for damages as a result of being affected by such behaviour.

Question 18

Chapter 14
What is meant by ‘Demand’?

Answer 18

‘Demand’ or ‘Effective demand’ refers to the quantity that people in a particular market can and will purchase at each price.

Question 19

Chapter 14
What is meant by ‘Supply’?

Answer 19

It refers to the quantities that are offered for sale by businesses at each price.

Question 20

Chapter 14
What is the Equilibrium price?

Answer 20

The price at which the consumers’ demand coincides with what businesses are prepared to supply. The situation in a market where demand is equal to supply.

Question 21

Chapter 14
What are the key features of excess demand and excess supply?

Answer 21

•Excess demand: generally wanted by the business as it allows for more profits, lower price for the product, supply is lower.
•Excess supply: not wanted by the business, demand is lower than supply meaning there are additional storage costs and a need to lower the price

Question 22

Chapter 14
How do businesses and consumers respond to changes in price?

Answer 22

•Businesses respond by adjusting their supply plans, increasing or lowering the output to maximise profits.
•Consumers respond by increasing or decreasing demand. They won’t buy products that they feel are too expensive.

Question 23

Chapter 14
What are some of the factors that determine demand?

Answer 23

•Price.
•Income.
•Wealth (combined value of savings, shares owned, your house etc.).
•Taste and fashion.
•Advertising, promotional offers and public relations.

Question 24

Chapter 14
What is a substitute?

Answer 24

An alternative product that serves the same function.

Question 25

Chapter 14 What is a complement?

Answer 25

A product that is used, and is therefore bought, in conjunction with another.

Question 26

Chapter 14 What are the factors that determine supply?

Answer 26

•Price. •Costs. •Taxes and subsidies. •Prices of other products.

Question 27

Chapter 14 What is a subsidy?

Answer 27

A payment from the government to encourage a business to increase supply.

Question 28

Chapter 14 What is the elasticity of demand and what is the difference between elastic and inelastic elasticity of demand?

Answer 28

•Elasticity of demand: shows how responsive demand is to a change in price. •Elastic: where the change in demand that results from a price change is greater than the change in price that caused it. •Inelastic: where a change in demand that results from a price change is less than the change in price that caused it.

Question 29

Chapter 15 What is globalisation?

Answer 29

The process of growth in world markets through a process of integration where it is possible to trade in a global market in the same way as one would in a domestic market.

Question 30

Chapter 15 Which factors have contributed to speeding up the process of globalization?

Answer 30

• Trade is now freer on a world level as trade barriers between countries are reduced. • There are huge economies of scale possible now in transport of freight by air and sea. • Telecommunications have improved in all areas including the internet.

Question 31

Chapter 16 What is meant by international trade?

Answer 31

The exchange of capital, goods, and services across the borders of different countries.

Question 32

Chapter 16 Why is it beneficial for countries to trade internationally?

Answer 32

•Variety: enables countries to obtain products they can't make themselves. •Growth: access to millions of customers. •Specialisation: certain countries can specialise in what it does best.

Question 33

Chapter 16 What are some reasons for putting up trade barriers?

Answer 33

•Foreign competition can lead to unemployment if domestic industries are being undercut. •Countries may decide that their businesses aren't in a state to compete against multinationals.

Question 34

Chapter 16 What is the exchange rate?

Answer 34

The value of the pound in terms of another currency.

Question 35

Chapter 17 What are some of the rules that a country needs to follow as a member of the EU?

Answer 35

•Legally binding regulations. •Directives, which need to be applied as laws. •Recommendations and opinions that express the views of a particular body.

Question 36

Chapter 17 What are some of the changes that have been introduced by the Single European Market (1999) legislation?

Answer 36

•Free movement of capital within the EU. •Removal of internal tariffs and a common external tariff. •Removal of some of the checks on crossing frontiers between member countries.

Question 37

Chapter 17 What is a 'eurozone'?

Answer 37

Those countries in the EU that are now using the euro as their currency.

Question 38

Chapter 17 What are some of the impacts of the UK being outside of the eurozone?

Answer 38

•All transactions between the UK businesses and firms in the Eurozone create costs, because currencies need to be converted. •Different trading conditions due to the exchange rates between the pound and the euro being different. •Financial sector businesses are likely to be disadvantaged by the existence of transaction costs.

Question 39

Chapter 17 What is The Competition and Markets Authority (CMA)?

Answer 39

The government organisation that makes markets work well for consumers.

Question 40

Chapter 17 What is privatisation and what are some arguments for it and against?

Answer 40

•Privatisation: the act of passing ownership of a business from the public to the private sector by selling shares. +A privately owned business needs to be profitable. +Private businesses need to be operated efficiently because they are subject to market forces. -Private businesses won't trade in unprofitable areas leading to variation in provision. -In some cases businesses were sold off too cheaply, turning valuable long-term assets into short-term cash.

Question 41

Chapter 17 What is deregulation?

Answer 41

The removal of rules or regulations.

Question 42

Chapter 17 What are some demographic factors that have an impact on the market in which the business operates?

Answer 42

•Changes in the age of the population (and increase in the number of old people). •Ethnic diversity (bringing aspects of different cultures, creating demand for different ranges of goods). •Changing patterns of employment (women having a bigger role in society, education being more accessible etc.). •Technology (growth of electronic communication allowing for work from home, meetings online etc.).

Question 43

Chapter 17 What are some ethical issues that affect a business?

Answer 43

•Treating workers well and paying a living wage. •Not harming the environment through its actions. •Working with the community through sponsorship and charity work.

Question 44

Chapter 17 What are the advantages and disadvantages to a business implementing ethical behaviour?

Answer 44

+It can help attract new customers to the business. +Encourages investment. +Attracts new and better quality employees. +Creates positive publicity. -Can be costly

Question 45

Chapter 17 What are some ways a business might improve its ethical profile?

Answer 45

•Charity and fundraising. •Diversity. •Financial responsibility. •Caring for the environment.

Question 46

Chapter 18 What is meant by 'economic activity'?

Answer 46

The level of output in all sectors of the economy - primary, secondary and tertiary.

Question 47

Chapter 18 What is a GDP?

Answer 47

Gross Domestic Product (GDP) is the total value of all of the economy's output (measured quarterly or yearly).

Question 48

Chapter 18 What are some reasons for why all the income earned by UK households won't go directly to the business in the UK (otherwise called 'leakages')?

Answer 48

•Taxes. •Savings (some people may choose to save their disposable income). •Imports (some income goes to the business that exported that product).

Question 49

Chapter 18 What are some 'injections' into the economy which helps offset 'leakages'?

Answer 49

•Exports. •Investment. •Government spending (money spent on schools, hospitals and defence by local and central government).

Question 50

Chapter 18 What is a 'circular flow of income'?

Answer 50

The continuous flow of income from businesses to households as payment for work, and from households to businesses as payment for products.

Question 51

Chapter 19 What is the difference between direct and indirect taxation?

Answer 51

•Direct taxes are taken directly from either a person's income when they work (income tax), or from a company when it makes a profit (corporation tax). •Indirect taxes are paid when a person or business spends money (e.g. VAT). This also includes duties (paid on each item rather than as a %).

Question 52

Chapter 19 What are some of the main taxes paid to the government?

Answer 52

•VAT. •Income tax. •Corporation tax. •Excise duties (petrol, alcohol, cigarettes etc.). •Council tax and business rates. (both paid to the local government).

Question 53

Chapter 19 What are some additional taxes and why are they put on?

Answer 53

•Stamp duty, capital gains tax, insurance tax, flight duty. •They are put on to: •Raise revenue. •Affect the level of economic activity. •Influence the pattern of expenditure (encourage/discourage certain kinds of behaviour).

Question 54

Chapter 20 What are some laws governing the relationship between businesses?

Answer 54

• Contract law - setting up a legally binding agreement (a contract) between 2+ parties. • Competition law - makes it illegal for a business to: restrict supply to another business, conspiring with another business to keep prices high, setting prices too low to destroy a competitor etc..

Question 55

Chapter 20 What are some laws governing consumer protection?

Answer 55

• Sale of Goods Act 2012 (requires goods to be of satisfactory quality and fit for purpose). • Consumer Protection from Unfair Trading Regulations (CPRs) 2008 (bans unfair and misleading practises). • Weights and Measures Act 1985 (ensures the correct amount of product is sold). • Unsolicited Goods Act 1971 (makes it illegal to demand payment for unordered goods/services). • Data Protection Act 1998 (controls how personal information is stored and used by a business).

Question 56

Chapter 20 What are some laws governing the treatment of employees?

Answer 56

• Health and Safety Act 1974 (relates to: place of work, systems and environment at work, machinery used, employees, use and storage of substances). • National Minimum Wage Act. • Discrimination Acts (Sex 1975, Race Relations 1976, Employment Equality 2006, Disability 1995).

Question 57

Chapter 20 What are the types of Termination of employment?

Answer 57

• Redundancy (the job an employee used to do no longer exists). • Dismissal (occurs due to gross misconduct - physical assault on a customer, or gross negligence - willful disregard for the safety of others).

Question 58

Chapter 21 What are some perceived disadvantages of technology on a business?

Answer 58

• Employees often associate technological change with unemployment. • New technology requires workers to acquire new skills therefore, some workers may feel that they are incapable of learning them. • Such changes may require employees to move to different departments or work with new colleagues. Many people find such changes difficult.

Question 59

Chapter 21 What are some advantages of technological change?

Answer 59

• Introduction of new technology may bring a net increase in employment by increasing demand for a product or service. • New technology creates new demand among consumers •Learning new skills and implementing the changes can have positive benefits on the morale and self-esteem of the workforce.

Question 60

Chapter 21 What are some difficulties with implementing technological change in a business?

Answer 60

• Timing. Implementing too soon means having to pay higher prices and doing it too late may lead to a loss in market share and markets. • New technology or equipment may not fit into the business's overall situation - it needs to assess whether it'll reduce costs and help the business to adapt to market changes.

Question 61

Chapter 21 What is 'negative externality'?

Answer 61

A cost that arises out of production or consumption which is not paid for by the producer or consumer, e.g. pollution, congestion or litter.

Question 62

Chapter 21 What are some environmental issues for a business?

Answer 62

• Air pollution (smog, burning fuel and rubbish). • Noise pollution (traffic noise for people living close to highways). • River or sea pollution (water contamination through waste discharge, oil spills means money lost to clear it). • Land pollution (deforestation, quarrying, loss of land as a resource). • Traffic congestion (more air pollution, less land due to roads).

Question 63

Chapter 21 What are some measures used to combat environmental issues?

Answer 63

• Climate change levy (tax on the use of energy). • The Carbon Trust (offers advice to businesses on how to reduce carbon emissions). • Congestion charges (local governments can charge for road congestion). • Pressure groups (can cause bad publicity for a business).

Question 64

Chapter 21 How can a business address environmental and ethical concerns?

Answer 64

• Working with charities. • Being environmentally friendly. • Acting ethically (e.g. not testing its products on animals).

Question 65

Chapter 15 What are some advantages and disadvantages of globalisation?

Answer 65

+ Incoming company brings investment, jobs and training. + News and ideas are spread quickly around the world so that we know about such events as natural disasters. + Less Developed Countries need foreign currency to enable them to buy imports they need to develop further. - Benefits are mostly felt by developed countries. - Lack of a clear and robust legal framework can result in poor working conditions in LDCs. - Multinational company might impose their ideas on the locals.