Flashcards · 0264 · Topic 6

External influences on business activity flashcards

30 cards on Topic 6, subtopics 6.1 to 6.5. Pick a subtopic or study them all.

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6.1 Economic issues

The four stages of the business cycle: Growth (output rising, unemployment falling), boom (output and spending at a peak), recession (output falling, unemployment rising), slump (output low for a long time, high unemployment).
Inflation, and its effects on a business: A general rise in prices over time, shown as a percentage a year. Effects: costs rise, margins fall unless prices rise, customers cut back or switch to cheaper brands, and planning is harder.
Tax on profit and tax on income: who pays and the effect: Tax on profit is paid by the business: a rise leaves less profit after tax to invest or pay owners. Tax on income is paid by individuals: a rise cuts disposable income and lowers demand, mainly for non-essentials.
Effects of a rise in interest rates on a business: Interest on existing loans costs more, new borrowing is dearer so projects may be dropped, and customers borrow and spend less while saving becomes more attractive.
A loan of $200,000. The interest rate rises from 5% to 7%. What is the change in annual interest?: 5%: $10,000. 7%: $14,000. Increase = $4,000, which is 40% more, from a rise of 2 percentage points.
Profit before tax is $150,000. The tax rate rises from 20% to 25%. How much less does the business keep?: At 20%: tax 30,000, profit after tax $120,000. At 25%: tax 37,500, profit after tax $112,500. It keeps $7,500 less.
Effect of a rise in government spending on businesses: More contracts for firms such as builders, more jobs and income, and so more demand for businesses nearby. A fall has the opposite effects.

6.2 Business and the international economy

Four reasons for globalisation: Improved transport links, technological change (including communication), free trade agreements, and newly industrialised countries offering new markets and low-cost production.
Import tariff and import quota: Tariff: a tax on imported goods; it raises the importer’s cost and gives the government revenue. Quota: a cap on how many units of a good may enter in a set time; it does not itself raise tax revenue.
A 25% tariff is placed on a part that costs 60 to import. What is the new cost per part?: 60 × 1.25 = 75
Multinational company (MNC), and its advantages to the business: A business with operations in more than one country. Advantages: larger markets, lower costs, avoiding tariffs and quotas by producing inside the country, economies of scale, spread risk.
Advantages and disadvantages of an MNC for the host country: For: jobs, exports, increased choice, investment. Against: competition for local firms, environmental damage, exploitation of natural resources, repatriation of profits (profits sent back to the MNC’s home country).
Home currency appreciates: effect on exporters and importers: Exporter: prices abroad rise, competitiveness falls, sales may fall. Importer: import prices and costs fall, margins may rise. Depreciation has the reverse effects.
External cost and external benefit: External cost: a cost of a business decision borne by other people or society (noise, pollution). External benefit: a benefit received by others (trained workers, better transport).

6.3 Business and the environment

Pollution and depletion of resources: Pollution adds harmful things to the environment; depletion uses up what is already there.
Renewable and non-renewable resources: A renewable resource can be replaced; a non-renewable one cannot.
Why might a business respond to environmental issues?: An improved reputation and increased sales, and also avoiding fines, bans and bad publicity, and lowering costs by using less energy, water or packaging.
Ways a business can respond to environmental issues: Recycle waste, cut packaging, use renewable or lower energy, fit filters or treatment plants, use sustainable suppliers, redesign the product or process, and replant or restore land.
A response or a legal control: the difference: A response is a choice by the business; a legal control is a rule it must follow.
Effects of environmental legal controls on a business: They affect how to produce (cleaner methods), what to produce or sell (banned or limited materials), where to produce or sell (limits on location), and costs, which usually rise.

6.4 Business and ethical issues

Ethical issue: A choice between doing what is right and doing what is cheapest or most profitable. An ethical business acts on principles of right and wrong even where the law does not force it to.
Four ethical issues named in the syllabus: Child labour, paying fair wages to employees, paying fair prices to suppliers, and using suppliers who do not damage the environment.
Advantages and disadvantages of acting ethically: For: better reputation and sales, loyal customers, motivated staff, easier recruitment, less risk of campaigns. Against: higher costs, higher prices may lose price-sensitive customers, lower short-run profit, cheaper unethical rivals.
Legal and ethical: the difference: The law is compulsory. Ethics goes beyond what the law demands.
A business buys 60 tonnes of flour a year. A fair-price deal lifts the price from $500 to $560 a tonne. What is the extra cost?: Old: 60 × 500 = $30,000. New: 60 × 560 = $33,600. Extra cost = $3,600, which is 12% more.

6.5 Pressure groups

Pressure group: An organised group that campaigns to influence the decisions of businesses or governments.
How a pressure group can influence a business: Publicity through the media and social media, calling for a boycott, petitions and protests, lobbying the government to change the law, and negotiating with managers.
Boycott and lobbying: Boycott: customers deliberately refuse to buy from a business, hitting sales directly. Lobbying: trying to persuade the government to make or change a law.
What makes a pressure group more influential?: Strong public and media support, a target that depends on its reputation, customers who can switch easily, clear and affordable demands, and access to the government.
Pressure group and trade union: the difference: A pressure group campaigns on a cause. A trade union represents workers in their workplaces.