3 economic factors effecting external environment

8/7/2019 3 ECONOMIC FACTORS EFFECTING EXTERNAL ENVIRONMENT

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ECONOMICFACTORSEFFECTINGEXTERNALENVIRONMENT

PRESENTED BY

NIDHI SINGH



Introduction} Any business organization has one goal, to maximize profit.

} The process of maximizing profit is simple. Analyze demandof consumers, and provide appropriate supply, in goodquality and quantity.

} There are however many factors that affect this simpleoperation.

} These factors are often classified as macro and micro,internal and external, technical and non-technical.

} All the same, the sales, production and procurement ofthe business organizations, directly or indirectly depends on

these factors. Hence, we will find that businessmen, closelyanalyze and ponder upon the economic factors affectingbusiness firms.



Economic Factors AffectingBusiness

1. Demand and Supply

} The demand and supply are two principalfactors that affect the working of anybusiness model. The demand is the willand ability of consumers to purchase aparticular commodity and the supply isthe ability of the business to provide for

the demand of consumers. It must benoted that all the factors that areincluded in this list are inter-connected.



Economic Factors AffectingBusiness2. Marginal and Total Utility

} Utility is the amount of satisfaction, that is derived

by consumers from consumption of goods. It sohappens that after continuous and successiveconsumption of units of the same goods, thesatisfaction that is experienced by consumer starts decreasing. This often results into short termor long term fall of sales. Some organizationsprepare for the launch of another brand beforethe fall in utility and sales is experienced. Thelaunch of new brand, ensures that the revenuetrend of the business does not fall. Diminishingutility is among the external factors affectingbusiness.




3. Money and Banking

} Banking facilitates monetary and fiscalpolicies that affect business and also thecustomers of the business. Money incirculation dictates the paying power or rather the demand of the consumers andthe banking facility dictates the borrowing

capacity of individuals as well as thebusiness.




4. Economic Growth and Development

} Economic growth dictates the amount of

finances that the society at large is earning anddevelopment indicates the volume of moneythat is being invested into channels of long termup-gradation. Among all the economic factorsaffecting business environment, development isthe most important one, as the business has to

cater to the demand of an economicallydynamic society.




5. Income and Employment

}

Another very important aspect of theeconomy that affects the working of the

business, is the level of employment and

rate of income. The per capita incomeand density of employment dictates the

rate of demand, density of demand andalso the purchasing power of the people.




6. General Price Level

} Another very important aspect of the

economy, that affects the business is thegeneral price levels of the commodities thatalso affect the sales of the business. Costs ofraw materials, paying power of people, costof production and finally, cost of transport aresome of the important components that

determine the general price level and also,the sales of the firm.




7. Trade Cycles

} Trade cycles are the fluctuating costs ofgoods and commodities in an economy.Rise, stability, continuity and fall are someof the important cycles that affect theprices off all goods such as raw material,credit, final goods, etc. Trade cycles also

many a times affect the general pricelevel.

3 economic factors effecting external environment

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