Government Impact on Businesses
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BENEFITS TO THE SOCIETY OF BUSINESS.
1. Produce useful goods.
2. Give jobs and income to society.
3. Tax is paid to the government.
4. Get money from exporting goods.
UNDESIRABLE EFFECTS OF BUSINESS TO SOCIETY.
1. A monopoly may exploit the consumer.
2. Might produce dangerous goods.
3. Pollution.
4. Working conditions maybe unsafe.
5. May spoil countryside.
In
every business there are stakeholders, these are groups that have a
direct intrust in the performance and activities in the government.
Eg: a) Owners of a business.
b) Shareholders (Direct intrust).
c) Governments.
d) The public.
GOVERNMENT ECONOMIC OBJECTIVES.
Each government has certain objectives that it would like to achieve. These are:
1. Low inflation.
2. Low levels of unemployment.
3. Economic growth.
4. Balance of payments.
INFLATION.
Inflation is the increase in the average price level of goods and services over time.
Why is inflation bad?
Inflation brings uncertainties.
Everything increases
in price, the workers go to the bosses and ask for a wage increase, the
boss agrees and he increases the cost of the product to get back the
money he had paid for the extra wages.
LOW LEVELS OF UNEMPLOYMENT.
Prices of goods will be higher than those in other countries, so people will bye goods from other countries.
Unemployment happens when people are willing and able to work but can't find a job.
DISADVANTAGES.
1. Unemployed people do not produce goods or services which is bad for the economy as output of the economy goes down.
2. The government pays money to unemployed people.
3. Unemployed people don't pay taxes.
4. The standard of living to unemployed people goes down.
ECONOMIC GROWTH.
When the country's GROSS DOMESTIC PRODUCT (GDP) increases from the year before.
GDP= It is the total value of output of goods and services in one year. When GDP increases each year it will be good for the country as it will get richer and the standard of living of the people in the country increases.
If
there is no economic growth, unemployment will occur, standard of
living will fall, output will fall, and the country will become poorer.
BALANCE OF PAYMENTS (BOP).
The BOP records the difference between a country's imports and exports.
IMPORTS: These are the goods or services that come into the country for which we have to pay money.
EXPORTS: These are the goods or services that go out of the country for which we have to get paid.
EXAMPLE1: If
the exports are greater than the imports then more money will come into
the country than will leave the country. Therefore the BOP will be a
surplus.
EXAMPLE2: If
the imports are greater then the exports then more money will leave the
country than come in. Therefore the BOP will be a deficit.
GOVERNMENT ECONOMIC POLICIES.
The government can influence the economy through its economic policies:
Example: 1. Taxation.
2. Government spending.
3. Interest rates.
4. Supply side policies.
1.TAXATION.
There are 2 types of taxes direct and indirect taxes.
Direct taxes are paid directly from your income such as income tax or profits tax.
Indirect taxes are added to the price of goods when the consumer buys them.
Ex= VAT (Value Added Tax)
Income tax is a way the government raises money to spend an essential services, it is normally a percentage of the income.
Profits
tax (Cooperation tax) is paid by businesses. When a company pays tax
its profits become lower. Lower profits means a company has less money
for investment, less money for the shareholders and owners, and less
money for expansion projects.
Indirect
taxes make the price of the final good higher, therefore people will
buy less, sales go down which is bad for the company. Governments also
use tariffs (taxes) and all goods that come into the country. This is
good for the government because it gets money. There are three possible
effects of tariffs. They are:
1. Local firms will benefit because all imported goods will become more expensive.
2. If
local businesses import raw materials then their costs will increase,
and they may have to sell goods at a more expensive price.
3. Other countries may put tariffs on your goods.
INTEREST RATES.
Interest rate is the cost of borrowing money from a bank.
HOW DO INTEREST RATES AFFECT BUSINESS?
1. If
interest rates increase the cost of borrowing money increases,
therefore the firms have to pay back more money to the banks. The
profits go down and they will stop borrowing from the bank.
2. Those
people who were thinking of borrowing money will realize that it is too
expensive and so will not borrow the money. Therefore investment will
go down.
3. If
the interest rate increases then the cost of holding money increases.
You can put your money in the bank or buy a can of pepsi. If interest
rates increase, the consumer will favour putting money into the bank
rather than spending it.
4. High
interest rates will encourage people from another country to put money
in your banks to earn the interests. This will lead to the value of
your currency rising. We call this EXCHANGE RATE APPRECIATION.
SUPPLY SIDE POLICIES.
These include: 1. Privatisation
2. Improved training (education)
3. Increased competition.
GOVERNMENT CONTROLS OVER BUSINESS
ACTIVITY.
Why is it desirable to control business activity?
1. Businesses are there to make profit. So they may take decisions that are harmful to others.
Ex1: Make a building in a beautiful area.
Ex2: They may make dangerous things such as guns and explosives.
2. Some businesses because they are very big will give the consumer no choice of products.
3. They may give misleading adverts about products. For this reasons the government has to control business activity.
How does the government control business activity?
1. It does not allow the production of dangerous goods.
2. Consumer protection laws are made by the government
Ex1: Weights and measures act (1951).
Ex2: Sales of goods act (1979).
This means goods which are not fit for the purpose intented by the consumer are not sold.
Ex3: Consumer protection act (1987).
This
law makes it illegal to make misleading pricing claims. It also makes
the retailers and manufacturers responsible for any damage that their
faulty goods might cause.
3. Controlling monopolies
It
is when one firm controls or dominates the market for a good or a
service. If the monopoly is a private business in the private sector it
can do many things which are against the consumer.
Ex1: They can fix high prices.
Ex2: They can stop other businesses trying to compete with them.
Ex3: Because there is no competition the monopoly does not have to be efficient.
For these reasons the government tries to control monopolies.
4. Protecting Employees.
All employees need protection from the following:
1. Unfair discrimination.
2. Employment protection.
3. Health and Safety.
4. Wage protection.
1. Unfair discrimination.
2. Employment protection. Nobody should be dismissed unfairly. If a worker is dismissed unfairly then he can take his case to court.
3. Health and Safety. All
workers have the right to work in safe clean environment. If the
worker's environment is not safe and clean he has the right to
complain. If the working conditions are safe and healthy the workers
are more motivated, work more efficiently and so are more productive.
4. Wage protection. Workers
have the right to be paid for the work they do. A worker's contract of
employment contains details of the working conditions and the wage
rate. Sometimes the government imposes a minimum legal wage that has to
be paid to all employees. They can be paid more but not less than the
minimum wage.
ADVANTAGES OF A MINIMUM WAGE.
1. Prevents employees from exploiting employees.
2. As you have to pay a minimum wage the employer maybe encouraged to train his employees.
3. More people will look for work as they get paid more.
4. Low paid workers get a higher standard of living.
DISADVANTAGES OF A MINIMUM WAGE.
1. Cost of the business increases.
2. Some employees can't afford the higher wages so they get rid of workers.
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by: Admin
Total views: 3110
Word Count: 4946
Date: Sat, 20 May 2006 Time: 12:00 AM
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