Chapter 5   the economic context
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Chapter 5 the economic context

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    Chapter 5   the economic context Chapter 5 the economic context Presentation Transcript

    • The Economic Context -Demand and supply - The impact of Interest rates - The impact of exchange rates - The Impact of the business cycle - Business decisions and stakeholders
    • Commodity Markets A commodity market is a product that is sold on the basis of price rather than brand qualities. In other words, there is almost no difference in the product irrespective of where you buy it.• Examples include steel, copper, oil and coffee beans• The price of commodity products will depend on two factors: DEMAND and SUPPLY
    • Demand and SupplySupply Demand• This shows the quantity of a • Shows how consumers will product a business is react to changes in price prepared to make and sell at a given price Price Price Quantity Supplied Quantity demanded
    • Equilibrium point Manufactur ers can sell at the price where the two lines cross
    • • When demand for a product increases but supply remains the same, the price of the product will rise• When demand for a product decreases but supply stays the same, the price of the product will fall
    • Interest RatesThe rate of interest is effectively “THEPRICE OF BORROWING MONEY”If the Bank of England puts interest rates up, a typical personwill either: Have to pay more Will have less money to money back on their spend in shops mortgage (disposable income) Borrow less money So reduce their since it now costs more spending in shops
    • The effect of interest rates on businessesIf interest rates increase then a business may: Reduce or cancel Reduce borrowing planned investment, which may mean e.g. the purchase of cutting costs, e.g. new machinery labor Reduce production, since they expect to sell less if consumers have less money
    • Who controls interest rates The exchange rate is “the price of one currency expressed in terms of another currency”• Since money is a commodity, a currencies value is determined by demand and supply• Changes in exchange rates can have HUGE effects of businesses
    • How Exchange Rates Affects Businesses Increase in the Decrease in the value of the value of the pound poundAffects on Become cheaper so Become moreimports into the will increase expensive so will fallUKAffects on Become more Become cheaper soexports out of expensive so will fall will increasethe UK
    • The Business CycleThe economic stages that the UK goes through can bereferred to as the Business Cycle, or sometimes theTrade Cycle
    • Stage of business Key features Likely reactions bycycle businessesRecovery/ expansion - Increasing consumer - Opportunity to increase spending prices - Investment increases - new business start - production risesboom - Inflation increases - Prices likely to rise - some firms unable to - wage rise satisfy demand - demand fall - Interest rates riserecession -demand is low - Firms look for new markets -Investment falls - Workers are laid off - profits fall - many firms closeslump - Increasing no. of -Firms lower prices bankruptcies -Factories are closed - High unemployment - Redundancies occur - low levels of spending
    • Stakeholders• Stake holders are people or groups who have an interest – or stake – in the activities of a business• Stakeholders may be able to influence what a business does• Some stakeholders have more influence than others
    • Who are the stakeholders?Stakeholders of a large business Stakeholders of a small business• Shareholders • Owners• Managers • Suppliers• Suppliers • Workers• Workers • Government• Governments • Financiers• Financiers • Local community• Local community• Pressure group
    • Types of StakeholdersInternal Stakeholders External Stakeholders• These are the people who • These are people who do work for the business and not work for the business are involved daily are not involved on a day- to-day basis. As such they are outside the businessPrimary Stakeholders Secondary Stakeholders• These are the people who can help a • These are the people who see business succeed and are usually themselves as stakeholders even if internal: the business doesn’t: - Owners - local residents - employees - local government - Customers - pressure groups
    • What do stakeholders want? • Stakeholders are affected by the decisions a business makes Owners will want more Workers will want to work profits in a pleasant environment Suppliers will want a businessto buy more from them
    • External factors and stakeholders• All businesses will be affected by the things that happen outside the business that they cannot control• These are called external factors• Pest analysis: