External Influences on Business (A Level) (Cambridge (CIE) A Level Business): Flashcards

Nationalisation is when a government takes ownership and control of a business or industry from the private sector.

They do not need to maximise profit for shareholders, so prices may be lower, access more equal and working conditions more secure.

False.

Without the pressure to make a profit or compete with rivals, nationalised businesses may become less efficient, with more bureaucracy and fewer incentives to innovate.

Nationalised businesses can suffer from political pressure, where decisions are made for short-term popularity rather than long-term success.

Laws protect consumers from harmful substances and misinformation, make sure businesses operate ethically and keep competition healthy for society.

Employment law prevents the exploitation of workers.

False.

Employers cannot punish or dismiss staff for trade union membership.

Employment law gives workers the right to a written employment contract and protection against unfair dismissal.

Recruitment, promotion and training must be merit-based, and job adverts and interviews must be fair and inclusive.

Health and safety law protects the physical and mental wellbeing of employees and contractors.

It can face investigations, fines or prosecution. Poor practice can also cause accidents, lower staff morale and damage its reputation.

True.

Comparative advertising must be fair, truthful and not designed to mislead or damage a rival's reputation.

Customers have the right to know how their data is used and can opt out of marketing communications.

When buying online or by phone, consumers may have a cooling-off period in which they can cancel the order.

Consumers may be entitled to a refund, repair or replacement.

Competition law helps keep markets open, fair and competitive by preventing powerful companies from using their position to dominate the market.

False.

Competition law also bans price fixing and cartels between competitors and controls mergers and takeovers that would reduce competition.

Governments intervene to promote economic growth, create jobs, encourage innovation and enterprise and increase international competitiveness.

Governments can offer grants, subsidies, tax relief and low-interest loans.

Governments can encourage enterprise by cutting red tape, making it easier to register a business, apply for licences or comply with legal requirements.

Governments can improve transport, internet and energy supply and create enterprise zones and business parks that attract new firms.

False.

Governments also constrain business activity that is harmful, unfair or against society's wider interests, to protect the public, the environment and the economy.

It can increase business costs, limit certain actions or block business plans altogether.

They decide where businesses can operate and the activities allowed in different areas.

Governments can use import tariffs, quotas or bans on certain goods.

Market failure happens when the free market fails to allocate resources efficiently or fairly.

Private firms would not provide public goods because there is no way to make a profit, so the government funds them using tax revenue.

True.

People may not understand their full benefits, so governments subsidise them or provide them free to encourage greater use.

Goods such as tobacco and sugary drinks are demerit goods, which are over-consumed because consumers underestimate the harm they cause.

Governments enforce regulations, set limits or fine businesses for pollution and environmental damage.

They can run public awareness campaigns or require businesses to label products clearly.

Macroeconomic objectives are the main goals a government tries to achieve in the wider economy to keep it stable and growing.

Meeting them helps improve living standards and creates a strong business environment.

Economic growth is an increase in the total output of goods and services in a country, measured by GDP.

False.

There will always be some frictional, seasonal and structural unemployment, so 100% employment is impossible.

Low unemployment rates of around 2–5% are close to the full employment level of labour.

When real GDP increases, unemployment falls. When real GDP decreases, unemployment rises.

Low unemployment reduces the availability of labour, so firms find it harder to recruit and may have to pay more.

Many economies target an inflation rate of 2%, measured using the Consumer Price Index (CPI).

False.

Demand-side policies ease demand-pull inflation, while supply-side policies ease cost-push inflation.

It allows firms to plan ahead confidently for investment, costs and pricing. It also offers price stability to consumers.

High inflation increases input costs such as wages and raw materials, which reduces profit margins unless the firm can raise prices.

Growth at this rate is less likely to cause excessive demand-pull inflation.

True.

High growth can cause overheating, leading to labour shortages or inflationary pressures that push up costs.

A recession can lead to lower consumer confidence, reduced investment and declining business revenues.

Monetary policy is the process by which a country's central bank manages the money supply and interest rates to influence economic activity.

Lower interest rates encourage borrowing, which helps to drive demand for goods and services.

Increasing quantitative easing raises the money supply in the economy, so families have more money to spend on goods and services.

It may pay off debt or borrow less, delay projects that need big loans and switch from variable to fixed-rate loans.

Fiscal policy is the use of government spending and taxation to influence aggregate demand in the economy.

False.

Raising income tax is contractionary because it reduces households' disposable income and consumption.

Shops may drop prices and run flash sales, order extra inventory and put more staff on the rota.

Supply-side policies try to help the economy produce more in the long run, generating long-term growth, lowering average price levels and creating jobs.

It raises the quality of the workforce and improves productivity. Lower production costs allow lower prices, improving international competitiveness.

True.

Deregulation removes obstructions in the free market and cuts costs, which may result in greater supply.

Reducing trade union power and minimum wages aims to increase labour market flexibility.

Exchange rate policy is the way a country's government or central bank tries to manage the price of its currency in terms of other currencies.

Exports become more expensive for foreign buyers and imports become cheaper.

False.

Depreciation makes imports more expensive, so it may increase inflation through costlier imported goods and materials.

Social influences are the attitudes, values and culture that affect business decisions.

They give firms a larger, better-skilled labour pool to recruit from.

Social mobility is how easily someone can climb from a low-income or low-status background to the middle or top of society.

Barriers of class, caste and location block ideas, so fewer businesses are set up and innovation is slower.

False.

Low mobility means a smaller skilled pool of labour, so firms compete, pay more or import talent.

New recruits arrive work-ready, so firms spend less time and money on basic training.

Skills gaps caused by low educational outcomes make global investors cautious about setting up high-tech factories or research labs.

Gender equality means giving people of all genders the same rights, responsibilities, opportunities and respect.

Mixed-gender teams bring different views, leading to better problem-solving and faster innovation.

True.

Using project-based workers instead of permanent staff lowers fixed wage bills, although it makes it harder to build loyalty and keep quality consistent.

Firms can save money on office space and recruit staff from anywhere, although they need effective online communication.

Automation brings faster output and lower long-term costs, but needs high up-front investment in technology and staff retraining.

A multicultural society is one where many cultural, ethnic and religious groups live side by side and are recognised as equal.

It may recruit from a wider talent pool, support faith-based leave and offer flexible dress codes.

Corporate social responsibility (CSR) is the concept that businesses have a responsibility to consider and positively impact society by voluntarily integrating social and environmental concerns into their operations.

False.

CSR takes into account the impact of business activities on various stakeholders, including employees, customers, communities, the environment and society as a whole.

Ethics relates to the rights or wrongs of a strategic decision that go beyond legal requirements.

Some businesses adopt an ethical code of practice which informs their decision-making.

A social audit provides a review of the steps a business is taking to meet its commitments to society and the environment.

Employees are likely to be more motivated, loyal and productive because they are proud of working for a responsible firm.

False.

Taking an ethical approach costs more and may reduce overall profits if prices cannot be raised to compensate.

They often change their own approach so that they do not lose sales to more ethical rivals.

Winning community support gives a business a social licence to operate.

Sales may fall as people switch to rivals or start a boycott.

A pressure group is an organisation that tries to influence the decisions of businesses or governments in favour of a particular cause, such as animal welfare, climate action or workers' rights.

Tactics include petitions, social-media "naming and shaming", peaceful protests, lobbying politicians for new laws and legal action.

True.

Through their buying behaviour, social media, direct feedback and boycotts, consumers reward ethical producers and show firms which practices are unacceptable.

Demographics refers to the number of people and the mix of ages, genders, backgrounds and locations in a population.

Push factors drive people away from an area, while pull factors attract people to it.

Districts with many young families may see natural increase, while areas with older populations may shrink over time.

False.

Planning restrictions can limit growth, whereas enterprise zones, tax incentives and urban regeneration grants can revive an area.

Birth rate is influenced by living costs, childcare availability, women's education and career choices, access to family planning services and cultural views on family size.

A recession can delay parenthood and trigger emigration.

True.

These improvements lower mortality, while epidemics, conflict or poor medical access raise the death rate.

Almost every region will see a higher share of people over 65 as fertility falls and life expectancy lengthens, shrinking the working-age population in many economies.

Growth is shifting towards Africa and South Asia, moving the centre of labour supply and consumer demand southwards and eastwards.

Migration is the movement of people from one place to another with the intention of living or working there for a significant period of time.

Internal migration takes place within the same country, while international migration involves crossing borders.

Bringing in younger workers keeps the ratio of workers to retirees healthier, generating tax revenue for pensions, education and healthcare.

False.

Businesses can sell products for older people, such as easy-open packs and health gadgets, although hiring young staff becomes harder and pension and healthcare costs can rise.

The growth in smaller households and solo living increases demand for single-portion meals and mini appliances.

It might focus on exports or premium "treat" products at home, and use machines and technology to stay profitable with fewer sales.

Rivals that adopt new technology can cut prices, deliver faster and win customers, so firms that fall behind lose sales.

Automation using robots, AI and CAD/CAM handles repetitive or risky jobs accurately, around the clock.

They analyse millions of transactions to reveal trends, allowing firms to make targeted offers such as personalised discounts.

False.

Even a start-up can gain global reach by selling on online marketplaces or through its own website.

Challenges include high set-up costs, technical failures, cybersecurity risks, job losses and morale issues, and legal and ethical concerns over personal data.

A monopoly is a market in which there is one dominant seller.

False.

Monopoly and oligopoly markets are the least competitive, whereas in perfect competition there are many small firms, none of which has significant power.

Price wars force cost-cutting, as rivals squeeze suppliers for lower prices and look for ways to reduce overheads.

Their size lets them negotiate lower unit prices from manufacturers, keeping their costs below those of smaller rivals.

Monopolies often face price caps that restrict their ability to maximise profits.

When customers can choose substitutes, a small price rise often sends them to rival businesses.

True.

The price, quality and punctual delivery of inputs all influence how a business sets its prices, designs its products and organises its operations.

It may raise its retail prices, look for cheaper materials or redesign products to use less of the input.

They plan production around prompt deliveries, so supplier delays may force them to hold buffer inventory.

When a supplier is one of only a few sources of an input, it may force businesses to accept higher prices and longer contracts.

International trade is the exchange of goods and services across national borders.

Exporting is selling goods or services from the home country to customers in another country, while importing is buying goods or services from producers in another country for use or resale at home.

Trade blocs such as the EU and USMCA lower tariffs for members, but businesses must follow their rules.

True.

More frequent changes in exchange rates, tariffs and political tensions make trade less predictable, so firms build more flexible supply chains.

Higher global output lets factories run more efficiently, gaining economies of scale that lower the unit cost.

Trade links help managers decide where to source supplies, where to produce and how to distribute goods or services.

False.

Firms may build factories near big ports or rail hubs to save on shipping, and choose suppliers on fast, reliable routes to cut delivery times.

Clear rules on data transfer and online payments encourage firms to sell software, streaming and other digital services across borders.

Manufacturers split production stages among neighbouring countries to use each one's strengths, such as labour cost, skills or raw materials.

Tariff-free sales encourage firms to export or set up factories inside the free trade area, and to set prices knowing that tariffs are low or zero.

In a common market, one set of product standards allows a single version of a product for all member states.

Through the WTO, more than 160 countries agree maximum tariff levels and trade rules, and governments can take disputes to it if a partner breaks the rules.

Customers can pay instantly in their local currency, while exporters avoid high bank fees and get cash sooner, improving cash flow.

False.

Blockchain creates a tamper-proof digital record of each step of a shipment, so fewer paper documents and faster customs clearance reduce fraud and administration costs.

A multinational company (MNC) is a business that is registered in one country but has manufacturing operations or outlets in different countries.

Globalisation and deregulation have contributed to the growth of multinationals.

Selling in many national markets reduces the risk of failure, as a recession in one country can be offset by sales in a growing market elsewhere.

A business can avoid import tariffs by setting up production inside countries that operate protectionist measures.

False.

Many multinationals hold offshore bank accounts and do not bring their profits back home.

Multinationals may pay higher wages than local firms, but these can still be low by global standards as businesses try to keep costs down.

True.

Multinationals may buy the services of local businesses, and local firms can learn new skills through joint ventures and partnerships.

By offering better pay and working conditions, multinationals reduce the supply of workers available to local businesses.

Multinationals may damage local habitats and leave unsightly production facilities behind once they have extracted resources and left the country.

Assets become owned or partly owned by foreign businesses, and sellers may move the money offshore rather than reinvest it locally.

Technology and skills brought in by multinationals help domestic businesses improve their efficiency and productivity.

Multinationals can push domestic businesses out of the market, leaving customers with less choice and exposed to higher prices and low-quality products.

Domestic businesses may copy multinationals' working practices, such as Kaizen and continuous improvement, and multinationals may encourage entrepreneurship.

Transfer pricing is a method used by multinationals to shift profits from where they are generated to countries with lower tax rates.

Land and buildings may become unusable when businesses process dirty or toxic materials.

Visual pollution is caused by unattractive buildings or business works that worsen inhabitants' views of their surroundings.

False.

Congestion is caused by vehicles delivering materials to and from businesses and also by commuting employees.

Higher disposal charges, limits on permitted waste and fines for breaking the rules all increase business costs.

Pollution permits allow businesses to pollute up to a certain limit.

An environmental audit is a systematic check of how a business affects the environment, comparing what it does with laws, company policies and best-practice standards.

It checks whether the business is meeting all relevant regulations on air, water, waste and chemicals.

The final stage of an environmental audit is an improvement plan with recommendations, targets and deadlines.

Investors use the audit to assess risk, checking whether poor environmental practices could cost the company money later.

True.

An outside expert or a standard such as ISO 14000 shows that the company's environmental reputation can be believed, improving its image.

Sustainability means meeting our current needs without compromising the ability of future generations to meet their own needs.

Businesses can use renewable materials and energy, reduce water use, use green transport, avoid toxic substances and implement recycling.

False.

Sustainable materials can be more expensive and adapting processes may need significant capital investment, which can reduce profitability, at least in the short term.

It can lead to resource depletion and environmental damage, causing legal issues or reputational damage that undermine long-term viability.