• Profits, however may give false impressions. £1 million profit sounds good but if £100 million worth of sales then it is pretty poor (only 1% profit)
• Market share - (The quantity sold by a business / Total sales in the market)*100
• Competitiveness - The strength of a business position in the market based upon market share and profit. It reflects whether people are prepared to use the business over its rivals.
• Competitive advantage - Advantage a business has over its rivals which help to win customers. The advantages should be difficult to copy (defensible) and unique (distinctive)
• Social success - Performance of a business, taking account of social, environmental and ethical factors
• Corporate Social Responsibility (CSR) Report - Gives details of the costs of a business’s activity on society and the environment and the measures they are taking to reduce these costs
Business failure
Businesses fail when the revenue they earn from sales cannot cover the costs of production. The business gradually becomes insolvent where they do not have sufficient funds to pay expenses and therefore cannot continue to trade.
Causes of Business failure:
• Cash flow, Credit terms - Payments do not need to be made for 30 to 60 days however costs such as wages need to be paid up front
• Lack of competitiveness
• Change in demand
• Failing to get the marketing mix right
• Productivity, or Business efficiency
Productivity - Measure of output per worker or machine per period of time
Changing demand:
• Falling income
• Changing taste and preferences
• Fashions
• Advertising
• Competition
What problems does the economy face?
Changing demand - Demand refers to the amount of spending that takes place in the economy. The level of demand in the economy may change due to:
• The level of economic activity (depends on buying and selling that takes place in an economy)
• Interest rates
• Consumer confidence
• Demand from foreign customers
Interest rates - High interest rates = cost of borrowing is high. This may put off those thinking of taking out a loan, which is important for expensive items such as cars. Households with a mortgage are also affected.
Families may have more or less disposable income which may affect how much they spend.
Consumer confidence - The measure of how prepared consumers are to spend money. If unemployment was rising then people would have less consumer confidence as they would believe their job is under threat.
When the economy is doing well, people may be prepared to spend money on items regarded as luxuries such as new cars.
Inflation - Measures the change in the average level of prices in an economy. Measured using CPI (Consumer Price Index) which compares the price of a typical basket of goods in one time to another time period.
Inflation may be caused by:
• Rise in costs of production being passed on to the consumer at higher prices. Due to;
o Rising raw material prices
o Higher wage costs
o Increase in the process paid for imported goods
• A rise in the level of demand in the economy- especially when supply is unable to keep up
o Rising wages
o Increased customer confidence
External shock: An unanticipated change in demand or inflation caused by factors beyond the control of the country e.g. Increase in oil prices
Internal shock: An unanticipated change in demand or inflation caused by factors within the country. For example a drought causing wheat prices to increase which would disadvantage consumers and business which use wheat.
Unemployment can be measured using:
• Claimant Count (monthly count of those claiming unemployment benefits)
• Labour Force Survey (measure based on a monthly survey to identify who is seeking work)
Costs to an individual of unemployment:
• Lower level of income > lower standard of living
• Loss of self-esteem
• Losing skills
• Family break-up
Costs to society of unemployment:
• Less Tax revenue to the government
• Cost to government for benefits
• Crime
• Impact on other businesses
Exchange rates
Changes due to supply and demand. If Britain increased their rate of interest, the demand for pounds would increase as foreign investors would convert their currency to pounds to save in the UK banks which now have had higher interest rates. The increase in demand would mean the exchange rate of the pound increases.
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