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This lesson examines how businesses operate within an external environment that they cannot control but must respond to. You need to understand how changes in the external environment affect business costs and demand, including the effects of competition, market conditions, interest rates, and income levels. This is part of AQA topic 3.1.3.
Key Definition: The external environment refers to all the factors outside a business that affect its performance and decision-making but are beyond its direct control. These include economic, competitive, legal, political, technological, social, and environmental factors.
Businesses can control their internal operations — their products, prices, marketing, and staffing — but they cannot control what happens in the wider economy, what competitors do, or what the government decides. Successful businesses are those that monitor and respond effectively to changes in the external environment.
Key Definition: Competition exists when two or more businesses are trying to sell similar products to the same customers. The level of competition in a market affects prices, costs, product quality, and innovation.
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