Economic Factors Affecting the Business Environment

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  • Created by: Kathryn
  • Created on: 17-03-14 14:37
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  • Economic Factors Affecting the Business Environment
    • Recession
      • Falling levels of demand, business confidence, profit and investment. Costs reduced with price and full capacity
    • Boom
      • Periods characterised by high levels of demand, confidence profits and investments. Leads to rising costs, increased prices and full capacity.
    • Income Elasticity
      • If demand for a product changes proportionally MORE than changes in income - elastic
        • Luxury goods are positve income elastic (demand increases as income rises)
        • Inferior goods, heagtiv income ilastic (demand falls as income rises)
    • Circular Flow of Income
      • Illustrates the relationship between main ports of macroeconomy  - producers, consumers, other countries, government
    • Slump
      • Low level of consumer demand, increase in busines failure and unemployement
    • Recovery
      • Consumers increase spending, people start to invest again and build stocks, but it takes time for business to stop growing
    • Inflation [general rise in the price level over a period of time]
      • Options open to a business -Reduce prices - Pay higher wages -More attractive for other coutrys to buy as its cheaper          -reduce wages
    • Unemployment
      • Structial, cyclical, frictional, seasonal
        • High Unemployment - Low GDP         -Spending down           -Welfare spending higher           -fall in labour turnover        -Low inflation
        • Low unemployment                 - High GDP             -Spending up -monetary and non-monetaty rewards         -high inflation


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