PESTLE and the External Enviroment Flashcards
What is the external environment?
The external environment is concerned with the competitive environment in which the business operates and the wider business environment.
What are the first 3 elements of PESTLE?
- Political factors - Government social/economic policies and Extent of government intervention.
- Economic factors - Business cycle, income levels, interest rates, exchange rates, level of inflation, level of unemployment, membership of the EU.
- Social factors - Demographic factors, Ethical issues, the impact of pressure groups, influences of different stakeholders and changing lifestyles.
What are the second 3 elements of PESTLE?
- Technological factors - New products, New processes, Impact on change and Costs of change.
- Legal factors - Legislation
- Environmental factors - Environmental issues and fair trade.
What is meant by Businesses and the External Environment?
Businesses want demand to be high and costs to be low. But this depends on external factors (everything outside the business that affects it).
What are market conditions?
Market conditions is a term that describes a wide range of factors affecting the market. These factors influence the cost faced by businesses and the demand for their products.
How does Labour supply affect a business?
When unemployment rates are high, there is a good supply of labor. Businesses can hire staff easily and won’t have to pay high wages, meaning costs can be kept low. Also, people in work will be extra productive to protect their jobs.
What could a low rate of employment mean and how could that affect a business?
A low rate of employment could mean that there is a shortage of labor. The people available for employment might not have the skills needed for the role so they will need training. This can increase costs for the business
How can income affect a business?
The state of the economy affects demand and costs.
Low incomes mean that people have less money to spend on products so demand decreases. In a recession, businesses need to reduce costs e.g with wage cuts and redundancies to decrease labor costs.
In an Economic boom, wages rise and more people are unemployed. This may lead to greater costs due to the increased wages. On the other hand, higher incomes mean that people have more money to spend, increasing demand for products. The increase in demand leads to increased production costs in supplying more products.
How can changing incomes affect products?
With a normal good when income rises demand rises.
With an inferior good when income rises demand falls.
What is an inferior good?
An inferior good is any good of poor quality. When income rises the demand for an inferior good falls.
Why might an inferior good not always fall in demand when incomes rise?
Because it isn’t always easy to tell what products are inferior/normal as it is subjective and others view different products differently.
What is a normal good?
A good where the demand rises when income rises.
Why are do some normal goods rise in demand much more than others when income rises?
This is because some normal goods are more income elastic than others. Meaning that some products experience a much higher change in demand with a change in income. This applies mainly to luxury products such as holidays, going out to eat at a restaurant and things like nightclubs. Where if income rises there is likely to be a massive rise in demand for these products. However other normal goods can be relatively inelastic for example convenience goods like milk and bread will experience a small change in demand with a change in income.
What can employment rates rising mean for a business?
Employment rates rising can force up wage rates to attract employees, causing costs to rise.
How can seasonal demand and supply affect a business?
Where there are variations in demand and supply throughout the year. This is called seasonality.
Weather and holidays such as Christmas produce variations in demand. Hot weather creates demands for ice lollies, paddling pools, and air conditioning units.
The supply of some products also varies, for example, more strawberries are available in the summer, which would reduce costs for a shop selling strawberries.
What is the consumer price index?
Inflation percentage of low how much prices are rising by.
What effect does inflation have on a business?
Businesses like little bits of inflation to raise their prices in little bits to gain higher revenue.
They don’t like it going up by large amounts as the price of their own raw materials will go up, increasing their costs.
What is real income?
Real income is income taking into account inflation.
What does the economic climate chart illustrate?
That when incomes rise, expenditure rises, therefore output rises leading to employment rising ( which can mean that more people are employed and also employees are working more hours). - This occurs when there is an economic boom.
That when incomes fall, expenditure falls, therefore output falls leading to employment falling. - This occurs when there is a recession.
What is a competitive market?
Where there is a large number of sellers, selling reasonably similar products at similar prices.
What is perfect competition?
Perfect competition is where all firms compete on an equal basis. Their products are very similar and they all charge a similar price.
How can competition affect a business?
Competition means that businesses need to keep costs low to keep prices low otherwise, demand will be taken by the competition. However, they also need to keep a high quality of product to keep a good level of demand.
How does the competition affect a business in an oligopoly?
In an oligopoly, a small number of large firms dominate the market and charge similar prices. For a business to get ahead they will focus on marketing and brand image to increase demand, so marketing costs will be high.
What is a monopoly and what does it mean in terms of competition?
A monopoly is where one business has complete control over its market. There is no competition. A business with a monopoly can increase its prices without much concern on the demand decreasing, and they are able to keep market costs low.
