What is business? 1.3.1


External Environment/Competition

Costs: value (to be) paid for acquisition of goods & services by businesses

Demand: amount customers willing to buy at set price at any point in time

Competition: n & relative power of firms trading in same/similar markets

Many competitors= inc selling power of supplier, range of firms to buy goods/services, inc cost

Competition= (EFFECT ON COST) attract new suppliers into market inc availability & dec costs, (EFFECT ON DEMAND) encourage firms compete on price lowering prices & inc demand in market. E.g. n of firms competing see spread in demand, dec market share of each firm if market size remains unchanged

  • Market Conditions: Defining characteristics of market e.g. level of sales, trends & degree of competition, (EOC) will affect demand for supplies & costs. If market in decline, lowered costs to maintain sales. High LvL demand= short supply allowing suppliers to inc costs. (EOD) LvL of demand= indicator of market conditions, market growing= demand inc, buoyant market conditions= signal for new businesses to enter market to further inc in demand
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Rising =(EOC) higher wages, cost to business due to gov inc national minimum wage

Incomes: earnings of consumers will directly influence spending power, incomes rising leads to rise in demand= consumers have higher incomes

Interest rates: cost of borrowing/reward for saving, (EOC) rates will affect cost of borrowing, if inc so does interest section of repayments on bank loans/overdrafts, inc fixed costs of business, suppliers try to pass own higher costs in form of higher prices inc costs (EOD) IR inc= encourages consumers to save/not spend, fall= opp effect. High IRs lead to fall in demand, esp items spent on credit & luxury goods where consumers use savings to purchase.

Demographic Factors: statistical characteristics of population (EOC) rising net migration= inc workforce size in UK, dec avg wage costs & costs of production

Changes in Migration: size,age of population had inc costs to public sector e.g. health care & education (EOD) migration= inc in demand for wide range of goods/services e.g. housing, public transport & healthcare, also infl types of products demanded e.g. different demands from ageing population, diverse nation

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Environmental Issues & Fair Trade

  • variety of factors that impact on the environ due to operations of businesses e.g. pollution
  • (EOC) F.T may inc costs as business makes commitment to pay suppliers fair price, inc cost of raw materials, concern for environmental issues may inc costs of prod in terms of safe disposal of waste/upgrading of equipment to dec emissions, concern for environmental issues may also lower costs in terms of lower energy usage/avoidance of fines
  • (EOD) Businesses use environmental issues & fair trade as USP (unique selling proposition) or a recognisable feature of a brand leading to an inc in demand, inc costs are passed onto consumer in form of higher costs may lead to a fall in demand
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