PEST factors

Question 1

What is a PEST analysis

Answer 1

It examines political, economic, social and technological environments that effect markets and business
For a business to survive managers must be aware o the ever changing external environment and adapt to it

Question 2

List and describe 5 political factors

Answer 2

1 instabiltiy - the government must provide a stable economic and legal framework for businesses to operate and grow, businesses that move into politically unstable countries take great risks
2 national security - terrorist attacks are more common and a government protects their citizens by introducing measures that restrict movement of goods people and capital - this can have a negative impact on a business
3 major trading partners - UK has removed itself from EU the 27 remaining countries are vital markets nor uk business
4 changes in government - new governments may have a more or less positive attitude towards business decisions
5 pressure groups - their activity can have huge impact on political decisions and business need to be fully aware of their activities

Question 3

What economic factors effect a business positively or negatively

Answer 3

1 taxation
2 subsidies
3 expenditure

Question 4

What are the 2 groups of taxation

Answer 4

Direct taxation - taxation on income
Indirect taxation - taxation on spending

Question 5

Give 5 examples of direct taxation

Answer 5

1 income tax
2 national insurance
3 corporation tax
4 capital gains tax
5 inheritance tax

Question 6

Give4 5 examples of indirect tax

Answer 6

1 VAT
2 excise duty
3 customs duty
4 council tax
5 business rates

Question 7

What are likely effects on businesses of changes in taxation

Answer 7

Effects consumer spending which impacts on business- low tax stimulates consumer demand

Question 8

How are prices effected by tax changes

Answer 8

Rise in VAT or excise duties - businesses try to pass increases onto their customers

Question 9

How does national insurance effect businesses

Answer 9

As it increases the cost of employing workers increases

Question 10

What are subsidies

Answer 10

Payments to producers-they reduce cost and increase output . The main source recently has been payment from EUto farmers to ensure production of food and to green power generators to guarantee the price of their electricity

Question 11

What is the governments role as apurchaser

Answer 11

Government buys form UK businesses and spends over £1 billion a year
For some government is the only or main purchaser eg defence, ship building

Question 12

How has the governments purchasing changed

Answer 12

Was seen as an easy way to make profit but has changed as all government departments are looking to cut costs

Question 13

What is inflation

Answer 13

The general rate of which prices are rising

Question 14

How does the government measure inflation

Answer 14

Though use of regular pricing of nominal basket goods - supposed to reflect spending habits of average person in uk
Includes petrol, cars, holidays. Food electronics, housing
They measure the difference in price of these items monthly to obtain inflation figures

Question 15

What is the name for the target rate of inflation

Answer 15

The consumer Prive Index CPI

Question 16

Why does the government think achievement of target rate of inflation as being good for the economy

Answer 16

Low inflation encourages investment by business and spending by consumers and increases competitiveness in overseas producers so should limit imports and increase exports

Question 17

Who has the government put in charge off setting interest rates

Answer 17

Monetary policy committee of the bank of england

Question 18

What is the job of the monetary policy committee

Answer 18

Government sets inflation bands between 2 and -1% they must keep inflation between the bands by using interest rate policy

Question 19

What causes inflation

Answer 19

Cost push factors or demand pull factors

Question 20

What are cost push factors

Answer 20

Related to cost of production and cause these costs of production to increase

Question 21

What are demand pull factors

Answer 21

Factors that enable businesses to increase prices because demand is increasing. Higher demand = higher price

Question 22

What happens when these 2 factors come together

Answer 22

We have a wage/price spiral

Question 23

Explain the wage price spiral

Answer 23

1 increased inflation can lead to demand for higher wages- often seen during a period of recovery in the economy when there is a shortage of labour
2 higher wages increase he cost of production and levels of demand
3 businesses pass on the increased costs to consumers and prices increase
4 increase prices lead to another round of wage increases as workers try to protect their spending power (real income)
5 the cycle continues
6 inflation becomes self perpetuating

Question 24

List 5 effects of inflation on a business

Answer 24

1 to discourage investment because of the uncertainty created. Inflation brings less predictable returns and the expectation demand will fall.
2 increase menu costs - businesses will have to continually reprice goods - this repricing brings costs such as reprinting brochures
3 increases management time spent negotiating wage increases with employees and increase threat of industrial action
4 international competitiveness- if inflation is higher in the UK cost for uk there will be reduced competitiveness of exports and encourage imports
5 reduces the real cost of repaying loans

Question 25

Why can the governments desired 2% deflation target be a problem

Answer 25

Some level of inflation in the economy is desirable. Deflation can lead to fakes in wages and increasing real debt burden

Question 26

What other issues does deflation bring

Answer 26

1 demand falls
2 consumers defer spending waiting for prices to fall further therefore reducing demand
3 businesses will be nervous to invest as the return is uncertain
4 real debt of the business increases pushing up the risk of failure
5 all of the above limit the growth of the economy

Question 27

What is interest rate

Answer 27

The price of borrowing or saving money

Question 28

What is it called when government use interest rates to help control UK economy

Answer 28

A monetary policy

Question 29

Give ann example of how the government use monetary policy

Answer 29

If they wish to discourage people from borrowing money to purchase goods they rais interest rates

Question 30

What are the effects on business when interest rates increase

Answer 30

1 people spend more on paying the mortgage so less money is left for spending on other goods
2 people are less likely to borrow as the cost of borrowing has gone up , so they spend less
3 businesses borrow less for investment\
4 the value of the £ may increase compared to other currencies

Question 31

What are the effects on business when interest rates ae decreased

Answer 31

1 people spend less on mortgage repayment and have more money for overspending
2 people are more likely to borrow so more spending
3 business borrow for investment increasing their chance of success
4 the value of £ may fall against other currencies

Question 32

What is GDP

Answer 32

The measure of economic out put in UK - gross domestic product

Question 33

Why is growth important

Answer 33

Without it peoples standards of living will not increase

Question 34

What is the trend for growth in the UK economy

Answer 34

Around 2.25% a year - if sustained doubles GDP every 25 years 9since 2008 growth has averaged half of this

Question 35

What is the rise and fall of GDP over time called

Answer 35

The business cycle or economic or trade cycle

Question 36

What happens in a rise and fall

Answer 36

1 rise people buy holidays, feel well off, take out credit, extend houses buy cars , unemployment is low, there are lots of jobs
2 when economy is not doing well - unemployment is high, real wages are falling, people don’t like to spend, businesses struggle

Question 37

What are the element of the business cycle

Answer 37

1 boom - this period benefits most businesses and consumers, unemployment is low, consumer demand strong, can be a budget surplus for government caused by high tax revenue and low expenditure on social security, Businesses look to invest confidence is high and lots of new businesses are set up.
2 downturn - there is less investment by business, managers cut back, interest rates may have been increased during the boom so people are spending less and unemployment creeps up. Economy may still be growing but slower than in the boom, businesses cut back on stockholding worried about falling sales
3 recession - economy starts to shrink, rapid increase in unemployment, falling demand, falling investments, decline in interest rates and inflation, product ranges and pricing strategies change
4 recovery - start to see business opportunities, cost of borrowing is low, investment increases, new jobs are created, unemployment falls, consumers start to spend

Question 38

WhAt is the strict definition of recession

Answer 38

2 consecutive quarters where GDP growth is negative

Question 39

What is an exchange rate

Answer 39

The value of one currency expressed in terms of another currency

Question 40

What is the price of currency determined by

Answer 40

Largely by market forces- supply and demand

When the demand for uk exports rise in china so does the demand for the pound
Because Chinese consumers can only use £ to by UK goods

The value of the pound increases against the yen

Question 41

What is a fall in the exchange rate known as

Answer 41

A depreciation of the pound

Question 42

What is the impact of a fall in the value of the £ (depreciation) 1

Answer 42

1 importers find imports more expensive to buy- they can react by either reducing their margins or pass increased costs on to the consumer
2 exports will be cheaper so businesses should find it easy to attract export markets - they can react by increasing the price or keep prices the same and attract new customers

Question 43

What is the impact of a rise in value of the £ (appreciation)

Answer 43

1 importers find imports less expensive so can increase their margins or pass on reduced costs to customer and increase sales
2 exports will be more expensive - they can react by reducing prices and profits or keep prices the same

Question 44

How does SPICED help to remember the impact of change in the value of the £

Answer 44

S strong
P pound
I imports
C cheaper
E exports
D dearer

Question 45

What is the impact of such fluctuations of the £

Answer 45

1 it creates uncertainty as it is difficult to predict demands for exports
2 planning and budgeting can be disrupted and could result in business closure

Question 45

What is the current rate of natural unemployment in UK

Answer 45

Between 3 and 4%

Question 46

Why do many economists argue a reasonable level of unemployment is good for the economy

Answer 46

It discourages those in employment seeking a higher wage

Question 47

What are the different types of unemployment

Answer 47

1 structural - - appear when there have been large changes in patterns of demand or developments in technology causing long term unemployment in regions or industries. The structure of the industry has changed and the jobs are unlikely to return in that form eg coal or steel industries
1B change in technology causes structural unemployment eg textile industries

2 cyclical unemployment - appears as part of business cycle as the economy enters downturn unemployment rises.
2B government has tried to tackle it by introducing profit related pay and trying to reduce the nature of the economic cycle by investing in labour so they can adjust to meeting new demands

3 frictional unemployment - occurs when there is a delay in finding a job after losing previous one. It is less longterm

Question 48

What is the impact of high levels of unemployment on UK businesses

Answer 48

1 it reduces demand for goods result in a fall in output and possible redundancies

Question 49

What are the social factors that effect businesses

Answer 49

1 demographic changes - the hanging structure of the population -
1B the overall size of the population, if it increases then size of market increases
1C an aging population drives changes in the market
1D Migration - young immigrants have filled the skills gap

2 Lifestyle changes bring opportunities and threats
2B one of the major changes over last 40 years is women who work so supermarkets focus on convenience, childcare industry has boomed
2C society is becoming more health conscious impacts on demand for gyms, low fat low sugar and organic food
2Dhow young people switch between media means marketing needs to sell to all segments
2E cultural changes in a population impacts on business behaviour and products
2F social changes include fashion changes
2G changes in consumer attitudes to the environment - electrical goods need to be energy efficient, cars fuel and emission efficient

Question 50

How do technological factors effect business

Answer 50

1 increased levels of automation and use of ICT has impacted on how organisations operate
2 managers have understood the potential of robotics, automation and the ability to communicate cheaply anywhere in the world

Question 51

What is automation

Answer 51

A robot carries out repetitive tasks

Question 52

In which industries is automation most common

Answer 52

1 retailers - ordering or self checkouts
2 banks - paying in an withdrawing money
3 warehouses - transport and package
4 online services
5 utilities - smart meters

Question 53

What are the advantages of automation

Answer 53

1 lower employee costs
2 increased productivity
3 increased quality and repeatability
4 less management time spent on disputes and negotiation

Question 54

What are the disadvantages of automation

Answer 54

1 greater environmental impact
2 social costs\
3 cost of investment
4 less flexibility

Question 55

Which ICT applications have impacted on the way a business runs

Answer 55

1 internet marketing - internet sale increase year on year
2 web based customer relations - banking is done on line loans arranged
3 Business to business B2B - involves finding commercial buyers for business output and sourcing raw materials and components via the internet estimated a potential saving of between 5 and 10%
4 manufacturing resource planning MRP2 this system takes forecasts and turns them into objectives and targets for each function or department - it can replace a whole layer of management
5 CAD - assists design engineers solving design problems shortening lead in time and making the marker more competitive . It allows all possibilities to be tested without going back to the drawing board and it can identify design problems early on preventing the need for expensive reworking
6 CAM - mainly used to control machinery producing same quality work day in day out . They can be reprogrammed and so flexible less complex than retraining a person. They carry out a job in the most economical way ensuring waste is minimal

Question 56

What are the impacts of technology on business

Answer 56

1 product life cycle and speed of technological obselescence - greater technological input into a business there is the greater the impact on product life. Developing and bringing new products to market quicker means life cycles of products is shorter and they become technologically obsolete quicker. Shorter life cycles means products become profitable much quicker and early adopters are willing to pay highly
2 location of business and ICT- increase in quality of global communication and fall in cost of technology have allowed businesses to relocate their back office world wide eg call centres in India cost of these operations is much cheaper than ~UK
3 nout sourcing production - improvements in technology have also led to outsourcing production as quality can be remotely monitored

Question 57

How do consumers benefit from technological change

Answer 57

1 internet allows easy price comparison
2 more choice
3 lower prices
4 improved quality
5 convince of home shopping and pre arranged delivery

Question 58

What are the problems of technology for customers

Answer 58

1 online shopping and banking can lead to fraud
2 no one enjoys cold calls
3 rapid technological change puts pressure to have the latest products and could lead to debt