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38 Cards in this Set

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Section 1 - Business Organization and Environment
Unit 1.5 - External Environment
Section 1 - Business Organization and Environment
Unit 1.5 - External Environment
What is PEST?
PEST is an acronym for the Political, Economic, Social, and Technological opportunities and threats of the external environment within which businesses operate.
What are political issues that can arise?
Government legislation define the boundaries within which businesses can operate. Examples: employment law, consumer protection rights, copyright and trademark regulations, and policies such as taxation and interest rates.
What are economic issues that can arise?
The state of the economy in which businesses operate is determined by inflation, unemployment, economic growth, and international trade.
What are social issues that can arise?
Social, cultural, and demographic changes can present both threats and opportunities. E.g. liberal vs. conservative societies, multiculturalism, environmental friendliness
What are technological issues that can arise?
Advances in technology can improve productive efficiency. However, high costs can hinder the performance of a business.
What are threats?
External factors that can harm a business.
What are opportunities?
External factors that can do good to a business.
What are some opportunities the internet presents?
1. Speed of access to information
2. Reducing language and cultural barriers
3. Reduced production costs
What are some threats the internet presents?
1. Price transparency
2. Online crime
3. Higher costs of production costs
4. Reduced productivity
What are other opportunities technology brings to businesses?
1. New working practices
2. Increased productivity
3. Quicker product development time
4. New products and markets
5. Creation of jobs
What are some threats technology presents to businesses?
1. Technology is not always reliable
2. Shorter product life cycles
3. Can be costly
4. Job losses
What to managers need to consider when adopting technology?
1. Costs
2. Benefits
3. Human relations
4. Recruitment and training
What is inflation?
Inflation is the continual rise in the general level of prices in an economy.
What is demand-pull inflation?
Inflation that is caused by excessive aggregate demand in the economy.
What increases a country's aggregate demand?
Any factor that causes a rise in consumption, investment, government spending or international trade
What is cost-pull inflation?
Inflation that is caused by higher costs of production leading to a rise in prices so that firms can maintain their profit margins.
How does inflation affect the international competitiveness of a country?
A nation that has a higher inflation rate than its rivals will tend to be less price-competitive when trading overseas. This could lead to a fall in export earnings, lower national output and perhaps higher unemployment.
What does the unemployment rate measure?
The proportion of a country's workforce not in official employment.
What are some policies governments can use to tackle unemployment?
1. Demand-side policies - directly target the level of aggregate demand in the economy
2. Expansionary fiscal policies - boost the level of consumption
3. Protectionist measures - safeguard domestic businesses from international competition
4. Supply-side policies - increase the level of aggregate supply in the economy.
What is economic growth?
An increase in a country's economic activity over time.
What is Gross Domestic Product (GDP)?
The total output of a nation's economy per year.
What is the business cycle?
The pattern of fluctuations in economic growth.
List the various phases of the cycle and briefly explain them.
1. Boom - rise in level of economic activity
2. Recession - when there is a fall in GDP for two consecutive quarters
3. Slump - the bottom of a recession
4. Recovery - when the level of GDP starts to rise again after the economy has experienced a slump
5. Peak - economic activity is at its highest level
What is a balance of payments?
It is the record of a country's money inflows and outflows per year.
What is the exchange rate?
The exchange rate measures the value of one currency in terms of foreign currencies.
What is an appreciation of the currency?
The export prices will be relatively higher thereby reducing the exporter's price competitiveness.
What is a depreciation of the currency?
Domestic firms that import raw materials and components will suffer from having to pay higher prices, thereby raising their costs.
What is protectionism? Give examples
Any government policy used to safeguard domestic businesses from foreign competitors. Examples: tariffs, quotas, subsidies, and embargos.
What is the difference between the laissez-faire and the interventionalist approach?
Laissez-faire (or free market) is when the government rarely intervenes in business activity. Interventionalist approach is when the manage the economy by using legislation and policies to control business behavior.
What is fiscal policy?
It is the use of taxation and government expenditure policies to influence the economy.
What is direct taxation?
Tax that is paid straight from the income, wealth or profit of an individual or a business.
What is indirect taxation?
Tax paid on personal or commercial expenditure.
What does monetary policy do?
It is designed to control the amount of spending and invesment in an economy by altering interest rates to affect the money supply and exchange rates.
What is consumer protection legislation?
Laws that make it illegal for businesses to provide false or misleading descriptions of their products or services.
What is employee protection legislation?
Laws that protect the interest and safety of workers.
What is competition legislation?
Laws that ensure that anti-competitive practices are stopped to protect customers and smaller firms from businesses with monopoly power.
What is social and environmental protection?
Laws that prevent or reduce to consumption of demerit goods.