Governement policies and control

• Impact of business activity on society

  • Advantages:
  • Production of useful goods and services
  • Production of new products and processes
  • Tax payment to finance social public services

  Disadvantages:

  • Lower wages
  • Serious pollution/environment problems
  • Misleading advertising
• Government objectives


  • Low inflation
  • Low unemployment
  • Economic growth
  • Favourable balance of payments between exports and imports
• Low inflation occurs when prices rise rapidly
• When prices rise faster than wages

  Real income falls
• Prices of goods produced in the country

  Will be higher than those in other countries
• Higher prices of domestic goods

  Leads to lower employment and falling living standards
• Higher prices of domestic goods

  Encourage businesses to expand and make it easier to sell goods and services abroad
• Low employment means the country's total output is lower than it should be, and governments have to pay unemployment benefits which costs taxpayers money
• Economic growth


  Governments want to see their GDP (Gross Domestic Product) increase
• Stages of economic growth

  • Growth - GDP is rising, unemployment is falling, most businesses are doing well
  • Boom - Caused by too much spending, high inflation, businesses are uncertain about the future
  • Recession - Economic downfall, caused by the public spending dropping, most businesses experience decline in demand and profit
  • Slump - Serious, long drawn out recession, high levels of unemployment, prices fall, many businesses fail to survive
• If imports continually outweigh exports, it can lead to a balance of payments crisis where the country will run out of foreign currency and be forced to borrow, causing the country's currency to depreciate
• Direct tax


  Taxes raised directly from income, e.g. income tax. The amount of tax paid is based on the level of income.
• Indirect tax


  Taxes added to the price of goods and services, e.g. VAT. The taxpayer pays the tax when they purchase the goods/services.
• Increase in indirect tax rates

  Sales fall as prices rise, real incomes decline so workers may pressure for pay rises to compensate
• Tariffs


  Taxes on the quantity of certain products imported from abroad
• Tariffs on imports


  Protect domestic companies as their goods become relatively more competitive, but businesses have higher costs using imported materials and trading partners may retaliate
• Supply-side policies aim to increase the competitiveness of industries against foreign competitors, increase the supply of goods and services, and allow businesses to expand by employing more workers
• Privatization involves transferring public sector activities and assets to the private sector
• Government control on business

  • Central production of certain goods
  • Restrictions on the sale of certain items e.g. alcohol
  • Weight and measures act
  • Trade description act (adverts must be truthful)
  • Sale of goods act
  • Competition policy to control monopolies
• Monopoly


  When one firm controls/dominates the market for a good or service
• Monopolies are disadvantageous as they can fix high prices due to lack of competition, prevent new firms from setting up to compete with them, and have no incentive to improve quality
• The government controls monopolies in ways that interfere with decisions taken by the monopolist which are against consumer interest, e.g. blocking mergers/takeovers that would create a monopoly
• Government protection for employees

  • Against unfair discrimination
  • Health and safety
  • Unfair dismissal
  • Ensuring employees are paid their wages
• Managers will want to locate their businesses in the best possible area, taking into account factors like land, transport links, proximity to customers, and availability of workers