Economic Factors (OCR GCSE Business): Revision Note
Exam code: J204
Consumer income
Household income includes money earned from work, pensions or welfare benefits and from investments, such as property
In the UK, household income has risen overall since 1995
It fell slightly as a result of a recession in 2010-2011, further economic uncertainty between 2016 and 2018 and during the recent Covid-19 pandemic
(Data source: Ons.gov.uk (opens in a new tab))
Once a householder has paid their core living costs, such as rent or mortgage, utility bills and transport costs, they are left with a sum of disposable income
In 2023, the average British adult had £782 a month in disposable income, £84 less each month compared to 2022
This fall is largely as a result of high levels of inflation and the increased cost of living, especially related to housing and energy costs
Unemployment
The level of unemployment is a measure of the proportion of people aged 16 to 64 without paid employment
Unemployment levels are closely linked to changes in the level of disposable income
In the UK, welfare payments are made to the unemployed, though they are low
On average, the unemployed receive 7% of their previous in-work income, compared to 90% in Belgium
The unemployment rate in the UK has recently risen from 3.8% in 2023 to 4.3% in early 2024
Business responses to changes in the economic climate
A rise in incomes
Rising levels of disposable income usually lead to an increase in spending on goods and services
As long as the rise is expected to be sustained, businesses often respond in a number of ways
Business responses to an increase in income
Business response | Explanation |
|---|---|
Increase prices |
|
Extend or amend product ranges |
|
Increase spending on promotional activity |
|
Expand business operations |
|
A fall in unemployment
As the unemployment rate falls
Businesses often have to pay more to secure enough workers
The lower the supply of workers, the higher the salaries or wages they will have to offer
They may need to import labour from abroad
E.g. the National Health Service (NHS) is attempting to overcome staff shortages by recruiting doctors from countries including Egypt and India
They may need to invest in training to upskill existing workers, and take steps to retain more workers
E.g. financial incentives such as employee share schemes or long-service bonuses may encourage workers to remain employed in a business
Examiner Tips and Tricks
In the exam, you could be asked to explain how an economic change could benefit a business.
Two-mark explain questions require you to make a point and develop it, with a reason or impact.
Example
An economic change could be a rise in income [1] which could increase revenue from sales of the businesses products [1].
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