Understanding that businesses operate with an external environment 7/10/2021
The external environment can affect:
Costs
o Costs are the value paid or to be paid for the acquisition of goods and services by
businesses
Demand
o The amount customers are willing and able to buy at a set price at any given point In
time.
External Factors Explanation Impact and costs Impact on demands
Market conditions They will affect the + if there is a high The level of demand
demand for suppliers level of demand then will be a clear
and therefore directly suppliers may be in indicator of market
impacts costs. If the short supply allowing conditions. If the
market is in decline suppliers to increase market is growing
costs may be lowered costs. demand will be
as firms try to increasing. May act as
maintain sales. a signal for new
businesses to enter
the market.
Incomes The earnings of Rising income may be Incomes directly affect
consumers that will a result of higher consumers’ spending
directly influence wages (cost to power. If incomes rise
spending power business). May be due it could lead to rise in
to government demand as customers
increasing national have higher income.
wage
Interest rates The cost of borrowing Will affect the cost of If interest rates go up,
or the reward for borrowing by it will encourage
saving business. If interest consumers to save
rates go up so will and not spend. Fall in
interest section of interest rates will have
repayments. Will opposite effect. High
increase fixed costs of interest rates may
business, lead to a fall in
demand.
Demographic The statistical Rising net migration Migration seen an
characteristics of the increases size of increase in demand
population workforce in the UK. for wide range of
Driven average wage goods and services
costs down. Also influence the
Change in UK type of products
demographics and the demand.
size of the size and
age of the population
The external environment can affect:
Costs
o Costs are the value paid or to be paid for the acquisition of goods and services by
businesses
Demand
o The amount customers are willing and able to buy at a set price at any given point In
time.
External Factors Explanation Impact and costs Impact on demands
Market conditions They will affect the + if there is a high The level of demand
demand for suppliers level of demand then will be a clear
and therefore directly suppliers may be in indicator of market
impacts costs. If the short supply allowing conditions. If the
market is in decline suppliers to increase market is growing
costs may be lowered costs. demand will be
as firms try to increasing. May act as
maintain sales. a signal for new
businesses to enter
the market.
Incomes The earnings of Rising income may be Incomes directly affect
consumers that will a result of higher consumers’ spending
directly influence wages (cost to power. If incomes rise
spending power business). May be due it could lead to rise in
to government demand as customers
increasing national have higher income.
wage
Interest rates The cost of borrowing Will affect the cost of If interest rates go up,
or the reward for borrowing by it will encourage
saving business. If interest consumers to save
rates go up so will and not spend. Fall in
interest section of interest rates will have
repayments. Will opposite effect. High
increase fixed costs of interest rates may
business, lead to a fall in
demand.
Demographic The statistical Rising net migration Migration seen an
characteristics of the increases size of increase in demand
population workforce in the UK. for wide range of
Driven average wage goods and services
costs down. Also influence the
Change in UK type of products
demographics and the demand.
size of the size and
age of the population
