External Influences

What External Influences covers

External influences closes Theme 2. It covers the conditions a business does not control: inflation, exchange rates, interest rates and the state of the economy, the law it has to work within, and the competitors it shares a market with.

The 3 subtopics

Each one has its own page.

• Economic influencesInflation, exchange rates, interest rates, taxation and government spending, the phases of the business cycle from boom to recovery, economic uncertainty, and calculating and interpreting index numbers.Open →
• LegislationConsumer protection, employee protection, environmental protection, competition policy and health and safety, and what each costs a business.Open →
• The competitive environmentMeasuring market size by value and volume, how the level of competition affects pricing, profit margins and the need for differentiation, the strategies that give an advantage, and how growth or decline in market size changes competition.Open →

What you need to know

Answer each one before you reveal it.

Take External Influences further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Inflation vs Deflation

  Inflation: a sustained rise in the general price level. Deflation: a sustained fall in the general price level.

• Fiscal policy vs Monetary policy

  Fiscal policy: government use of taxation and public spending to influence the economy. Monetary policy: central bank use of interest rates and the money supply to influence the economy.

• Exchange rate appreciation vs Exchange rate depreciation

  Exchange rate appreciation: a rise in the value of a currency against others, making imports cheaper. Exchange rate depreciation: a fall in the value of a currency against others, making exports cheaper.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What is inflation?

   Model answer

   A sustained increase in the general price level of goods and services in an economy over time.

2. 2

   What does the rate of inflation measure?

   Model answer

   The percentage change in the price level over a specific period, typically one year.

3. 3

   What is the Consumer Prices Index (CPI)?

   Model answer

   A measure of inflation that tracks the average change in prices paid by consumers for a basket of goods and services.

4. 4

   How does rising inflation affect business costs?

   Model answer

   It increases costs for raw materials, wages, and other inputs, potentially squeezing profit margins.

5. 5

   Why does inflation create problems for business planning?

   Model answer

   It creates uncertainty as future costs and revenues become harder to predict.

6. 6

   How might high inflation affect consumer demand?

   Model answer

   It may reduce consumer purchasing power, leading to lower demand for non-essential goods and services.

What is inside Levo

Six ways to work the same material.

External Influences revision questions

What does External Influences cover in Edexcel A-Level Business?

3 subtopics: economic influences, legislation and the competitive environment. Each one has its own page with questions and model answers.

How is External Influences organised?

By the Edexcel 9BS0 specification, subtopic by subtopic, so it matches the order you are taught it in.