Business organisation and environment

Table of Contents

1. Topic pack - introduction
2. 1.1 Nature of business activity - notes
3. 1.1 Nature of business activity - questions
4. 1.2 Types of organisation - notes
5. 1.2 Types of organisation - questions
6. 1.3 Organisational objectives - notes
7. 1.3 Organisational objectives - questions
8. 1.4 Stakeholders - notes
9. 1.4 Stakeholders - questions
10. 1.5 External environment - notes
11. 1.5 External environment - questions
    1. The social environment - self-test
    2. The economic environment - self-test
    3. Technological change - short answer questions
    4. Technological change - case study
    5. Economic growth - short answer questions
    6. Inflation - short answer questions
    7. Exchange rates - short answer questions
    8. Exchange rates - Case Study
    9. Unemployment - short answer questions
    10. Interest rates - short answer questions
    11. Apple's iPad goes global
    12. Anti-monopoly probe by EU
    13. Oiling the wheels of industry?
    14. Japan cuts Interest rates
    15. China relaxes controls on Yuan
    16. External influences and market structure
12. 1.5 External environment - simulations and activities
13. 1.6 Organisational planning tools - notes
14. 1.6 Growth and evolution - notes
15. 1.7 Growth and evolution - questions
16. 1.7 Growth and evolution - simulations and activities
17. 1.6 Change (HL only) - notes
18. 1.9 Globalisation - notes
19. 1.9 Globalisation - questions
20. Print View

The economic environment - self-test

1

Trade barriers In what ways have the reductions in trade barriers boosted international trade? a) By boosting export volumes from developing countries b) By making world trade more free and open c) By allowing governments to collect more revenues from tariffs d) By protecting national employment Yes, that's correct. Well done. Freer trade results from a reduction in trade barriers (protectionism).No, that's not right. The correct answer is B. A has been seen in just a few developing countries but even when volumes have increased the values have not always grown in the same proportion. C is not something which conventionally happens when barriers, of which tariffs are one, are lowered. D is one of the old reasons given for keeping trade barriers in place.Your answer has been saved.

2

Supply-side policies What is the main aim of the policies known as 'supply-side'? a) To increase domestic trade b) To increase the potential output of the economy c) To promote greater membership of trade unions d) To control inflation Yes, that's correct. Well done. Supply-side policies are intended to increase the potential output of an economy by improving productivity.No, that's not right. The correct answer is B. A might arise if the economy becomes more productive, efficient and competitive but it is not the main aim of these policies. C is often one of the casualties of these policies as they also focus on making labour more mobile and flexible. D is one of their long-term aims but not the main focus of the entire range of policies.Your answer has been saved.

3

Interest rate rise Why might an interest rate rise be bad for business? a) It might make its products more elastic b) The variable costs will alter c) Its periods of repaying debts will lengthen d) The pound will fall in value Yes, that's correct. Well done. If interest rates rise, this will make the cost of servicing any debts greater by raising the firm's interest payments. This will mean an increase in fixed costs.No, that's not right. The correct answer is C. If interest rates rise, this will make the cost of servicing any debts greater by raising the firm's interest payments. This will mean an increase in fixed costs. A is unlikely to be the case, though if the firm operates in a very competitive market any increase in its cost base might affect its competitiveness. B is also not thought to be directly influenced by interest rate changes as fixed costs tend to involve the assets that have been bought with borrowed funds. Hence they are more vulnerable to interest rate changes. If anything the pound will rise in value as speculators will want to hold it within their portfolios.Your answer has been saved.

4

Demand-pull inflation Which of the following definitions describes demand-led or demand-pull inflation? a) The type of inflation that is caused by costs of such items as raw materials rising and making companies increase their prices b) When the level of demand within an economy is greater than the ability of the economy to supply c) Changes in the amount of money being introduced to the economy d) Feelings of expectations within consumers that prices will rise in the near future Yes, that's correct. Well done. This is a good definition of demand-pull inflation.No, that's not right. The correct answer is B. A refers to cost push inflation and C is describing the 'monetarist' interpretation of inflation. D is the expectations theory of consumers actually causing prices to rise as they buy in expectations of future price rises.Your answer has been saved.

5

Short term interest rates Why might a business be worried by increases in the short term rates of interest? a) Because exports may cease to be attractive to overseas buyers b) The cost of living may increase c) The cost of financing working capital will increase and this could force cutbacks on the business d) Speculators may no longer want to invest in the pound Yes, that's correct. Well done. Cash may become 'tight' and financing the business will cost more.No, that's not right. The correct answer is C as cash may become 'tight' and financing the business will cost more. A might arise if exports are being financed by loans or if the business exports a large amount of its output but it is not normally a major cause for concern by most domestic firms. B might take place as housing costs will increase for most borrowers, however, we are dealing with 'probables' only and so C is the only near certainty. D is probably the opposite of what will take place. An increase in interest rates is liable to attract funds of a speculative nature into the UK.Your answer has been saved.

6

Changes in exchange rates In what way might an increase in the value of the £ affect a UK-based company that exports some of its output? a) Its prices will appear to have risen as new stock arrives in the export markets b) Consumers will be less likely to buy as the non-price factors have been reduced c) Overseas governments might impose a tariff on UK imports to their countries d) The government of UK will be able to tax exports Yes, that's correct. Well done. The price will rise as overseas buyers will have to change more of their currency to buy the pounds with which to buy UK exports.No, that's not right. The correct answer is A as price will rise as overseas buyers will have to change more of their currency to buy the pounds with which to buy UK exports. B is what we hope will not happen, especially if the goods are not very price elastic. Let's hope the non-price factors continue to make the UK exports look attractive to buyers. C is against the fundamentals of both the EU and WTO, so it is very unlikely to take place. D would be a 'very' unusual move by as UK government as it would force up the price of UK exports.Your answer has been saved.

7

Supply-side policies How might supply-side policies help reduce unemployment? a) By making the cost of borrowing less expensive b) By reducing the taxes charged on goods and services c) Allowing the exchange rate to fall d) By boosting skills, mobility and flexibility and so make the economy more competitive Yes, that's correct. Well done. This is exactly what many of the supply-side policies are designed to achieve.No, that's not right. The correct answer is D as this is exactly what many of the supply-side policies are designed to achieve. A is a good definition of monetary policy, whilst B refers to fiscal or tax policy. C is an attempt to affect the prices of imports and exports.Your answer has been saved.

8

Changes in government policy Why might changes in government policies affect the business cycle? a) Because they are designed by those not experienced in running a business b) Because they are designed to either expand or contract the economy c) Because they change regularly d) Because they have to be passed by the European Union Yes, that's correct. Well done. This is what government intervention into the economy is designed to achieve.No, that's not right. The correct answer is B as this is what government intervention into the economy is designed to achieve. A might be the opinion of some but is not the reason why a government introduces new policies. C this might be a correct observation though not of either all policy or why they are introduced. D is not the reason we are looking for but it is worth remembering that the one main area of business behaviour the EU does have influence in is competition.Your answer has been saved.

9

Business cycle - boom What is meant by the term boom? a) A period of time in which the demand within an economy outstrips supply and prices rise b) A period of time in which demand falls rapidly and stocks build and prices may have to fall c) A period of time which lasts for at least two consecutive quarters and involved zero or negative economic growth d) A fall in the level of employment during a downturn or recession Yes, that's correct. Well done. This is just what a boom is.No, that's not right. The correct answer is A as this is just what a boom is. B is a downturn within the economy and C is a recession. D is describing what is known as cyclical unemployment.Your answer has been saved.

10

Increase in short-term interest rates Which of the following would be directly affected by an increase in short term interest rates? a) The level of tax paid by consumers b) Government receipts from sales taxes c) The price of houses d) The influence of the central bank Yes, that's correct. Well done. House prices are closely linked to interest rates - many houses are bought on a mortgage.No, that's not right. The correct answer is C as house prices are closely linked to interest rates - most houses are bought on a mortgage. A would be part of fiscal policy and not monetary, which is what we are testing. B would also be part of fiscal policy. D is not correct, though the authority to change short-term interest rates sometimes rests with the central bank in some economies.Your answer has been saved.

11

GNP What is meant by the term Gross National Product? a) The amount of money earned by trade in a year b) The amount of income generated within an economy by those living within its boundaries c) The levy paid to the European Union for non-EU imports entering your country d) The amount of income generating by all of the country's citizens, whether living in the country or abroad Yes, that's correct. Well done. House prices are closely linked to interest rates - most houses are bought on a mortgage.No, that's not right. The correct answer is D as GNP refers to all income generated by the country including income generated overseas. A is describing our exports and B refers to the Gross Domestic Product (GDP) which does not . C is the sums paid by countries under the Common External Tariff regulations of the EU.Your answer has been saved.

12

Budget deficit A budget deficit is when a) The government raises more in tax than it intends to spend b) The government raises taxes c) The government intends to spend more than it will raise in taxes d) The government changes the rate of sales taxes Yes, that's correct. Well done. This will result in a budget deficit.No, that's not right. The correct answer is C as this will result in a budget deficit. A is the opposite and is known as a budget surplus. B is just a change in government fiscal policy as is D.Your answer has been saved.