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GCSE Business Studies The External Business Environment Revision


GCSE Business Studies The External Business Environment Revision Unit 3 Part 3b 3.5.4 to 3.5.7 Types of Economies: Planned: Government control the production and ... – PowerPoint PPT presentation

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Title: GCSE Business Studies The External Business Environment Revision

GCSE Business StudiesThe External Business
Environment Revision
  • Unit 3 Part 3b
  • 3.5.4 to 3.5.7

Government and the Economy
  • Types of Economies
  • Planned Government control the production and
  • Market Private individuals make the majority of
    decisions on what to produce.
  • Mixed Goods and services are provided by both
    the private sector and the Government

Managing the mixed economy
  • In the UK there are 3 levels of Government that
    affect business and the economy
  • Local Governmentlocal county decision making
  • Central Governmentnationally elected, makes
    major laws about the economy
  • EU Governmentrun from Brussels and responsible
    for devising some common policies such as the
    Social Charter and Common agricultural policy

Government Objectives
  • In the mixed economy, government makes decisions
    to operate efficiently. Government objectives
  • Steady growth of output
  • Low and stable inflation
  • Low unemployment
  • Balancing imports and exports
  • To achieve their objectives, government uses 3
    types of policies
  • Monetary Policyinterest rates and the money
  • Fiscal Policytaxes and government spending
  • Supply side policiespolicies aimed at increasing
    the production potential of the economy

Fiscal Policies
  • Changing the level of public spending and/or
    taxation to affect the level of demand
  • Direct Taxes Taxes on income income tax,
    corporate taxes, national insurance contributions
  • Indirect Taxes Taxes on spending VAT, and
    excise duties, business rates
  • Government spending includes public services
    such as the health service, roads, education and
    redistributing income including benefits

Monetary Policy
  • The purpose of Monetary policy is to safeguarding
    the value of the currency by ensuring price
    stability, (low inflation) and confidence in the
  • The Bank of England sets the basic interest rate
    to control inflation by influencing the amount of
    money that businesses and consumers borrow and

Supply side Policies
  • Spending to improve employment prospects
  • Education and training and other incentives to
    get people working harder such as reducing the
    marginal tax rate.
  • Spending to improve competition
  • Removing restrictions/barriers to trade, removing
    monopolies, predatory pricing, price fixing and
    encouraging privatisation
  • Spending to increasing enterprise and
  • Grants, subsidies, reducing corporation tax

Government spending and the economy
  • Government spending, taxation and interest rates
    can all effect how much a business is willing to
    produce, (supply), and how much consumers are
    prepared to buy, (demand). This depends on
  • The amount spent or change in the rate
  • The type of business-some goods are necessities
    and the amount of government spending and
    taxation has little affect on demand.
  • The multiplier effect the amount of increase or
    decrease in spending in the economy has a
    knock-on effect on the total spending in the

How government supports business
  • Improving supply to enable greater competition
    with foreign suppliers includes
  • Cutting taxes on business profits
  • Providing grants and subsidies to business
  • Cutting income tax, so consumers buy more
  • Education and training to improve workforce
  • Improving infrastructure
  • Providing information to help businesses export
    their goods and services

Government and the environment
  • Governments sometimes action to deal with
    externalities, (when business activity leads to
    costs to society such as congestion and
  • Government action sometimes involves making the
    business activity more expensive, to compensate
    for the loss to society. Government intervention
    can include
  • Taxation
  • Rules and regulations
  • Information, (advertising and labelling)
  • Pollution permits, (carbon permits)
  • Subsidies for the development of green
  • Opportunities to recycle

Problems with Government intervention
  • Taxes imposed in one country but not another may
    simply encourage firms to switch production to a
    country that does not have the tax.
  • It might be considered unethical for developing
    nations such as China to take costly measures to
    reduce pollution that has occurred as a result of
    other nations manufacturing.
  • It is difficult for governments to set the
    appropriate level of legislation because it is
    difficult for governments to determine which
    policies are going to have the best effect and
    reducing the externalities.

  • How businesses in different countries have become
    increasingly dependent on each other. Examples of
    globalisation include
  • International trade
  • Production abroad
  • Outsourcing abroad
  • Multinational corporations
  • Global branding
  • Migration and immigration

Benefits of globalisation
  • Demand
  • Greater consumer choice
  • Lower prices
  • More jobsinward investment
  • Supply
  • Cheaper labour
  • More skills
  • Larger market for business
  • Economies of scale

Disadvantages of globalisation
  • Demand
  • Workers in developing countries may be exploited
  • Supply
  • Lower profits
  • More competition may lead to lower sales
  • Business closure and loss of jobs
  • Increased costs of transportation
  • Whole Economy
  • Pollution
  • Loss of resources
  • Loss of culture

Government and international trade
  • Protectionism
  • Safeguarding home markets by introducing
  • Tariffs taxes on imports which add to the price
    making home goods seem more competitive
  • Quotas restrictions on the amounts that can be
  • Technical restrictions specifications which
    limit imports

Results of Protectionist activities
  • Retaliation quotas set against the
    protectionist country
  • Consumer discontent resulting from price rises,
    (resulting in the current party falling into
  • Legal Issues it may be illegal to set tariffs
    and/or quotas
  • Reduced efficiencies countries may be
    protecting inefficient industries at home

Exchange Rates
  • The price/value of one currency against another.
  • When UK exchange rates decrease, its goods and
    services become cheaper to other countries but
    the cost of imported goods rises
  • When UK exchange rates increase, its goods and
    services become more expensive to other countries
    but the cost of imported goods falls.

Effects of Exchange rates
  • Exchange rate falls Exporters benefit goods
    sold to foreign countries will seem cheaper
    exporters can expand through capital investment
    and more employment but imported goods are now
    more expensive.
  • Exchange rate rise Exporters lose because goods
    appear more expensive in other countries but
    imports are cheaper so sales will rise and some
    jobs may be created.

Changes in exchange rates
  • The effect of a change in exchange rates depends
  • The size of the rise or fall
  • If the cost of the import is a large or small
    proportion of the total costs of the business
  • Whether there are any substitutes for the import
  • Whether the cost can be passed on to the buyer.

The EU and Government
  • EU 27 Countries aiming to co-operate on trade
    and social affairs. Enables free trade with
    member countries without tariffs or quotas and
    freedom of labour force movement.
  • Advantages
  • Enables firms to sell to a larger market leading
    to economies of scale and cost savings.
  • Common standards on safety and quality.
  • Availability of grants and subsidies
  • Social charter for workers rights
  • Sets environmental standards
  • Guarantees minimum prices for crops

Key terms EU
  • Single Market a market without barriers
  • Social Charter worker protection against unfair
  • CAP common agricultural policy controls price
    and production levels for farming
  • Single currency the use of the EURO within the
  • Euro zone 15 countries within the EU that share
    a common currency, the Euro

Advantages and Disadvantages of having a common
  • Advantages
  • Cost savings-no exchange rate
  • Removes uncertainty about prices
  • Business confidence in shared currency
  • Disadvantages
  • Initial cost of transferring computers and
    machinery to Euros
  • Confusion regarding value
  • Difficult to change back
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