- Slides: 55
OCR GCSE BUSINESS STUDIES A 293/01/CS Production, Finance and the External Business Environment PRE-RELEASE CASE STUDY
Section 2 Review of the Bowton economy and its prospects
Please complete this worksheet while watching the Power. Point
Lesson objectives • To be able to analyse and discuss the nine bullet points of the Bowton Council review – section 1 fig 1 • To be able to identify which economic factors may have an impact on BMF Ltd
Starter • Read the extract from the Development Report, Economic Development Unit, Bowton Council – 2016. Which of these words or phrases does NOT appear in the review (section 2)…
Development report, economic development unit, Bowton Council (section 2, Fig 1) • There are 9 bullet points – Some bullet points would suggest that there will be more visitors to The Festival and so increase the revenue and profits of BMF Ltd – Some bullet points may suggest that there will be less visitors to The Festival and so lower revenue and profits for BMF Ltd • It will help if you label the bullets A, B, C through to I
A COUNCIL SPENDING
A) Bowton Council spending • Council expenditure needs to be cut. This follows central government rules. • How will this impact BMF Ltd?
A) Bowton Council spending and BMF Ltd Following a passionate debate about how The Festival would help the town, and about the costs of running The Festival, such as policing, Bowton Council decided to give a grant of £ 30000 to BMF Ltd towards the costs of The Festival in 2017. If the Council needs to cut their expenditure then they may decide NOT to give BMF Ltd the grant – what will this mean for the business?
If council expenditure is cut this means… …BMF Ltd may not be given the £ 30, 000 grant, which means… …the costs for BMF Ltd will be higher and their profits lower A) Bowton council spending
B CONSUMER INCOMES
B) Consumer incomes Incomes in Bowton remain below the national average and unemployment is above the national average – this puts pressure on Council spending on welfare benefits. • If consumer incomes in Bowton are lower than the national average what does this mean for BMF Ltd?
If incomes in Bowton are below national average This may mean that people who live in Bowton may not be able to afford the £ 60 to attend The Festival This may mean lower revenue and profits for BMF Ltd B) Bowton consumer incomes
C ECONOMIC GROWTH
C) UK Economic growth • The UK economy has experienced economic growth in each of the past five years and average incomes have risen. • The economies of some European countries have not experienced the same levels of economic growth Is this good news or bad news for BMF Ltd?
C) What is economic growth? • Economic growth will increased demand for labour meaning that unemployment will fall • Economic growth means businesses are doing well so they may pay higher wages to staff • Economic growth means consumers have higher incomes, more disposable income, and so spend more • Economic growth means the government may be able to pay the deficit without raising taxes
Good news for BMF profits The UK has experienced economic growth an increase in the output that the UK Economy produces This means an increase in living standards of UK consumers Average incomes have risen in UK consumers have more disposable income More UK visitors to The Festival C) Economic growth
Bad news for BMF profits In some EU countries economic growth has not risen as much as UK Less visitors to The Festival from the EU C) Economic growth Reduction of revenue and profits for BMF Ltd
D GROWTH IN INCOMES
D) Growth in incomes • For much of this period (2016) many European countries have also seen less growth in incomes than the UK. • How will this impact BMF Ltd? How does the UK compare with the rest of Europe on average salary?
D) Growth in incomes and BMF Ltd • If the income of those in other European countries has not grown as much as the UK this may mean less EU visitors to The Festival • This means…. • So BMF should….
E INCOME AND ZERO HOURS CONTRACTS
E) Uneven income growth • In the UK, as in the rest of Europe, income growth has been uneven. The gap between the rich and the poor has widened. • How will this impact BMF Ltd?
E) Uneven income growth and BMF Ltd • If the poor are getting poorer they may need more welfare benefits payments to even out the inequality – so they have enough to buy food and pay rent • Benefits payments are a cost to the government and may increase the deficit Will BMF get its grant?
E) Zero hours • Many lower-paid workers have benefited little from the economic growth as a result of the increase in part-time work and zero-hours contracts. • The Bowton economy has increased its output and unemployment has been reduced by a large increase in the number of zero-hours contracts. • How will this impact BMF Ltd?
E) What is a zero-hours contract?
E) Impact of zero-hours on BMF Ltd • The Festival only lasts three days once a year • Zero hours contracts will be ideal for BMF as they can call on staff as they need them each year – Staff to run the car park – Staff to take ticket money on the gate – Can you think of any other jobs? Watch this video to help you with other zero-hours job suggestions, click the image to start the video
F EXCHANGE RATES
F) Exchange rates The exchange rate of the pound has fluctuated against the euro (€) and may affect some businesses and events such as the Bowton Mountain Festival. • How will this impact BMF Ltd?
F) What does an exchange rate fluctuation mean? All the changes up and down of the exchange rate are the fluctuations How many Euros the Pound was worth
F) Exchange rates and the impact on BMF Ltd and The Festival • If the pound is stronger against the Euro • If the pound is weaker against the euro
F) Exchange rates and the impact on BMF Ltd and The Festival • A strong pound will mean it will be more expensive for EU citizens to come to the UK because their money will not buy as much • BMF has 2, 000 visitors each year from the EU to the Festival, this number may decrease if the pound is strong or increases against the Euro • This may also mean that BMF’s revenue and profits decrease • A weak pound will mean it will be cheaper for EU citizens to come to the UK because their money will buy more • BMF has 2, 000 visitors each year from the EU to the Festival, this number may increase if the pound is weak or falls against the Euro • This may also mean that BMF’s revenue and profits increase
G TAX AND THE DEFICIT
G) Tax and the deficit The UK government is struggling to achieve its planned reduction in the government deficit and there is some pressure to increase income tax. • How will this impact BMF Ltd?
G) Government deficit explained The British Government deficit is rising due to a gap between revenue and expenditure. Total government revenue 2015/16 was projected to be £ 673 billion, whereas total expenditure was estimated at £ 742 billion. Therefore, the total deficit was £? ? ? billion. Watch the video, deficit explained – click the image to start the video
G) Income tax explained • Income tax is tax paid on money you earn from employment • Income tax is PAYE pay as you earn and is automatically deducted from your wages Use this interactive site from HMRC to tell you more
G) Tax and the deficit – impact on BMF Ltd • If income tax rises this will lower the UK Government Deficit …will Bowton council offer the £ 30, 000 grant to The Festival? • If the government is struggling to achieve a lower deficit There is another possible impact of income tax rises on BMF Ltd – what do you think it is?
H BOWTON TOURISM
H) Bowton tourism An increase in the number of hotels in Bowton has reduced accommodation prices and helped to increase tourism in the area. • How will this impact BMF Ltd?
H) Bowton tourism and impact on BMF Ltd • Reduced accommodation prices • Less expensive for visitors from outside of Bowton to come to The Festival • This may encourage more visitors than the previous years • What might this mean for the profits of BMF Ltd?
I INTEREST RATES
I) Interest rates Our local economist forecasts that interest rates in the UK will rise. • How will this impact BMF Ltd?
I) UK interest rates explained • Interest rates change, the Bank of England sets the rate • The higher the interest rate, the more customers have to pay back to the lender • The lower the interest rate, the less customers have to pay back to the lender Interactive video from the BBC – click to start, watch full screen then click to open parts as they appear
I) Impact of interest rates rise on BMF Ltd • Increases cost of borrowing • More payments to banks for loans means less disposable income • Increased mortgage payments may affect the first time buyers with larger mortgages • Consumers may save rather than spend • Government debt payments may increase • Less visitors as consumers have less disposable income for a ticket (nonessential item) • Many of the visitors are under 30 so likely to be first time buyers with large mortgages, these may not buy tickets • Government may have larger deficit payments to make and so are less likely to give Bowton council the money for the grant Match the cause with the impact
Economic factors that would encourage us to come to The Festival
Economic factors that would encourage visitors to come to The Festival
Economic factors that would encourage visitors to come to The Festival C) The UK economy has experienced economic growth in each of the past five years and average incomes have risen. F) The exchange rate of the pound (£) has fluctuated against the euro (€) H) An increase in the number of hotels in Bowton has reduced accommodation prices
1. Which bullet letters are just about Bowton 2. Which bullet letters are just about the UK economy 3. Which bullet letters mention Europe
1)A, B, E, F, H 2)C, D, E, G, I 3)C, D, E
Glossary • Economic growth; Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. • Income growth; A person’s earnt income (from a job)has grown • Zero hours contract; This is a casual work contract where an employee could work when phoned by the business, but does not have to go to work if they don’t want to e. g. Sports Direct workers • Government deficit; This is the amount the UK government has to borrow to bridge the gap between money in through taxes and money out through spending on benefits etc • Income tax; This is money paid to the government on earnt income from a job • Interest rates; This is the cost of borrowing, for example a loan is 7% interest and a credit card may be 18%, if this goes up consumers may not be able to afford to borrow to buy items such as houses and cars.
Resources written by Sarah Hilton for revisionstation. co. uk