According to American marketing association, economic environment is the totality of economic factors such as employment, income, inflation, interest rates, productivity and wealth that influence the buying behavior of consumers and institutions. Both international and domestic businesses are often affected by the dynamic economic conditions prevalent in the market. Factors like demand and supply, interest rates, recession, inflation, etc. often have an impact on the businesses. Let us take a brief look at these economic factors.
Every business has one goal, to maximize its profit. This can be done by analyzing the demand of consumers, providing appropriate supply, along with maintaining quality of goods and services. However, there are many factors that affect this simple operation. Owing to these economic elements, the sales, production, and procurement of a business get adversely impacted. Here, we have provided you with a list of economic factors that affect the working of business organizations. All these factors are interconnected. According to warren J.Keegan and mark c. green in global marketing 5th edition the economic environment variables in global marketing is best evaluated by: Type of economy
Is the nation an advanced industrial state, an emerging economy, a transition economy or a developing nation? Type of government
Is the nation ruled by monarchy?, Dictatorship or tyrant? Is there an autocratic one party system? Is the nation dominated by another state, or is it a democracy with multiparty system? Is it an unstable or terrorist nation?
Trade and capital flows
Is the nation characterized by almost completely free trade, incomplete free trade and part of a trading block? Is there a currency board or exchange controls? Is there no trade or does the government dominate trade possibilities? The commanding heights
E.g. transportation, communications and energy sectors.. Are these sectors state owned and operated? Is there a mix of state and private ownership? Are they all privatized with or without controlled prices? Services provides by the state and funded through taxes
Are pensions, healthcare and education provided? Pensions and education, but not healthcare? Do privatized systems dominate? Markets
Does the nation have a free market system characterized by high risk/high reward entrepreneurial dynamism? Is it a free market that is dominated by monopolies, cartels and concentrated industries? Is it a free market that is dominated by monopolies, cartels and concentrated industries? Is it a socialized market with cooperation between business, government and labor but with little entrepreneur support? Or is planning including price and wage controls, dominated by the center?
Economic Factors and their effect
1. Demand and Supply
The demand and supply are two principal factors that affect the working of any business model. The demand is the will and ability of consumers to purchase a particular commodity, while supply is the ability of the business to provide for the demand of consumers. Suppose, a mobile phone infused with latest technology is introduced in the market, it will have a higher price because of its demand in the market. Its prices will continue to increase if the supply does not meet the demand.
For instance, in the year 2000, weather played havoc with the sugar crops of Brazil, which is the largest sugar producer in the world. This led to a decrease in the supply of sugar, which in turn resulted in a steep rise in the sugar prices. However, after the initial price rise, the market forces came into play and the demand for sugar became equal to the supplied sugar.
2. Marginal and Total Utility
Utility is the amount of satisfaction, that is derived by consumers from the consumption of goods. It so happens that after continuous and successive consumption of units of the same...