Business and Economics Unit 5 revision (edexcel)

Based on the purple covered revision guide

What is an externality?
An effect on a third party
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Examples of positive externalities
Job creation, site development, training/education, research/development and new technology
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Examples of negative externalities
Traffic congestion,pollution (water, noise, air),overcrowding, use of resources
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What are stakeholders/stakeholder groups?
Individuals or groups with an interest in the performance of a business
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What is stakeholder conflict?
Conflict that occurs between different stakeholder groups when their interests collide
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What is profit (4)?
Measure of success, reward for owners, reward for risk/enterprise, total revenue-total costs
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What is market share?
The quantity sold by a business as a percentage of the whole market's sales
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What 6 things might a CSR report look at?
How well workers are treated, levels of emissions and waste, use of recycled materials, use of energy saving devices, work related accident rate and a firms ethical stance
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What does CSR stand for?
Corporate social responsibility
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What is competitiveness?
The strength of a firms position in the market, measured by market share and profitability. It reflects whether consumers are prepared to use the business over its rivals
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What is competitive advantage?
An advantage that firms have over competitors, they help to win customers. Must be difficult to copy and unique
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Pricing errors in the marketing mix
Too low or too high
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Product errors in the marketing mix
Poor quality or doesn't meet customer needs
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Promotion errors in the marketing mix
Wrong media or wrong target audience
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Place errors in the marketing mix
Poor delivery record or not available online
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What are the 4 causes of poor productivity?
Inadequately trained or de-motivated workers, bad management, out of date machinery and a lack of flexibility
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What are the 5 causes of cash flow problems?
Unexpected fall in demand, allowing too much trade credit, seasonal demand, poor cash management and unexpected expenditure/bad debts
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What are the 4 things that can decrease product demand?
A fall in income, a change in tastes or fashion, lack of advertising and increased competition
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What are the 4 things that prompt changes in demand?
The level of economic activity (eg recession), interest rates, consumer confidence and foreign demand (weaker pound stronger foreign demand)
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What are the 4 effects of inflation?
Cost of living increase/standard of living decrease, a fall in business profits, increased uncertainty. a fall in confidence
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How does rising demand cause inflation?
Demand rising faster than supply (costs can go up); can be caused by lower interest rates, rising wages or improved consumer confidence
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How do rising costs cause inflation?
Business expenses increase then prices are raised to protect profit
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What is unemployment?
Unemployment exits when people who want to find work cannot do so
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Effects of unemployment to individuals
Lower incomes, falling living standards, loss of self-esteem, stress/depression, family tensions, difficulties (eg divorce), loss of skills and health problems
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Effects of unemployment to society
Less tax revenue/spending, need to cut prices, higher benefits, lower output, increased crime, less social interaction, falling behavior standards and less enterprise
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What is an external shock?
An event which is beyond government control which usually damages the economy
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5 examples of external shocks
Exchange rate fluctuation, commodity price increase (eg oil), world politics (eg war), global recession and international disasters
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What is an internal shock?
An unexpected change in demand caused by events within a country
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4 examples of internal shocks
National banking crisis, freak weather conditions (local), national strike and a property price increase
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What 3 things cause the exchange rate to change?
The demand for imports, the demand for exports and interest rates
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What's the effect of a stronger pound on a UK exporter?
Exports dearer, demand for exports falls, revenue/profit falls
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What's the effect of a stronger pound on a UK importer?
Imports cheaper, costs fall, profits rise
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What's the effect of a weaker pound on a UK exporter?
Exports cheaper, demand for exports rises, revenue/profits rise
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What's the effect of a weaker pound on a UK importer?
Imports dearer, costs rise, profit falls
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What 2 'tools' does the government use to influence the level of economic activity?
Monetary policy and fiscal policy
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What is monetary policy?
Using changes in interest rates to influence economic activity
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What is fiscal policy?
Using taxation and government spending to achieve government objectives
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What is the interest rate(5)?
The price paid for borrowing money, the reward for savers, affects purchasing of consumer durables and housing, affects business purchases of equipment/tools/machinery and is set by the bank of england
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What are 4 effects of high interest rates?
Mortgage payments increase, fewer loans for consumer goods, people save more instead of spending, firms cut investment funded by borrowing
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What 3 things is taxation used to achieve?
Raise revenue to fund government spending, regulate economic demand and change behaviour
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What 3 things is government spending used to achieve?
Provide essential public services, regulate economic demand and resolve social issues (eg child poverty)
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How does monetary policy help to reduce inflation?
High interest rates reduce demand for loans as there is more money to pay back. With fewer loans, economic demand falls leading to less pressure on prices
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How does fiscal policy help to reduce inflation?
To relieve pressure on prices the government could reduce demand by cutting its own spending or raising taxes. Higher income taxes will reduce consumer demand
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How does increasing demand reduce unemployment?
Businesses need to produce more to meet the increased demand, to produce more they will need more workers
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Name 3 ways the government can increase demand?
Lowering interest rates, lowering taxes and increasing government spending
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5 examples of government fiscal policy?
Benefits given to poor families to reduce child poverty, payments to pensioners in winter to reduce heating costs, taxes on cigarettes to discourage smoking, taxes on drivers in London to avoid congestion, taxes on alcohol to reduce binge drinking
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How effective are taxes at changing habits?
Taxes designed to change habits may or may not work. Congestion still exists in London however the number of smokers has fallen in recent years
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Define internal growth?
A business sells more output over a period of time
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What 3 things does business growth do?
Help increase market share, lead to lower costs and result in more profit
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3 methods of internal growth?
Changing the marketing mix, innovation and R&D
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What are the 2 types of external growth?
Merger and takeover
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What's a merger?
2 or more firms agree to join up, voluntary with unchanging identities
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What's a takeover?
1 business buys another, necessary to take control by buying shares
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4 methods of external growth?
conglomerate, horizontal, forward vertical and backward vertical
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What's a conglomerate merger?
Firms with no common business interest join
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What's a forward vertical merger?
Firm joins with one at a later stage (eg a customer)
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What's a backward vertical merger?
Firm joins with one at a previous stage (eg a supplier)
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What's a horizontal merger?
Firms at the same stage join
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What are the 5 reasons for growth?
Survival, higher returns, lower costs, market power and spread risk
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3 drawbacks to growth?
Inflexibility (can't adapt to change), higher costs and loss of focus
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2 causes of diseconomies of scale?
Poor co-ordination (difficult to manage) and poor communication (global)
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What's a monopolist?
A firm that supplies a large part of the market
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What's monopoly power?
Having some control or influence over the market
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What's a pure monopoly?
A monopolist can control 100% of the market
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What's a natural monopoly?
Costs are lower with a large business
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4 good reasons for monopolies?
Value for money (economies of scale), new product development (more resources), natural monopolies and higher shareholder returns
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4 bad reasons for monopolies?
Higher prices (insensitivity), restricted choice, restricted entry and excessive profits
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What 5 things to competition authorities ensure?
Competition is fair in markets, businesses act in public interest, firms avoid anti-competitive behaviour, prices are not too high and the quality of goods are up to standard
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What are the 4 competition authorities?
Competition commission, office of fair trading, specialist regulators (eg ofwat) and EU competition commission
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What's self regulation?
An industry monitors its own actions to ensure they're in the public interest
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What's a pressure group?
A group that aims to influence the decisions of businesses, governments and individuals
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What 4 tactics would a pressure group use?
boycotts, protests, marching and advertising
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what 2 things does the success of a pressure group depend on?
Public support and funds
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What's economic growth?
The amount of goods and services produced increases
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What's uses to record growth?
The percentage change in GDP
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4 things the government can do to help growth?
Encourage investment in physical capital by lowering interest rates/tax/offering grants, improve infrastructure, invest in education to improve human capital and encourage more consumption by lowering interest rates/taxes
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What causes growth?
Human capital (training), physical capital (machines) leading to better use of resources leading to higher output
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What's the standard of living?
The amount of goods and services a person can buy with their income within a year
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What's the main method of measuring standard of living?
GDP per capita (person)
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Why is GDP per capital not always good for measuring the standard of living?
Small population can give an inaccurate picture, GDP is average and assumes equal earnings and GDP may be understated because not all output may be counted
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What are 3 other ways of measuring standard of living?
Infant mortality rates, life expectancy rates and literacy rates
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What's quality of life?
An Individuals overall well being
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3 drawbacks of economic growth?
Negative externalities, stress/health problems and rise in prices
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Define sustainable growth?
Increase in GDP with no negative externalities which involves use of renewable resources
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2 benefits of use of renewable resources to businesses?
Lower costs and improved image
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2 benefits of use of renewable resources to the wider economy?
Less pollution and safeguards resources for future generations
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Drawback of use of renewable energy resources to businesses?
High set up costs
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2 drawbacks of use of renewable resources to the wider economy?
Higher costs and other environmental issues (ugly wind farms)
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4 things a business might do to behave more responsibly?
Meet the needs of many stakeholder groups, use ethical codes of practice (refusing to deal with a firm that sells guns), CSR audits (assessing impact) and use renewable resources
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What are 4 reasons why a business may behave responsibly?
Avoid breaking the law, respond to media/public pressure, attract ethical investors and improve image to raise sales
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What does air legislation control?
emissions, dark smoke and other airborne pollutants
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What does water legislation do?
Control water quality and conserve water resources
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What does waste legislation control?
The disposal, generation and transportation of waste
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What's regulation?
A 'softer' approach to controlling businesses by setting rules, guidelines and codes (eg to reduce pollution)
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What are 2 effects of government measures on businesses?
Higher prices (because of higher costs) and differentiated products (eg environmentally friendly)
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What's absolute poverty?
When people are unable to afford the basics of life (eg food, clothes, shelter)
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What's relative poverty?
When people cannot afford the 'normal' goods and services within a country
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What's the poverty line?
An extent to which people in a country live in poverty
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What are the 7 signs of poverty?
Very low GDP per capita, a lack of the basics of life, poor health, poor infrastructure, high population growth, low literacy levels and low life expectancy
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What are 3 ways that poverty can be reduced?
Child benefits, working tax credits and free healthcare/education
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What's international trade?
The exchange of goods and services between countries
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What are the 7 benefits of international trade?
More consumer choice, LEDC's are provided with income, resource rich countries can sell products, nations can take advantage of cheap production, nations can obtain un-producable goods, LEDC's can specialize in goods and living standards are higher
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What are 4 costs of trading with LEDCs?
Increased competition which drives down prices, higher unemployment, lower tax receipts for government and the loss of important industries in the long term
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How has the single european market helped raise the standard of living for members?
Providing more choice/faster growth, exploiting economies of scale and encouraging foreign investment/co-operation
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What's the restriction of trade called?
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What are 4 ways to restrict trade?
Tariffs, quotas, non-tariff barriers and subsidies
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What are tariffs?
Taxes on imports
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What are non-tariff barriers?
Imposing quality or safety standards
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What are subsidies?
Money given to help domestic producers
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What are quotas?
Physical limits on imports
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What are 4 reasons for restricting trade?
Protect jobs in domestic industries, protect infant industries, prevent entry of poor quality goods and raising revenue from beneifts
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What's an MNC?
A multinational corporation is a large company with operating facilities and markets around the world
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5 benefits of multinational corporations to LEDCs?
Tax revenues for the government, employment opportunities, increase in GDP per capita, increase in exports and development of infrastructure
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5 drawbacks of multinational corporations to LEDCs?
MNC's may pay low wages, may encourage over-specialisation, profit may not stay in the LEDC, environmental damage and tax revenues may be minimal
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What's the 'cause' of LEDCs?
Loan repayments+interest repayments leading to high opportunity cost (schools, hospitals)
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5 ways may the government help LEDCs?
Financial aid, encouraging investment to increase productivity, limiting population growth (less resource use), reduce reliance on a single industry (diversification) and encouraging free trade
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What's an NGO?
Non-governmental organisation
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4 examples of NGOs which help LEDCs?
World bank (aims to reduce poverty by lending money for projects), world trade organisation (promotes free trade and settles trading disputes), fairtrade foundation (raise farmers income in LEDCs) and charities (eg oxfam)
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Other cards in this set

Card 2


Examples of positive externalities


Job creation, site development, training/education, research/development and new technology

Card 3


Examples of negative externalities


Preview of the front of card 3

Card 4


What are stakeholders/stakeholder groups?


Preview of the front of card 4

Card 5


What is stakeholder conflict?


Preview of the front of card 5
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