Explain the effects on a business if inflation changes -
(Original post by ZULU-WARRIOR)
This is pretty big but can any of you guys answer these questions.Explain the effects on a business if inflation changes//
Explain the effects on a business if exchange rates change/
/Explain the effects on a business if interest rates change//
Explain the effects on a business if taxation and government spending change//
Explain the effects on a business if the business cycle changes//
Describe the effect that economic uncertainty has on a business//
Describe legislation to include consumer, employee and environmental protection/
/Describe the effect on a business of competition policy/
Describe key components of health and safety legislation//
Identify the competitive environment including competition and market size//
If inflation increases, then the value of money also increases. Due to this, the price of goods increases. (Think of a Freddo bar, it was like 15p in my day, now it's 25p)
This means that consumers will have to spend more for that good. If the good is price elastic (not a luxury good), then demand will decrease. A fall in demand harms a business since it means less revenue, which could mean reduced profits, if any.
Also, if inflation increases, then certain businesses will have to change prices. E.g. a takeaway may have to reprint new menu's if the price is outdated, and doesn't match that of inflation. This is costly, since it costs to reprint the menus while throwing away the old ones.
If inflation decreases, known as deflation, then the value of money decreases. Here, price of goods falls. This means the business will gain less revenue per product, but perhaps it'll see a large volume of items being sold, enough to counter the decrease in inflation. However, worth noting that in deflation, since the prices are decreasing, then perhaps people will delay purchasing products as they could get the same product at a cheaper price at a later date. Businesses don't get revenue, which hampers their profit margins as well as not being able to cover their fixed costs.
Explain the effects on a business if exchange rates change
If the currency rates becomes appreciated, then it's value increases. This results in imports becoming cheaper, so their demand increases; while exports become more expensive so the demand falls. This means businesses can buy things from other countries at a cheaper rate, than what it would cost in England. Also, if the £ is appreciated, this means it becomes stronger. A strong £ will mean exports will be more expensive, since there prices of a product increases, it will cost the foreigners more to buy the same good.
The same is true in reverse, a weaker pound will see the rate become depreciated so the exports becoming cheaper, leading to an increase in demand; while import becomes more expensive (as it costs more to get the same item).
I'm yet to cover the other topics lol