AS External Influences

1
AS External Influences

• Inflation Unemployment

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Aims from syllabus

• Unemployment
• Types (structural and cyclical)
• Effects of unemployment on consumers and
  businesses.
• Inflation
• To be aware of the causes, importance of
  expectations, effects of inflation and deflation
  on firms,
• To be aware of the RPI.

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Unemployment

• There are many different types of unemployment
• Seasonal
• Structural
• Regional
• Structural
• Technological
• Voluntary
• cyclical

What do you think each means?
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Types of unemployment
Can you identify each unemployment category?
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The main two needed for exam!

• Structural unemployment
• Structural unemployment have the wrong skills in
  the wrong place
• Declining industries and the immobility of labour
  
• So can you identify other structural
  unemployment?

• Cyclical unemployment
• All firms need fewer workers
• Low total demand in the economy
• A result of a recession or slump in the
  economy.

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Causes of Unemployment fill in!
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Effects of unemployment on consumers
Standards of living?
?
Spending Necessities? Luxuries?
Investments?
Savings ?
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Effects of unemployment on businesses?
Marketing techniques Advertising? Promotions?
?
Operations Management Methods? Stock? Supplies?
HRM Training? Recruitment?
Finance sources, borrowing, cash-flow???
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Causes of Unemployment suggested answers!
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Minimum Wage

• The rate is now 5.40p.h
• What would the impact on business be if the rate
  was doubled to 10 p.h?
• Known as Real Wage Unemployment!

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Inflation

• Inflation is a sustained increase in the average
  price level of a country.
• The rate of inflation is measured by the annual
  percentage change in the level of prices as
  measured by the consumer price index.
• A sustained fall in the general price level is
  called deflation in this situation, the rate of
  inflation becomes negative.

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Long term trends in UK inflation
Describe the changes in RPI (vertical axis
change) 1980 81 1981 83 1983 87 1987
90 1990 - 03
Does this mean that prices have increased or
decreased over the 23 year period?
RPI
RPIX
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Can you develop these reasons?
Too much demand
Causes of Inflation? What causes all prices to
increase?
Higher Business Cost
Too much money
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Impact of Inflation

• Customers spend more time shopping around! Aka
  shoe leather cost
• Increased business competition marketing USP?
• Wage negotiation - WAGE-PRICE SPIRAL
• Menu costs - vending machines, parking metres
  all need changing!
• Psychological uncertainty from customers buy
  now or later
• Unemployment
• Lower economic growth consumers spending less!

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How do businesses benefit from High Inflation?

• It is easier to increase the price of your own
  product when prices are rising generally. So cost
  increases can be passed on to the consumer.
• Company finances look stronger as rising property
  and stock values boost reserves
• Smaller firms benefit from non price competition
  with brand names they can compete on service
  customer care!

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How do businesses suffer from High Inflation?

• Cash flow is squeezed by rising costs of new
  materials and equipment.
• Less profits if the company has to be more
  competitive and reduce their profit margin!
• Owners of big brand names may struggle, as higher
  prices makes consumers more price sensitive. This
  cuts the value added by brand names.
• Staff become much more wage conscious as
  inflation poses a threat to real living
  standards therefore industrial disputes and
  labour turnover tend to rise.

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Hyper Inflation!

• Hyper-inflation is when prices go out of control
• Huge amounts of money has to be printed to meet
  peoples demand for cash
• Money effectively becomes worthless
• The effect is nearly always to lead to a collapse
  in business and consumer confidence and a
  recession
• In most cases a new monetary system may have to
  be created
• Several countries are experiencing high rates of
  inflation today including Zimbabwe, where
  prices surged by over 600 in 2003

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Hyper Inflation
A Bank of England employee pictured in the 1920s
with a 20 million deutschmark note whose
purchasing power equated to a box of matches
The Value Of Money Date circa 1923
Description Children using notes of money as
building blocks during the 1923 German inflation
crisis.
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Consumer Price Inflation in Russia
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Deflation
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Deflation

• What are the benefits of Deflation?
• Consumers businesses?
• Are there any problems of prices falling?

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RPI basket 2006!
The basket is updated every year to reflect
changes in the public's tastes

• Inflation is measured by a basket of goods
  services where the price of goods are measured
  every month in many outlets within the UK

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Your task

• Doing business in Brazil
• A DR from Hall textbook p477
• Do not do Qc!
• A 1 mark
• B 5 marks
• D 4 marks
• E 4 marks
• F 6 marks

• Total marks
• available 20.