1. The Economic Context
-Demand and supply
- The impact of Interest rates
- The impact of exchange rates
- The Impact of the business cycle
- Business decisions and stakeholders

2. Commodity Markets
A commodity market is a product that is sold on the
basis of price rather than brand qualities. In other
words, there is almost no difference in the product
irrespective of where you buy it.
• Examples include steel, copper, oil and coffee
beans
• The price of commodity products will depend on
two factors: DEMAND and SUPPLY

3. Demand and Supply
Supply Demand
• This shows the quantity of a • Shows how consumers will
product a business is react to changes in price
prepared to make and sell
at a given price
Price
Price
Quantity Supplied Quantity demanded

4. Equilibrium point
Manufactur
ers can sell
at the price
where the
two lines
cross

5. • When demand for a product increases
but supply remains the same, the price of
the product will rise
• When demand for a product decreases
but supply stays the same, the price of the
product will fall

6. Interest Rates
The rate of interest is effectively “THE
PRICE OF BORROWING MONEY”
If the Bank of England puts interest rates up, a typical person
will either:
Have to pay more Will have less money to
money back on their spend in shops
mortgage (disposable income)
Borrow less money So reduce their
since it now costs more spending in shops

7. The effect of interest rates
on businesses
If interest rates increase then a business may:
Reduce or cancel Reduce borrowing
planned investment, which may mean
e.g. the purchase of cutting costs, e.g.
new machinery labor
Reduce production,
since they expect to
sell less if consumers
have less money

8. Who controls interest rates
The exchange rate is “the price of one
currency expressed in terms of another
currency”
• Since money is a commodity, a currencies
value is determined by demand and supply
• Changes in exchange rates can have HUGE
effects of businesses

9. How Exchange Rates Affects
Businesses
Increase in the Decrease in the
value of the value of the
pound pound
Affects on Become cheaper so Become more
imports into the will increase expensive so will fall
UK
Affects on Become more Become cheaper so
exports out of expensive so will fall will increase
the UK

10. The Business Cycle
The economic stages that the UK goes through can be
referred to as the Business Cycle, or sometimes the
Trade Cycle

11. Stage of business Key features Likely reactions by
cycle businesses
Recovery/ expansion - Increasing consumer - Opportunity to increase
spending prices
- Investment increases - new business start
- production rises
boom - Inflation increases - Prices likely to rise
- some firms unable to - wage rise
satisfy demand - demand fall
- Interest rates rise
recession -demand is low - Firms look for new markets
-Investment falls - Workers are laid off
- profits fall - many firms close
slump - Increasing no. of -Firms lower prices
bankruptcies -Factories are closed
- High unemployment - Redundancies occur
- low levels of spending

12. Stakeholders
• Stake holders are people or groups who have
an interest – or stake – in the activities of a
business
• Stakeholders may be able to influence what a
business does
• Some stakeholders have more
influence than others

13. Who are the stakeholders?
Stakeholders of a large business Stakeholders of a small business
• Shareholders • Owners
• Managers • Suppliers
• Suppliers • Workers
• Workers • Government
• Governments • Financiers
• Financiers • Local community
• Local community
• Pressure group

14. Types of Stakeholders
Internal Stakeholders External Stakeholders
• These are the people who • These are people who do
work for the business and not work for the business
are involved daily are not involved on a day-
to-day basis. As such they
are outside the business
Primary Stakeholders Secondary Stakeholders
• These are the people who can help a • These are the people who see
business succeed and are usually themselves as stakeholders even if
internal: the business doesn’t:
- Owners - local residents
- employees - local government
- Customers - pressure groups

15. What do stakeholders want?
• Stakeholders are affected by the decisions a
business makes
Owners will
want more Workers will
want to work
profits in a pleasant
environment
Suppliers will
want a business
to buy more from
them

16. External factors and stakeholders
• All businesses will be affected by the things
that happen outside the business that they
cannot control
• These are called external factors
• Pest analysis: