Describe the influence of two contrasting economic environments on business activities

Inflation

If McDonalds have high levels of inflation then they will have the lack of confidence in the future, as they will not be able to take on new things because the business is not able to buy many things for the money they have. There will be reduced profitability as there will an increase in costs which means that sales prices will go up. This has a negative effect upon profitability and leads to uncertainty which makes it more difficult for business to plan for the future. Many employees may demand price rises. Also they won’t be able to invest in any new opportunities. If McDonalds has low levels of inflation then it will be easier to control costs. There will be higher levels of profitability because there will be more customers. They will have more confidence in the future to do things and they will also be able to invest in new projects in the future.

Stability

If the business of McDonalds is stable they will have high levels of demand, as people are spending more money. McDonalds will be more confident and optimistic in the future. Many people may also want to invest in franchises if they are able to see that they are doing well. The government will be pleased as there will be more jobs created for people who are unemployed. Also there will be an increase in sales revenue, an increased range and quality of products. McDonalds will also make more profit therefore more dividends for the shareholders. If McDonalds are in recession then all of this could change. There will be a low demand therefore not many people will be spending much money. People will have less money so they won’t be that confident therefore they will spend less. There will be less investment opportunities for McDonalds. Staff may get fired as the business may not be able to pay there wages also some staff may demand for an increase in wage.

Supply and demand

A market is any place where buyers and sellers meet to trade products. The market price is the amount customers are charged for items and depends on demand and supply. Demand is the amount of a product customers are prepared to buy at different prices. Supply is the amount of a product businesses are prepared to sell at different prices. The commodities market is where raw materials such as wheat are traded like McDonalds. Market prices change when supply and demand patterns change. An increase in demand following a successful advertising campaign usually causes an increase in price. An increase in supply when a new business opens usually causes a fall in price. McDonalds’ are very sensitive to the sales of there products as people may not have that much money to spend. McDonald’s have a lot of competitors therefore they have to ensure that there prices are very competitive and cheaper then the rest of the other competitors. They have to make sure that there menu appeals to the customers and the location that they occupy. There are various different substitutes for McDonald’s for example, Burger King, Kentucky Fried Chicken, and Sub-way. If the prices of McDonalds increase then customers may have to go elsewhere if there is a cheaper alternative. Also in periods of recession when there is less money to spend on goods and services customers might switch to substitute products that are cheaper.  McDonald’s is not an expensive restaurant therefore it won’t be as affected then other restaurants during a recession. Some businesses actually do better in a recession as people switch from a more expensive restaurant or take- away to a cheaper one.  

Globalisation

Globalisation involves the creation of global markets, global businesses and global products. Key aspects of globalisation include the creation of global brands; like McDonalds when people round the world see the yellow letter M they instantly recognise that it means McDonalds. The creation of global products and global advertising for example global advertising and branding for McDonalds. Many of McDonald’s food products are sourced locally and also McDonalds make sure that different menus target the preferences of different countries.