3.1.3 Understanding that businesses operate within an external environment
How the external environment can affect costs and demand
The different areas of the external environment that affect a business:
- Natural disasters
- Interest rates
- Availability of materials
- Recession
- Price of materials
Components of the external environment:
- Market conditions and competition
- Incomes
- Interest rates
- Demographic factors (eg trend, behaviours of people)
- Environmental issues
The external business environment and how it affects it:
- Current and changing conditions within the external environment have an impact upon a business
- It can have a direct impact on their mission statement, aims, and objectives
- The external environment helps us to understand choices that a business has made and helps a business make future decisions
- It affects a firms costs and the demand for a product
- Firms would increase the price in order to restore lost profit margins
- Any factor that has the effect of increasing costs of a business could ultimately result in an increase in the price of a product set by the business
Factors that affect demand:
- Price
- Income
- Substitutions
- Supply
- Market trends
- Complimentary goods
- Marketing and advertising
- Seasons
- Government actions and laws
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