b usiness activity 3 1 – market economies 2 – international trade 1 - assess the benefits of...
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BUSINESS ACTIVITY 3
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MIXED MARKET AND MARKET ECONOMIES (UNIT 1.4.1)
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WHAT IS AN ECONOMIC SYSTEM?
Market economic system
Planned economic system
Mixed economic system
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ADVANTAGES OF A FREE MARKET ECONOMY
A variety of goods and services Businesses respond quickly Businesses will innovate There is no taxation
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DISADVANTAGES OF A FREE MARKET ECONOMY Businesses will only produce goods and
services that earn a profit Businesses will only sell products to
consumers who can afford to pay most for them
Resources will only be employed if it is profitable to do so
Harmful goods may be produced if it is profitable to do so
Some producers and consumers may ignore the harmful effects of their decisions on others and the environment
Some firms may dominate the market supply of a particular product
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THE MIXED ECONOMY
The government can: Provide services such as education Provide services such as street lighting Employ people who would otherwise be
unemployed Provide financial help to important
businesses Introduce laws to protect the consumer and
the environment Regulate or break-up monopolies
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PROBLEMS CREATED BY GOVERNMENT POLICY
Disposable income is reduced due to taxation Increased costs to business of regulation Public sector organisations are often
inefficient
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INTERNATIONAL TRADE (UNIT 1.4.2)
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CONSUMER CHOICE AND OPPORTUNITIES FOR GROWTH
Consumer choice Increased competition Business growth Free trade (workforces and technologies
anywhere in the world)
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ADVANTAGES OF INTERNATIONAL TRADE
Specialisation Consumers benefit from imported goods
otherwise not available to them Competition Economies of scale Best workforces
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DISADVANTAGES OF INTERNATIONAL TRADE
Competition Movement to less well developed economies Global demand may be dominated by certain
developed/developing economies Social cost of transport pollution
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BARRIERS TO FREE TRADE
Tariffs Subsidies Quotas Embargos
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ARGUMENTS FOR TRADE BARRIERS
They help protect small businesses and new industries
They prevent dumping They prevent over-specialisation by
protecting a range of different industries
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ARGUMENTS AGAINST TRADE BARRIERS
They restrict consumer choice and opportunities for new businesses and business growth
They protect inefficient domestic businesses with higher costs and often lower-quality products
Other countries will retaliate by introducing their own trade barriers
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PROBLEMS ENTERING NEW MARKETS ABROAD (UNIT 1.4.3)
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ENTERING OVERSEAS MARKETS
There may be language barriers Different cultures, customs and tastes will
need to be understood The business must comply with different
laws, regulations and taxes The business must manage exchange rate
risks There are increased risks of non-payment
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OVERCOMING PROBLEMS ENTERING OVERSEAS MARKETS
A business can use local contacts A business can set up assembly or sales only
business units overseas It can enter into a joint venture with an
overseas business A business can merge with or takeover an
existing business
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BUSINESS ACTIVITY 3