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Business and
economic
environment

Unit 38 (P1) the impact

of changes in the
economic environment
on TESCO

Task 1
In this task I will be explaining
the effects of changes in
economic environment on
TESCO . TESCO is one of the
biggest retail supermarket in the
UK that also operates in different
countries around the world.

Unit 38

P1

Changes in economic
environment

Business cycle

Economic environment include different

issues which consist of

Business cycle

Inflation

Unemployment

International trade

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Reference: Teacher power points

The business cycle involves all the economic

activities in the UK and different countries. All
those activities have different impact to business in the UK and some outside the UK. Business cycle includes four stages that all business needs to go through. It includes the period
of growth, recession, slump and boom. The UK
measures their GDP by of a year which
means the GDP is measures every 3 months
starting from April. The economic activities are
measured by Gross Domestic Product which is
value of goods and services produced minus
the inflation.

Unit 38

P1

For example a boom in the UK can impact on TESCO positively as people will
spend more which mean demand will be
high. In this stage TESCO can gain more
profit which will help them achieve their
aim to gain more market share.
share They
might build new branches because of
high demand. Building new branches
will create employment which means
the government income will increase as
the work force of the country will increase and more tax for the government .The characteristics of boom is the
same as growth but every aspect is very
high (e.g. there will be lots of job available) but no changes at all for the period of 3 months. During growth the
economy is stable. Recession in the UK
affect most businesses in the UK as
customers spend less because of unemployment and increase in tax issues .
In order for TESCO to attract customer to
buy product, they promote their product
by price cuts and giving discount to
potential customers.

nemployment

Inflation

employment is when people are without jobs.

s can be caused by economic activities like re-

Inflation is when prices of product go up whiles

ees to be more productive which will benefit the

the value for money decreases. Inflation impact

business. They will also have more money to

on Sainsbury negatively because if the price of

spend which might help to increase demand.

products increases, it will drive customers away

For example the recent debt crisis in Greece has

which means less sales for TESCO.

cause less investment from the UK in Greece

During inflation the business make less profit be-

which has caused financial problem in the whole

cause of less demands. They control inflation by

of Europe.

offering discounts to customers to attract more

customers to buy products.

ssion and slump. It is difficult to find jobs during

lump. Unemployment can affect TESCO as the

Also increasing market share will help TESCO

vernment will get less taxes form the work force

gain more customers which will increase sales as

d will end up increasing business taxes. Also

well as profit. The two main cause of inflation are

lfare spending will increase if the number of

ople claiming benefits goes high. Unemploy-

Demand pull inflation

Cost poll inflation

nt affect the labour force of TESCO as they will

d it difficult to employ staff, however current

ff will be more productive for job security. It will

st TESCO a lot to employ staff because more

plicant will apply for the same job which will

ke the recruiting and selection process take a

Demand pull is when the level of demand growth

is more than the capacity of the economy to produce. The demand inflation can be caused by
less demands for product & services, cut in interest rates and wage growth.

g period of staff. The business can end up em-

Cost push can be caused by government

ying skilled or unskilled staff and pay lower sal-

changes, wage increase and changes in abroad.

If the salary or wages of staff increase, the cost

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of the business will increase which will cause inflation to go up.

Unit 38

P1

However increasing wages can motivate employ-

International trade and balance of payment

International trade is the exchange of capital,

Also trade can benefit the economy when the im-

goods, and services between two countries.

port and the export of the country is the same. This

Trade exist because every country can not

is because, if their import is more than export ,

provided all their demand but rather import

they will spend more than they earn from trade.

and exports goods in and from other coun-

The variance between import and export is know as

tries to satisfy each (e.g. the UK import cars

the balance of payment.

from japan).

Inflation makes good and services more expensive

Import is when product comes in to the coun-

,which means if inflation increase in the UK

try whiles export is product or services going

,customer from other country's will not buy prod-

out of the country. Import and export can be

ucts or services in the UK but look else where to

visible and invisible. Visible import and ex-

purchase product at a cheaper price.

port are tangible (i.e. Product you can see,

The balance of payment show whether the coun-

feel and touch). Invisible cannot be touch but

try has a equal import and export which can affect

can be used or experienced (e.g. delivery ser-

the GDP of the country.

vices and shopping online ). TESCO might

have suppliers who depend on raw material
from other country's to produce finished
good. Therefore if the exchange rate increases, suppliers will increase the prices of
finished good which will affect customers the
most because retail businesses will also increase the price of product.

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Unit 38

P1