Boom is a period characterised by high levels of consumer demand, business confidence, profits and investment at the same time as rising costs due to inflation, increasing prices, and full capacity
Effects of a Boom on Businesses: Consumer demand
Consumer demand is likely to be greater than supply, creating excess demand which is likely to lead to increases in the price of some goods.
Effects of a Boom on Businesses: Resource Shortage
The shortage of resources relative to demand means that costs are likely to rise, eg, wages may have ti increase in order to attract and/or keep skilled workers, which may lead firms to increase their prices which can result in inflation.
Effects of a Boom on Businesses: Producution Capacity
Increased demand may result in firms utilising their productivity capacity to the full (100% capacity utilisation, in the future the business may have too much spare capacity which increases unit costs)
Such big capacity utilisation may lead to firms to have expansion plans in poorer to increase output and meet demand.
Effects of a Boom on Businesses: Profit & Dividends
increased demand and high prices may result in an overall increase in profits, allowing for high retained profits and dividends.
