Business economics U2

Social responsibility

The obligation of an organisations management towards the welfare and interests of the society in which it operates

Defensible

Difficult to copy

Examples of internal shock

Housing market and poor weather conditions

Total revenue

Quantity x price per unit

Demand pull

A rise in the level of demand especially when supply can't keep up.

What are the problems of prices rising quickly

1) creates uncertainty for businesses 2) it becomes difficult for businesses to know how much they need to pay their suppliers, what competitors will charge and how customer demand may change 3) it leads to a lack of confidence in the economy

Why is the exchange rate important?

1) Businesses must exchange their currency to pay their suppliers. 2) it can effect foreign buyers and amount they pay 3) it determines how much money holiday makers can get and how much they want to spend 4) influence the amount of exports and imports

What of the causes of inflation?

1) Different expectations of consumers and businesses 2) cost push inflation 3) demand pull

What are the 3 stages of fiscal policy?

1)Individuals and businesses pay their taxes 2)This raises tax revenue for the government 3) This leads to government spending.

How are skills effected in unemployment

A loss of skills may become a cycle of employment because it would make them hard to find a future job

What does high productivity mean for a business?

A business can charge lower prices for each product or increase its profit margins

How does changing market conditions course of business to fail?

A change in law effecting working conditions and if a machine breaks down

Cost of living

A measure of the average cost of basic necessities such as good housing andclothing

Consumer confidence

A measure of the extent to which consumes are prepared to spend money

What causes demand pull?

A rise in wage levels or a rise in costumer confidence

Income tax

A tax on a limited liability company's profits. A rise in this tax means companies keep less of their profits.

Inflation

An increase in the general price level. This is measured by consumer price index

Internal shock

An un anticipated change in demand or inflation caused by factors within the country

External shock

An unanticipated change in demand or inflation caused by factors beyond the control of the country

Unemployment

Being away from unpaid work

How can success be measured?

Brand awareness, brand image, quality, advertisment, profit, revenue, reputation, competitive advantage, market share and corporate social responsibilty (CSR)

How does the government spending lead to economic growth through investment in businesses?

Businesses may receive money for training staff or taking on new staff. This will lead to more people being employed or earning a higher wage and will increase the amount of spending.

Ethical responsibilitys

Businesses should not just follow legal actions but should also conform to what people believe is the right thing to do

How does Government Spending lead to economic activity through education?

By students having a more educated background they will learn better skills and are therefore more likely to be employed. This leads to them receiving an income and spending this.

What are the two types of Cash flow?

Cash inflow and cash outflow

What causes the exchange rate to change?

Changes in demand and supply for 1) tourists travelling abroad 2) businesses trading with other countries 3) investors investing abroad 4) other countries

What measures unemployment?

Claimant count method and labour force survey. If they rise, they'll be less income and less sales

How do you work out inflation

Consumer price index

Changes in demand

Consumers desire and willingness to pay a price

Examples of social responsibilitys

Contributing to education and social programmes

How does the state of the economy cause a business to fail?

Customer confidence levels, minimum wage is decreased so less people will spend, the Bank increases the interest on loan repayments and unemployment rises

Why is facing large competition cause business fail?

Customers will have alternatives, often better quality and cheaper

How are Family break ups effected in unemployment?

Divorce rates increase at times of unemployment

What does the Government spend their money on?

Education, medication, public transport, public services eg library, housing and environment, public safety, culture, foreign aid, social services

What can a business use its profits for?

Employment, expansion, advertising and develop a product

Why do businesses need money?

Expansion, start up or new machinery/equipment

How can someone end up unemployed?

Fired, can't find a job, too ill or had to leave

What are the UKs objectives?

Full employment (measured by unemployment levels), Price stability (inflation), A high, but sustainable, rate of economic growth (change in real GDP) and Keeping Balance of Payments in equilibrium (imports = exports)

Import

Goods and services which are bought from other countries and which lead to money going out of the UK

Export

Goods and services which are sold to other countries and which lead payments in the uk

What are crown taxes?

PAYE and VAT

Problems of inflation

Higher prices so less sales causing the economy to suffer, wage price spiral, people on fixed income will struggle, costs for business will increase so they may cut down on production and people may start to import goods from abroad causing major problems for the UK economy

Why would individuals need money?

House, holidays and quick short term cash overdraft)

How does interest rates affect change in demand?

If interest rates are high there will be a rise in the cost of borrowing so there will be lower sales lower demands more supplies and lower price. Not many people will be buying big ticket items so there will be less economic activity. There will be a decrease in house sales because of the rising mortgage

How does the government spending lead to economic activity growth through housing?

If the Government spends money on housing and helping people onto the property ladder, this will encourage them to spend money on household goods and furniture.

How can cash flow lead to a recession?

If the cash outflow is bigger than the cash inflow

How does consumer confidence affect change in demands?

If the economy is doing well there would be an increase in demand so high economic activity but if the Economist doing bad there will be a decrease in economic activity

Taxation

Levying of tax

What effects demand?

Increase in money and increase in government and private expenditure cause an increase and lower income causes a decrease

What do the Bank of England do if they notice that the economy is growing to fast?

Increase the interest rates to slow down the level of economic activity

What are reasons for change in demand?

Increases in price (inflation), fall in income levels, changing tastes bad preferences, competition, it depends on price sensitivity, changes in fashion, state of the economy,a successful advertising campaign, seasonal reasons and when demand for a product falls, the business receives less sale which can lead too insolvency, demand by foreign consumers and the level of economic activity

What is the effect of demand pull?

Individuals and business experience a feel good factor so they want to buy more goods and services but there's only so many goods and services available.

When does inflation occur?

Inflation occurs when the basket of goods costs more than it did in the previous time

What economic problems do the economy face?

Inflation, number of migrants, high exchange rates, unemployment and economic growth

The economic cycle

It has the boom, peak, downturn, recession/slump and recovery with the labels time and rate of growth (%)

How will raising interest rates reduce demand pressures?

It will lower disposable income and discourage borrowing and demand

Why will there be fewer loans with high interest rates?

Loan repayments will be greats so people will be unwilling to pay big ticket items

How will increased business investment be effected by low interest rates?

Loans are cheaper so they will more likely get an expansion

How will there be an increase in loans from low interest rates?

Loans become cheaper so more people will get them buying more big ticket items

What is the costs to an individual of unemployment?

Loosing skills, loss of self esteem(depressed and worthless), lower level of income( lower standard of living), family break ups

Why might businesses have a high market share?

Lower prices (increasing customers), expanded business and more competition

What is the effect of high interest rates?

Lower spending by individuals, fewer loans, less business investment and savings

Examples of ethical responsibilitys

Make sure workers are paid over minimum wage with good working conditions and no animal testing on hair products

How will savings be effected by low interest rates?

Many people may spend there money because they won't be getting a decent amount of interest

Commoditys

Marketable item

Tax revenue

Money received by the government from people and businesses paying their taxes

What is the effect of low interest rates?

More spending by indivials, increase in loans, increased business investment and savings

How will there be more spending by individuals by low interest rates?

Morgage payments will decrease so people will have more disposable income

Why will there be lower spending by individuals with high interest rates?

Mortgage payments will increase so households will have a lower disposable income

Who in the economy is set on a fixed wage?

Pensioners and students

What do lower interest rates mean?

People can borrow more money for cheaper but savers will not gain as much money. This incourages spending and increases demand. This will make the economy grow leading to inflation of the increase of prices

What would happen if inflation caused prices to increase by 5%?

People can buy 5% fewer goods. Therefore inflation leads to a fall in the buying power of money

How does increased competition course of business to fail?

People will leave and find better alternatives

5 examples of what the government spend their money on

Public services (educations), reduce inequality (unemployment rates), public goods (fire, police) , transport (bus) and debt interest payments

If inflation is caused by high demand then how can you reduce demand pressures?

Raise interest rates and raise taxes

What factors may effect the competitiveness of a business?

Price, quality, unique selling point, costs of production, design, efficiency and skills of staff

social problems

Problems in society such as •Crime •Smoking •Anti-social behaviour •Child poverty •Binge drinking •Drugs •Teenage pregnancies •Divorce

Profit margins

Profit/ total sales. This is more accurate because it gives it in a percentage.

Market share

Proportion of total sales that one firm accounts for in the markets. You work this out by quantity sold by a business / total sales of a product x 100

What is the effect of cost push?

Raw materials increase, costs of business increase and they still want to make a profit, so they increase its price. Consumers can now buy less with their money and workers demand a pay rise. Business costs increase so prices increase again

How will raising taxes reduce demand pressures?

Reduce disposable income and spending

Examples of environmental responsibilitys

Reduction of waste and pollution, recycle and use waste

How does changes in demand cause the business to fail?

Refusing to use the Internet to trade goods, change in customer preference and a product goes out of fashion

What is the difference between profit and revenue?

Revenue is the number of sales and profits take into account total costs

cost push inflation

Rise in the cost of production for businesses can be passed on to the consumer with high prices

What causes cost push inflation?

Rise in wages, more expensive raw materials, rise in process paid for imported goods

Examples of external shock

Rising in oil prices or falling exchange rate and change in commodity prices

How does productivity issues cause the business to fail?

Staff aren't good and get fired

How does cash flow problems cause a business to fail?

Storing too much dark, paying suppliers too often, increase in price of materials, allowing customers to long to pay for goods and failing to pay at their deadlines, Unions call for an increase in wages, failure to pay crown taxes, average costs increase due to an increase in steel costs and fraud

SPICED

Strong pound imports cheaper exports dearer

What is the costs to a society of unemployment?

Taxes, benefits, impact on other businesses(people spend less) and crime(people will be tempted to turn to this to get stuff)

Level of economic activity

The amount of buying and selling that goes on over a period of time

Level of demand

The amount of spending that takes place in the economy. This spending can be businesses, individuals or the governments

What happens if the productivity is high?

The average cost of producing each unit of out put will be lower.

Interest rate

The cost of borrowing money or the returns received on savings

What do higher interest rates mean?

The cost of borrowing will be higher so less people will borrow money and buy big ticket items so there will be reduction is economic activity then firms reduce prices to encourage spending then there's inflation

Environmental responsibilitys

The duty that the company has to operate in a way that protects and causes little harm in the environments

How are benefits affected in unemployment

The government are giving more out so they may have to increase taxes or borrow more money

How are taxes affected in unemployment

The government will recieve less tax revenue reducing money spend on education and infrastructure

Productivity

The measure of the output per worker or machine per period of time

Cash inflow

The money coming in to a business over a period of time

Cash outflow

The money going out of a business over a period of time

Recession/slump

The point where it is at its lowest so there's very little confidence and jobs so businesses are laying workers off to reduce there outflow

Downturn

The point where it starts to falk

Recovery

The point where the economy is getting back on track

The wage price spiral

The rate of inflation is increasing so people expect prices will continue to rise then people demand higher wages to maintain the standard of living so then how are you wages costs being firms have to increase their prices to maintain profit levels and this cycle starts again

Value added tax

The tax employees of a businesses pay on their wages. It results in less money to spend in the shops.

GDP

The total value of output produced in an economy in a year

Monetary policy

The use of changes in interest rates to control interest rates which is controlled by the Bank of England

Exchange rate

The value of one currency in terms of another for example £1.00 in the value of a different currency so it could be $1.50

What is the trade off for inflation?

There must be enough economic growth to keep unemployment low but lot too much growth that it leads to high inflation. The trade of would be unemployment

Corporation tax

These contributions are payments made by both the employee and the employer. They pay for the cost of a state pension and the National Health Service. An increase in this tax raises a company's costs.

If the pound strengthens what does this mean?

They can now aquire more foreign currency for the same amount. The number of imports to the UK will increase because they will be cheaper. The exports will be too expensive for foreign country's do there will be less exports so the UK will be loosing money

How does demand pull effect suppliers?

They experience so much demand for their limited number of goods so they increase their prices

How will savings be effected with high interest rates?

They will be more money being saved because they will get high interests so it may reduce spending in the economy

Corporate social responsibility (CSR)

This includes the three factors of ethical responsibility, environmental responsibility and social responsibility

Competitive advantage

This is the term that helps a business be more successful than its rivals so it has to be defensible and distinctive

Boom

This is when it's at its best. Unemployment will be low because businesses are willing to take in more staff because they have money. And we need lots of supply to match the demand

Consumer price index

This measures the rate of inflation and is calculated by comparing the price of a typical basket of goods to the same basket of goods in another period of time.

National insurance contributions

This tax is paid on goods and services. A rise in this tax will increase prices.

How does the government spending lead to economic activity through health care?

This will improve living standards and increase employment in the health industry, thus leading to more spending being able to take place.

How do you work out the average cost of the cost of producing each unit of output?

Total costs / output

How do you work out profits?

Total revenue - total costs

What social problems do the economy face?

Under aged drinking, smoking, obesity, crime and graffiti

Peak

Underneath the boom

External shot

Unexpected adverse change to an economic variable. Rise in demand will cause inflation

Distinctive

Unique

Total costs

Variable costs x fixed costs

Debtors

When people owe you money

How does marketing mix problems cause the business to fail?

Wrong market research, no one knows about the product from lack of promotion, product doesn't meet needs, price too high, hard access and poor quality

How do you exchange from a foreign currency to a £

You divide

How do you work out consumer price index

You do the change in price divided by the original price times by 100

How do you exchange from a £ to a foreign currency

You multiply

WPIDEC

weak pound imports dearer exports cheaper

Fiscal policy

•The use of taxation and government spending to achieve government objectives