Economic factor that affect businesses: 1. Income 2. Inflation 3. Recession 4. Interest Rate 5.

Exchange Rate

face many economic challenges when trying to make profits. Most of these factors are unable to be controlled by the business, although they can create operations that remain competitive in the economy. Material Costs
Cost of goods sold is usually the biggest expense for most businesses. Raw materials might have high prices from lack of availability or business requirements for high-quality materials.
o

Market Demand
Market demand is the result of consumers willing to purchase goods in the marketplace. Demand can fluctuate for a variety of reasons; businesses must accurately forecast the market demand to avoid inventory overstock.
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Competition
The number of competitors in an industry and the quality of competing goods can affect company sales. Businesses must provide products or services that fill a niche in the marketplace.
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Debt Financing
Most businesses expand their operations through debt financing. Lack of lenders or poor cash flow from low sales will dampen a business' ability to finance business growth.
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Government Regulation
Governments regulate some industries more than others. Regulations, taxes and subsidies can damage a business' opportunity to succeed in the open marketplace.
o

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Factors of the External Environment-Circle 2(c2)

1. Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

2. Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

3. Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

4. Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

5. Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.

6. Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.