Understanding how businesses operate in external environments

Effect on costs: 

Competition may create new suppliers, increasing availability and therefore lower costs. 

Effect on demand:

More competition means it is harder to employ people and harder to gain sales. 

Effect on cost:

Affect demand on suppliers and therefore directly impact on costs. 

High level of demand means suppliers are limited which means suppliers can increase costs.

Effect on demand:

Growing demand will be increasing

New businesses to enter market in anticipation

Effect on costs:

Result of higher wages- cost to a business

Government increasing National Minimum Wage

Increased costs lead to a fall in profits for businesses

Effect on demand:

Consumers spending power changes 

If incomes rise, demands rise as consumers have discretionary incomes.

Effect on costs:

Interest rates will affect costs of borrowing. 

If interest rates go up, so will the interest section of repayments on bank loans or overdrafts.

This increases fixed costs. 

Effect on demand:

Encourages customers to save and discourages spending. A fall in interest rates will have the opposite effect. 

High interest rates lead to a fall in demand.

Effect on costs:

Rising net (overall total) migration has increased the size of the workforce in the UK. Dragged average wage cost down lowering the costs of production. Changes in UK demographics including migration, age and size of the population has increased costs to the public sector such as the NHS, Schools and the police. 

Effect on demand:

Migration has caused an increase in demand for goods and services such as healthcare, housing and public transport for example. Changing taste of a more diverse nation and different demands from an ageing population. 

Impact on costs:

Fair trade increases costs to a business as they make a commitment to pay suppliers a fair price.

Safe disposal of waste of improving equipment to improve waste.

Concerns for environmental issues may also lower costs in terms of lower energy usage. 

Impact on demand:

Businesses can use environmental factors and fair trade as a USP or recognise feature of a brand to increase demand. If increased costs are passed on to the customer, demand may still fall.