1.3 Changing Business Environment

1.3.1 Government influence over decision making by using economic policy measures
Why do governments want to influence business and the economy?

- To ensure that essential goods and services are produced and made available to those sections of the community who need them

- To prohibit or control the production of goods and services considered undesirable or harmful

- To regulate the activities of suppliers and protect the interests of consumers

- To help disadvantaged sections of the community through taxation and welfare

- To help suppliers through grants and subsidies and improved trading conditions

- To encourage economic growth

'''The impact of tax and interest rate changes on businesses: '''

TAXES:

'' Increasing direct taxes: ''

- May lead to reduced demand for goods and services, reduced levels of production and possible redundancies (reducing income tax may have the opposite effect).

 Increasing indirect taxes '': ''

- Prices of goods and services will increase

- If a business decides to increase prices,customers may be turned off, resulting in a fall in demand

- If a business decides not to increase price (absorb the cost), it may suffer reduced profits

'' Increasing the tax rates on business: ''

- Increase in costs and reduction in profits

- Businesses may have to cut costs in areas such as employment, which would lead to increased unemploymentin the country

- Businesses may have to increase their prices, which could result in inflation

INTEREST RATES (ON BANK LOANS):

'' Increase in interest rates: ''

- People and businessesborrow less money because the cost of borrowing the money has increased.

- Businesses are unwilling or unable to invest in new facilities to increase production (they need to borrow money to finance this)

- Customers are unwilling or unable to borrow money to buy goods and services, leading to a fall in demand

'' Decrease in interest rates: ''

- Increase in borrowing money

- Businesses are able to borrow money because the cost of borrowing the money is less

- Demand increases as customers borrow money (they have money to spend)

'''IMPORTANT TERMS: '''

''Direct taxes: taxes paid directly to the government (eg. taxes on income, taxes on profit) ''

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Indirect taxes: 'taxes paid to the government through an intermediary (eg. VAT is added to the price of goods and collected from customers by the business selling the goods. After a period of time, the business pays the VAT collected to the government).

Inflation:a general increase in the cost of goods

1.3.2 Impact of technology on business
'The effects of new technology on businesses: '

''WHAT ARE AFFECTED? ''

''- Costs ''

''- Labour ''

''- Production methods ''

''- Marketing ''

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''BENEFITS OF INTRODUCING NEW TECNOLOGY: ''

''     - Savings from the reduced labour cost ''

''     - Increased productivity (machines generally produce goods faster and more accurately than people can) ''

''- Marketing and communication may improve (investing in technology such as computers, Internet connection, and mobile phones can be used to market products and improve communication within the business) ''

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''DRAWBACKS OF INTRODUCING NEW TECHNOLOGY: ''

''- New technology can be very expensive to buy, install and maintain (difficult for businesses that are going through cash-flow problems to fund) ''

''- Increased productivity will result in fewer workers being needed (resulting in higher unemployment) ''

''- Employee morale will be affected by the introduction of machines because they feel that their jobs may be at risk (resulting in demotivation, poor relations between management and the workforce, lower productivity, and a drop in the performance of the business) ''

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'Internet and e-commerce: '

''BENEFITS OF E-COMMERCE: ''

 For the business: 

''- New sales opportunities (the Internet allows customers from all around the world to have access to the product or service offered) ''

''- Customers can place orders whenever they want ''

''- Closer links with customers ''

''- Flexibility (online catalogues and price lists can be updated quickly) ''

''- Improved efficiency (processing orders electronically can reduce overhead costs) ''

''- Speed (online methods can reduce the time between placing the order and delivery) ''

''- Customer service can be improved and made more efficient ''

''- Information is received by a business quickly (it can make decisions quicker) ''

 For the customers: 

- They can shop whenever they want to 

''- Convenience (they can shop from home) ''

''- Choice (the global nature of the Internet means that there are more choices for the customers) ''

''- More competition (customers may find better prices for goods) ''

- Customers will know instantly that a product is not available

''DRAWBACKS OF E-COMMERCE: ''

''- Competition is now global so businesses have to plan their marketing strategy more carefully ''

- Businesses are vulnerable to viruses/technical breakdowns affecting equipment, which could slow, or halt, their websites (orders and other important information could be lost)

IMPORTANT TERMS:

'E-commerce: the buying and selling of goods and services through the Internet.'

1.3.3 Business reaction to market changes
'Demand and changes in consumer spending patterns: '

''- Consumers have needs and wants (this creates the demand for goods and services) ''

- Most consumers do not have enough money to buy everything they want so, they must decide on what to spend their money on 

- The ways people spend their money are known as 'consumer spending patterns '

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'Main influences on demand: '

- Price:''generally, the higher the price of a product, the fewer consumers will buy ''

- Income:''people will only buy what they can afford ''

- Taste:''consumers will only buy the products that appeal to them ''

- Prices of alternative goods:'' demand for one product may depend on the demand for other products for example, in the car and tyre industry ''

- Other goods are substitutes for each other:'' if consumers cannot afford the product they want, they may switch to similar products ''

- Size and structure of the population:'' the demographics of a country (eg. population of young people vs. old people) can affect the demand of certain goods and services ''

- Government policy: ''in some countries, certain products (eg. cigarettes and alcohol) are highly taxed to control demand, while others are prohibited (eg. drugs) ''

- Seasonal factors: ''demand for certain products may vary according to the time of the year ''