P1 - explain the effects, of changes in the economic environment on a
selected business
Economic Environment
This report will focus on the economic environment and how that affects Mcdonald's
as the changes and influences in the economic environment can be really damaging
to businesses. Mcdonald's is a fast food restaurant that serves more than 60 million
people per day which is 1% of the world's population therefore if things were to be
changed then it would affect Mcdonald's in which they would have to think of a
solution to solve the problem.
The economic environment of a country has a significant effect on its businesses, as
the trade that is happening between that country and other countries affects how
much money is passing in and out of the country. This then affects the cost of goods
and prices.
Business Cycle
The business cycles the 4 phases of the economic growth and the subsequent
decline. The business cycle is related to the economic environment because
economics go through a regular pattern of ups and downs in the value of the GDP. In
2008-2013 the UK suffered recession, this was mostly due to the banks not willing to
lend good credit and money. Also at this time, unemployment was at the highest rate
and spending was at the lowest rate. This would of affected Mcdonald's as banks
were not lending out money which means that people would of had less money to
spend, and because people were spending less, that reduced the amount of people
that went to the restaurant.
This will affect McDonald’s as they won't be able to reach their desired income and
that could affect the businesses profit because they ain't selling their products
enough. Economic growth is important ad that shows that the country is doing well
and there are loads of people within the country. Economic growth is when the GDP
rises and the economic activity is increasing. Economic growth is important to
McDonald's as that shows Mcdonald's that there are enough people in the world
which can come to their restaurant and it shows stability within the country which is
important as every business wants the country in which they have started their
business in to have good rules and growth.
It is very important that Mcdonald's measures the changes of the economy as it
affects the business hugely. Mcdonald's needs to make sure that they keep updated
with the changes of the gross domestic product (GDP). GDP is is the value of a
country's overall output in goods and services at market prices but excluding the net
income from abroad. The GDP can be estimated in 3 ways:
, 1. Expenditure basis – how much money was spent
2. Output basis – how many goods and services were sold
3. Income basis – how much profit was earned
Mcdonald's needs to see the changes in the GDP to measure the value of their
products through the economy and the total income generated by the products of
goods in the economy. Inflation is the rate at which level of prices for goods and
services rapidly rise and, the purchasing power of currency fall over the months or
years. It is very important to limit inflation in order to keep the economy running
smoothly as this is another factor which affects McDonald’s.
Inflation is linked to the consumer price index (CPI) as inflation is measured by the
CPI which looks at the prices in the economy as a whole using standard
measurements. When inflation rates go up then the price of the goods goes up as
well, this hugely affects Mcdonald's as customers may not be able to buy the
products because of the price going up.
This will then affect Mcdonald's profit as less products would be getting sold, also
because of inflation rates going up, Mcdonald's may not be able to pay all of their
staff therefore they would have to make some of their employees redundant.
Deflation is when the price level decreases so that inflation rate becomes negative.
This tends to occur when the economy’s capacity grows at a faster rate than
aggregate demand. This all affects McDonald’s as they might have to put their prices
of the products higher and they might have to lay off their staff which would then
affect employment rates within the country.
Employment rates are another thing that affects the economy because if the
unemployment rates are high then the government will have to pay for more people
who are not working, the government may not have enough money to give therefore
they are most likely to increase the tax on businesses which means that Mcdonald's
will have to pay more tax towards the government and also it might increase the tax
of people who are in employment which means they will have less money to spend
so they might start saving up money and that would go on to affect Mcdonald's as
they are less likely to spend money at restaurants if they have less money.
When employment rates are high that means the government is getting more money
because most people in the country are working. This is good because if more
people are working then it is likely that people have money have more spare cash to
buy products so people will come into Mcdonald's as they can afford it. The
government must also review its decisions because if too many people are in full
time employment then the demand may rise which might cause a raise in inflation or
the employees may ask for a higher wage and this can be hard for Mcdonald's as
they have many workers and they will lose out on their profit if any of these changes
were to take place.
Ripple Effect
selected business
Economic Environment
This report will focus on the economic environment and how that affects Mcdonald's
as the changes and influences in the economic environment can be really damaging
to businesses. Mcdonald's is a fast food restaurant that serves more than 60 million
people per day which is 1% of the world's population therefore if things were to be
changed then it would affect Mcdonald's in which they would have to think of a
solution to solve the problem.
The economic environment of a country has a significant effect on its businesses, as
the trade that is happening between that country and other countries affects how
much money is passing in and out of the country. This then affects the cost of goods
and prices.
Business Cycle
The business cycles the 4 phases of the economic growth and the subsequent
decline. The business cycle is related to the economic environment because
economics go through a regular pattern of ups and downs in the value of the GDP. In
2008-2013 the UK suffered recession, this was mostly due to the banks not willing to
lend good credit and money. Also at this time, unemployment was at the highest rate
and spending was at the lowest rate. This would of affected Mcdonald's as banks
were not lending out money which means that people would of had less money to
spend, and because people were spending less, that reduced the amount of people
that went to the restaurant.
This will affect McDonald’s as they won't be able to reach their desired income and
that could affect the businesses profit because they ain't selling their products
enough. Economic growth is important ad that shows that the country is doing well
and there are loads of people within the country. Economic growth is when the GDP
rises and the economic activity is increasing. Economic growth is important to
McDonald's as that shows Mcdonald's that there are enough people in the world
which can come to their restaurant and it shows stability within the country which is
important as every business wants the country in which they have started their
business in to have good rules and growth.
It is very important that Mcdonald's measures the changes of the economy as it
affects the business hugely. Mcdonald's needs to make sure that they keep updated
with the changes of the gross domestic product (GDP). GDP is is the value of a
country's overall output in goods and services at market prices but excluding the net
income from abroad. The GDP can be estimated in 3 ways:
, 1. Expenditure basis – how much money was spent
2. Output basis – how many goods and services were sold
3. Income basis – how much profit was earned
Mcdonald's needs to see the changes in the GDP to measure the value of their
products through the economy and the total income generated by the products of
goods in the economy. Inflation is the rate at which level of prices for goods and
services rapidly rise and, the purchasing power of currency fall over the months or
years. It is very important to limit inflation in order to keep the economy running
smoothly as this is another factor which affects McDonald’s.
Inflation is linked to the consumer price index (CPI) as inflation is measured by the
CPI which looks at the prices in the economy as a whole using standard
measurements. When inflation rates go up then the price of the goods goes up as
well, this hugely affects Mcdonald's as customers may not be able to buy the
products because of the price going up.
This will then affect Mcdonald's profit as less products would be getting sold, also
because of inflation rates going up, Mcdonald's may not be able to pay all of their
staff therefore they would have to make some of their employees redundant.
Deflation is when the price level decreases so that inflation rate becomes negative.
This tends to occur when the economy’s capacity grows at a faster rate than
aggregate demand. This all affects McDonald’s as they might have to put their prices
of the products higher and they might have to lay off their staff which would then
affect employment rates within the country.
Employment rates are another thing that affects the economy because if the
unemployment rates are high then the government will have to pay for more people
who are not working, the government may not have enough money to give therefore
they are most likely to increase the tax on businesses which means that Mcdonald's
will have to pay more tax towards the government and also it might increase the tax
of people who are in employment which means they will have less money to spend
so they might start saving up money and that would go on to affect Mcdonald's as
they are less likely to spend money at restaurants if they have less money.
When employment rates are high that means the government is getting more money
because most people in the country are working. This is good because if more
people are working then it is likely that people have money have more spare cash to
buy products so people will come into Mcdonald's as they can afford it. The
government must also review its decisions because if too many people are in full
time employment then the demand may rise which might cause a raise in inflation or
the employees may ask for a higher wage and this can be hard for Mcdonald's as
they have many workers and they will lose out on their profit if any of these changes
were to take place.
Ripple Effect
