1.3 Changing business environment
1.3.1: Government influence over
decision making by using economic
policy measures
UNIT 1.1
1.3 Changing business environment
Target
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Learning Objective
Outcome
Who?
Keywords
ALL
State the role of the
government in
influencing decisions
within local, national
and international
contexts and explain
how business may
react
Identify need for intervention
Show understanding of the
impact of intervention in terms
of business decisions e.g. what
is produced and how
Give examples of intervention
both to support and control the
impact of business activity on
people, the economy and the
environment
•
•
•
•
•
•
Know how interest rates affect
business
Know how different tax changes
affect business
Understand how business
decisions will be affected by
such changes
MOST
Demonstrate an
awareness of the
impact that tax and
interest rate changes
might have on
business decisions
C
B
SOME
Direct Tax
Fiscal Policies
GDP
Indirect tax
Inflation
Monetary
Policies
• Money Supply
• Public
Expenditure
Starter
Pg 39 Question 1 - 4
Governments intervene
• Many governments intervene in their national
economies to achieve four main objectives
• low and stable price inflation
• high and stable employment
• economic growth in national output and
income a favourable balance of international
trade and balance of payments
.. Add from the list on page 39 of your text book
Policy instruments
• Governments use policy instruments to influence
consumer spending and business decisions to help
achieve their economic objectives.
They include:
• varying the level of public expenditure (fiscal policy)
• changes in direct and indirect taxes, and the overall
level of taxation (fiscal policy)
• changing interest rates (Monetary policies)
• introducing laws and regulations
Policy instruments
• Fiscal Policy - Public expenditure (income &
expenditure)
• Monetary policies (interest rates)
In pairs
1. How does a government get its money?
2. How does the government spend its Money?
3. How do changes in taxation affect business?
Spider diagram/ bullet point pg 40
Policy instruments
• Raising public expenditure, cutting direct
taxes and lowering interest rates…
• …. can increase total demand for goods and
services, boost business investment, output
and employment creation.
• However, these measures may increase the
demand for imports and cause prices to rise.
Effect business?
• Changes in indirect taxes on the prices of
some goods and services can directly
influence consumer spending on those
products and therefore the sales of busineses
supplying them.
• Laws and regulations can be used to control
or even outlaw some
Policy instruments
• Monetary policies (interest rates)
How is money supply controlled?
How do the changes affect business?
Pg 42
Gross domestic product (GDP)
• The monetary value of all the finished goods and services produced within
a country's borders in a specific time period, though GDP is usually
calculated on an annual basis.
• It includes all of private and public consumption, government outlays,
investments and exports less imports that occur within a defined territory.
• It represents the total dollar value of all goods and services produced over
a specific time period
http://www.youtube.com/watch?v=Aiz6P0Efy
bU (5mins)
Economic Growth
• Gross Domestic Product (GDP)
Singapore:
$239.7 Billion
Explained: Pg 42
p
• In every country the government intervenes in economic
activity.
• Reasons for intervention includes provisions of essential
services and protecting weaker members of society
• Examples of government intervention include taxes and
subsidies and running services such as public transport.
• Taxes earn large revenues for governments; they also
discourage certain types of activity.
• A Subsidy is a payment to encourage certain activities
• Rises in interests rates can reduce profits; a fall encourages
borrowing and can lead to more spending.
1.3.2 IMPACT ON TECHNOLOGY
• What is IT?
• Pg 44
1.3.2 IMPACT ON TECHNOLOGY
• Technology has affected all aspects of business functions.
• How do you think the internet, which has affected
Businesses?
1.3.2 IMPACT ON TECHNOLOGY
• Human resource management (recruitment process has
become online),
• Marketing (such as e-commerce),
• Finance (annual reports are now publicized online)
• Operations management (such as access to benchmarking
data).
Technological opportunities and
threats
There are always positives and negatives!
…….opportunities and threats
1.3.2 IMPACT ON TECHNOLOGY
Research and development (R&D) can lead to:
• new products,
• processes and
• materials
• can give a business a competitive advantage
over rival organizations.
• However, R&D can be expensive and not all
new discoveries and developments succeed.
1.3.2 IMPACT ON TECHNOLOGY
New technologies can
• save labour,
• reduce costs,
• increase quality and
• make production more efficient.
However, costs of buying or hiring new
technologically advanced machines, like robots
and other advanced equipment, can be high.
Workers may also need retraining.
1.3.2 IMPACT ON TECHNOLOGY
• The increasing speed at which technological
change is taking place means many more
products and processes are becoming out of
date and being replaced with new ones at an
increasing rate.
Technological opportunities
Opportunities presented by technology:
• New working practices:
• Increased productivity and efficiency
• Quicker product development time
• Newer products and new markets:
• The creation of jobs
Technological opportunities
• Many large firms use technology to increase efficiency and
accuracy.
• E.g Toyota Car Production Line, production line is lined with
machines which specialize in putting the car components
together.
Threats presented by technology
• Insecurity and risk
• Costly
• Job loss
Business need to ask themselves…
• Cost: expensive cost of purchase, installation, replacement and insurance
of new technology
• Benefits: gains in efficiency and profits by using technology in the
production process
• Human relations- impact of technology on staff morale, workforce
planning and resistance to change. Technology might threaten job security
and put people out of work.
• Recruitment and training- cost of training employees to use the
technology
Developments in IT
•
•
•
•
•
•
•
Write a brief note on the impact of:
Internet
Email
Broadband
Mobile phone
Network
New technology in production & provide
services
Pg 45 - 46
1.3.2 IMPACT ON TECHNOLOGY
• The Internet is a powerful sales and marketing
tool in business. Many businesses can reduce
their costs, increase sales, and improve their
productivity and competitiveness using
E-commerce.
• E-commerce offers consumers increased
choice and increases competition between
businesses, but online fraud is increasing.
• Threats pg 47-48
1.3.2 IMPACT ON TECHNOLOGY
• Workers and trade unions may resist the
introduction of new technologies if it
threatens their jobs.
• New technologies have replaced many tasks
originally undertaken by labour but have also
created a demand for new skills, for example
in computer software engineering, website
design and ‘green’ technologies.
p
• Technology involves the application of new knowledge.
Businesses apply new technologies to create new products.
• New technology can reduce costs; they change the way in
which goods are produced and often lead to saving of labour.
• New technologies can damage business that fail to adapt.
• Business can use e-commerce to sell to a wider market.
• There is an initial cost in setting up a website, but once
established it opens the potential to a global market.
• The website needs to be easy to operate, and easy for
customers to make payments.
1.3.3 Business reaction to market changes
Activity: pg 51
1.3.3 Business reaction to market changes
• Consumer spending patterns are always
changing.
• A good business will try to predict the
products and product features consumers will
want in the future and supply them before
rival firms do.
1.3.3 Business reaction to market changes
• To analyse market trends it is important to
know what is causing them and what factors
may cause them to change in the future.
• Changes in income, the cost and availability of
credit, populations, social and cultural factors,
advertising, tastes and fashions, seasonal
factors and laws and regulations can all affect
consumer demand and spending patterns.
1.3.3 Business reaction to market changes
Changes in:
• income,
• the cost and
• availability of credit,
• populations,
• social and cultural factors,
• advertising, tastes and fashions,
• seasonal factors and
• laws and regulations
…..can all affect consumer demand and spending patterns.
1.3.3 Business reaction to market changes
• Competition to supply the markets for many
goods and services is growing. Business
growth in newly industrialized economies,
such as China and India, and technological
change are driving this trend.
• Increasing price competition and non-price
competition can lower prices and improve the
quality of products and choice for consumers.
1.3.3 Business reaction to market changes
• Competition forces businesses to innovate,
increase their productivity and cut costs, but
not all businesses will survive destructive
competition.
Activity:
• What influences demand?
• Activity 8.1
p
• Consumer spending patterns change in response to
changes in income and life style choices.
• In competitive markets, business must aim to offer
higher quality and lower prices than rivals.