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A Level Business AQA > Unit 1 > Flashcards

Unit 1 Flashcards

What is a business?

1
Q

What is a business?

A

A business is any organisation that makes goods or provides services to satisfy customer needs (must have to live, e.g. food) and wants (aspirations, e.g. holidays).

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2
Q

What are goods and services?

A

Goods = physical or tangible products, e.g. mobile phones, cars.

Services = non-physical or intangible products, e.g. insurance, hairdressing.

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3
Q

What is profit and how is it calculated?

A

Profit is the surplus left from revenue after paying all costs.

PROFIT = Revenue - total costs

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4
Q

What is revenue and how is it calculated?

A

Revenue is the money received from sales (from customers).

REVENUE = no. of units sold x unit price

E.g. If a business sells 1,000 units for £100 each the revenue would be…
1,000 x £1000 = £100,000

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5
Q

What is an index number?

A

An index number is a figure reflecting a change compared with a base value. The base value always has an index number of 100.

E.g. Actual average price last year is £3.00, index number = 100. If the index number is 105 for this year then the actual average price will be 3 x 1.05 = £3.15

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6
Q

Why do businesses exist?

A

The main reason is to earn a return (profit) for the owners. Other reasons are:
- to provide goods and services to customers and other businesses; this includes public services such as the NHS, police and fire services
- to develop a good idea (enterprise)
- to provide help and support for others, most notably charities that raise funds in various ways to help and support the lives of others.
- to create employment

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7
Q

What are the two categories of businesses in relation to customers?

A

Business-to-consumer (B2C) = one business selling products/services for consumers, e.g. retailing, family tourism, personal banking, house building, (McDonalds, Netflix).

Business-to-business (B2B) = one business selling products/services for another business, e.g. wholesaling, business travel, business banking, commercial property, (Alibaba, Shopify).

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8
Q

What is the transformation process?

A

The transformation process is the transformation of inputs into outputs. This process ADDS VALUE to inputs.
Inputs = e.g. raw materials.
Outputs = e.g. t-shirt.

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9
Q

What is added value and why is it important for businesses? How is it calculated?

A

Added value is an amount added to the value of inputs or to a product or service.
The more added value or benefit to the customer a business creates, the higher the price it can charge for its product. Therefore the more profit it can make.

ADDED VALUE = selling price - cost of inputs

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10
Q

What are the 4 main factors of production?

A
  • Land: natural resources, e.g. coal, wood, fish, etc.
  • Labour: physical or mental effort required, from people.
  • Capital: machinery, equipment, vehicles and any other physical assets used to produce.
  • Enterprise: ideas, talents, ability to find finance.
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11
Q

What are the 3 industry sectors that businesses can be classified as?

A

The type of transformation process determines the industry sector the business is in:
PRIMARY > Raw materials
- Extracts or develops natural resources such as timber, agriculture, oil, or mineral.
SECONDARY > Manufacturing
- Makes use of extracted primary materials to build, manufacture, or develop finished goods.
TERTIARY > Distribution
TERTIARY > Retailer
- Provides the services needed to meet the needs of the end users, e.g. through retailing, distribution, insurance, and customer services.
> Consumer

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12
Q

What is a mission statement and what is the purpose of a business having one?

A

A mission statement, sometimes called a ‘vision statement’, is a written declaration of a company’s core purpose and focus and defines the reason for its existence. It is a qualitative statement that needs to be translated into corporate and functional or department goals.

Purpose:
- Helps to bring focus and meaning.
- Can act as a guide when making critical decisions that may affect direction of business.
- Provides a vision for the future.

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13
Q

What does an effective mission statement do?

A
  • Differentiates the business from its competitors.
  • Defines the markets or business in which the business wants to operate.
  • Is relevant to all major stakeholders, not just shareholders and managers.
  • Excites, inspires, motivates and guides, particularly important for employees.
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14
Q

What are aims?

A

Aims are long-term plans from which business objectives are derived.
An aim is:
- Where the business wants to go in the future (its goals).
- A statement of purpose.
- How the mission statement will be achieved.
- Set by senior employees, not normally numeric but qualitative and strategic.

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15
Q

What are corporate objectives?

A

Corporate objectives are targets or goals for the entire business that are set to achieve its mission.

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16
Q

Examples of key corporate objectives

A
  • To make a profit.
  • To survive.
  • To grow.
  • To improve cash flow.
  • To behave in a particular ethical, environmental and/or socially focused manner.
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17
Q

What is profit maximisation?

A

Profit maximisation is to try and make the most profit possible to reward the owners, investors or shareholders. It can be a common corporate business objective in relation to profit.

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18
Q

What is profit satisficing?

A

Profit satisficing is to try and make enough profit to keep the owners comfortable. It will probably be a common corporate objective of smaller businesses (sole trader) whose owners do not want to work longer hours.

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19
Q

What is short-termism?

A

Short-termism is making decisions that will prioritise delivering profit in the short-term without considering the long-term consequences. It can be a common corporate objective in relation to profit.

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20
Q

What is cash flow?

A

Cash flow is the amount of money moving into and out of the business in the form of physical cash or bank balances.
Cash flow as a corporate objective will mean having sufficient reserves of money immediately available to pay day-to-day debts, e.g. suppliers, staff salaries, utility bills or overdraft.

Businesses with seasonal demand (e.g. theme parks or festival organisers) or offering long term credit to their customers (e.g. building companies) may set this objective.

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21
Q

Hierarchy of all types of objectives in a business in relation to how specific and important they are for a business

A

Objectives are set at various levels in a business, from the top (corporate) and through the layers underneath.
1) Mission
2) Corporate aims + objectives
3) Functional (i.e. departmental) objectives
4) Team targets
5) Individual staff member target

The top (mission, aims) are the most vague and relate to the entire business, whereas the bottom (functional, team targets, individual) are most specific and detailed.

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21
Q

What is is the acronym which all objectives need to conform to? (a set criteria)

A

SMART:
Specific - clear, easily defined and precise.
Measurable - quantifiable, should be expressed as measures so that it is possible to determine whether (or how far) they have been achieved, e.g. % market share.
Achievable - within capabilities and sufficient resources and agreed with staff responsible for achieving it.
Realistic - challenging but possible to achieve given the capabilities of staff, not conflicting with other objectives.
Time bound - deadline, based on explicit timescales, e.g. over 3 years.

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22
Q

Benefits of business setting objectives

A
  • As they are measurable and time bound, they can be used to evaluate performance and measure progress.
  • If they are realistic and achievable, they can provide motivation for employees.
  • Provides focus for managers and staff as they are specific.
  • Can be used to reward staff when targets are met.
  • Provides an idea of what a business is aiming for.
  • Can support an application for funding.
  • Can help with decision making.
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23
Q

What other terms can be used for ‘revenue’?

A
  • Turnover
  • Sales
  • Income
  • Takings
  • Earnings
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24
Q

What are the two different types of costs and what do they mean?

A

FIXED COSTS
- The costs that do not directly change with the level of output. They remain the same regardless of the output or sales.
- E.g. rent, salaries.
- Also known as operating costs / expenses.

VARIABLE COSTS
- The costs that change directly with the level of output.
- E.g. raw materials, wages.
- Also known as cost of sales / direct costs.

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25
Q

How to calculate total costs

A

Fixed costs + variable costs = TOTAL COSTS

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26
Q

What is breakeven?

A

The breakeven output is the number of units a business must sell to receive enough revenue to cover the total costs. At breakeven, the business is making neither a profit nor a loss.
At breakeven: Revenue = total costs

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27
Q

How to calculate the breakeven output

A

Breakeven output = Fixed costs / (Selling price per unit - variable cost per unit)

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28
Q

What is margin of safety?

A

The margin of safety is the difference between the breakeven output and the actual output.

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29
Q

What is the meaning of business form?

A

Business form refers to the ownership of the business. Businesses in the private sector are owned by individuals, groups of individuals, or other businesses, while businesses in the public sector are owned by the government.

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30
Q

What is the private sector?

A

The private sector is part of the economy that is made up of private enterprises - businesses that are owned and controlled by individuals or groups of individuals.

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31
Q

What are the two broad categories that businesses in the private sector fall into and what do they mean?

A

CORPORATE
- Corporate businesses have a legal identity that is separate from that of their owners.
- Limited liability.
- A ‘company’.

NON-CORPORATE
- Unregistered.
- Non-corporate businesses and their owners are not treated as separate elements.
- All owners’ private possessions are at risk in events of failure - unlimited liability.

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31
Q

What is the public sector?

A
  • Government owned and run.
  • Public ownership - owned by all of us.
  • Goods and services:
    • which might not be provided if private
      as no profit to be made.
    • are provided by the government as
      believed in best interest of society.
    • are funded by taxes.
  • Public corporations, local governments and state services.
  • E.g. police, fire service, NHS, schools.
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32
Q

What is nationalisation?

A

Nationalisation is when the government takes over a business in the private sector (buys the shares from shareholders).

Private sector ————-> Public sector
ownership

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33
Q

What is privatisation?

A

Privatisation is when the government sells a business in the public sector (sell shares and ownership of the business).

Public sector ————–> Private sector
ownership

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34
Q

What are not-for-profit organisations?

A

Not-for-profit organisations are businesses that trade in order to benefit the community.
- Social objectives to benefit a specific group in society.
- Making a profit is not the main objective, however to be able to carry on with their social mission they must operate efficiently, so profit is reinvested.
Also called ‘social enterprises’. Include ‘charities, ‘mutuals’.

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35
Q

What do not-for-profit organisations include? + explain what these are

A

CHARITIES - these fund their activities mainly through donations and fundraising. They don’t have shareholders. Any surplus (profit) is reinvested into the charity.

SOCIAL ENTERPRISE - these sell products or services in order to reinvest all or some of their profits into the business, with social objectives. Can be set up as a sole trader or limited company.

MUTUALS - organisations that are owned by, and run for the benefit of, their current and future members. Main aim is to serve their members and often to contribute positively to society. E.g Nationwide Building Society.

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36
Q

Types of private sector businesses

A

CORPORATE:
- Private limited companies (ltd)
- Public limited companies (plc)

NON-CORPORATE:
- Sole traders
- Partnerships

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37
Q

What is a sole trader?

A

A sole trader is a self-employed person who owns and runs their own business as an individual.
- The owner is the business.
- Non-corporate/unincorporated
- Private sector
- Owner has unlimited liability (unlimited responsibility for business’ debts)
- Not registered so business is inseparable from owner.
- Able to hire employees.
- Pay income tax based on business profits.
- Can be successful - BUT after a certain size almost certainly will become incorporated.

38
Q

Advantages and disadvantages of sole traders

A

+ Start up costs are low.
+ Establishing and operating is simple.
+ Owner receives all the profits.
+ Own boss.
+ Able to respond quickly to changes in the market.
+ Confidentiality (financial details don’t have to be published).
+ Easy to change legal structure.

  • Unlimited liability.
  • Owner is likely to be short of capital for investment and expansion.
  • Few assets for collateral to support applications for loans.
  • Perceived lack of prestige.
  • Long hours leading to poor work/life balance.
  • Tax planning limitations.
  • No one to share ideas with.
  • Lack of business continuity.
39
Q

What is a partnership?

A
  • Two or more legal persons (no upper limit).
  • Non-corporate business (not registered).
  • Owners have unlimited liability.
  • Usually raise funds through personal savings or loans.
  • Share profits in line with partnerships agreement - “Deed of Partnership”.
  • Some partners may be ‘sleeping partners’, contributing capital but taking no active part in the business.
  • Common in professions e.g. dentists, accountants.
40
Q

Advantages and disadvantages of partnerships

A

+ Wider range of skills and knowledge than sole traders.
+ Able to raise greater amounts of capital.
+ Pressure on owners is reduced as cover is available for holidays and there is support in making decisions.

  • Control is shared between partners.
  • Arguments/disagreements are common among partners.
  • Unlimited liability.
  • Profit shared between partners.
  • Decision making can be slower than sole traders.
41
Q

What is a private limited company?

A

A private limited company (ltd) is registered as a company owned by shareholders - registered with Companies House.
- Legal identity of its own.
- Owners have limited liability (can only lose money that has been invested into the business).
- Shares can only be traded privately - not on the Stock Exchange, and only in agreement with other shareholders, so usually friends and family.
- Usually much smaller than plcs.

42
Q

Advantages and disadvantages of private limited companies (ltds)

A

+ Shareholders benefit from limited liability.
+ Separate legal identity.
+ Only required to divulge a limited amount of financial information.
+ Access to greater amounts of capital.
+ Can be more tax efficient.

  • Cannot sell their shares on the Stock Exchange.
  • Requiring permission to sell shares limits potential for flexibility and growth.
  • Have to conform to a number of expensive administrative formalities.
  • Stricter record keeping requirements.
  • More complicated to set up.
43
Q

What is a public limited company?

A

A public limited company (plc) is owned by shareholders. Shares are traded on a Stock Exchange, so publicly, but don’t have to.
- Must have the term ‘plc’ after their name.
- Limited liability.

44
Q

What are some of the specific requirements that a public limited company must meet compared with private limited companies?

A
  • Minimum number of shareholders must be two (an ltd only needs one).
  • Accounts must be filed within 6 months of the year end (the limit is 9 months for an ltd).
  • The Company Secretary must be a qualified person (in an ltd, the secretary does not need to be qualified).
  • Minimum number of directors is two (just one is needed for an ltd).
  • Must have a minimum capital of £50,000.
  • Require directors to hold an annual general meeting (AGM).
45
Q

Advantages and disadvantages of public limited companies (plcs)

A

+ Can gain positive publicity as a result of trading on the Stock Exchange.
+ Strict rules which:
> Encourages investors to part with
their money.
> Means processes may be better.
+ Suppliers more willing to offer credit.
+ Stock Exchange quotation offers access to large amounts of capital.

  • Required to publish a great deal of financial information.
  • Trading can result in significant administrative expenses.
  • A Stock Exchange listing means emphasis placed on short-term financial results, not long-term performance - short-termism.
46
Q

What is a ‘company’?

A

A company is a separate legal entity. The owners of a company are shareholders who own shares in the company.

47
Q

Reasons for choosing different forms of business

A

Formalities and Expenses
- Sole traders and partnerships relatively easy to set up with few formalities.
- Ideal form for small businesses.

Size and Risk
- A business which is and intends to remain small and carries little in the way of risk, sole traders and partnerships more appropriate.

Objectives of the Owners
- Objectives involving growth, forming a corporate business more appropriate.
- Likely to give greater access to capital and limited liability reduces risk for owners.

48
Q

Reasons for changing business forms

A

Circumstance
- Growth in the business means owners may wish to become incorporated to benefit from limited liability.

Capital
- Easier to raise capital by becoming incorporated or by becoming a plc if already an ltd.

Acquisition or Takeover
- Causes a change of structure (maybe) e.g. ltd taken over by a plc.

49
Q

What are shareholders?

A

Shareholders are the owners of a limited company and include any person, company or other institution that owns at least one share.

50
Q

Roles of a shareholder

A
  • Attend the AGM where major decisions need to be approved by shareholders.
  • Discuss, decide and vote for directors of a company.
  • Decide on any organisational decision.
  • Checking and making approvals of the financial statements.
  • Can remove directors if they disagree with decisions.
  • Decide on the directors’ salary.
51
Q

What is divorce of ownership and control?

A

The divorce between ownership and control happens when the owners of a business (shareholders) disagree with decisions made by directors (people who run the business on their behalf and make the day-to-day decisions.

52
Q

What is a share?

A

A share is an individual part of the total issued share capital in a company.
- Most shares are ‘ordinary shares’.

53
Q

What are ordinary shares?

A

Most shares that are issued by a company are ordinary shares. This means:
- Equal voting rights based on number of shares held (shareholding).
- Shares qualify for a dividend but, only if one is paid.
- Ordinary shares are unsecured meaning that the shareholders are the last to get their money back if the firm goes into liquidation.

54
Q

Why would a business sell shares?

A
  • To raise capital meaning finance to grow the business.
  • To gain advice and support (ltd only).
55
Q

What is an annual general meeting (AGM)?

A

An annual general meeting (AGM) is a yearly gathering of a company’s interested shareholders.

At an AGM, the directors present an annual report containing information for shareholders about the company’s performance and strategy.

Shareholders can vote on the issues at hand.

56
Q

Reasons why shareholders buy shares

A

To have a ‘say’ in the running of a business.
- Major decisions are required to be approved by shareholders at an AGM.
- Can remove directors if they disagree with decisions.
- The more shares a shareholder has, the more control they have over decisions.

To have the right to a share of the profit - dividend.
- The total amount given to shareholders is decided by the board of directors and can vary, but investors hope that the return they get will increase over time.

To benefit from capital gain or capital growth.
- Shareholders hope the value of their shares will increase over time and that at some point they will be able to sell them at a higher price than it was initially bought for.

57
Q

Who buys shares?

A
  • Private individuals and foreign investors.
  • Banks, insurance companies and pension funds.
  • Other companies.
58
Q

What happens to shares when a shareholder decides to sell them?

A

Shares are traded through the Stock Exchange
… shareholders sell their shares to other investors via the Stock Exchange, NOT back to the company.
… to a new shareholder who wishes to buy.

59
Q

Difference between ltd and plc shares

A

Shares in ltds:
- Shares cannot be traded publicly (difficult to buy/sell).
- Usually just 1 or a few chosen shareholders (access to limited amount of capital).
- Shareholders can provide advice and support as well as capital.

Shares in plcs:
- Shares may be traded on a Stock Exchange (easy to buy/sell).
- Minimum share capital £50,000.
- Costly and lengthy process to get listed.
- Usually has many shareholders (access to large amount of capital).

60
Q

What is a dividend?

A

Dividend = a share of the after-tax profit of a company distributed to its shareholders according to the number of shares held.
- This money can only be paid if the company can afford it; a dividend cannot be paid if a company has accumulated losses.
*Payment of a dividend is decided by board of directors.

61
Q

What is capital growth/gain?

A

Capital growth arises from an increase in the value of the business leading to an increase in share price.
- This gain can only be realised when a share is sold (the price paid) and there is no guarantee that a share will increase in value.

62
Q

Process of issuing shares in a plc (overview in simple terms)

A

1) Company sells shares for the first time.
2) Flotation or IPO (Initial Public Offering).
3) Company sells more shares: Rights Issue

63
Q

What is an IPO (Initial Public Offering)?

A
  • When shares of a private company are made available to the public for the first time (ltd -> plc).
  • Company is valued.
  • May not sell all shares in the company to the public BUT all shares can be publicly traded from that point.
  • Initial share price is set - people subscribe to buy at that price.
  • ONLY THAT money goes to the company.
  • Shares subsequently traded on stock exchange.
64
Q

What happens after the IPO (Initial Public Offering) in relation to getting the money only once?

A
  • The business receives capital only once: when shares are sold for the first time only!
  • Shares are then traded (bought & sold) on a Stock Exchange.
  • A Stock Exchange acts as an auctioneer where investors can buy & sell their shares.
  • Investors make or lose money as the share price fluctuates (not the business!!).
65
Q

Main reason for why share price changes

A

Both level of dividend and share price of a company can fluctuate - important to remember they can go DOWN in value as well as up.
A share’s price is determined by the demand for it (are investors willing to buy it?):
- If demand for a share increases then the share price rises.
- If demand for a share decreases then the price falls.

66
Q

Factors affecting the demand for shares which then affects the share price

A

INTERNAL:
- Financial performance
> If there are worse than expected profits, shares will go down in value = less dividends, so low demand. If profits are higher, then share value will increase = higher demand.
- Dividend policy.
- Decisions made by the leader(s) of the business (growth, innovation, etc.).
- Leader(s) behaviour, reputation & attitude to risk.

EXTERNAL:
- Availability of better performing investments (e.g. price gold).
- Level of interest rate.
- World uncertainty
> e.g. conflict in Middle East, a pandemic such as COVID-19 or an economic downturn will cause share prices to fluctuate.
- Changes within the market or competitive environment (changes in customers’ tastes, behaviour, income)
> e.g. the move of consumers from the mainstream supermarkets such as Tesco to the discounters such as Lidl and Aldi will adversely affect the value of Tesco’s shares.

67
Q

Share prices and profit warning

A
  • The price of a share is based on the expectation of a certain level of return (dividend).
  • If a business knows its profit is likely to be lower than expected it must warn investors & issue a profit warning.
68
Q

Benefits and drawbacks to issuing shares

A

BENEFITS:
- Able to raise substantial funds if the business has good prospects.
- Broader base of shareholders.
- Equity rather than debt = lower risk finance structure.

DRAWBACKS:
- Can be costly and time-consuming (particularly flotations).
- Existing shareholders’ holdings may be diluted.
- Equity has a cost of capital that is higher than debt.

69
Q

What is market capitalisation?

A

The value of a company is ultimately determined by the price at which shares are bought and sold. A common term for the total value of a quoted company (i.e. whose shares are traded on a stock market) is market capitalisation.
- Market capitalisation represents the total market value of the company at the current share price.

70
Q

Formula for market capitalisation

A

current share price x no. of share in issue

71
Q

What is ordinary share capital and how do you calculate it?

A

Ordinary share capital is the value of issued share capital when the business was first floated on the stock exchange.

= initial share price x no. of shares in issue

72
Q

The effects of ownership on mission and objectives

A

The form of business & the type of ownership (who owns the business) will have an impact on the way the business is run, the type of mission and objectives set.
- Profit is a key objective of many private sector businesses, and for some this may dominate the decision-making process.

73
Q

The effects of ownership on mission and objectives: sole traders

A

Likely objectives:
- To make enough profit for the owner to live comfortably (profit satisficing) or to survive.

Key performance measures:
- Sales, revenue & profit (income for the owner).

74
Q

The effects of ownership on mission and objectives: private limited companies (ltds)

A

Likely objectives:
- To make profit to support a small group of shareholders (usually family members) or steady growth.

Key performance measures:
- Sales, revenue & profit

75
Q

The effects of ownership on mission and objectives: public limited companies (plcs)

A

Likely objectives:
- Maximise profit to reward shareholders with a large dividend (profit maximisation) or fast growth (as growth is also likely to increase profit).
- To cut costs which is another way of trying to maximise profit, however it could lead to short termism?

Key performance measures:
- Market share, dividend payments & return on investment.

76
Q

The effects of ownership on mission and objectives: non-profit organisation

A

Likely objectives:
- Although profit is important it isn’t the primary objective. Meeting social needs is the key objective.

Key performance measures:
- Number of services provides, number of members helped, donations received & efficiency of budget control.

77
Q

What is the external environment?

A
  • What’s happening outside the business has an impact upon the business.
  • The external business environment is changing faster than ever before.
  • It’s important to understand the effect these factors have on business costs and demand for products & services.
78
Q

What is PESTLE analysis?

A

PESTLE analysis is a tool similar to a ‘checklist’ used for analysing the key features of the external business environment, including the factors:
- Political
- Economic
- Social
- Technological
- Legal
- Environmental
+ Competition

79
Q

What are the type of political factors (PESTLE) in the external environment that can affect businesses?

A
  • Government policy
  • Political stability
  • Corruption
  • Foreign trade policy
  • Tax policy
  • Labour law
  • Trade restrictions
80
Q

A detailed example of a political factor from the external environment that has affected businesses?

A

The Sugar Tax:
- Introduced in 2018
- It has reduced the amount of sugar in soft drinks.
- It has resulted in us buying less sugar
It has reduced our consumption of sugar.
- And it has potentially even lowered obesity rates.
And it has done all that without impacting on soft drinks sales (which have actually risen since the levy was introduced), and with no negative long term effects for soft drinks companies, both in terms of stock market performance and domestic turnover.

81
Q

What are the type of economic factors (PESTLE) in the external environment that can affect businesses?

A
  • Economic growth (GDP)
  • Exchange rates
  • Interest rates
  • Inflation rates
  • Disposable income
  • Unemployment rates
82
Q

What is an ‘interest rate’?

A

It is the cost of borrowing money & the reward for lending money.

83
Q

What are the type of social factors (PESTLE) in the external environment that can affect businesses?

A
  • Demographic changes
  • Population growth rate
  • Age distribution
  • Career attitudes
  • Safety emphasis
  • Health consciousness
  • Lifestyle attitudes
  • Cultural barriers
84
Q

Give examples of specific social factors from the external environment that has affected businesses

A
  • Falling birth rate
  • Growing LGBT+
  • Increasing dependents
  • Fewer teenagers (but more boys)
  • Ageing population (but more ladies)
85
Q

What are the type of technological factors (PESTLE) in the external environment that can affect businesses?

A
  • Technology incentives
  • Level of innovation
  • Automation
  • R&D activity
  • Technological change
  • Technological awareness
86
Q

Give examples of specific technological factors from the external environment that has affected businesses

A
  • Innovation creates a new market and disrupts an existing one.
  • Social media
  • AI
  • Disruptive technologies that have created new markets, e.g. Tesla
87
Q

What are the type of legal factors (PESTLE) in the external environment that can affect businesses?

A
  • Discrimination laws
  • Antitrust laws
  • Employment laws
  • Consumer protection laws
  • Copyright and patent laws
  • Health and safety laws
88
Q

Give examples of specific legal factors from the external environment that has affected businesses

A

Employment laws
> e.g. minimum wage, national living wage, so if increased then this increases business labour costs

89
Q

What are the type of environmental factors (PESTLE) in the external environment that can affect businesses?

A
  • Weather
  • Climate
  • Environmental policies
  • Climate change
  • Pressures from NGO’s
90
Q

Give examples of specific environmental factors from the external environment that has affected businesses

A

Fair Trade
- A scheme where businesses agree to pay suppliers a fair price so that producers are not exploited.
- Businesses taking part in this scheme agree to pay suppliers fair prices allowing them to have decent working conditions.
- Usually applies to farmers and workers in developing countries.

91
Q

Explain the competition part of PESTLE analysis for businesses

A

All businesses operate in competition with other businesses.
- Some operate within in the same market - e.g. supermarkets, mobile phones.
- Some are in competition across markets - e.g. British gas vs electricity supplier.
Businesses need a competitive advantage:
branding, marketing, efficiencies, new technologies, patents, quality etc.

92
Q

Give examples of specific competition factors from the external environment that has affected businesses

A

Sometimes a competitor will come up with an innovative product or service that has a huge impact on the market it operates in.
> E.g. Apple, with the developments in the iPhone, and Nike, with the Vaporfly trainer.

93
Q

Types of competition

A

Perfect competition:
- Firms compete on equal basis, keeping costs low to compete.
- High quality is key to demand.

Oligopoly:
- Small number of firms dominate.
- High marketing costs with a focus on brand image.

Monopoly:
- One business has complete control, having the ability to rise prices and keep marketing costs low.

A Level Business AQA (3 decks)

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