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Economic Factors Affecting Business

Any business organization has one goal, to maximize profit. The process of maximizing profit is simple. Analyze demand of consumers, and provide appropriate supply, in good quality and quantity. There are however many factors that affect this simple operation. These factors are often classified as macro and micro, internal and external, technical and non-technical. All the same, the sales, production and procurement of the business organizations, directly or indirectly depends on these factors. Hence, you will find that businessmen, closely analyze and ponder upon the economic factors affecting business firms.

Economic Factors Affecting Business

The following article is a small elaboration of the major economic factors affecting business organizations. Internal environment, operational environment and external environment are 3 major classes of such factors. The following list is however a comprehensive and integrated list of all possible economic factors that affect the working of business organizations.

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 and the supply is the ability of the business to provide for the demand of consumers. It must be noted that all the factors that are included in this list are inter-connected. You may also read demand and supply analysis.

Marginal and Total Utility
Utility is the amount of satisfaction, that is derived by consumers from consumption of goods. It so happens that after continuous and successive consumption of units of the same goods, the satisfaction that is experienced by consumer starts decreasing. This often results into short term or long term fall of sales. Some organizations prepare for the launch of another brand before the fall in utility and sales is experienced. The launch of new brand, ensures that the revenue trend of the business does not fall. Diminishing utility is among the external factors affecting business. You may also read more on diminishing marginal utility.

Money and Banking
Banking facilitates monetary and fiscal policies that affect business and also the customers of the business. Money in circulation dictates the paying power or rather the demand of the consumers and the banking facility dictates the borrowing capacity of individuals as well as the business.

Economic Growth and Development
Economic growth dictates the amount of finances that the society at large is earning and development indicates the volume of money that is being invested into channels of long term up-gradation. Among all the economic factors affecting business environment, development is the most important one, as the business has to cater to the demand of an economically dynamic society.

Income and Employment
Another very important aspect of the economy that affects the working of the business, is the level of employment and rate of income. The per capita income and density of employment dictates the rate of demand, density of demand and also the purchasing power of the people.

General Price Level
Another very important aspect of the economy, that affects the business is the general price levels of the commodities that also affect the sales of the business. Costs of raw materials, paying power of people, cost of production and finally, cost of transport are some of the important components that determine the general price level and also, the sales of the firm.

Trade Cycles
Trade cycles are the fluctuating costs of goods and commodities in an economy. Rise, stability, continuity and fall are some of the important cycles that affect the prices off all goods such as raw material, credit, final goods, etc. Trade cycles also many a times affect the general price level.

Every changing factor in an economy affects any business, from a simple Christmas day celebration to a bankrupt multi-billion corporation, every incident and factor affects the working of a particular business. This is the very reason why businessmen are always on the look out for incidents and economic factors affecting business.

Good Luck!

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