Business and the Economic Environment Task 1

Topics: Economics, Inflation, Macroeconomics Pages: 10 (3302 words) Published: January 23, 2013
TASK 1 (P1, P2, M1, D1)
In this assignment I will be talking about Marks and Spencer and how the economic environment could have an effect on them. The economic environment is basically all the economic factors brought together. By saying economic factors, I mean aspects such as; employment, inflation, interest rates, productivity and wealth. All of these elements mentioned above have an influence on the buying behaviour of consumers and organisations. P1

In terms of economic variations for marks and spencer, the best way to explain the effect it would have on them is by using the business cycle. The business cycle is basically the periodic but irregular up and down movement in economic activity, measures by fluctuations in real GDP and other macro- economic variables such as inflation, interest rates and unemployment to mention a few. In simple terms it is the ups and downs of a nation’s economy. The business cycle mainly has four cycles; recession, recovery, growth and slump which repeat themselves over time.

Recession is a period of reduced economic activity (economic growth slowing down) in which levels of buying, selling, production and employment go down. This means that during recession, Marks and Spencer would be affected because there will be a change on the buying behaviour of consumers. This will then lead to a sales revenue and profit decline for them. Due to low profits, they will cut their spending essentially cut back on hiring new employees and cut jobs for other by making them redundant in an effort to keep their business on track. They will also cut back on productions costs because consumers will cut back on spending as well which means they will not be buying as much. Recovery is the turning point from depression to expansion. During the period of recovery, there are expansions and rise in economic activities. For Marks and spencer there will be a steady rise in output, income, employment, prices and profits. During recovery for Marks and spencer will mean higher demand for products and services. There will be more hiring, because Marks and spencer will resume investments due to an increase in profits because customers are willing to spend more. They will steadily start opening other stores nationwide due to consumer demand hence more people to recruit. As more people will return to work, spending will increase, which will the demand for more goods and services hence they will start making a profit. Slump/trough during the slump period output slows down due to a reduction in demand. A slump can lead to recession (two negative quarters of economic growth). This can put Marks and Spencer under pressure because they will be forced to reduce costs, which will lead to increased unemployment as they make people redundant The rate of high unemployment will then mean that people will have less money to spend thus contributing to a downturn in the economy. During a slump output and income will fall leading to fall in consumption so basically Marks and Spencer will see a fall in sales because customers will not be spending and they will cut down on production costs as well so that they can save money. Growth: When the economy is at boom or peak, it is an increase in the capacity of an economy to produce goods and services. This is the stage where by Marks and Spencer will hire more people and there will be low unemployment. Customers will also be willing to spend more money therefore boosting sales for Marks and Spencer. Demand for goods and services will be high which means that production will be high so Marks and Spencer will be having high imports to stock up their shelves for consumers. There will be high investment levels for them; they can therefore use that money to pay off their suppliers or debtors. Inflation is the measurement of the annual percentage rise in average price level. A reduction is purchasing power an increase in the cost of living. With the rise in price...
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