unit 6 Flashcards
impact on business of unemployment
if unemployment is high people’s income level will be lower so demand is lower, however easier to recruit
business cycle stages
growth, boom, recession, slump
impacts on business of inflation
inflation is the increase in the average price of goods and services over time. This may mean business costs (raw material costs) will increase. Furthermore, if consumers are now spending more on necessities, they will have less disposable income left for unessential goods and so demand will decrease for businesses that sell unessential products/services. Employees may try to negotiate higher wages due to everything becoming more expensive
impact on business of lower GDP
If GDP is lower, unemployment is higher and so there is less demand for goods and services so people have less money to buy goods and services, particularly luxury goods. However, if there is higher unemployment rates, it may be easier for a firm to find workers.
government economic objective
- low inflation
- low unemployment
- economic growth
- balance of payments (having more exports than imports)
government can influence the economy by
changing taxes (fiscal policy)
changing government spending (fiscal policy)
changing interest rates (monetary policy)
fiscal policy changing tax rates
- income tax
- corporation tax
- indirect tax
- increasing tariffs
income tax
If the Government increases income tax this means people would have a lower disposable income. Resulting in less demand for firm
corporation tax
this tax is in a business profit. if the governments increases this task business will have less profits
indirect tax
This is a tax on goods and services. If this increases, goods and services are now more expensive, and so demand decreases for firms UNLESS the good is price inelastic. Furthermore, If everything is now more expensive employees may try to negotiate higher wages, increasing costs for a firm.
increasing tariffs
Tariffs are a tax on imports. If these increase: Businesses raw materials may be more expensive IF they import them. If their competitors are overseas, their competitors goods now will be more expensive to import, leading to an increase in sales for domestic firms.
interest rate
An interest Rate is the cost of borrowing money, set by the Government (in most Countries)
impacts of an increase in interest rates
- Firms with existing (variable rate) loans will now have to pay more money on interest , increasing their fixed costs.
- If Consumers have taken out (variable rate) mortgages to buy their homes, their monthly interest repayments will now be higher, leading to less disposable income, leading to lower demand for goods and services.
- Consumers will be less likely to borrow money as interest rates are high, and so consumers will have less money available to buy luxury goods and services
- Managers thinking about borrowing money to expand may delay their decision. Resulting in less chance of expansion for a business.
how businesses might respond to an increase in taxes
- Reduce product prices so they are more affordable for consumers
- Find Cheaper suppliers so can reduce prices of products and still maintain profit
how businesses might respond to an increase in tariffs on imports
Find domestic suppliers instead of overseas suppliers
how businesses might respond to an increase in interest rates
- Develop and produce cheaper goods so that consumers can afford them
- Delay investments as the cost of borrowing is too high
- sell shares instead of taking a bank loan as a source of finance
how business’ might respond to an in government spending
Switch marketing strategy to gain more Government contracts e.g. building or equipping schools and hospitals
how business activity can impact the environment
Business activity can lead to air pollution, carbon emissions, and global warming e.g., from factories and from vehicle emissions
externalities
a consequence of a business activity which affects other parties
external costs
These are negative impacts on the rest of society as a result of business activity. E.g. air pollution causing health problems, noise/traffic from business will disturb local residents, business may be built on green areas limiting this for local recreational use
external benefits
These are positive impacts on the rest of society as a result of business activity e.g. the business provides jobs, business pay corporation tax which can benefit government and residents,
how can a business contribute to sustainable development
Use Renewable energy by using solar panels
Recycle Waste
Use Fewer Resources e.g., lean production so reducing the amount of unnecessary resources being used
Modifying products/develop new products in order to have environmentally friendly products and services
How & why businesses may respond to environmental pressures & opportunities (consumers)
Consumers may be concerned about the environment and so may not buy from business that are not environmentally friendly. By becoming an environmentally friendly business, business will gain a more positive brand image, CA, USP and customers.
How & why businesses may respond to environmental pressures & opportunities (pressure groups)
(groups of people who act together to try to force certain business activities) may influence business to stop carrying out negative activities
How & why businesses may respond to environmental pressures & opportunities (government)
may force business to limit pollution etc..
legal government controls over business activity
- The Government can make certain actions illegal to minimise external costs
- pollution permits allow businesses to pollute up to a certain limit
ethical issues a business might face
- Employ childing workers in developing countries
- Buying raw materials that will damage the environment e.g. Wood obtained from cutting down rainforests
- Offer bribes to the government to gain secret information/get contracts
benefits of ethical decisions
- less risk of consumers and pressure groups highlighting the external costs
- attracts shareholders and investors who want to invest in an ethical business
- less risk of legal action take against them
drawbacks of ethical decisions
- sustainable materials may be more expensive
- some markets are not interested in ethics only low prices
globalisation
is the term used to describe increases in world-wide trade and movement of people and and money between countries.
reasons for an increase in globalisation
- Increasing number of free trade agreements. Consumers can purchase goods and services from other countries with few or no import controls such as tariffs.
- The internet has allowed the development of e-commerce where goods can be bought and sold online
- Improved and cheaper travel links makes it easier to transport products globally
- Emerging markets such as China have developing manufacturing industries so can export many products
opportunities for businesses in globalisation
- can start selling products to other countries
- can open up branches in other countries
- can open factories in other countries
- can import raw materials from other countries which may be cheaper
threats for business (globalisation)
- increased competition from international business
- employees may leave to work for other companies if pay is higher
import tariff
a tax placed on imported goods when they enter a country
import quotas
a restriction on the quantity of a product that can be imported
why the government introduces import tariffs and quotas
Introducing these are a form of protectionism. They protect domestic businesses from overseas competition that otherwise might close them down.
If they impose a tariff, overseas products will be more expensive for domestic customers meaning customers may buy from domestic firms instead.
If they impose a quota, the amount of products imported is limited. Therefor, domestic firms have less competition from overseas firms
multinational business
a business with factories and/or service operations in more than one country
benefits to becoming a multinational
- Producing goods in other countries can mean lower wage costs
- Producing goods nearer to your target market will cut transportation costs
- Can avoid barriers to trade such as tariffs and taxes.
- To increase sales by opening up in an other country
- To gain grants form particular countries to set up in that Country e
impact of multinationals on stakeholders
- Employees have opportunities to move and work abroad in the overseas branch/factory
- The business will usually see an increase in profit and so shareholders will se an increase in dividends
- The government will receive more tax revenue if a firm opens up or relocates to their country
- Suppliers of raw materials may lose sales if the factory relocates to another country
benefits to a country where mnc is located
- Jobs are created, which reduces the level of unemployment.
- Taxes are paid by the multinationals, which increases the funds to the government.
- increased exports
- increased consumer choice
drawbacks to a country where mnc is located
- reduced sales for local business
- repatriation of profits (mnc profits are often sent to the home country)
- multinationals often use scarce and non-renewable primary resources in the host country
