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Paper 2
External Influences
Both
External factors can quickly change business strategy.
Key Facts
- Exchange rates affect import and export prices.
- Changes in disposable income affect demand.
- Legal compliance can increase operating costs.
Topics Covered
Economic Factors
What you need to know
- •Interest rates affect borrowing and spending.
- •Inflation raises costs and prices.
Exam Tips
- Explain how the factor affects customers and costs.
Legal and Political Factors
What you need to know
- •Minimum wage affects labour costs.
- •Trade laws can change supply chains.
Exam Tips
- Use a real-world example to show impact.
Technology and Competition
What you need to know
- •New technology can reduce costs or improve quality.
- •Competition can force price or innovation changes.
Exam Tips
- Link competitive pressure to strategy decisions.
Key Terms
interest rate
The cost of borrowing money.
inflation
General rise in prices over time.
competition
Rival businesses trying to win customers.
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Common Exam Questions
Explain one impact of an interest rate rise on a business.
3 markseasyPaper 2
Model Answer
Borrowing becomes more expensive, so investment may fall.
What examiners want to see
- ✓Impact
- ✓Explanation
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