economic factors affecting businesses

1. EFFECTS OF ECONOMIC
FACTORS ON BUSINESS

2. ECONOMIC FACTORS AFFECTING
BUSINESS
 Demand/Supply
 General Price Levels
 Interest Rates
 Exchange Rates
 Economic Policies
 Trade Cycle
 Labour Markets
 Consumer Confidence

3. DEMAND/SUPPLY FACTORS
 Demand- Consumers ability and willingness to purchase a particular good.
 Looked at in two ways- Individual Demand and Aggregate Demand.
 Demand derives from utility.
 Downward sloping graph.
 Supply-Total amount of a given product or service a supplier offers to consumers
in a given period of time.
 Businesses as suppliers of Goods and Services largely determine the supply
conditions but they have constraints- Input costs/availability, Government Rules,
cost conditions.
 Upward sloping graph
 Businesses themselves are slaves to supply from suppliers of input goods.

4. EFFECTS OF DEMAND AND SUPPLY
 Pricing
 Competitiveness
 Expansion Decision
 Marketing
 Inventory
 Financing
 Salaries

5. GENERAL PRICE LEVELS
 Affected by Aggregate Supply and Aggregate Demand
 Inflation and Deflation
 Why is inflation considered good for businesses?
 However too much inflation can be harmful.
 Erodes Purchasing Power
 Feeds on itself
 Cost of Living Increases- Effects Salaries
 Cost of Loans and Bonds. Equity/Shares?
 Hoarding
 Stagflation could occur
 Could have negative effects on trade

6. INTEREST RATES
 Cost of Money
 Affects availability of Credit
 Changes nature of investments
 Decrease in profits
 Customer’s ability to pay

7. EXCHANGE RATES
 Exchange rate is the rate at which one currency can be exchanged for another.
 Exchange rates can appreciate or depreciate.
 Effects the flow of goods (Exports and Imports) as well as flow of funds (FDI and
FII)

8. ECONOMIC POLICIES
 Monetary Policy- Changes supply of money, interest rates through that economic
activity and price levels
 Fiscal Policy- Changes revenue and expenditure of governments
 Supply side policies- changes supply constraints
 Free Market Policies- Privatisation, Deregulation,Trade Unions, Free trade agreements,
remove regulations, red tape.
 Interventionist Policies-Transport, education and communication. Housing supply,
health spedning

9. TRADE CYCLE
 Refers to regular fluctuations in the level of national income and aggregate
economic activity.
 Various Stages-
 Expansion
 Peak
 Recession
 Depression
 Trough
 Recovery
 Affects on business

10. FINANCIAL CRISIS- SUB PRIME MORTGAGE

11. LABOUR MARKETS
 Supply of Labour Available
 Cost of Labour- Wages
 Quality of Labour
 Contractual Protections
 Labour Unions

12. CONSUMER CONFIDENCE
 Optimism of consumers
 Belief in overall Economy
 Willingness to spend
 Level of Spending
 Purchasing Power
 Bargaining power of customers