IGCSE Business

Studies
Topic 6 - External influences on business activity
 Overview

6.1 Economic issues 6.3 Business and the international

● 6.1.1 Business cycle economy
● 6.3.1 The importance of
● 6.1.2 How government control over
globalisation
the economy affects business
activity and how businesses may
respond ● 6.3.2 Reasons for the
importance and growth of
6.2 Environmental and ethical issues multinational companies
(MNCs)
● 6.2.1 Environmental concerns and
ethical issues as both opportunities
and constraints for businesses
● 6.3.3 The impact of exchange
rate changes
 6.1 Economic issues
6.1.1 Business cycle:

● Main stages of the business cycle, e.g. growth, boom, recession, slump

● Impact on businesses of changes in employment levels, inflation and Gross Domestic Product (GDP)

6.1.2 How government control over the economy affects business activity and how businesses may
respond:

● Identify government economic objectives, e.g. increasing Gross Domestic Product (GDP)

● Impact of changes in taxes and government spending

● Impact of changes in interest rates

● How businesses might respond to these changes

Business cycle
● “Gross Domestic Product (GDP)” is the
total value of output of goods and services in
a country in one year.

● Growth – This is when GDP is rising,

unemployment is generally falling and the
country is enjoying higher living standards.
Most businesses will do well at this time.
.
● Boom – This is caused by too much spending.
Prices start to rise quickly and there are
shortages of skilled workers. Business costs
will be rising and businesses will become
uncertain about the future.

● Recession – Often caused by too little

spending. This is a period when GDP actually
falls. Most businesses will experience falling
demand and profits. Workers may lose their
jobs.

● Slump – A serious and long-drawn-out

recession. Unemployment reaches very high
levels and prices may fall. Many businesses
will fail to survive this period.
Impact on businesses of changes in
employment levels, inflation and GDP
Employment Inflation GDP
levels
● Changes in employment levels will ● Rising inflation may result in ● Increasing GDP means
affect the ability of the business to business costs increasing. that the economy is
recruit new employees and also the
Prices of products may have growing.
incomes of customers.
to be increased, leading to
● If unemployment goes up then it falling sales for the business. ● Generally businesses will
may be easier to recruit employees benefit from increasing
as there are more people to choose ● Rising prices of essential sales as more people have
from. Customers may have lost their products may also mean jobs and have more
jobs and so income levels may have consumers have less income income to spend buying
fallen, therefore reducing the available for the purchase of products.
amount of sales made by the
non-essential products.
business.
● It may start to get more
● However, some businesses that sell ● The effect of increasing difficult to recruit new
cheaper products may see sales inflation on businesses may employees if
increase as customers cut back on depend on the type of unemployment starts to
spending and buy cheaper products they sell. fall at the same time.
alternatives.
Past Paper Example
(October/November 2024 QP12)
 Answer
Points might include:

● Less/lower demand/sales for car repairs reducing revenue / need to make redundancies
● Less/lower competition (as other businesses fail) which could increase potential customer base
● Widen pool of potential employees if he wants more than 2 employees which may lower
recruitment costs
● Reduce number of employees so lower break-even / cash outflows / lower costs so does not
need finance
● May lower prices which reduces added value increase demand
● Material costs may be lower which may increase profit margin/lower variable costs
● May delay any expansion plans as not able to afford it so business must remain small
● Hard to survive / may close down / objective may switch to survival so may lose his
investment/difficult to attract investment
● May have cash flow problems so need overdraft/loan/cannot repay loans/day-to-day costs
● Customers may delay payment / more bad debts
● More difficult to raise finance/banks may not lend
Government economic objectives
Low inflation Low unemployment
● “Inflation” is the increase in the ● “Unemployment” exists when people
average price level of goods and who are willing and able to work
services over time. cannot find a job.

Economic growth Balance of payments

● “Economic growth” is when a ● The “balance of payments” records
country’s GDP increases – more goods the difference between a country’s
and services are produced than in the exports and imports.
previous year.
Low inflation
● Problems a country will have if there is rapid inflation:

○ Workers’ wages will not buy as many goods as before, meaning that their real incomes will fall.

■ “Real income” is the value, in terms of what can be bought, of an income – if a worker receives
a 6% wage increase but prices rise by 10% in the same year, then the worker’s real income has
fallen by 4%.

■ Workers may demand higher wages so that their real incomes increase.

○ Prices of the goods produced in the country will be higher than those in other countries.

■ People may buy foreign goods instead.

■ Jobs in the country will be lost.

○ Businesses will be unlikely to want to expand and create more jobs in the near future
.
■ The living standards are likely to fall.
Low inflation

● Therefore low inflation can encourage businesses to expand and it makes it easier for a country to
sell its goods and services abroad.
Low unemployment
● Problems unemployment causes:

○ Unemployed people do not produce any goods or services.

■ The total level of output in the country will be lower than it could be.

○ The government pays unemployment benefit to those without jobs.

■ A high level of unemployment will cost the government a great deal of money, which
cannot be spent on other things such as schools and hospitals.

● Therefore, low unemployment will help to increase the output of a country and improve workers’
living standards.
Economic growth
● When a country’s GDP is falling there is no economic growth. The problems this causes include the
following:

○ As output is falling, fewer workers are needed and unemployment will occur.

○ The average standard of living of the population – the number of goods and services they can
afford to buy in one year – will decline. In effect, most people will become poorer.

○ Business owners will not expand their business as people will have less money to spend on
the products they make.
Balance of payments
● “Exports” are goods and services sold from one country to other countries.

● “Imports” are goods and services bought in by one country from other countries.

● Governments will aim to achieve equality or balance between imports and exports over a period of
time.

● If the value of a country’s imports is greater than the value of its exports then it has a balance of
payments deficit, which causes problems such as:

○ The country could run out of foreign currencies and it may have to borrow from abroad.

○ The exchange rate will likely to fall (i.e., “exchange rate depreciation”). The country’s
currency will now buy less abroad than it did before depreciation.

■ “Exchange rate” is the price of one currency in terms of another, for example, £1:$1.5.
Government economic policies
Fiscal policy Monetary policy Supply side
policies

● any change by the ● change in interest ● try to increase the

government in tax rates by the competitiveness of
rates or public sector government or central industries in an
spending bank (e.g., the economy against
European Central those from other
Bank). countries (i.e., policies
to make the economy
more efficient).
Fiscal policy – taxes and government spending
● “Direct taxes” are paid directly from incomes, (e.g., income tax or profits tax).

○ Income tax – Tax on people’s income

■ Usually, the higher a person’s income, the greater will be the amount of tax they have to pay to the
government.

■ Income tax is set at a certain percentage of income (e.g., 25% of income).

■ In many countries, income tax is progressive, meaning that the rich pay tax at a higher percentage rate
than the poor.

■ How would businesses be affected by an increase in the rate of income tax?

● Individual taxpayers would have a lower disposable income as they would have less money after
tax to spend and save.

○ “Disposable income” is the level of income a taxpayer has after paying income tax.

● Businesses would be likely to see a fall in sales, which could result in managers deciding to
produce less and some workers losing their jobs.
Fiscal policy – taxes and government spending
● “Direct taxes” are paid directly from incomes, (e.g., income tax or profits tax).

○ Profit tax – Tax on profits made by businesses

■ How would an increase in the rate of corporation tax affect businesses?

● Businesses would have lower profits after tax, meaning managers will have less
money or finance to put back into the business. This will result in the business
finding it more difficult to expand, and new projects, such as additional factories
or shops, may have to be cancelled.

● Lower profits after tax is also bad news for the owners of the business as there
will be less money to pay back to the owners who originally invested in the
business.

● Fewer people will want to start their own business if they consider that the
government will take a large share of any profits made.

● Companies’ share prices could fall.

 Which businesses ● Businesses which produce luxury goods
which consumers do not have to buy
are likely to be most are likely to be the most affected.

affected by this ● Businesses producing essential goods

and services will be less affected as
increase in income consumers will still have to buy these
products.
tax rates?
Fiscal policy – taxes and government spending
● “Indirect taxes” are added to the prices of goods and taxpayers pay the tax as they purchase the
goods, (e.g., Value-Added Tax (VAT)).

○ VAT – tax added to the prices of the products we all buy.

■ How would businesses be affected by an increase in an indirect tax?

● Prices of goods in the shops would rise, resulting in consumers buying fewer
items. This will reduce the demand for products made by businesses.

● However, not all businesses will be affected in the same way. If consumers need
to buy a product such as a new battery for their alarm clock, then the price
increase is unlikely to stop them doing so, but they might buy fewer ice creams as
their prices have risen and they are hardly essential to anyone.

● Workers employed by a business will notice that their wages buy less in the shops,
meaning their real incomes will have declined. Businesses may be under pressure
to raise wages, which will force up the costs of making products.
Fiscal policy – taxes and government spending
● Many governments try to reduce the import of products from other countries by putting special taxes on them.

○ An “import tariff” is a tax on an imported product.

■ How would businesses in a country be affected if the government put tariffs on imports into the
country?

● Businesses will benefit if they are competing with imported goods. These will now become more
expensive, leading to an increase in sales of home-produced goods.

● Businesses will have higher costs if they have to import raw materials or components for their
own factories. These will now be more expensive.

● Other countries may now take the same action and introduce import tariffs too (known as
“retaliation”). A business trying to export to these countries will probably sell fewer goods than
before.

○ An “import quota” is a physical limit on the quantity of a product that can be imported.

■ Quotas can be used selectively to protect certain industries from foreign competition that may be seen
as unfair or damaging to jobs.
Fiscal policy – taxes and government spending
Monetary policy – interest rates
● An “interest rate” is the
cost of borrowing money.

● “Exchange rate
appreciation” is the rise in
the value of a currency
compared with other
currencies.
Supply-side policies
Privatisation Improve training Increase
and education competition in all
industries
● Aim is to use the profit ● Governments plan to ● May be done by
motive to improve improve the skills of reducing government
business efficiency. the country’s workers. controls over industry
This is particularly or by acting against
important in those monopolies.
industries such as
computer software
which are often very
short of skilled staff.
How businesses might react to
changes in economic policy
 Past Paper
Example
(May/June 2024 QP22)
 Past Paper
Example
(May/June 2024 QP22)
 Past Paper
Example
(May/June 2024 QP22)
 Answer
Relevant ways might include:

● Makes it easier for JJ to recruit new employees – larger pool of unemployed people to choose
from – may be more skilled people available for work

● May make it easier to resist demand for higher wages from employees – rising level of
unemployment means more competition amongst workers for jobs - so willing to accept lower
wages

● May lead to lower demand for JJ's products – consumer spending is lower – as many people
have lost their jobs so incomes are lower

● Lower priced products produced by JJ may see an increase in demand – as consumers have
less income available to spend on luxury high priced items

● JJ may be less willing to invest – as future sales may not increase for some time – making it
more difficult to gain a return on investment

● Lower sales in country X so JJ may try harder to export its products - spreads risk
 6.2 Environmental and ethical issues
6.2.1 Environmental concerns and ethical issues as both opportunities and constraints for
businesses:

● How business activity can impact on the environment, e.g. global warming

● The concept of externalities: possible external costs and external benefits of business decisions

● Sustainable development; how business activity can contribute to this

● How and why business might respond to environmental pressures and opportunities, e.g. pressure
groups

● The role of legal controls over business activity affecting the environment, e.g. pollution controls

● Ethical issues a business might face: conflicts between profits and ethics

● How business might react and respond to ethical issues, e.g. child labour, paying fair prices to
suppliers
How business activity can impact on the environment

● Business activity aims to satisfy customers’ demand for goods and services –
but it often has an impact on the environment.

○ “Environment” is our natural world including, for example, pure air, clean
water and undeveloped countryside.

○ “Social responsibility” is when a business decision benefits stakeholders

other than shareholders, for example, a decision to protect the environment
by reducing pollution by using the latest and ‘greenest’ production
equipment.
How business activity can impact on the environment

● Examples:

○ Aircraft jet engine emissions damage the atmosphere.

○ Pollution from factory chimneys reduces air quality.

○ Waste disposal can pollute rivers and seas.

○ Transport of goods by ship and trucks burns fossil fuels such as oil, which
create carbon emissions and may be linked to global warming and climate
change.

■ “Global warming” is a gradual increase in the overall temperature of

the Earth’s atmosphere, generally thought to be caused by increased
levels of carbon dioxide, CFCs, and other pollutants in the atmosphere.
Do negative
impacts on
the natural
environment
matter?

● A “pressure group” is made up of people who want to change business (or government) decisions by
taking action, such as organising consumer boycotts.
Externalities
● Most business activities – such as locating a factory or producing goods and services – lead to
many different costs and benefits.

○ “Private costs” of an activity are the costs paid for by a business or the consumer of the
product.

○ “Private benefits” of an activity are the gains to a business or the consumer of the product.

○ “External costs” are costs paid for by the rest of society, other than the business, as a result
of business activity.

○ “External benefits” are the gains to the rest of society, other than the business, as a result
of business activity.

○ Social cost = external costs + private costs.

○ Social benefit = external benefits + private benefits.

Sustainable development
● “Sustainable development” is development (i.e., achieving economic growth) without putting at
risk the living standards of future generations.

● What can businesses do to achieve sustainable development?

○ Use renewable energy – by fitting solar panels or buying energy that uses renewable sources
such as wind or tidal power.

○ Recycle waste – by reusing water and other products that would otherwise be wasted or
disposed of, total use of resources is reduced.

○ Use fewer resources – lean production is about managing production so efficiently that the
minimum quantity of resources is used.

○ Develop new ‘environmentally friendly’ products and production methods – for example,
replacing drink cans and bottles with biodegradable packaging that will not damage the
environment.
How and why business might
respond to environmental pressures
and opportunities
● 3 main influences:

○ Consumers

○ Pressure groups

○ Government
How and why business might respond to environmental
pressures and opportunities – Consumers

● Bad publicity is bad news!

● If a business is reported as destroying an important natural site or dumping waste in the sea, then
many consumers will stop buying its products.

● An increasing proportion of consumers are becoming concerned about the environment.

● Businesses obviously want to sell goods profitably. If sales of a product fall because consumers
think it is harmful to nature, then the business may have to quickly change its products or its
production methods.
How and why business might respond to environmental
pressures and opportunities – Pressure groups

● “Pressure groups” are groups of people who act together to try to force businesses or
governments to adopt certain policies.

● Pressure groups have become increasingly powerful and have taken effective actions against
businesses that are not socially responsible.

○ Example: Pressure groups such as Greenpeace and Earth First! have tried to block up
businesses’ waste pipes or organise consumer boycotts.

■ A “consumer boycott” is when consumers decide not to buy products from

businesses that do not act in a socially responsible way.
How and why business might respond to environmental
pressures and opportunities – Pressure groups

Pressure group activity is Pressure group activity is

likely to change business unlikely to result in a change
actions when: in business actions when:

● It has popular public support and ● What the firm is doing is unpopular but
receives much media coverage not illegal, such as testing drugs on
animals
● Consumer boycotts result in much
reduced sales for the business ● The cost to the business of changing its
methods is more than the possible cost
of poor image and lost sales
● The group is well organised and
financed ● The business sells to other businesses
rather than to consumers – public
pressure will be less effective
How and why business might respond to environmental
pressures and opportunities – Governments

● Governments can make business activities illegal

○ Examples:

■ Locating in environmentally sensitive areas such as national parks

■ Dumping waste products into rivers or the sea – though it is sometimes difficult to
prove which business is responsible for this

■ Making products that cannot easily be recycled

● Manufacturers often complain that these laws make it more expensive for them to produce, raising
prices to consumers. For this reason some governments do not pass strict laws on the
environment, hoping that this will encourage firms to produce in their country to create jobs.
How and why business might respond to environmental
pressures and opportunities – Governments

● Governments can impose financial penalties on businesses, such as pollution permits

○ “Pollution permits” are licences to pollute up to a certain level.

○ Governments can sell a permit to a factory that produces pollution. If it produces more
pollution than the permit allows, it must either buy more permits from ‘clean’ businesses or
pay large fines.

○ Either way, the costs of the business increase. Businesses producing much less pollution can
sell their permits to ‘dirty’ factories, encouraging businesses to produce goods in less
polluting ways.

○ Other financial penalties could be additional taxes on goods or factories that create pollution.
Past Paper
Example
(February/March 2024 QP12)
 Answer
Points might include:

● May have to use renewable sources of energy / may have to change their energy sources in its
factory
● May have to change materials used / find new supplier which could be difficult to do in a
recession
● May have to relocate to produce hats
● May have to reduce waste / find alternative ways to dispose of waste leading to fewer issues
with pressure groups
● May have to change what they make / redesign products to ones that are environmentally
friendly
● May have to pay tax / obtain licence to pollute / pay fines which could affect its cash-flow
forecast
● May have to lower/limit output
● May have to change production method / buy new machinery (that pollutes less)
● May have to change the packaging
● Require more training/retraining
Ethical issues a business might face
● “Ethical decisions” are based on a moral code. Sometimes referred to as ‘doing the right thing’.

● Two extreme views are:

○ As long as a business does not deliberately break the law then any decision it makes is
acceptable. Businesses want to make profits, after all.

○ Even if certain activities are not illegal, it is unethical and therefore wrong to do them despite
any increase in profits that might occur.

● Example: Assume a large multinational clothing business – Company X – bought clothes from a
factory in a low-income country. The managers of Company X know that the factory employs child
labour – it is not illegal to employ workers as young as 12 years old in the country it is based in.
Another business – Company Y – only buys clothes from suppliers who guarantee not to employ
children and pay reasonable wages and offer good working conditions. Company Y managers check
that suppliers keep to these standards. What is the potential impact on Company Y of this ethical
decision?
 Past Paper
Example
(May/June 2024 QP22)
 Past Paper
Example
(May/June 2024 QP22)
 Past Paper
Example
(May/June 2024 QP22)
 Answer
Relevant points might include:

● Using coal for fuel in its factory

○ Using coal causes global warming giving JJ a bad reputation - bad publicity from pressure
groups

○ Price of coal is increasing which continually increases cost of power for the factory – if JJ
continues to use coal it will raise the costs of manufacturing jewellery

○ Could choose to reduce use of coal so JJ could benefit from the 25% government grant to
invest in solar power for the factory – this would reduce the environmental impact of JJ’s
factory which other manufacturers may not be doing so improving JJ’s image - reducing
the pressure from environmental pressure groups

○ As all jewellery manufacturers use the same process and have the same increases in the
price of coal – may be no change in JJ’s competitiveness
 Answer
Relevant points might include:

● Buying from suppliers that damage the environment

○ JJ may be negatively affected by its association if consumers become aware of where JJ

buys its raw materials - JJ’s suppliers are causing environmental damage to the areas
around their mines

○ Some consumers are only interested in the price of JJ’s products and may not care about
the suppliers – so may have no effect on JJ’s sales/revenue

○ Pressure groups may try to make JJ change its suppliers – may lead to increased raw
material costs as located further away – raising prices/reducing profit margins

○ JJ could encourage its suppliers to change their mining operations to more

environmentally friendly methods helps JJ’s reputation – but may lead to increased costs
 Answer
Justification might include:

● Conclusion

○ The issue of using coal should be the first to solve because coal prices are increasing so
costs will continue to rise if JJ does not change to solar power. The 25% grant from the
government will help. The initial investment can be repaid over a long time period and
costs reduced throughout this time. Customers may not be aware of the environmental
damage caused by the suppliers JJ uses and so there may be no effect on sales or
revenue and there is no rush to reduce this problem.

○ The issue of buying from local suppliers that damage the environment should be solved
first as the damage to JJ's reputation may be difficult to recover from and the business
may lose many loyal customers of its jewellery, leading to lower revenue/profit.
 6.3 Business and the international economy

6.3.1 The importance of globalisation:

● The concept of globalisation and the reasons for it

● Opportunities and threats of globalisation for businesses

● Why governments might introduce import tariffs and import quotas

6.3.2 Reasons for the importance and growth of multinational companies (MNCs):

● Benefits to a business of becoming a multinational and the impact on its stakeholders

● Potential benefits to a country and/or economy where a MNC is located, e.g. jobs, exports, increased choice, investment

● Potential drawbacks to a country and/or economy where a MNC is located, e.g. reduced sales of local businesses, repatriation of profits

6.3.3 The impact of exchange rate changes:

● Depreciation and appreciation of an exchange rate

● How exchange rate changes can affect businesses as importers and exporters of products, e.g. prices, competitiveness, profitability
(exchange rate calculations will not be assessed)
Globalisation
● “Globalisation” describes increases in worldwide trade and movement of people and capital between
countries.

● Why globalisation is becoming more and more prominent:

○ Increasing numbers of free trade agreements and economic unions between countries have reduced
protection for industries. Consumers can purchase goods and services from other countries with few
or no import controls such as tariffs.

■ “Free trade agreements” exist when countries agree to trade imports/exports with no
barriers such as tariffs and quotas.

○ Improved and cheaper travel links and communications between all parts of the world have made it
easier to transport products globally. In addition the internet allows easy price comparisons between
goods from many countries. Online or e-commerce is allowing orders to be placed from anywhere in
the world.

○ Many ‘emerging market countries’ are industrialising very rapidly. China and countries in South-east
Asia used to import many of the goods they needed. Now their own manufacturing industries are so
strong they can export in large quantities – at very competitive prices.
Opportunities and threats of globalisation for business
Opportunities and threats of globalisation for business
Past Paper
Example
(May/June 2023 QP11)
 Answer
Opportunities might include:

● Increase potential sales/access to more markets as it exports 40% of its products increasing revenue

● Cheaper raw materials from other countries to manufacture which can improve the profit margin

● Labour may be cheaper reducing (labour) costs

● Economies of scale or relevant examples

● Global brands are more recognised/desirable

Threats might include:

● Increased competition leading to a reduction in market share

● Employees may leave if WLT cannot pay as much as international competitors so may lose some of its 60
employees increasing recruitment costs

● Over dependent on supplies from other countries

Why governments might introduce import tariffs
and import quotas
● An “import tariff” is a tax placed on imported goods when they arrive into the
country.

● An “import quota” is a restriction on the quantity of a product that can be

imported.

● Forms of protectionism:

○ “Protectionism” is when a government protects domestic businesses from

foreign competition using tariffs and quotas
Why governments might introduce import tariffs and
import quotas
Protectionism argument Free trade argument

● Protectionism protects domestic ● Free trade allows local consumers to

industries from competition that buy imported goods as cheaply as
might otherwise close them down.
possible (to increase their living
● Foreign competitors might be able to standards) and for local businesses
produce products much more to produce and export goods and
cheaply and if they were allowed to services in which they have a
import without any restriction then competitive advantage.
local companies might be forced out
of business.
● In this way, living standards across
● This would reduce employment and the globe can be increased.
incomes.
Multinational corporations (MNCs)
● “Multinational businesses” (also known as as “multinational corporations”,
“multinational companies” OR “transnational businesses”) are those with
factories, production or service operations in more than one country.

● Examples:

○ Oil companies: Shell, BP, Exxon Mobil

○ Tobacco companies: British American Tobacco, Philip Morris

○ Car manufacturers: Toyota, General Motors.

Multinational corporations (MNCs)
Multinational corporations (MNCs)
● The impact on stakeholders of a business becoming a multinational:

○ Shareholders are likely to receive increased dividends from higher profit.

○ Employees may have increased opportunities to gain promotion as the

business gets larger and has operations across many countries; opportunity
to live and work abroad.

○ Suppliers may have increased or decreased sales to the multinational

depending where it operates and is located.

○ Government may gain higher tax revenue if profits from operations abroad
are repatriated, or it may lose tax revenue if the multinational locates its
head office elsewhere.
Past Paper
Example
(February/March 2024 QP12)
 Answer
Points might include:

● Access to cheaper labour which could increase profit margin/lower total costs for the hotel

● Access to bigger/new markets which can increase sales/revenue/increase market share in the
18 countries

● Spreads risk when expanding as sales falling in one country may be offset by rising sales in
another country

● Access to government grants which could increase cash inflows and improve its cash-flow
forecast

● Better image / reputation which could allow them to set higher prices / attract more customers

● Take advantage of lower tax rates

Exchange rates
● “Exchange rate” is the price of one currency in terms of another currency, for
example £1 = $1.50.

● “Currency appreciation” occurs when the value of a currency rises – it buys

more of another currency than before.

● “Currency depreciation” occurs when the value of a currency falls – it buys

less of another currency.
Exchange rates
 Past Paper
Example
(February/March 2024 QP22)
 Past Paper
Example
(February/March 2024 QP22)
 Past Paper
Example
(February/March 2024 QP22)
 Past Paper
Example
(February/March 2024 QP22)
 Past Paper
Example
(February/March 2024 QP22)
 Answer
Relevant ways might include:

● Decreases the cost of imports – enabling price to be reduced – making AF's products more
competitive so sales/revenue may rise

● May increase spending on AF’s meals – lower prices of imported consumer products may
mean a lower proportion of income spent on essentials – leaving more income to be spent on
other products

● AF may become more competitive – other restaurants do not import their ingredients – they
will not be affected by lower import costs, so competitors’ prices are unlikely to fall

● Profit margin may increase due to lower raw material costs – lowering cost of production –
profit may increase
 The End.
Topic 6 - External influences on business activity