7.3 Changes in the External Environment (AQA A Level Business): Flashcards

R&D/investment tax incentives (also lower hiring/premises costs for small firms and government-backed loans).

An organisation appointed by government to regulate an area of activity, such as banking or energy.

They limit how much energy and water companies can charge.

The CMA can prevent a merger if a business acts in an anti-competitive manner.

False.

It can create opportunities too — e.g. new markets for ecological consultants and cost-saving packaging redesign.

GDP, taxation and inflation (also exchange rates, fiscal policy, monetary policy and the trade environment).

GDP is the total monetary value of all goods and services produced in a country over a period.

Rising GDP = economic expansion/growth; falling GDP = a slowdown or recession.

A recession is two consecutive quarters (6 months) or more of negative economic growth.

A boom is a period of increasing or high rates of economic growth.

Lower consumer spending and revenue, easier recruitment, delayed spending decisions and reduced production.

Higher disposable income and sales, harder recruitment (higher wages), expansion, and rising interest rates.

Direct taxes are on income (income tax, corporation tax); indirect taxes are on spending (e.g. VAT).

It reduces customers' disposable income, so demand for products may fall.

Less profit is retained, affecting spending, investment and expansion plans.

Charge higher prices, move to a low-tax location, or change production methods to reduce highly-taxed inputs.

VAT (value added tax).

A recession is two consecutive quarters or more of negative economic growth.

True.

GDP is a key measure of a country's economic performance and growth.

False.

They are direct taxes (levied on income); VAT is an example of an indirect tax.

Inflation is the general rise in price levels in an economy over time.

The Consumer Price Index (CPI).

Increased costs (wages, materials) and higher loan repayments (also changed consumer spending, lost competitiveness and uncertainty).

If domestic inflation is higher than abroad, UK goods lose sales and imported rival goods become cheaper.

The exchange rate is the value of one currency expressed in terms of another.

Strong Pound = Imports Cheap and Exports Dear.

Exports become more expensive abroad, so sales are likely to fall.

Import costs fall, as overseas supplies become cheaper than domestic ones.

Exports become cheaper abroad, so sales are likely to rise.

Import costs rise, as overseas supplies become more expensive.

Changing demand for a currency and changes to interest rates (also economic growth).

The UK government's inflation target is 2%.

True.

Under SPICED, a weak pound makes exports cheaper — boosting overseas sales.

False.

Appreciation (a strong pound) makes imports cheaper, not more expensive.

Fiscal policy is how the government uses taxation and public spending to influence the economy.

Spending on infrastructure, education and health boosts economic activity and improves long-term productivity.

They can reduce demand, constrain public services, and cause strikes/absenteeism that disrupt supply chains.

By higher taxes or government borrowing (which can raise future tax burdens).

Monetary policy is decisions made by the Bank of England on the base interest rate.

The base interest rate is set by the Bank of England and influences the cost of borrowing and the return on savings across the economy.

The Bank of England.

Higher borrowing costs reduce cash flow and make debt financing less viable.

Projects may be delayed or cancelled as finance costs rise and saving becomes more attractive.

Households have more disposable income, potentially increasing demand for discretionary products.

A stronger pound makes UK exports more expensive abroad, reducing international demand.

The percentage charged on borrowing and the percentage earned on savings.

Fiscal policy uses taxation and public spending to influence the economy.

False.

Monetary policy (the base interest rate) is set by the Bank of England.

True.

Lower borrowing costs make it more affordable to finance investment, ease cash flow or restructure debt.

Open trade removes barriers like tariffs, quotas and subsidies to let goods and services move freely between countries.

Increased efficiency and lower prices for consumers (also global market access and more innovation).

Structural unemployment and unequal benefits (also exploitation of developing nations and loss of sovereignty).

Protectionism is policies that shield domestic industries from foreign competition using tariffs, quotas, subsidies and regulations.

Tariffs, quotas and subsidies (also stricter regulations).

It protects domestic jobs and supports infant industries (also reduces trade imbalances and boosts resilience).

Higher prices and risk of retaliation (trade wars) — also reduced choice/innovation and inefficiency.

A trade deficit occurs when imports exceed exports — a country spends more on foreign goods than it earns from selling abroad.

When exports exceed imports — generating more income from sales abroad than is spent on imports.

Target international customers and customise campaigns for global segments.

Shift to local suppliers and increase stockpiling if import delays are likely.

Protectionism can trigger retaliation from trade partners, known as a trade war.

False.

Gains are often concentrated in certain sectors or regions, leaving others behind.

True.

Tariffs shield domestic industries from foreign competition.

Social change is changes in demographics and population movements, plus changes in consumer lifestyles and behaviour.

Growth of online business and an ageing population (also migration/diversity, home working and ethical consumers).

They have invested in online shops and digital advertising and redesigned logistics to handle more online orders.

Develop products for older customers and change HR policies (flexible hours, phased retirement) to retain older staff.

Many have reduced office space or adopted hot-desking, and invested in video-calling tools and online security.

Firms switch to eco-friendly packaging and launch 'green' product lines (consumers will pay ~10% more for sustainable goods).

Firms expand product ranges for different cultural tastes and set diversity targets with training.

Cloud computing and artificial intelligence (also 5G networks, full-fibre broadband and industrial robotics).

Cloud collaboration tools let hybrid teams in different locations work together seamlessly.

AI chatbots handle common enquiries, and marketing uses AI to predict trends and personalise promotions.

Routine or dangerous tasks shift to robots, moving staff into maintenance and quality control roles.

True.

Social change covers demographics, population movements and changes in consumer lifestyles and behaviour.

False.

Many firms have reduced office space or switched to hot-desking to support hybrid work.

A shareholder is an individual or institution that owns shares in a company, making them a part-owner.

A stakeholder is any individual or group with an interest in, or affected by, the activities of a business.

Meeting shareholders' needs above all — maximising profits to raise dividends and the share price (often short-termist).

A range of stakeholder groups, sharing benefits and drawbacks more equally (which often decreases profits).

CSR is where businesses voluntarily go beyond legal requirements to manage their social, environmental and ethical impacts.

Improved reputation and employee motivation (also added value/USP and helping solve social problems).

It can provide a USP allowing premium prices — e.g. Tony's Chocolonely charges ~200% more for slavery-free cocoa.

High upfront costs, potential competitive disadvantage, or the risk of greenwashing accusations.

Archie B. Carroll.

Economic → legal → ethical → philanthropic.

Be profitable — the business must be financially viable to survive and support all other responsibilities.

Be a good corporate citizen — giving back to society through charity, community initiatives and sponsorships.

Doing what is right, just and fair — going beyond legal obligations.

Real actions overlap the levels; it assumes profit always comes first; and it may carry a US cultural bias.

Carroll's CSR Pyramid places economic responsibility (being profitable) at its base.

False.

It tends to be short-termist, focused on shareholders — maximising profit, dividends and share price.

True.

CSR is voluntary action beyond legal requirements to manage social, environmental and ethical impacts.