economy and business

• Impact of economic issues on businesses-

  • unemployment
  • changes in levels of consumer income
  • inflation
  • changes in interest rates
  • government taxation
  • changes in taxation
• • unemployment -
  • when someone wants a job but can’t get one
• • if unemployment is low - favourable for companies-
  • 
demand for most goods will be high, especially luxuries like holidays
• • if unemployment is low - unfavourable for companies-
  • 
there may be labour shortages in skilled work, which will make people want higher pay
• • if unemployment is high - favourable for companies -
  • 
large numbers of people seeking work keep stay down and staff don’t try to leave
• • unemployment is high - unfavourable for companies-
  • 
demand for luxury goods falls and manufacturers worry about retail customers collapsing
• • changes in levels of consumer income -
  • more income means more demand for products
  • less income means sales will fall
• • consumer incomes - the amount of money that households have available to spend on goods and services
• • inflation -
  • high inflation = business will struggle to cover rising costs of supplies.
  • low inflation is 2%
• inflation -

  the rate of increase in the average price level
• • changes in interest rates-
  • 
the annual cost of a loan
• • effects of LOW interest rates
  • consumers have less interest to pay on mortgage, so they an spend more on luxuries which means more revenue and profits for businesses
  • business will see costs fall if they have borrowed money from the bank because loans and overdrafts will be less
• • effects of HIGH interest rates
  • houses with mortgages will spend less on extra goods, so businesses will see lower profits
  • businesses may face high costs if they borrow money in loans or overdraft
• • government taxation
  • 
the charges placed by the government on goods, imported goods, and the incomes of individuals and companies
• • if taxes on households increase, e,g income tax or VAT-
  • 
consumers can’t buy other goods so revenue will fall
• • if the government adds import tax on overseas products
  • 
UK importers will face higher costs
• exchange rate -

  the value of one currency measured by how much it will buy of another currency
• • effects of a STRONGER pound-
  • imported materials and suppliers are cheaper to UK businesses which reduces costs
  • UK consumers can buy foreign competitor products for cheaper
  • UK firms will find it hard to sell products abroad because their products will seem more expensive overseas
• • effects of a WEAK pound-
  • imported materials and supplies are more expensive
  • imported goods are more expensive for UK customers
  • UK firms will find it easier to sell products abroad because theirs will seem cheaper to overseas