P5/M2
P5; describe the influence of two contrasting economic environments on business activities within
a selected organisation.
M2; compare the challenges to selected business activities within a selected organisation, in two
different economic environments
Economic Environment
The economic environment consists of external factors that can influence a business, economic
factors act as external constraints on businesses; this means you have very little control over some
factors. Recession, growth, availability and cost of credit, labour and changes in government policies
are all part of the economic environment.
Recession is temporary decline in trade; it can be identified by a fall in GDP. If recession occurs, it
would have an effect on nearly all businesses that are running a profitable business. Therefore F.R
Furniture would be heavily affected as consumer spending would decrease and therefore revenue
overall will decrease. However, other businesses such as the NHS will not be as heavily affected as
the NHS is not selling goods or services; their income is not affected unless there is a change within
the government. Recession will have a bigger effect on profitable businesses such as F.R Furniture
than on non-profitable businesses such as charities or the NHS.
Changes in government policy are when the government either alters a current policy or introduces
a new one. This done in order to target a specific problem or to prevent one, an e.g. of a policy, Baby
car seats are compulsory. Governments create the rules and frameworks in which businesses are
able to compete against each other. This again has a bigger effect on businesses such as F.R
Furniture as competition for retail businesses will always remain high, change in government policy
may force them to pay higher wages or to pay more tax. It will not have a devastating effect on
businesses such as the NHS as they are owned by the government, therefore the government will
not impose any major policies onto the NHS.
Demand and Supply
Demand is the quantity consumers are willing and able to purchase in a given time, similarly Supply
is the quantity firms and businesses are willing and able to produce in a given time. If a consumer or
firm cannot afford to produce or purchase a good/service, it will not be considered demand or
supply. Demand and Supply can be affected by the following factors; availability of raw materials,
labour, availability if substitutes/labour and also competition for raw materials. As countries grow,
their economies use more resources. Countries compete to gain access to ‘stable’ and long term
supply chains.
Demand; the willingness and ability to purchase a good at any given time.
Supply; The willingness and ability to produce a good at any given time.
The availability of raw materials doesn’t only just have an effect on primary sector businesses; it
also has an effect on secondary and tertiary businesses. Businesses that collect raw materials base
their prices on total amount of materials collected, therefore if there is a supply shock, e.g. event of
hurricane destroys farms, and prices may considerably increase as there are now fewer crops in the
country. If firms purchase expensive raw materials, their costs will increase, therefore this will have
an effect on nearly all businesses. F.R Furniture will begin to struggle as cost of stock will be high,
therefore the owner will need to increase price to attain a profit, and revenue is likely to decrease as
P5; describe the influence of two contrasting economic environments on business activities within
a selected organisation.
M2; compare the challenges to selected business activities within a selected organisation, in two
different economic environments
Economic Environment
The economic environment consists of external factors that can influence a business, economic
factors act as external constraints on businesses; this means you have very little control over some
factors. Recession, growth, availability and cost of credit, labour and changes in government policies
are all part of the economic environment.
Recession is temporary decline in trade; it can be identified by a fall in GDP. If recession occurs, it
would have an effect on nearly all businesses that are running a profitable business. Therefore F.R
Furniture would be heavily affected as consumer spending would decrease and therefore revenue
overall will decrease. However, other businesses such as the NHS will not be as heavily affected as
the NHS is not selling goods or services; their income is not affected unless there is a change within
the government. Recession will have a bigger effect on profitable businesses such as F.R Furniture
than on non-profitable businesses such as charities or the NHS.
Changes in government policy are when the government either alters a current policy or introduces
a new one. This done in order to target a specific problem or to prevent one, an e.g. of a policy, Baby
car seats are compulsory. Governments create the rules and frameworks in which businesses are
able to compete against each other. This again has a bigger effect on businesses such as F.R
Furniture as competition for retail businesses will always remain high, change in government policy
may force them to pay higher wages or to pay more tax. It will not have a devastating effect on
businesses such as the NHS as they are owned by the government, therefore the government will
not impose any major policies onto the NHS.
Demand and Supply
Demand is the quantity consumers are willing and able to purchase in a given time, similarly Supply
is the quantity firms and businesses are willing and able to produce in a given time. If a consumer or
firm cannot afford to produce or purchase a good/service, it will not be considered demand or
supply. Demand and Supply can be affected by the following factors; availability of raw materials,
labour, availability if substitutes/labour and also competition for raw materials. As countries grow,
their economies use more resources. Countries compete to gain access to ‘stable’ and long term
supply chains.
Demand; the willingness and ability to purchase a good at any given time.
Supply; The willingness and ability to produce a good at any given time.
The availability of raw materials doesn’t only just have an effect on primary sector businesses; it
also has an effect on secondary and tertiary businesses. Businesses that collect raw materials base
their prices on total amount of materials collected, therefore if there is a supply shock, e.g. event of
hurricane destroys farms, and prices may considerably increase as there are now fewer crops in the
country. If firms purchase expensive raw materials, their costs will increase, therefore this will have
an effect on nearly all businesses. F.R Furniture will begin to struggle as cost of stock will be high,
therefore the owner will need to increase price to attain a profit, and revenue is likely to decrease as
