how the external environment can affect costs and demand Flashcards
market conditions
COSTS:
-new competitor causes firms increased promotion to keep customers attracted, increased costs.
-competitor launches new products = higher cost to develop new unique products to compete with
DEMAND:
-new competitor can reduce demand
-product goes out of fashion = lower demand
-merger / takeover = larger firms who can take demands away from others
-competitor launches new products equals less sales
income
COSTS:
-if GDP increases, so do wages, increasing a firm’s costs
DEMAND:
-a fall in GDP leads to less employment and lower wages, therefore demand will severely decrease for business selling luxury products
-an increase in income results in a large increase in demand for luxury products
interest rates
COSTS:
-if a firm has a loan, an increase in interest rate will increase costs of repayment
-if the pound is strong and the business imports goods, costs will decrease (SPICED)
DEMAND:
- rising interest rates make saving more attractive for customers, so they will reduce spending, reducing demand for income elastic products, as they don’t want to pay a large amount of interest on debts, e.g. mortgages
-increase in demand for consumer durables
demography
COSTS:
-immigration means there are less shortages of labour, therefore wages can be much lower, reducing costs
DEMAND:
-bigger population = bigger demand
-aging population = higher demand for products used by elderly
environment
COSTS:
-being energy efficient and recycling can reduce costs
-grants for greener production methods reduce costs
-using supplies from sustainable sources can increase costs
DEMAND:
-being environmentally friendly can attract customers, increasing demand
fair trade
COSTS:
-increased costs since people are payed a higher wage and therefore high price for business’ to buy
DEMAND:
-fair trade products can attract customer (but only if they’re willing to pay a higher price)
