Ashbourne College's Business Studies Blog



Economic GrowthHow is economic growth measured?Gross Domestic Product (GDP)What are the latest GDP figures?The advantages and disadvantages of economic growth for businessesThe Business CycleDefinition:Stages of the business cycleBoomRecessionSlump / depressionRecoveryDifferent types of products and the business cycleCyclical productsDefinition:ExamplesNon-cyclicalsDefinition:ExamplesCounter-cyclicalsDefinition:ExamplesBusiness strategies during a recession / downturnBusiness strategyEvaluationClose facilities as demand falls and excess capacity increasesJob losses will damage employee relationships and reduce security for remaining staff. De-motivational.Capacity shortage when economy recovers = issue is how long will the downturn last and how serious is it likely to be?Develop new products that will appeal to customers as their disposable incomes falls.Could damage the firm’s reputation and brand image, e.g.: a move ‘down market.’Not all consumers will experience a fall in their income.Lower prices to attempt to maintain sales (assumption that demand becomes more price sensitive/ price elasticCould lead to price wars, which reduces profit for all firms in the market.May damage the firm’s brand image Demand may be price inelastic – TR will fall.Buy up assets cheaply from other businesses or even take-over whole businesses at prices much lower than during boom periods.Will need finance for purchases – may be risky with borrowed capital and banks may not be willing to lend.No one will be sure when the recession will end. Continue with expansion plans and be best prepared for the expansion when it comes.This is the bravest option of all. May only be considered by cash-rich business or those that sell products that may not be much affected by changes in consumer incomes – income inelastic products.Possible business strategies during a boomStrategy EvaluationUsing existing capacity and output to meet expected increase in demand.This is a low-risk strategy as no additional capital investment is required.Expansion of capacity to cope with expected increase in demand.This is a potentially risky strategy:It requires substantial capital investment – loans and gearing may have to increaseHow long will the recovery and growth period last for?If other firms take the same decision there is no guarantee that sales will increase for ever business.Develop new products that will be in greater demand as consumer incomes rise – these are called income elastic products.Research and development takes time and this investment needs to lead to new products before the recovery period ends.Consumer’s response to the credit crunchBusiness’ response to the credit crunch ................
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