Notesale: Turn your study into money

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Unit 39

Assignment 4/5

a) Outline and explain the effect of:
i)

a £1000 increase in the income tax main personal allowance;

ii)

a rise in the rate of VAT; and

iii)

a rise in interest rates;
on the retail computer and IT market
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Introduction
For this assignment, I will be outlining and analysing the effects made upon the retail computer and
IT market and once again the IT business of PC World
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The amount of income people make is a big
issue to the business world, because it is their money business markets hope to gain
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Income tax is a tax that is levied on income that a person or business earn with an increased rate of
20%, while personal allowance is the amount of income that can be earned before the individual
becomes liable to income tax, which is currently £6035
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VAT is a consumer tax, which is at present 17
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It is collected by
VAT registered traders on their supplies of goods and services
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Interest rates are the amount of money charged as a fee for
lending money or the price of borrowing money, with the current base rate being 5
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The retail
computer and IT market is a market made up of different IT stores which provide computer
equipment and use retail to sell them directly to their customers
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But
when it’s worth changes through personal allowance, VAT and interest rates, there can either be big
benefits or big losses due to what money they currently have
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After this, I will then continue to analyse the £1000 increase in the income tax main personal
allowance and rise in their interest rates, except explain the effects of them upon PC World
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)

i
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When people within the retail computer and IT market have a £1000 increase in their main
personal allowance, there will be a change in sales
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With their higher income they are able to purchase more products, including IT
equipment from the retail computer market
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Also, not only will their sales improve,
but their profits will increase as well, because of what they gained from their sales and offers with
customers
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ii
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Instead of improving the income
tax main personal allowance, VAT will raise the prices of products people would have to pay for,
resulting in them having little income left to spend on products such as IT equipment
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5% to 20% on people’s essentials, their money will not be able to buy as much
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This is because of people’s
retailers, who add VAT to their prices and then pass the tax on to the government to handle them
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I will now use a flow chart to explain the effect of such a
rise in the rate of VAT
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) Monetary policy is when Central Bank actions influence the availability and cost of money and
credit, as a means of helping to promote economic growth
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When rising interest rates for people,
there will be alterations in the economy when they spend what they have left
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So now, when people wish to lend amounts of money from them, there will be an interest rate,
which will be calculated from the lending charges by those lenders within the bank
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If people
have to pay more than they owe to their banks, then they will have less money to spend on all of
their other products, including IT equipment
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But there can still
be some benefits from this change in base rate, such as importing products
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Because of this, those who import will lower
their prices in order to be reasonable with the rate of the UK’s economy, making imports much easier
for the market
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)
i
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The fiscal
policy method of a £1000 increase in the income tax main personal allowance will leave effects
which can change the current running PC World:
- Sales and revenues - The rise in people’s main personal allowance will leave them having some of
their own money to spend
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The business could attempt to draw customers away from their
competitors within the market, and assist them with spending their spare money in their own stores
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A problem may be having to lower their prices too much to attract
customers in order to lead them away from their competitors
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- Employment of staff - While this tax increase lasts, the business should be able to afford more
staff, who can assist with the high number of consumers who are able to afford IT equipment
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These staff may also be able to help the business as they can purchase
the businesses products with their own high income
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Due to their progressive earnings, the business will be more capable to afford the extra
materials
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This trade can leave an even balance of growing income for PC World and decreasing prices
from suppliers
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The number of richer customers going to PC World longer can lead to a bigger impact on
their decisions
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When PC World are handling contracts with business customers because of their deliveries of IT
equipment, it may be due to the amount of income they have gained from their more affluent
customers
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The amount made will not only lead to a greater percentage in the company’s
profit margin, but it would also allow the business to afford making the store develop in size, leading
also to a rise in the number of products given
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ii
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This significant rise in the Bank of
England’s base rate is a way of endorsing financial expansion
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This will leave them being unable to afford products such as IT equipment,
making PC World experience a loss of sales as well as revenue
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The size of their overall revenue would
result poorly as well due to the lack of income managed
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If people are having to pay more to their banks it will obviously cause a problem for their

overall finances
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Although there are still those customers who are fairly richer,
who do not need to borrow money and are able to purchase PC Worlds products, it will not be
enough when gaining an appropriate profit margin to continue the running and progression of the
business
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This lack of employment may help the business save some of their proceeds, but it will not help their
current lack of profit gain
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So less staff is a result
of low money due to lack of customers, because they cannot afford stock when having to pay more
to those who lent them capital
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This could lower relations with their suppliers, and would even have
less need for their services if they cannot sell any of their current products so purchasing more
would be pointless and a waste of money
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- Possible long – term effects - The long term effects of a rise in interest rates would result with
much bigger problems for PC World
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The size of
the store could also decrease since staff cannot purchase what they want as much
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Those companies
who have had business contracts for their delivery of IT equipment in the past will leave no effect on
future companies now
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With lower wages, people will
not mange to purchase IT equipment, leaving PC World to have fewer sales, while the wages
themselves are not affordable to buy most products, leaving low revenue, because of both of these
the companies profit margin will suffer, leaving the company to have a result in progression
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While a rise in the rate of VAT and a rise in interest rates leaves negative results on both
areas, because they result in people not enough money to purchase products

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