1. COMPETITION – THE NUMBER AND RELATIVE POWER OF FIRMS TRADING IN THE SAME OR SIMILAR MARKETS. Effect on demand Effect on costs If there are many competitors in the market this will increase the selling power of the supplier. This can therefore push costs up. Competition may attract new suppliers into a market increasing the availability and therefore driving costs down. Competition can encourage firms to compete on price therefore lowering prices overall and increasing demand in the market. A number of firms competing may see a spread in demand between firms, reducing the market share of each firm if the market size remains unchanged.

2. MARKET CONDITIONS – THE DEFINING CHARACTERISTICS OF THE MARKET E.G. LEVEL OF SALES, TRENDS AND DEGREE OF COMPETITION. Effect on demand Effect on costs Market conditions will affect the demand for supplies and therefore directly impact on costs. If there is a high level of demand then supplies may be in short supply allowing suppliers to increase costs. The level of demand will be a clear indicator of market conditions. If the market is growing demand will be increasing and vice versa.

3. INCOMES – THE EARNINGS OF CONSUMERS THAT WILL DIRECTLY INFLUENCE SPENDING POWER. Effect on demand Effect on costs Rising incomes may be as a result of higher wages which are a cost to a business. This may be due to the government increasing the national minimum wage. Incomes directly affect consumers’ spending power. If incomes are rising this could lead to a rise in demand as consumers have higher discretionary incomes. What is GDP?

4. INTEREST RATES – THE COST OF BORROWING OR THE REWARD FOR SAVING. Effect on demand Effect on costs Interest rates will affect the cost of borrowing by businesses. If interest rates go up so will the interest section of repayments on bank loans or overdrafts. This will increase the fixed costs of a business. Businesses may also find that suppliers try to pass on their own higher costs in the form of higher prices further increasing costs. If interest rates increase this encourages consumers to save and discourages spending. A fall in interest rates will have the opposite effect.

5. DEMOGRAPHIC FACTORS – THE STATISTICAL CHARACTERISTICS OF THE POPULATION. Effect on demand Effect on costs Rising net migration has increased the size of the workforce in the UK. This has driven average wage costs down lowering the costs of production. Changes in UK demographics, including migration and the size and age of the population has increased costs to the public sector e.g. health care and education. Migration has seen an increase in demand for a wide range of goods and services e.g. housing, public transport and healthcare. Demographics also influences the types of products demanded e.g. changing taste of a more diverse nation and different demands from an ageing population.

6. ENVIRONMENTAL ISSUES AND FAIR TRADE – THE VARIETY OF FACTORS THAT IMPACT ON THE ENVIRONMENT DUE TO THE OPERATIONS OF BUSINESSES E.G. POLLUTION. Effect on demand Effect on costs Fair trade may increase costs as a business is making a commitment to pay suppliers a fair price, hence increasing the cost of raw materials. Concern for environmental issues may also increase costs of production in terms of safe disposal of waste or upgrading of equipment to reduce emissions. Concern for environmental issues may also lower costs in terms of lower energy usage or avoidance of fines. Businesses can use environmental issues and fair trade as a USP or a recognisable feature of a brand leading to an increase in demand. If increased costs are passed on to the consumer in the form of higher costs this may lead to a fall in demand.