Economic Factors Affecting the Business Environment
- Created by: Kathryn
- Created on: 17-03-14 14:37
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- Economic Factors Affecting the Business Environment
- Recession
- Falling levels of demand, business confidence, profit and investment. Costs reduced with price and full capacity
- Boom
- Periods characterised by high levels of demand, confidence profits and investments. Leads to rising costs, increased prices and full capacity.
- Income Elasticity
- If demand for a product changes proportionally MORE than changes in income - elastic
- Luxury goods are positve income elastic (demand increases as income rises)
- Inferior goods, heagtiv income ilastic (demand falls as income rises)
- If demand for a product changes proportionally MORE than changes in income - elastic
- Circular Flow of Income
- Illustrates the relationship between main ports of macroeconomy - producers, consumers, other countries, government
- Slump
- Low level of consumer demand, increase in busines failure and unemployement
- Recovery
- Consumers increase spending, people start to invest again and build stocks, but it takes time for business to stop growing
- Inflation [general rise in the price level over a period of time]
- Options open to a business -Reduce prices - Pay higher wages -More attractive for other coutrys to buy as its cheaper -reduce wages
- Unemployment
- Structial, cyclical, frictional, seasonal
- High Unemployment - Low GDP -Spending down -Welfare spending higher -fall in labour turnover -Low inflation
- Low unemployment - High GDP -Spending up -monetary and non-monetaty rewards -high inflation
- Structial, cyclical, frictional, seasonal
- Recession
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