PEST Factors

Question 1

Define PEST factors

Answer 1

PEST analysis is a method to assess the effect that four external influences may have on business activity

Question 2

What do political factors look at

Answer 2

Political factors include looking at how government policies and regional, national and international laws could affect the business.

Question 3

How do political activity affect business activity

Answer 3

Political factors affect business activity such by affecting their costs such as by tariffs, affect market conditions (gov spending), affect competition (new regulations)

Question 4

What is the role of the government

Answer 4

The role of the government is to create an environment that is stable and predictable and encourages economic growth of citizens and businesses, this includes business-friendly policies, fair taxation.

Question 5

Define Taxation

Answer 5

Taxation is the method by which governments finance their expenditure, such as building schools or roads etc.

Question 6

Define Income tax

Answer 6

Income Tax – is a personal tax paid by individuals on any income they receive, the impact on businesses is the more the individuals pay the less they will spend on goods and services.

Question 7

Define VAT tax

Answer 7

VAT tax – An indirect tax placed on the sale of certain goods, businesses which sell these products collect this tax and send it to the government, this can impact also the amount of sales they receive as of the increase in price.

Question 8

Define Corporation Tax

Answer 8

Corporation tax – is the money paid by limited companies on their net profits, this will impact the businesses profits therefore a potential fall in wages and investment.

Question 9

What is the overall affect of tax on businesses

Answer 9

Overall, the higher amount of tax paid = less money spent on R & D and innovation of the products/services.

Question 10

Define Subsidies

Answer 10

financial assistance provided by the government to support economic and social activities that it wishes to encourage.

Question 11

How can subsidies help businesses

Answer 11

Therefore, subsidies can help increase or decrease the supply of certain products or services, subsidised businesses have an immediate competitive advantage. This can lower prices due to support given to the business by the subsidy.

Question 12

Define Fiscal policy

Answer 12

Fiscal policy is how a government adjusts its spending levels and tax rates to monitor and influence the economy.

Question 13

How are businesses affected by fiscal policy

Answer 13

Businesses are affected by fiscal policy as it can encourage or discourage investment in particular areas of the economy, it may factor where businesses set up due to levels of taxes or spending levels.

Question 14

Define Monetary policy

Answer 14

Monetary policy is the process by which the government (BOE) decides on interest rates in order to control inflation and confidence in the economy.

Question 15

How do interest rates affect businesses

Answer 15

Low interest rates increase spending and borrow money, therefore helping businesses achieve higher profits on the other side higher interest rates cause a fall in spending and more on saving.

Question 16

Describe the governments role in being a purchaser of goods & services

Answer 16

The government buy goods and services from the private sector, for example defence contractors, education providers and roadbuilders.

Some businesses only customer is the government.

It’s important as The government creates revenue opportunities for businesses, leading to increased production, employment, and investment.

Question 17

Evaluate the relationship between the government and businesses

Answer 17

Governments provide support and incentives to businesses to stimulate economic activity, encourage investment, and promote innovation.

This support may take the form of grants, subsidies, tax incentives.

Governments invest in infrastructure projects

Conflicts may arise between governments and businesses over laws, taxes, interest rates etc

Question 18

Why does the government regulate and legislate business activity

Answer 18

Governments enact laws and regulations to protect consumers from unfair, deceptive, or harmful business practices.

Governments regulate businesses to ensure public health and safety standards are met in and out of the workplace.

Governments enact labour laws and regulations to protect the rights and interests of workers.

Governments regulate to prevent market failure.

Question 19

Define Economic Growth

Answer 19

Economic growth refers to the increase in the production and consumption of goods and services by an economy over time, this can be measured by GDP.

Question 20

Define the business cycle

Answer 20

The business cycle is how business act when in different economic activities such as a boom, recession, peak, trough and recovery

Question 21

Define GDP

Answer 21

GDP (gross domestic product) - measures the value of goods and services produced in the country.

Question 22

Define interest rates and unemployment

Answer 22

Interest rates is the amount a lender charges a borrower in percentage form.

Unemployment refers to the state of being without a job, actively seeking employment, willing to work and can work.

Question 23

Define exchange rate and inflation

Answer 23

An exchange rate is the rate at which one currency will be exchanged for another currency.

Inflation is a general increase in the prices of goods and services in an economy.

Question 24

What are the measurements of inflation

Answer 24

Measurements of Inflation are CPI (consumer price index), RPI (retail price index)

RPIX – similar to RPI but excludes mortgage interest payments

RPIY – Similar to RPIX but also excludes indirect taxes

Question 25

Define demographic change

Answer 25

Demographic change is the change in the population such as age, sex, ethnicity etc.

Question 26

How does demographic change affect businesses

Answer 26

Demographic change can affect businesses activity such as
what they sell
how they sell it
different styles/trends
who they target products for
how they advertise products

Question 27

How does changes in income affect businesses

Answer 27

An increase in income can cause more demand for products and potential for the business to raise prices.

IF income has become more spread out the business can look to advertise and target different demographics

Question 28

How does age affect businesses

Answer 28

Age: With an increasingly elderly population, many businesses will need to alter their products to appeal to the elderly, failure to do so will result in lower sales.

Question 29

How does geographic region affect businesses

Answer 29

Geographic region: This may determine buying habits which also change over time, businesses can adapt to obtain a higher market share and sales, such as for example in north England people were ordering the most takeaways

Question 30

How do social factors affect businesses

Answer 30

These need to be considered by businesses to ensure

their products are targeted at the correct audience

their products reflect their current lifestyle

consumer tastes.

Question 31

What is the drawback of using trends as your marketing strategy

Answer 31

However, if the business focuses marketing strategies just on these factors means that they will lose customers who are not part of the trend.

Question 32

Define automation in business

Answer 32

Automation: which means using machines instead of human labour to undertake part or all the production process for example amazon has invested in 100,000 warehouse robots.

Question 33

Benefits of using automation

Answer 33

Include higher quality production
24 hour working
reduced costs
increased productivity

shareholders are more likely to see an increase in profitability.

Question 34

Drawbacks of using automation

Answer 34

Machinery is initially expensive to invest in
has a high repair and maintenance cost

There is also the threat of machinery failing due tO power cuts or hackers etc.

Question 35

Define communication technology

Answer 35

Communication technology which includes any system such as email, social media, telephone or the internet that allows a business to perform its functions more effectively.

Question 36

Benefits of using communication technology

Answer 36

Significant improvements in access to products.

Large reductions in costs and potentially greater profits.

Employee can benefit from working at home allowing them to reduce travel time and work flexibility

Businesses can market globally at a much lower cost.

Question 37

Drawbacks of using communication technology

Answer 37

This may make some workers redundant and for the initial outlay for the technology

its continual upkeep is expensive

this may also mean customers in the developing world may not have access to the products and could choose local competitors instead.

Question 38

What does economic factors include

Answer 38

Exchange rates, Inflation, monetary and fiscal policy and the state of the economy

Question 39

What are some of the political factors to firms

Answer 39

the quality of the goods that they sell; the labelling of products; the way that they treat their staff and the protection of consumers