Economic cycle- Affect on businesses

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The Boom Period

  • Sales of income elastic goods will increase significantly
  • Sales of normal goods will rise
  • Unemployment is low, so consumers have more income to spend and feel more confident about the future
  • Output of normal goods will rise and investment wll be increased
  • Many new business start- ups and existing ones expand
  • Sales of inferior goods will fall as consumers substitute normal goods in their place
  • Output of inferior goods will fall
  • Prices may rise as demand exceeds supply
  • Costs may rise as some resources become scarce; this may also increase prices
  • Inflation can cause problems for a business
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The Downturn Period

  • Sales of income elastic goods will fall
  • Sales of other goods begin to slow
  • Unemployment begins to rise and consumers feel less confident, they may reduce spending
  • Investment slows as expectations of growth diminish
  • Output slows and may fall
  • Increases in prices and costs begin to slow and they may begin to fall
  • Inflations may ease
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The Recession Period

  • Sales of income elastic goods will fall significantly
  • Sales of normal goods will fall
  • Unemployment is high, consumers have less income to spens and feel more uncertain about the future
  • Output of normal goods will fall and investment falls
  • Many businesses will fail and existing ones will cut back output
  • Sales of inferior goods will increase as consumers but fewer normal goods and replace them with inferior goods
  • Output of inferior goods will rise
  • Prices may fall as supply exceeds demand
  • Costs may fall as some resources become more plentiful, this may aso reduce costs
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The Recovery Period

  • Sales of income elastic goods begin to recover
  • Sales of other goods begin to rise
  • Consumers begin to feel that the worst is over, unemployment begins to fall and they spend more
  • Investment begins to increase as confidence returns
  • Output begins to rise
  • There may be early signs of inflation as economic growth returns
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