Income Flashcards
What is the effect of increased income on business costs?
If income increases because average wage increases, then total business costs will increase.
A business can either maintain its profit margin and pass the increased cost onto the customers by increasing prices, or reduce its profit margins.
What is the effect of decreased income on business costs?
a negative effect on demand, but will allow businesses to cut wages, as employees will work for the lower wages to keep the firm in business and keep their jobs.
What is the effect of rising income on luxury goods and services?
increase in demand, as people can afford them.
What is the effect of rising income on essential items?
No significant change.
What is the effect of rising income on cheaper products?
fall in demand, as people can afford higher quality alternatives.
How will businesses deal with the increase in demand from increased income?
they’ll need more workers, but there will be less available, so they will have to increase wages, which will lead to increased costs and possibly prices.
What is the effect of falling income on luxury goods and services?
fall in demand, as less discretionary income.
What is the effect of falling income on essential items?
no significant change.
What is the effect of falling income on cheaper products?
increase in demand, as more affordable.
What impact does decreased demand because of falling income have on businesses?
excess stock may lead to reduced prices and output levels. this will lead to lower profits or losses, workers being laid off, and even some businesses having to close.
cost saving strategies (eg rationalisation, closing sites, outsourcing for cheaper labour) may make a firm less competitive, which further decreases demand for their product.
