IGCSE, A Level Business Student Forum

Q15. Explain one way in which growth in the economy might affect the costs of a business. [3]

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Possible Structure:
[KN]
[AN]
[AN+]

(Kn) economic growth leading to inflation hence higher cost of raw materials (an) with an increase in economic growth the suppliers will increase the price of their materials to attain more profits and to survive w the increased inflation(an+) such costs will be levied on the business and increase their cost of prod further increasing inflation

KN: In a growing economy, employees may be more willing to seek better job opportunities, and employee turnover can increase.
AN: Due to this a lot of time would be wasted on training of new employees
AN+: Because of this less focus will be put on to other strategic or operational priorities and so productivity of business would be low.

Sir I have queries in this question and am confused about the concept of "GROWTH IN THE ECONOMY" I also don't have many idas on this question and had to take help from the net which wasn't that helpful either

Kn:When the economy will grow, income level in the country will be increased and satandards of living will be improvised.
An: Now people are likely to spend more on their wants or maybe on luxuries and they will fulfill them what so ever.
An+: This will increase the profits and revenue of a business

Growth can inpact the cost of business by driving up input costs including labour and resources as increased demand for these resources results higher prices Therefore unemployment rates and higher demand of skilled labour will increase competion and thus will wd to economic growth.

[KN] an increase in the demand of the goods or services produced by the business
[AN] it would lead to increasing the sales revenue of the business
[AN+] hence, the difference between the revenue and the costs of the business would increase therefore increasing the profits

[KN]Many business operations can become difficult and lead to failure day by day due to shortage of cash.
[AN]Finance is needed for day to day cash and for the business to be able to buy more supplies,pay supplies or offer credit to important customers.
[AN+] Cash flow problems can be solved if a cash flow forecast is made and kept up to date.The cash needs of the business can be assessed month by month.

KN: Economic growth improves standard of living and subsequently the demand for products
AN: More demands will result in increase in sales and profit
AN: increased profits will help in business expansion

KN: Due to inflation the buying power of consumers will fall
AN: hence they may be less willing to pay high or purchase a good from the business
AN+: THis will lead to a squeeze in profit margins

[KN] Growth in the economy may increase recruitment cost of businesses. [AN] As more business may be expanding due to growth in the economy, employment may rise simultaneously causing skilled labour to apply for jobs which offer a pay they are ready to accept. For this reason, businesses may compete for skilled labour by offering better wages and salaries than rivals in order to attract them and this may increase their costs. [AN+] As a result, the high costs due to increase in wages and salaries on offer may reduce the profits. This may also reduce sufficient cash available for business operations due to which chances of being illiquid rise for the business.

(kn) business could expand their production lines.
(An) a growth in economy would increase people living standards like growth in income so this would increase demand for more goods and services.
(An+) business could experience producing economics of scale while meeting the demand hence, would lower business average cost of production.

Kn: growth in the economy means improved standard of living and purchasing power
An:because of which demand for businesses goods and services will increase
An: increase in revenue for business and allows further expansion opportunities to business

[KN] There may be an increase employment which increases costs
[AN] as the business will pay wages/salaries it will increase costs
[AN+] However they may show efficiency [if motivated] leading to increase in productivity which improve quality & lead to increase in sales

[KN]During the growth of a business, there is a high demand for resources like labour, raw materials, etc.
[AN] These types of increased demands of resources can cost a hefty amount of cost for the business.
[AN+]Resulting in increased cost of products and services which can also affect the consumer base of the business.

kn: appreciation in the exchange rate
an: growth in the economy is likely to increase the value of the country's currency, therefore, imports will become cheaper.
an+: hence, a business that imports raw materials will have lower costs