Economic influences, Legislation, Competitive environment (2.5.1/2.5.2/2.5.3)

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What is inflation?
The increase in general prices in an economy.
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How is inflation measured?
Using the consumer price index (CPI), which considers the average consumers shopping basket of goods and services.
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How does an inflated economy benefit a business?
Helps borrowing as long as the available interest rate is less than that of inflation. Raises the value of property and stock. Allows businesses to increase their prices.
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How does an inflated economy bring negatives to a business?
Customers may be resentful of increased prices. Consumers can be price sensitive. Cash flow is difficult to come by. Suppliers will increase prices. Workers may demand more. Country becomes less competitive. Forecasting becomes difficult.
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What is likely that will happen if a good is price elastic?
It is likely consumer spending will decrease.
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What are exchange rates?
These show the price of one country's currency compared to another.
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What does appreciation describe?
This describes the increase in value of a currency (against another)
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What does depreciation tel us?
The opposite to appreciation.
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What does appreciation create?
A strong currency
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How can this help businesses?
Increase the price at which businesses sell their products abroad. Decrease the price of imports.
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What are interest rates?
These are the costs of borrowing and rewards for lending. Businesses will generally only make an investment if they see that the return will be greater than the interest rates they would have to pay.
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If interest rates fall, how may this affect businesses?
Less savings - less saving when interest rates are low and so they spend money with businesses. Credit-Cost of buying goods on credit decreases so consumers can buy more. Loans/Mortgage- rates decrease, gives consumers more money to spend. Fewer cost
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What if a business has a product that is very elastic?
It would not be affected as much as a firm whose product is extremely price elastic.
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What two forms does tax come in?
Direct and indirect tax
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What is direct tax?
It is directly felt by the business, such as corporation tax.
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What is indirect tax?
Covers such taxations as VAT and excise duty for alcohol, petrol and cigarettes.
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How can tax affect businesses?
VAT increases/decreases price of goods, which increases/decreases demand which affects production. High corporation tax can scare off new start ups, low c tax would encourage entrepreneurs. Excise duty can either help or hinder a business.
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How can government spending help?
Can create jobs. Lead to higher spending on other businesses. Suppliers will receive more. Encourage competition.
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How can a decrease in government spending not help businesses?
Productivity would decrease, leading to less competition. Higher rates of unemployment. Decrease in investment from businesses as there is less incentive.
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What is the business cycle?
This shows the ups and downs of an economy by following the growth of GDP.
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What are the 4 elements to a business cycle?
The four main elements to any business cycle are boom, recession, slump and recovery.
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How does the cycle affect businesses?
Depending on the income elasticity of demand for their particular products/services.
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What is macroeconomics?
Factors affecting businesses that are beyond their control.
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What is microeconomics?
Factors affecting businesses that are within their control.
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What is a contingency plan?
They set out what do in an emergency.
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What is legislation?
Something all companies have to deal with. Laws put in place to ensure businesses act safely and responsibly without taking advantage of their employees or the general public.
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What is consumer protection?
Overseen by the Office of Fair Trading. Prevents the exploitation of customers and the production of unsafe goods/services.
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What is an example of one of these pieces of legislation?
Consumer Credit Act 1974.
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What is the effect for businesses from consumer protection legislation?
Increase costs of production. Reduce waste. Improved quality of products.
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What is employee protection?
This ensures employees and employers deal fairly with one another. Also addresses labour laws for collective bargaining and industrial action.
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What is an example piece of legislation regarding employee protection?
Disability Discrimination Act of 1995.
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How might this effect businesses?
Decrease industrial action. Costs to businesses comply with legislation. Equal opportunities. Motivation increases.
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What is environmental protection?
The prevention of pollution and environmental destruction caused by business practices.
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What is an example piece of environmental protection legislation?
Climate Change Act of 1995.
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How might this effect businesses?
Costs of complying with the legislation. Reduction of any potential environmental damage. Less potential for wasteful practices which can save the business money. Positive branding for any business that significantly reduces its harmful emissions.
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What is competition policy?
Regulation to ensure businesses are competing fairly in the market place. It works to prevent such things as monopolies and cartels.
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What is an example piece of competition policy legislation?
Fair Trading Act of 1973.
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What are some effects for businesses following this act?
Lowering prices in order to compete. Improve quality. Fairer competition. Easier market entry. Punishment for breakage of rules.
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What is Health and Safety in terms of regulation?
Ensures businesses provide safe working environments for their employees.
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What is an example piece of health and safety legislation?
Health and Safety at Work Act of 1974.
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What are the possible effects for businesses following the health and safety act?
Costs from complying with the legislation. Enhanced company brand. Increased employee motivation.
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What is competition?
When two or more business go after the same consumers, they are said to be in competition.
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What are the two ways in which this can happen?
Direct, two barber shops working in the same street. Indirect, movie streaming service vs a high street cinema.
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How can competition bring negative effects?
Companies may end up sacrificing quality in order to meet expectations. Some businesses will fail, leading to unemployment and harm the local economy.
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In what ways can the competitive environment affect businesses?
Market size. Market price. Market expectations.
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Other cards in this set

Card 2

Front

How is inflation measured?

Back

Using the consumer price index (CPI), which considers the average consumers shopping basket of goods and services.

Card 3

Front

How does an inflated economy benefit a business?

Back

Preview of the front of card 3

Card 4

Front

How does an inflated economy bring negatives to a business?

Back

Preview of the front of card 4

Card 5

Front

What is likely that will happen if a good is price elastic?

Back

Preview of the front of card 5
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