Taxation

Reduces disposable income and make people feel poorer. Income tax is the governments biggest individual source of income. Income Tax is based on the amount money of that people earn and any additional income. Businesses collect Value Added Tax (VAT) for the government by adding tax to prices while also paying corporation tax on their profits and tax their employees. Lower tax for firms has been aimed in the UK in order to attract more business to the country. Governments will use fiscal policy to balance or more often imbalance, between taxation and public spending to influence output, employment and inflation levels. This surplus entails taking more out of the private sector in tax than the government is putting back in by spending. A public sector deficit will add to private sector incomes, expected to stimulate more spending and activity. 

Unemployment

Is being willing to work and available for work but unable to obtain a job. High unemployment  is associated with people being less secure about future incomes and become reluctant to spend. During a economic period of recession, income falls and unemployment begins to highly rise leading to people to be less willing to spend their money. If consumers buy less, firms will tend to produce less leading to businesses making redundancies which increase unemployment. However high levels of unemployment can make it easier for businesses to recruit workers.

Inflation

Measures the rise in the general level of prices over a 1-year period and is a sustained rise in the general level of prices. Hyperinflation is an extreme form of inflation where prices rise so rapidly that people lose confidence in money, with a typical rise of a 100%-1000% in prices per year. Rapid inflation can cause many businesses to be uncertain about how costs will change and their ability to pass on on rising costs to their inputs to customers. It is likely to make consumers more cautious and perhaps reduce their spending however in contrast to this rising levels of inflation can cause a wealth effect on people which is when people feel  they have become wealthier because the value of their assets e.g. their house, has risen in price, leading to people spending more.

Inflation is measured by the Retail Price Index or the Consumer Price Index (the more common one used). The consumer price index, CPI, is based on a collection of prices tp represent typical consumer spending and is directly used for adjusting pensions and other benefits to compensate for the effects of inflation, and less directly it also has a factor on influencing price setting and wage negotiations.

Interest Rates

Are a charge paid by borrowers to lenders. Interest rates in the UK are based upon the Base Rate which is set monthly by the Monetary Policy Committee (MPC) of the Bank of England. The MPC are a team (of nine) assembled by the Bank of England to take monthly decisions on the base rate, which heavily influences other interest rates in the UK. The Base Rate acts as an indicator which other interest rates in the economy are set around. 

When the base rate goes up, the purpose is to counter inflation. Higher interest rates mean that mortgage interest payments will go up for many house buyers. In addition to this rising interest rates are taken as a sign that economic conditions will grow more difficult, making people less optimistic, causing large purchases to be postponed or cancelled as they are usually funded by borrowing. The overall effect of higher interests rates will be to reduce the aggregate demand (AD), which is a measure of all spending in the economy by consumers, firms, government and overseas buyers of export.

When the base rate goes down the purpose is to increase the demand and activity in the economy by businesses and consumers, which is generally done when there are signs of the economy going into a recession. This known as monetary policy which is when the use of the Bank of England base rate is to influence economic and business activity, targeting 2% inflation by the consumer price index.

Supply

Market Supply is the combined quantity that all producers of a product will want to sell at a particular price. The biggest impact on supply is the costs, as a business will want to sell a product that delivers a high profit return.
In the short term (a period of time in which a business cannot change fixed costs) existing firms will use spare capacity and introduce overtime or other immediate ways of increasing the output of supply.
Supply can change more in the long run which to economists is the time it takes to make a change in the fixed assets of a business.

On the Supply Graph, if the supply curve moves to the right it means supply has increased and alternatively a move to the left means supply has fallen, perhaps due to industry shrinkage or a rise in costs.

Demand

A market will grow if there is sufficient demand to make supplying an item profitable. Demand is a measure of how much of a product or service consumers actually buy in a market. Population structures of regions can effect the level of demand, in Britain for example has an ageing population which is increasing in number which means that businesses are going to focus their product appeal on this large sector of the population which offers a higher mount of sales revenue and profits.

Tastes can have an affect on demand as consumer preferences for products or types of proucts will change the level of demand for products, generally tastes or trends shift over time due to the influence of advertisers who can successfully persuade us to want a certain product. Advertising is one form of non-price competition, which businesses use to be competitively ahead of rivials, by the means of using a factor other than price e.g. quality, innovation, differentiation,promotion. Successful nonprice competition can often lead to healthy profit margins.

On a Demand Curve,  if the demand curve shifts to the left it means that demand has decreased and if the curve shifts to the right it means that demand has increased.

Motivations of Entrepreneurs

Entrepreneurs can be motivated solely on Profit and the prospect of growing rich. It is suggested that this type of motivation from entrepreneurs will result in them working to satisfy consumer demands in order maximise revenue, producing higher profits.

Another motivation for entrepreneurs is if they are a Satisficer, which is someone who targets a reasonable  performance rather than pushing hard for maximum success while also looking for comfort and relaxation alongside income. This in some cases can provide significant advantages over profit motivation as Satisficers are likely to enjoy their work then profit motivated entrepreneurs.

Other entrepreneurs can be motivated by ethical factors that are morally correct. As they may want produce  something useful for the community while also treating staff, suppliers and customers well. If large businesses are found to be producing products unethically, it can have harsh effects on profits if consumers do not approve it. This is why many large businesses have to have corporate responsibility, which involves taking into account fairness and considerations towards their stakeholders by behaving ethically.
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