Pest Factors Flashcards
What is pest analysis
Techniques used to help a firm analyse the factors in the external environment that may have an impact on it, therefore allowing it to decide on the best response to changes
What does PEST stand for and give examples of each
- Political = Brexit
- Economic = recession
- Social = ageing population
- Technological = artificial intelligence
What are the 4 targets that the government wishes to achieve
- low inflation
- low unemployment
- high economic growth
- balance of payments surplus
How are the U.K. firms affected if the 4 gov targets aren’t being met
- high inflation = raw material prices rise as do wages so costs rise and firm becomes uncompetitive
- high unemployment = demand for products decreases as less people have high disposable income
- low growth = output decreases as demand for products drops because people less disposable income so profit drops
- balance of payments deficit = foreign competition is high. This results in lower output which results in lower profits
Define macroeconomic policy
Any policy which has an impact on the whole of the U.K. especially to achieve the 4 government targets
What is microeconomic policy
Any policy that is aimed at smaller/individual markets e.g subsidising nursery’s with taxes
Define monetary and fiscal policy
Monetary = interest rates being altered by the Bank of England to control the economy
Fiscal = changes in taxation or government spending to control the economy
define direct and indirect taxes
Direct = taxes on income e.g income tax/corporation tax
Indirect = taxes on spending e.g VAT
What are subsidies
Financial support paid by the government to businesses
Define budget deficit
When a government faces a financial deficit for a year because tax revenue is less than overall government expenditure
What is the current account
Part of the balance of payments
What is government intervention
Government becoming involved in the operation of a market/firm
What is laissez-faire
Philosophy whereby the government minimises intervention in markets or the economy
Define privatisation
Transfer ownership of organisations from public sector (gov) to private sector (e.g apple)
What may the choice of policy chosen depend on
Political party in charge
Explain monetary policy in more detail
Controls interest rates. Bank of England does it but must bear governments fiscal policy in mind when making decisions
Explain fiscal policy in more detail
Sets tax rates/government spending. Raising taxes cools economy down and cutting taxes heats it up. Low rates of tax give firms more profits and encourage business activity. Government spending on social services, health etc heats up the economy
Explain how expansionary fiscal policy works
- increase economic activity by cutting taxes/increase government spending
- results in increased output and spending, less unemployment but possibly inflation and more imports
Explain how contradictionary fiscal policy works
- reduce level of economic activity by increasing taxes/cutting government spending
- results in lowered output, spending and employment. May curb inflation and spending on imports
How does the government use monetary/fiscal policy to boost economic growth/lower unemployment
Monetary = reduce interest rates
Fiscal = reduce taxes / increase gov spending
How does the government use monetary /fiscal policy to lower inflation and control economic growth
Monetary = increase interest rates
Fiscal = increase taxes / cut gov spending
What is the aim of supply side policies
Help producers to operate effectively by encouraging efficiency, innovation and competitiveness
Give examples of supply side tactics/policies
- privatise nationalised industries
- offer support/grants
- reduce employers national insurance contributions = lowering their costs
What is a laissez-faire government
When the government doesn’t interfere with the economy
Intervention: how do governments intervene in the economy
By charging taxes, passing laws which affect firms, providing public services etc
some governments intervene more than others
Give the arguments for governments opting to do a laissez-faire approach
- privatisation = firms will become more competitive and will become more efficient as they have to compete
- reducing regulations = governments will not have to spend money on subsidising firms
How can political change effect businesses
- impacts on trading e.g changes in priorities for public spending or uks relationships with other countries can open/close markets
- political change can bring legal change such as environmental legislation etc
- some governments intervene in market, using fiscal policy etc however some don’t
What does the impact of political change on a business depend on
- if government is laissez-faire or interventionist
- economic conditions
- type of business
- power of pressure groups
