6.1 Economic issues
External influences
Factors outside the control of a business that can affect its decisions, costs, sales and overall performance.
Economic environment
The economic conditions in which a business operates, including inflation, unemployment, interest rates, economic growth and government policies.
Business cycle
The regular fluctuations in the level of economic activity in an economy over time, including periods of growth and decline.
Economic growth
An increase in the total output of goods and services produced by an economy over time, usually measured by an increase in real GDP.
Growth (business cycle)
A stage of the business cycle when economic activity is increasing, production and sales are rising and businesses may expand.
Boom
A period of very high economic activity when demand, output and employment are usually high. Businesses may experience increased sales and profits.
Recession
A period of falling economic activity, usually involving a decline in real GDP over consecutive quarters. Businesses may experience lower demand and sales.
Slump
A prolonged and severe period of low economic activity, often associated with high unemployment, weak demand and reduced business output.
Gross Domestic Product (GDP)
The total value of goods and services produced within a country’s borders over a particular period of time.
Real GDP
The value of a country’s output adjusted for changes in prices, allowing comparisons of economic growth over time.
Inflation
A sustained increase in the general price level of goods and services in an economy over time. It reduces the purchasing power of money.
Deflation
A sustained decrease in the general price level of goods and services in an economy.
Unemployment
A situation where people who are willing and able to work cannot find a job.
Employment levels
The number or proportion of people in an economy who have jobs. Changes in employment can affect consumer spending and business sales.
Disposable income
The income households have available to spend or save after direct taxes have been deducted.
Purchasing power
The quantity of goods and services that a given amount of money can buy. Inflation generally reduces purchasing power if incomes do not rise at the same rate.
Government economic objectives
The main economic goals a government aims to achieve, such as economic growth, low unemployment, price stability and a satisfactory balance of payments.
Price stability
A situation where the general price level remains relatively stable, with low and predictable inflation.
Government intervention
Actions taken by the government to influence economic activity and achieve its economic objectives.
Taxation
Money collected by the government from individuals and businesses to finance public services and government spending.
Direct tax
A tax paid directly to the government by individuals or businesses, such as income tax or corporation tax.
Indirect tax
A tax imposed on spending or the sale of goods and services, such as value added tax (VAT) or sales tax.
Income tax
A direct tax charged on the income earned by individuals. Changes in income tax can affect consumers’ disposable income and spending.
Corporation tax
A tax charged on the profits of companies. An increase may reduce the amount of profit retained by a business.
Indirect tax on products
A tax added to the price of goods or services. It can increase business costs or selling prices and may reduce demand.
Government spending
Money spent by the government on public services, infrastructure, education, healthcare and other activities. It can influence demand and business opportunities.
Fiscal policy
The use of government taxation and spending to influence the level of economic activity in an economy.
Expansionary fiscal policy
A policy involving increased government spending or reduced taxation to increase demand and encourage economic activity.
Contractionary fiscal policy
A policy involving reduced government spending or increased taxation to reduce demand and control inflation.
Interest rate
The cost of borrowing money, usually expressed as a percentage of the amount borrowed. It also influences the return earned on savings.
Increase in interest rates
A rise in the cost of borrowing. Businesses may face higher loan repayments and consumers may reduce spending, which can lower demand for products.
Decrease in interest rates
A fall in the cost of borrowing. Businesses may find investment cheaper and consumers may be more willing to spend, potentially increasing demand.
Monetary policy
Government or central bank actions, particularly changes in interest rates, used to influence inflation and economic activity.
Impact of inflation on businesses
Inflation can increase the cost of raw materials, wages and other expenses. Businesses may raise prices, reduce profit margins or experience lower demand.
Impact of unemployment on businesses
Higher unemployment may reduce household incomes and consumer spending, lowering demand for products. However, businesses may find it easier to recruit workers.
Impact of economic growth on businesses
Economic growth may increase household incomes and demand, creating opportunities for businesses to increase sales, output and investment.
Business response to economic changes
Actions taken by a business to deal with changes in the economy, such as adjusting prices, reducing costs, changing output, delaying investment or introducing new products.
6.2 Environmental and ethical issues
Environmental issues
Problems affecting the natural environment, such as pollution, climate change, deforestation and the depletion of natural resources.
Environmental impact
The effect of business activities on the natural environment, which may be positive or negative.
Pollution
The release of harmful substances or waste into the environment, such as air, water and land pollution.
Global warming
The long-term increase in the Earth’s average temperature, mainly caused by the build-up of greenhouse gases in the atmosphere.
Greenhouse gases
Gases such as carbon dioxide and methane that trap heat in the atmosphere and contribute to global warming.
Carbon emissions
The release of carbon dioxide and other carbon-containing gases into the atmosphere, often from burning fossil fuels during production and transport.
Externalities
Costs or benefits of business activities experienced by third parties who are not directly involved in the business transaction.
External costs
Negative effects of business activities experienced by people or organisations outside the business, such as pollution affecting nearby residents.
External benefits
Positive effects of business activities experienced by people or organisations outside the business, such as improved local infrastructure created by a new factory.
Social costs
The total costs of an economic activity to society, including both the costs paid by the business and external costs experienced by others.
Social benefits
The total benefits of an economic activity to society, including benefits received directly by the business and external benefits received by others.
Sustainable development
Development that meets the needs of the present without preventing future generations from meeting their own needs.
Sustainability
Using resources and carrying out business activities in ways that reduce environmental damage and allow resources to remain available for the future.
Renewable resources
Natural resources that can be replenished over time, such as sunlight, wind and sustainably managed forests.
Non-renewable resources
Natural resources that are available in limited quantities and cannot be replaced quickly, such as coal, oil and natural gas.
Recycling
The process of collecting and processing used materials so that they can be made into new products, reducing waste and the use of raw materials.
Waste reduction
Reducing the amount of materials, energy and products discarded during business activities.
Environmental pressure groups
Organisations that campaign to protect the environment and encourage businesses and governments to reduce environmental damage.
Pressure groups
Organisations that try to influence business or government decisions on particular issues without seeking to become the government themselves.
Environmental legislation
Laws introduced by governments to control business activities that may damage the environment.
Pollution controls
Rules and regulations that limit the amount of harmful waste or emissions businesses can release into the environment.
Environmental opportunities
Business opportunities created by environmental concerns, such as developing recyclable packaging, renewable energy products or environmentally friendly services.
Environmental constraints
Restrictions or additional costs faced by businesses because of environmental concerns, regulations or pressure from the public.
Ethics
Moral principles that guide decisions about what is right and wrong in business activities.
Business ethics
The application of moral principles to business decisions and behaviour, including how a business treats employees, customers, suppliers and the environment.
Ethical business behaviour
Acting fairly and responsibly, even when a decision may increase costs or reduce short-term profit.
Unethical business behaviour
Actions that are considered morally wrong or unfair, such as exploiting workers, misleading customers or using child labour.
Conflict between profit and ethics
A situation where an ethical decision may increase business costs or reduce short-term profit, creating a choice between financial gain and responsible behaviour.
Child labour
The employment of children in work that is harmful, exploitative or prevents them from receiving proper education. It is an important ethical issue in business supply chains.
Fair prices to suppliers
Paying suppliers reasonable prices for the goods and services they provide, rather than using unfair bargaining power to force prices below sustainable levels.
Fair trade
An approach to trading that aims to ensure producers receive fair prices and workers are treated responsibly, particularly in developing countries.
Ethical sourcing
Choosing suppliers that follow acceptable standards of working conditions, wages, human rights and environmental responsibility.
Corporate social responsibility (CSR)
A business approach where an organisation considers its social and environmental impact and takes responsibility for its effects on society.
Ethical reputation
The public’s opinion of how responsibly and fairly a business behaves. A positive ethical reputation may attract customers and employees.
Business response to ethical issues
Actions taken by a business to address ethical concerns, such as checking suppliers, improving working conditions, avoiding child labour and paying fair prices.
6.3 Business and the international economy
International economy
The economic relationships and trade activities between countries, including the movement of goods, services, finance and investment across national borders.
Globalisation
The increasing integration and interdependence of economies around the world through international trade, investment, technology and communication.
International trade
The buying and selling of goods and services between different countries.
Imports
Goods and services purchased from businesses in other countries and brought into a country.
Exports
Goods and services produced in one country and sold to customers in other countries.
Reasons for globalisation
Factors such as improved transport, better communication technology, reduced trade barriers, growth of multinational companies and increased international investment.
Trade liberalisation
The reduction or removal of restrictions on international trade, making it easier for businesses to buy and sell goods and services across borders.
Trade barriers
Restrictions imposed by governments that make international trade more difficult or expensive, such as tariffs and quotas.
Import tariff
A tax imposed by a government on goods imported from other countries. It increases the price of imported products and may protect domestic businesses from foreign competition.
Import quota
A limit set by a government on the quantity of a particular product that can be imported into the country during a specified period.
Protectionism
Government policies designed to protect domestic businesses from foreign competition, often using tariffs, quotas or other trade restrictions.
Domestic businesses
Businesses that operate within their own country’s market, rather than operating across several countries.
Multinational company (MNC)
A business that operates in more than one country, usually with its headquarters in one country and production or business operations in others.
Host country
The country in which a multinational company establishes business operations outside its home country.
Home country
The country where a multinational company is originally based and usually has its headquarters.
Foreign direct investment (FDI)
Investment made by a business in business operations or assets located in another country, such as building a factory or establishing a subsidiary.
Subsidiary
A company controlled by another company, usually because the parent company owns more than half of its shares or otherwise has control over it.
Reasons for becoming a multinational
A business may expand internationally to access new markets, increase sales, reduce production costs, obtain raw materials, access skilled labour or benefit from economies of scale.
Economies of scale from international expansion
Cost advantages gained when a business increases its scale of production across different countries, potentially reducing its average costs.
Benefits of multinational companies to businesses
Operating in several countries may increase sales, spread business risks, provide access to new resources and markets, and reduce production costs.
Benefits of MNCs to host countries
Multinational companies may create jobs, increase investment, improve skills, increase exports and provide consumers with a wider choice of products.
Drawbacks of MNCs to host countries
They may reduce sales of local businesses, create environmental problems, exploit workers or transfer profits back to their home country.
Repatriation of profits
The transfer of profits earned in a foreign country back to the multinational company’s home country.
Stakeholders of multinational companies
Groups affected by the activities of a multinational company, including employees, customers, suppliers, owners, local communities and governments.
Exchange rate
The price of one currency expressed in terms of another currency. It shows how much of one currency can be exchanged for another.
Currency appreciation
An increase in the value of a currency compared with another currency. It means that the currency can buy more of the other currency than before.
Currency depreciation
A decrease in the value of a currency compared with another currency. It means that the currency can buy less of the other currency than before.
Strong currency
A currency that has a relatively high value compared with other currencies. It can make imports cheaper but exports more expensive for foreign buyers.
Weak currency
A currency that has a relatively low value compared with other currencies. It can make imports more expensive but exports cheaper for foreign buyers.
Impact of appreciation on importers
Imported goods become cheaper in the home currency, potentially reducing the cost of raw materials and finished products purchased from abroad.
Impact of appreciation on exporters
Products may become more expensive for foreign customers, making exports less competitive and potentially reducing overseas sales.
Impact of depreciation on importers
Imported goods become more expensive in the home currency, increasing the cost of raw materials and products purchased from abroad.
Impact of depreciation on exporters
Products may become cheaper for foreign customers, making exports more competitive and potentially increasing overseas sales.
Competitiveness
The ability of a business to compete successfully with other businesses, often through price, quality, product features or customer service.
International competitiveness
The ability of a business to compete successfully with businesses in other countries in international markets.
Impact of exchange rates on profitability
Changes in exchange rates can affect the cost of imported materials and the revenue earned from exports, influencing a business’s profit.
Impact of exchange rates on selling prices
A change in currency value may increase or decrease the cost of imported products or change the price of exports for overseas customers.