PEST factors Flashcards
pest factors
- political factors:
Change in government
Instability
National security
Major trading partners
Pressure groups - economic factors:
Fiscal policy
Monetary policy
Business cycle
Exchange rate
Unemployment - social factors:
Demographic
Lifestyle - technological factors:
CAD and CAM
automation
information communication technology (ICT)
instability
political factors
governments need to provide a stable economic and legal framework within which businesses can operate and grow and individuals thrive. Competition needs to be fair; the rule of law and clear property rights must apply
National security
political factors
As governments seek to protect their citizens, they introduce measures that
may well restrict the movement of goods, people and capital. Many businesses may suffer negativeimpacts
as a result
Changes in government
political factors
– New governments may well have a more, or less, positive attitude towards
business activity For example, legislation may result in cost increases for businesses and impact upon future profitability
monetary policy
economical factors
taxation:
- Increasing or decreasing the level of consumer spending will inevitably have an impact on the majority of businesses.
- Prices can be impacted by a rise in VAT or Excise Duties. Businesses will try to pass such increases onto their customers
-Increased rates of Corporation Tax or Business Rates will increase the costs of businesses
subsidies:
- They have the effect of reducing costs and therefore increasing output
expenditure:
- The government buys goods and services from UK businesses . For some types of business the government may be the only or the key purchaser of the goods they produce
Pressure groups
political factors
– The activity of such groups can have a significant impact upon political decision-making
- Businesses are required to put in place measures to comply with such legislation
effects of inflation
- The major effect of high inflation on businesses is to discourage investment because of the uncertainty it creates.
- Low inflation will encourage investment and help businesses develop a long-term view
- If inflation is higher in the UK that in competitor countries, costs of UK
businesses are increasing faster. The effect of this will be to reduce competitiveness of exports and to encourage imports.
causes of inflation
economical factors
- cost push factors are those related to the costs of production, and cause these costs of production to increase.
- demand pull factors are those factors that enable businesses to increase prices because demand is increasing. often happens when demand outstrips supply, then prices start to
increase
effects of deflation
- demand will fall; also consumers will defer purchases, waiting for the price of goods to fall further
what are interest rates
the reward for saving and the cost of borrowing
what’s a fiscal policy
|economical factors
interest rates
effects of increasing interest rates
- When interest rates rise, domestic consumption falls. This is because people spend more on paying off mortgages and credit cards, so less money is left over for spending on other goods and services
- Higher interest rates mean
consumers cut back on luxuries - Higher interest rates mean that businesses borrow less for investment
- businesses producing items such as machinery and new buildings find their sales decrease
- Increased interest rates also push up the cost of existing borrowing, so increasing costs to businesses
effects of decreasing interest rates
- people spend less on paying mortgages, so more money left over for spending
- people are more likely to borrow as the cost of loans has fallen, so there is more spending
- businesses borrow more for investment
-the value of the £ may fall against other currencies (SPICED)
business cycle
boom
- The boom period benefits most businesses and consumers. Unemployment is low, consumer demand is strong, profits for businesses are high
- However high levels of demand can increase prices, workers often demand
higher wages, thereby pushing up costs.
the business cycle
|economical factors
- Boom
- downturn
- recession
- recovery
business cycle
downturn
- there is less investment by businesses and business owners and managers become nervous about the future and may start to cut back
- Higher inflation in a boom may have caused the Bank of England to increase interest rates, so people are spending less and unemployment starts to creep up. The economy may still
be growing, but at a much lower rate.
business cycle
recession
- two consecutive quarters where GDP growth is negative
- rapidly increasing unemployment, falling demand from consumers, falling investment by businesses and a decline in the levels of inflation and interest rates.
- cost of redundancies, businesses will cut back on investment and levels of stock.
- Product ranges and pricing strategies will change to suit the new economic environment
business cycle
recovery
Businesses start to see business opportunities, the cost of borrowing can be low and, therefore, investment by some businesses will start to increase. New jobs are created and unemployment falls and consumers start to spend again
impact of depreciation
importers:
- importers will find imports more expensive to buy
- they can pass increased costs onto the consumer in the form of higher prices
exporters:
- Exports will be cheaper in terms of the purchasing businesses own currency, so businesses should find attracting export markets easier
exchange rate meaning
economical factors
An exchange rate is the value of one currency expressed in terms of another currency
impact of appreciation
importers:
- they will find imports less expensive to buy
- reduce costs
exporters:
- Exports will be more expensive in terms of the purchasing businesses’ own currency
structural unemployment
when then there have been large changes in patterns of demand or developments in technology which have caused long-term unemployment in regions or industries
types of unemployment
economical factors
- structural unemployment
- Cyclical unemployment
- Frictional unemployment
cyclical unemployment
Cyclical unemployment, as its name indicates, appears as part of the business cycle. As an economy enters a
downturn, unemployment increases: this will peak during any subsequent recessionary period. This type of
unemployment will fall during recovery and reach a minimum at the peak of the boom period.
