BTEC LEVEL 3 BUSINESS
Unit 1 Assignment 2 P5, M2
WHAT IS THE ECONOMY?
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The economy is the thrifty management of
resources, including money, human resources
and land.
As part of the economics, we will investigate;
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Supply and Demand
Inflation
GDP
Economic Growth
Recession
SUPPLY AND DEMAND
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There is supply and demand for every tangible
and non-tangible good.
Supply is how much of the product is available
Demand is how much want or need there is for a
product or service
Supply and demand are affected by a range of
factors including; recession, growth and change
in natural resources.
THE ECONOMIC ENVIRONMENT
The economic environment will effect a business
in ways that it can not control.
 The economic environment is made up of
individuals who buy and sell good and borrow
and lend money.
 For a business the biggest influencers are
consumers and suppliers.
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GROWTH
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In a period of growth;
Incomes rise
 More goods are produced
 More goods are being purchased
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In a period of growth people have more money
which impacts on how much they buy, this allows
businesses to grow as they are selling more and
allows them to employ more people- this in turn
reduces unemployment and people have more
disposable income.
RECESSION
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This is the opposite to growth.
People become cautious about spending and save
instead
 Businesses sell less and therefore make less money
 Business make people redundant
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P5- THE BUSINESS ENVIRONMENT
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For this assignment you will need to investigate
two businesses in different countries.
Choose your two businesses and explain the
current economic climate in both countries.
Explain the affect the growth will have on both
businesses
 Explain the affects that a recession will have on
both businesses
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INFLATION
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This is the general rise in prices.
Inflation can affect businesses because costs of
supplies rise, businesses may pass the cost onto
their customers by increasing the price they
charge or see profit fall.
Explain how the businesses could respond to
inflation in the two contrasting countries
LABOUR
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For most businesses wages and labour makes up 70%
of costs. This means when there are any changes in
labour or the external environment labour will be
largely affected.
Labour is essential to businesses as they must ensure
they recruit the right people at the right time.
In times of growth it is more difficult to recruit people
with the right skills, this has caused businesses in the
UK to look abroad for the right employees
In times of recession it is easier to recruit because
unemployment is high and there are lots of people
looking for jobs
CHANGES IN GOVERNMENT POLICY
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The government has a huge effect on businesses. A good
government should ensure;
There is growth and stability
 Inflation is low
 Low interest rates on loans
 Suitable supplies of labour
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The government uses taxes and spending to control the
economy.
Monetary Policy is about the government controlling interest
rates- the government can use this to change the amount of
money available.
Fiscal Policy this is about the government controlling taxes,
during a recession a government can reduce taxes to
encourage spending and to improve the profit of businesses
P5 PLAN
Introduction: what is economics?
 Economic: importance of stability; impact on business of changes in the
economic environment (growth, recession, ripple effect); levels of inflation;
availability and cost of credit; labour; changes in government policy (legal,
fiscal, monetary)
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Demand: influenced by affordability; competition; availability of substitutes;
level of Gross Domestic Product (GDP); needs and aspirations of consumers
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Supply: Influenced by availability of raw materials and labour; logistics; ability
to produce profitably; competition for raw materials; government support
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Changes in supply and demand: supply and demand curves; elasticity of
demand; price sensitivity; influence of branding on price sensitivity
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Global interaction: levels and types of interdependence (supply chains,
ownership of businesses, movement of capital and business operations,
reducing ability of national governments to regulate global businesses)
Conclusion
M2 COMPARISON OF THE TWO BUSINESSES
compare the challenges to selected business
activities within a selected organisation, in two
different economic environments
 Consider
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Economic: importance of stability; impact on business
of changes in the economic environment (growth,
recession, ripple effect); levels of inflation;
availability and cost of credit; labour; changes in
government policy (legal, fiscal, monetary)