Section 6 - External influences Flashcards
Unemployment
unemployment exists when people who are willing and able to work cannot find a job
Inflation
the increase in the average price of goods and services over time
Economic growth
when a country’s Gross Domestic product increases - more goods and services are produced than in the previous year
Balance of payments
the balance of payments records the difference between a country’s exports and imports
Real income
the value of income, and it falls when prices rise faster than money income
What are government’s economic objectives
low inflation, low unemployment, economic growth, balance of payments between exports and imports
How does inflation affect a business?
Workers real income will fall so they will demand higher wages; prices of goods produced in the country will rise so people will buy foreign goods and there will be unemployment; businesses won’t want to expand and the living standard will fall.
Gross domestic product
the total value of output of goods and services in a country in one year
How does unemployment affect a business?
labour becomes cheap for the business
How does poor economic growth affect a business?
Output is falling so fewer workers are needed; the number of goods or services the population can afford will decrease so businesses will need make cuts
exports
goods or services sold from one country to other countries
imports
goods or services brought in by one country from other countries.
what is the business/trade cycle?
the business cycle is the pattern that the GDP follows. Growth (GDP rises, everything is dandy); Boom (there is too much spending, prices rise and skilled workers become few and far between. Panic at the disco); Recession (too little spending, GDP falls :( workers lose jobs, businesses don’t get good profits); Slump (extended recession, the meteor of the business world; only those that evolve, survive)
How does a balance of payments deficit affect a business?
a deficit is when there is too many imports and not enough exports (cough, america, cough, cough). Exchange rates depreciate which is good for exporters but not good for importers
Exchange rate
the price of one currency in terms of another, eg £1: $1.5
Exchange rate depreciation
the fall in value of a currency compared with other currencies
Fiscal policy
any change by the government in tax rates or public-sector spending.
This can be a change in income tax, profit tax, indirect tax, import tariffs and quotas or changes in government spending. What do you think the effect of raising these taxes will be on businesses? (stepping stones!
Direct taxes
taxes paid directly from incomes eg income tax or profits tax
Indirect taxes
taxes added to the prices of goods and taxpayers pay the tax as the purchase the goods eg VAT
Disposable incme
the level of income a taxpayer has after paying income tax
How do governments influence the economy
fiscal policy (taxes and government spending); monetary policy (interest rates, supply side policies.
Monetary policy
A change in the interest rates by the government or central bank, eg the European Central Bank. What are the main effects of higher interest rates on: firms with loans, managers considering taking loans, consumers who took out loans, individuals making a deposit? (stepping stones?)
Exchange rate appreciation
the rise in the value of a currency compared to other currencies
Supply side policies
When a government tries to make their economy more efficient by privatisation (moving public sector businesses into the private sector); improving training/education (ie making DT mandatory in schools); increasing competition in all industries (reducing government controls)
How would a business react to increasing income tax?
lower price on products (may lead to lower profits); produce cheaper products (may damage brand image, though)
How would a business react to increased tariffs on imports?
focus more on domestic market (it might still be more profitable to export though depending on tariff); buy local supplies rather than imported ones (quality might go down)
How would a business react to increased interest rates?
reduce investment (other companies may continue to grow, lose market share); develop cheaper products (might affect quality); sell assets to pay off loans (assets might be needed for later)
Social responsibility
When a businesses decision benefits stakeholders, eg a decision to protect the environment by reducing pollution by using the latest ‘greenest’ productiono.
Environment
Our natural world, including pure water and undeveloped country side
Private costs
private costs of an activity are the costs paid for by the business
private benefits
private benefits of an activity are the gains to a business
External costs
External costs are costs paid for by the rest of society, other than the business, as a result of business activity
External benefits
External benefits are the gains to the rest of society other than the business, resulting from business activity.
Social costs
Social costs = external costs + private costs
Social benefits
Social benefits = external benefits + private benefits
Externalities
the effects of business activity eg an externality of BSC is noise bc kids are annoying.
Sustainable development
sustainable development is development which does not put at risk the living standards of future generations
Sustainable production methods
sustainable production methods are those that do minimum damage to the environment
Pressure group
A pressure group is made up of people who want to change business (or government) decisions and they take action such as organising consumer boycotts.
Consumer boycott
when consumers decide not to buy products from businesses that do not act socially in a responsible way.
What can businesses do for sustainable development?
Use renewable energy, recycle waste, use fewer resources, develop ‘environmentally friendly’ products.
Pollution permit
licenses to pollute up to a certain level. Governments sell them to companies. Sustainable companies can sell theirs for cash inflow.
Ethical decisions
Ethical decisions are based on a moral code. Sometimes referred to as ‘doing the right thing’
Globalisation
the term now widely used to describe increase in worldwide trade and movement of people and capital between countries. Reasons include: increasing free trade agreements; cheaper travel links; emerging markets.
Free trade agreements
free trade agreements exists when countries agree to trade imports/ exports with no barriers such as tariffs and quotas.
What are the potential opportunities for businesses?
Start selling exports to other countries; open factories/ operations in other countries; import products to sell domestically; import supplies but manufacture domestically.
What are the potential threats to globalisation?
Increasing imports increases competition; increasing multinationals means increasing competition; employees may leave for other companies
Import quota
a restriction on the quantity of a product that can be imported
Protectionism
when a government protects domestic firms from foreign competition using tariffs quotas.
Multinational business
those with factories, production of service operations in more than one country. Also known as transnational businesses
Impact on a country of multinational businesses
+jobs created +increase output of goods/services +increase in exports +governments get the businesses taxes +more choice for consumers
-unskilled job creation :( -local firms have more competition -repatriation of profits (profits sent away) -use up resources -lots of power (may ask for big grants etc.)
Exchange rate
the price of one currency in terms of another eg £1: $1.5
Currency appreciation
occurs when the value of a currency rises - it buys more of another currency than before. Importing businesses have lower costs :). Exporting businesses have to raise prices :(.
Currency depreciation
Occurs when the value of a currency falls - it buys less of another currency. Importing firms have higher costs :(. Exporting businesses can lower prices :) (good because then demand increases)
