Page 45 - Cambridge IGCSE Business Studies

3: Enterprise, business growth and size

Economic influences
Unemployment, high interest rates and taxation may reduce the amount of money
consumers have to spend on goods and services produced by businesses. Th is, in
Interest rates and taxation:

see Chapter 24, page 304. turn, will reduce businesses’ earnings from sales and profits. Firms that are well
established may have the finance to continue even when they are making a loss.

However, new businesses may fail when the economic condition is diffi cult.
ACTIVITY 3.4

Misaki is worried. Her business, designing and selling wedding dresses, has made a loss for the first time in 12 years. She
knows her dresses are more expensive than those of her main competitors, but her customers have always been prepared
to pay a little more to have the dress of their dreams!
She has telephoned her accountant for some advice. He told Misaki ‘the economic conditions are not good. Many people
are losing their jobs and those that are still working are having to pay higher taxes on their earnings.’
‘But people are still getting married,’ said Misaki.
‘Yes they are, but they have less money to spend on dresses and other wedding items,’ he replied.
1 Identify two economic factors that may have affected Misaki’s business.

2 Identify and explain two reasons that might explain why Misaki’s business has made a loss.
3 Do you think that Misaki’s business is at risk of failure? Justify your answer.

TEST YOURSELF
1 Identify two causes of business failure.
2 Why are new businesses more likely to fail than businesses that have existed for a 43
long time?