Questions and Answers
What is business environment?
External and internal factors that affect the functioning of a business enterprise.
What does PEST stand for?
Political, Economic, Social, and Technological factors.
Which of the following is NOT a political factor in PEST analysis?
What is the impact of unemployment on consumer purchasing power?
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What type of inflation occurs when prices are declining?
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What factors are considered under 'Technological factors' in PEST analysis?
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The European Union is an example of a political treaty that affects internal business activities.
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Match the following types of market structures with their characteristics:
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An example of a type of economic system that exhibits elements of both capitalism and socialism is a __________ system.
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What are some advantages of a PEST analysis?
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What is one major disadvantage of PEST analysis?
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Study Notes
Business Environment Overview
- Business environment encompasses both internal and external factors influencing a business's operation and development.
- Factors include economic, political, social, and technological elements that can either aid or hinder business growth.
PEST Analysis
- PEST is a framework analyzing external factors affecting business operations: Political, Economic, Social, and Technological.
Political Factors
- Political influences often determine how a business operates and includes:
- Tax policy affecting corporate finances.
- Employment laws ensuring fair labor practices.
- Environmental regulations to manage ecological impacts.
- Trade restrictions and tariffs that regulate international trade.
- Political stability influencing investor confidence and operational continuity.
Economic Factors
- Economic environment considers variables that influence consumer purchasing power and spending habits:
- Unemployment rate impacts aggregate demand; higher unemployment generally reduces spending.
- Economic growth signifies increased production capabilities and job creation, measured by Gross Domestic Product (GDP).
- Inflation discusses the general increase in price levels, with distinctions such as hyperinflation, disinflation, deflation, and stagflation.
- Economic systems define how goods and services are produced; includes capitalism, socialism, and mixed economies.
- Market structures determine competition levels and pricing strategies in various industries, including perfect competition, monopoly, monopolistic competition, and oligopoly.
Social Factors
- Examines the socio-cultural dynamics influencing consumer behavior, such as:
- Rising health consciousness leads to demand for health-oriented products.
- Population growth and demographic trends can alter wage levels and market size.
- Age distribution affects product appeal, particularly among technology demographics.
- Career attitudes impact workplace productivity and employee retention.
- Emphasis on safety necessitates compliance with health and safety regulations in business practices.
Technological Factors
- Technology shapes markets through innovation, impacting productivity and costs:
- Research and Development (R&D) is crucial for fostering innovation and gaining a competitive edge.
- Technology incentives can drive economic growth, especially in developing nations.
- Automation streamlines processes, though it may lead to job displacement in certain sectors.
- Rate of technological change introduces new market opportunities while posing challenges for adaptation.
Advantages of PEST Analysis
- Offers insights into the broader business environment, promoting strategic thinking.
- Helps identify potential threats and future challenges.
- Assists in spotting opportunities for growth and improvement.
Disadvantages of PEST Analysis
- Tends to be a basic overview without deep critical engagement.
- Rapid societal changes may render forecasts inaccurate.
- Excessive information can lead to analysis paralysis, hindering decision-making.
- Focuses only on external factors, requiring integration with internal assessments for comprehensive strategy development.
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Description
Explore the key concepts in Chapter 3 of Business Environment, including the definition of business environment and PEST analysis. Understand how external and internal factors influence business operations. Test your knowledge on how various environments affect businesses.
