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Understanding External Influences on Business

The economy and business

  • 3 things to know
  • Paper 1

Overview

Unemployment, consumer income, inflation, interest rates, taxation and exchange rates, how each affects a business, and worked percentage and currency calculations.

What you need to know

Answer each one before you reveal it.

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Key term

What is meant by the economic climate?

Key term

What is unemployment?

Key term

How does rising unemployment affect businesses?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What is meant by the economic climate?

    Model answer

    The economic climate is the overall state of the economy, such as whether it is growing or shrinking. The climate affects how much customers spend and what businesses pay.

  2. 2

    What is unemployment?

    Model answer

    Unemployment is when people who want to work and are able to work cannot find a job. Unemployment rises when businesses cut jobs.

  3. 3

    How does rising unemployment affect businesses?

    Model answer

    Unemployed people have less money to spend, so demand for many products falls. Businesses can recruit more easily and may not need to raise wages.

  4. 4

    How do changes in consumer income affect businesses?

    Model answer

    Higher incomes mean customers spend more, especially on luxuries. Lower incomes lead customers to cut back or switch to cheaper brands, which helps discount retailers.

  5. 5

    What is inflation?

    Model answer

    Inflation is a general rise in the prices of goods and services over time. Inflation reduces what each pound can buy.

  6. 6

    How does inflation affect a business?

    Model answer

    The costs of materials, energy and wages rise. A business must raise its prices or accept lower profits.

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