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Business A-level > Unit 7 Part 2 > Flashcards

Unit 7 Part 2 Flashcards

1
Q

What is GDP?

A

A measure of all goods and services produced within a country over a specific time period, and as such provides a primary indicator of a country’s economic health.

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2
Q

Stages of the business cycle

A

-upswing/expansion
-boom
-recession
-trough/slump

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3
Q

Possible implications for a business from upswing/ expansion

A

-rising incomes and expenditures
-possible labour shortages, pushing up wages
-possible rise in output, encouraging expansion

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4
Q

Possible implications for a business from boom

A

-possible rise in inflation
-bottlenecks in supply of materials and components
- unable to satisfy levels of demand as consumption rises
-profits likely to be high

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5
Q

Possible implications for a business from recession

A

-consumer’s disposable incomes start to fall
-demand for many products begins to fall
-some businesses experience financial problems
-excess stocks

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6
Q

Possible implications for a business from trough/slump

A

-government may initiate counter-cyclical policies e.g lower interest rates
-rise in number of bankruptcies
-increased frequency of bad debts
-high levels of unemployment

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7
Q

Possible responses of business to change trading conditions in expansion

A

-opportunity to charge higher prices
-adoption of more technology to replace expensive labour
-decide to invest in fixed assets
-operate nearer to full capacity

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8
Q

Possible responses of business to change trading conditions in boom

A

-face increasing pressure to raise prices regularly
-seek methods to increase output (maybe producing overseas plants)
-offer wage rises to avoid threat of industrial action
-managers plan for falling levels of demand

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9
Q

Possible responses of business to change trading conditions in recession

A

-begin to emphasise price competitiveness in advertising
-seek new markets for existing products
-lay off some workers or ask them to work short time
-possible reduction in trade credit provided

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10
Q

What are direct taxes?

A

Taken directly from an individuals’ or organisations’ income

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11
Q

What are indirect taxes?

A

Taxes on expenditure

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12
Q

Main types of tax used by the UK government

A

-income tax
-corporation tax
-national insurance payments
-value added tax
-excise duty
-green taxes

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13
Q

What is exchange rate?

A

The price for which the currency of one country can be exchanged for another country’s currency.

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14
Q

Consequences of rising exchange rate

A

-exports from UK more expensive
-UK exporters potentially less competitive, depending where raw materials sourced
-imports to UK less expensive

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15
Q

Consequences of falling exchange rate

A

-exports cheaper
-UK exporters potentially more competitive, depending where raw materials sourced
-imports more expensive

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16
Q

What is inflation?

A

Inflation is the general increase in prices and the fall in purchasing power of money.

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17
Q

What is the Monetary Policy committee (MPC)

A

A committee of the Bank of England that regulates interest rates in an attempt to maintain economic stability.

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18
Q

Problems with high inflation for businesses

A

-cost pressures in terms of higher borrowing costs on account of high interest rates, higher material costs and pressure on wage rates due to wages declining as a result of inflation
-reduced sales

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19
Q

What is Fiscal policy?

A

The means by which the government adjusts its spending levels and tax rates to monitor and influence the country’s economy.

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20
Q

Effects of increases in taxation

A

-increases in indirect taxes such as VAT as a result in higher prices, cutting consumer demand.
-producers may pay the increase in indirect taxes to avoid raising prices. This will cut profits and may reduce investment levels by businesses
-increases in income tax leave consumers with less disposable income, again reducing demand

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21
Q

Effects of decreases in taxation

A

-cutting indirect taxes reduces prices which may boost spending, especially for price elastic products
-reductions in income tax results in consumers having higher incomes. This increases demand particularly for luxury products
-falling corporate taxation promotes investment and output for business, increasing economic activity
-reductions in corporate taxation may attract investment by foreign individuals and businesses

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22
Q

Impact of falling levels of economic activity on business

A

-falling sales and downward pressure on prices
-rising number of bankruptcies, especially among small firms
-increased levels of inventories

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23
Q

Impact of rising level of economic activity on business

A

-rising wages and possible skill shortages
-sales rise and possibility of increasing prices
-increasing costs of raw materials and components

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24
Q

What is free trade?

A

The unrestricted purchase and sale of goods and services between countries without the imposition of constraints.

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25
What is protectionism?
Policies and actions by governments to restrict or retain international trade, such as import tariffs, quotas or subsidies to local businesses.
26
Examples of constraints
Tariffs- taxes on imported goods that increase the price thereby making the import less competitive Quotas- physical restrictions on the number of goods imported into a country Non-tariff barriers- excessive rules and regulations that make importing difficult, and exacting standards or specifications designed to make the cost for the exporting nation excessive.
27
What is globalisation?
The increased independence of economies, industries and markets around the world
28
Reasons for greater globalisation include
-improved transport -technology -more open trade
29
Positive reasons for importance of globalisation
-freer trade -free movement of labour -increased investment
30
Negative reasons for importance of globalisation for business
-greater competition -takeovers -global economy
31
What is an emerging market?
A national economy that is progressing towards becoming more advanced through rapid growth and industrialisation
32
Importance of emerging markets
-larger growing markets -growth of middle classes -low cost locations
33
Strategies for businesses entering emerging markets
-knowledge -local partners -well made and locally tailored products
34
What is migration?
The movement of people between countries
35
Positives of migration
-increases labour force, adding to the skills available, particularly in the health sector -it boosts demand in the economy -it has a positive impact on some sectors, such as higher education, where foreign students contribute to financing for domestic students
36
What is urbanisation?
Movement of people from countryside to towns and cities
37
What problems can urbanisation cause?
-traffic congestion -overcrowding -a lack of suitable housing -inequalities
38
Benefits of technological changes
-lower costs -improved communication -increased sales -quality (CAD and CAM)
39
Problems with technological changes
-pace of change can be costly -competition -security
40
What is corporate social responsibility (CSR)?
A business approach that contributes sustainable development by delivering economic, social and environmental benefits to all stakeholders.
41
Reasons for CSR
-cost savings -brand differentiation -customer and employee engagement -customer and employee engagement -the right thing to do -resources -prevent government intervention
42
Reasons against CSR
-profit: socially responsible policies have a cost -customer perception: not all customers are willing to pay more for products produced by an environmentally aware business -state of the economy -the market -stakeholders’ views
43
Reasons for CSR
-cost savings from less packaging or less energy -brand differentiation -customer and employee engagement -the right thing to do -resources -prevent government intervention
44
Reasons against CSR
-profit as socially responsible policies have a cost -customer perception as some customers would still buy from brands that aren't responsible e.g primark -state of the economy: may be difficult during times with low profit in a recession -the market -stakeholders' views
45
46
What model shows corporate social responsibility?
Carroll's corporate social responsibility pyramid
47
What are the layers in Carroll's corporate social responsibility pyramid?
philanthropic responsibilities- be a good corporate citizen ethical responsibilities- be ethical legal responsibilities- obey the law economic responsibilities- be profitable
48
Sources of pressure for greater social responsibility
-pressure groups -state regulation -drive toward self regulation -the media -consumer perception
49
What model should be used to analyse competition in an industry?
Porter's five forces
50
What are Porter's five forces?
-threat of new entrants -bargaining power of buyers -threat of substitute products or services -bargaining power of suppliers -rivalry among existing competitors
51
Barriers to entry
-cost of entry e.g aircraft manufacture -government barriers -patents -economies of scale -access to suppliers
52
When is buyer power likely to be powerful or weak?
powerful: -few buyers or buys significant proportion of output -buyers have credible backward integration threat weak: -many buyers -producers have credible forward integration threat -there are significant switching costs
53
When is a supplier more likely to be weak or powerful?
powerful: -a business uses a single supplier -credible forward integration threat by suppliers -customers are powerful -high cost to switch suppliers weak: -there are many competitive suppliers -credible backward integration threat by purchasers -low cost to switch suppliers
54
When is rivalry more likely to be intense?
-large number of firms of similar size -low levels of product differentiation -slow market growths -high exit costs
55
What is cost leadership strategy?
Aims to gain a competitive advantage by having lower costs in the industry.
56
What is differentiation strategy?
The development of a product or service that offers unique attributes that are valued and perceived by customers to be different from those competitors.
57
What is focus strategy?
This entails a narrow competitive scope where a particular segment or segments in the market are targeted. The focus on that segment may then be on the basis of either cost leadership or differentiation.
58
What is investment appraisal?
An analytical tool used to evaluate the attractiveness or unattractiveness of an investment proposal.
59
Three methods of financial investment appraisal
-payback -average rate of return -net present
60
What is payback?
The length of time taken needed to recover the initial investment.
61
payback formula
payback = number of full years + (the amount of cost left / the revenue generated in the next year)
62
What is average rate of return?
The average annual return of an investment as a percentage of initial outlay.
63
Average annual return formula
average annual return = net return / life expectancy
64
Average rate of return formula
average rate of return = average annual return / initial outlay x 100
65
What is net present value?
The current value of future income from an investment. Takes into account the timings of cash flows by using a technique called discounting. it converts future cash flows into their present values so shows what cash flows received in future years would be worth today.
66
Factors influencing investment decisions
-the economy -competitive environment -industrial relations corporate image and objectives -logistics
67
What is sensitivity analysis?
An analytical tool (a what if tool) that can be used to address the problem of uncertainty in a number of situations in business, including investment appraisal. This is achieved by examining the impact of a change in a variable using the payback, average rate of return or net present value method.
68
Examples of sensitivity analysis
-what if revenues achieved were lower than expected? this would result in reduced net cash flow and a longer payback period, a lower average rate of return and a lower net present value -the impact of other variables can also be examined e.g using higher or lower discount factor in a net present value calculation

Business A-level (12 decks)

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