Understanding External Costs, Benefits, and Exchange Rates in Business Decisions

1. Thought for the day: discuss…..

2. External costs and benefitsAppreciate the concepts of social costs and benefitsUnderstand the difference between a socialcost and social benefit and a financial cost and a financial benefitShow an understanding of how business activity can create themUse examples to show how business decisions create social costs and benefitsApply such concepts to a given business decisionEvaluate the possible consequences to stakeholders of a given business decisionExchange ratesUnderstand how importing/exporting decisions might be affected by changes in exchange ratesUnderstand the concept of a rate of exchange of a currencyUnderstand what is meant by an appreciation and depreciation of a currencyShow awareness of the importance of exchange rate changes to importing and exporting businessesBusiness cycleThe main phases of the cycleDescribe the main stages of a business cycleImpact of boom/recession on businessUnderstand the impact of the stages on a business in terms of sales, profits and business costs

3. How to get an A A Grade Evaluate, discuss, justify, advise, recommend. reasoned explanations, develop arguments, understand implications and draw inferences Examine, Analyse, Interpret, Formulate, Cause and Affect, advantages & disadvantages. A04 Evaluation Apply facts, terms, concepts, theories and techniques to business problems and issues. Link to a business. A03 Anayslis A02 Application facts, terms, concepts and conventions appropriate to the syllabus; theories and techniques A01 Knowledge & Understanding

4. Soft copies of the four topics… students download and turn into an essay

5. External costs and benefits • Appreciate the concepts of social costs and benefits • Understand the difference between a social cost and social benefit and a financial cost and a financial benefit • Show an understanding of how business activity can create them • Use examples to show how business decisions create social costs and benefits • Apply such concepts to a given business decision • Evaluate the possible consequences to stakeholders of a given business decisionPg 238

7. Externalities • Social costs & benefits: costs and benefits to society as a whole rather than to the business.

8. Externalities • External costs (externalities): the social costs & benefits of business activity borne by the wider community • E.g Lorry delivering goods – creates noise – neighbours suffering don’t get compensation. • Air pollution – causes illness • Greenhouse gasses – lead to global warming, causing storms and flooding • No compensation.

9. Externalities • Costs and benefits which the business doesn’t pay or receive. • E.g building a beautiful office block • People enjoy looking at it. • An enjoyment the business receives no money for. • Other examples: • Spill over of technology (e.g Velcro)

10. Externalities • Noise pollution, air pollution, global warming – Negative externalities • The beautiful building – Positive externalities.

11. Externalities • Business are under pressure to pay for the social cost of anything they do. • Environmental groups – campaign against larger business who pollute. • Residence protest against local factories that harm their environment • These protests equal bad publicity and lower sales.

12. Dealing with external costs • Internalisation: Supplier accepts responsibility & absorbses the cost of putting it right. • Pressure groups: demand the government & private firms take externalities into account when contemplating a major project (pressure groups don’t always win!) Read about it!

13. Dealing with external costs • Private action by firms or individuals want a good public image so will pay for social cost e.g football club pays for policing during match time. • Government Action – tax & Subsidies, pricing systems (eg pay for parking), controls & licensing

14. Pressure Groups • Non-Profit organisations established by their members to address a special interest of the group. • - campaigning against environmental neglect • Smoking in public areas • Testing on animals. • E.g Trade Unions, animal rights activist groups, environmental protection. • Pg 238 • Examples

15. Pressure Groups • Aim to win public support from their actions. • Try to influence government legislation (national minimum wage) • Advantage – they force business and government to take into account the true costs of business activity (pollution & environmental damage) Green peace in Poland Pg238

16. Exchange rates Understand how importing/exporting decisions might be affected by changes in exchange rates Understand the concept of a rate of exchange of a currency Understand what is meant by an appreciation and depreciation of a currency Show awareness of the importance of exchange rate changes to importing and exporting businesses

17. The exchange rate measures the value of one currency in terms of foreign currencies. • Appreciation of currency means higher exchange rates, means that export prices will be high therefore the exporter will have less price competiveness. • Depreciation of the currency means lower exchange rate means the domestic firms that import raw materials and components will suffer from having to pay relatively higher prices. • Large unpredictable changes in the exchange rate can make business planning difficult because a business cannot predict its export earnings or costs of imported materials. • - explained (6 mins)

18. Exchange Rates Australia dollar strong Australian dollar weak AUSD$2 = SING$1 So if Australia wants to sell for AUD$20 (to make $10 profit) will have to sell for… SING$10 If AUD keeps getting weaker.. Can be cheaper.. • AUSD$1 = SING$2 • So if Australia wants to sell for AUD$20 (to make $10 profit) will have to sell for… • SING$40 • If AUD keeps getting more expensive then will have to increase selling price (to maintain profit margin)

19. Business cycle To learn: The main phases of the cycleDescribe the main stages of a business cycleImpact of boom/recession on business Understand the impact of the stages on a business in terms of sales, profits and business costs

20. The Business (Economic) Cycle

21. The Business Cycle • Typical business cycle • Peak • Recession • Trough • Recovery

22. Downturn: • Demand falls • Output falls • Employment falls • Falling in investment • Many business making losses • Some business close down.

23. Recovery: • Stock levels begin to fall • Output increases • Employment rises.

24. Boom: • Full capacity in the economy • Prices increase • Investment increases • Business working flat out • Shortage of skilled labour (wages rise).

25. p • Pg 240

26. What did I learn this lesson that I didn’t know before?

27. PlenaryLevel achieved_____ What do you now know as a result of today’s lesson? What are your areas for improvement? What are you going to do about this?