Business Notes: Unit 4 Topic 3 – Relationship Between Business and the Political and Legal Environment

Government Intervention:

  • Funds/money
  • Education
  • Social services
  • Health care
  • Emergency services
  • Defence


  • Waste disposal
  • Road maintenance
  • Street Lighting

Public good are not provided by the private sector but suffer from the ‘free rider problem’ as everyone has the opportunity to consume them.

Merit goods are where the consumer doesn’t fully appreciate the benefit of consuming them.

Government Legislation and Regulation:

Food Safety Act (1990)
Sales of Good Act (1994)
Trade Descriptions Act (1968)
Consumer Credit Act (1974)
Weights and Measures Act (1963)

Health & Safety
Health & Safety at Work Act (1974)

European Works Council Directive (1994)

Clean Air Act (1993)
Environmental Protection Act (1990)

Competition Act (1998)
Companies Act (1985)

Disability Discrimination Act (1995)
Minimum Wage Act (1998)
Sex Discrimination Act (1975)
Equal Pay Act (1970)
Age Discrimination Act (2006)
Race Relations Act (1976)
Employment Relations Act (2000)

Purpose of Laws

Consumer Law

  • To ensure fair treatment of individual consumers
  • Clear and transparent prices

Employment Laws

  • To ensure fair and non discriminatory of workers race, gender, age

Competition Law

  • To ensure fair trading conditions apply to all companies
  • Restricts monopoly power, price fixing

Health and Safety Law

  • To ensure employees, customers and all visitors can operate in a safe environment

Environmental Law

  • To ensure the sustainability of resources and reduce the pollution into the environment

EU Laws

  • To ensure common legal framework throughout the EU

Government Economic Policy

Fiscal Policy is the use of taxation and government expenditure to influence the economy.

Monetary Policy is controlling the money supply and the rate of interest in order to influence the level of spending and demand in the economy. This uses quatitive easing this means that when there is a rise in interest rates customers feel poorer and spend less on luxuries due to having a lower discretionary income. Also businesses invest less as its more expensive to borrow money to purchase capital goods (long payback period and lower ARR). When there is a fall in interest rates consumers feel richer and therefore spend more on luxuries due to having a higher discretionary income. Also investments by businesses increas as it is less expensive to borrow money (short payback period, higher ARR). Therefore to slow the economy down the government could raise interest rates when using monetry rates but if the government wants to boost the economy (such as during a recession or slump) they could reduce interest rates.

Supply-Side Policies boost the level of output (level of total supply) which makes the economy more efficient. These policies include:

  • Education and training
  • Reduce regulation and red tape
  • Subsidies (a payment to encourage production and or consumption) eg. alternative energy
  • Labour market reforms (make it easier to switch between jobs) eg. reduce the power of trade unions
  • PFIs (Private Finance Initiatives) Private sector provides funds instead of the government.

EU Membership

27 Countries:

  1. Greece
  2. Bulgaria
  3. Romania
  4. Hungary
  5. Slovakia
  6. Slovenia
  7. Italy
  8. Austria
  9. Czech Republic
  10. Poland
  11. Lithuania
  12. Latvia
  13. Estonia
  14. Finland
  15. Sweden
  16. Denmark
  17. Germany
  18. France
  19. Spain
  20. Portugal
  21. Belgium
  22. UK
  23. Ireland
  24. Malta
  25. Cyprus
  26. Luxemburg
  27. Netherlands

Benefits of EU Membership for a UK Business:

  • There is an access to a large market
  • Large market = opportunities for economies of scale (lower costs and increased specialisation)
  • Competition = encourages innovation
  • Opportunities for european marges and joint ventures = synergy and improved efficiency
  • Wider labour market
  • More mobility of capital, able to invest anywhere
  • Freedom of movement
  • No tariff or quota
  • Single currency = no exchange rates = no transaction costs
  • Pan Europe marketing
  • Ansof Matrix: Market Development
  • Emerging markets

Negatives of EU Membership for a UK Business:

  • Increase in legislation
  • Need to meet technical standards
  • Increased competition
  • Labour and capital attracted to other EU countries
  • Labour maybe attracted to other countries
  • Language/cultural barriers
  • Countries outside euro have to pay transaction costs
  • Diseconomies of scale

Strategies UK Firms Should Adopt (to maintain competitiveness)

  • Merge/take over
  • Share technology and knowledge
  • Reduce unit costs and overheads
  • Reach a wider market/ audience
  • Move production to low cost areas
  • Effective working practices (training and motivation)
  • Product development
  • Multi site locations

Free trade -> Trading Bloc -> eg EU -> free trade between the countries within the bloc.

Free trade means that there is no restrictions or trade barriers meaning there are no tariffs and no quotas

If the UK trades with China there are trade restrictions, there are some tariffs and some quotas

Advantages of Free Trade:

  • Comparitive advantage – trading bloc as a whole benefits
  • Competition – encourages/ forces firms to become more efficient and competitive
  • Trade creation

Disadvantages of Free Trade

  • Infant industry – needs protection in the early years
  • Jobs: cheap labour, cheap products

These notes have come from my Business Studies A Level Lesson.

– Esjae x

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