PALAYAN CITY NATIONAL HIGH SCHOOL-SENIOR HGH SCHOOL

APPLIED ECONOMICS Fourth Quarter-Module 3

Topic: Effects of the Various Socio-Economic Factors Affecting Business and Industry

Objectives: After going through this module, you are expected to:

 Explain the effects of the various socio-economic factors affecting business and industry

BRIEF INTRODUCTION

Governments, government agencies, consumers, investors, suppliers and other directly and
indirectly affected by the business are increasingly interested in business’ socio-economic impact. Some
are skeptical, and they want proof that companies are at least doing no harm. Some are conscientious,
and wish to be associated with organizations which make a positive contribution to society. As you go
through lesson, you will learned about the socio economic factors affecting business and industry.

Socio Economic Impact of Business- Consumers, Suppliers, and Households

PALAYAN CITY NATIONAL HIGH SCHOOL-SENIOR HGH SCHOOL
APPLIED ECONOMICS Fourth Quarter-Module 3
PALAYAN CITY NATIONAL HIGH SCHOOL-SENIOR HGH SCHOOL
APPLIED ECONOMICS Fourth Quarter-Module 3

Determinants of Spending

The level of spending is determined by a number of factors, including:

1. The current level of National Income

Some extra spending is induced by changes in the current level of national income. As income
rise, customers tend to increase their spending on higher income elastic goods and services,
such as luxuries, holidays and leisure goods. When income falls households may postpone
spending on these luxuries until income rise again.
2. The Level of Savings
Spending and saving are mutually exclusive, which means that if income is fixed, any change in
household’s savings will inversely affect spending. Many of determinants of consumption have
an inverse effect on saving.
3. Expectations
If households are confident, and have positive expectations about the future, current spending
can rise. This can lead to economic growth, and re – enforce the positive expectations
4. Unemployment
Unemployment has two potential effects on household spending. Firstly, the unemployed spend
less because of their lower personal income, and secondly, unemployment causes negative
expectations, even for those employed, and this can act as a curb on spending and a stimulus to
saving.
5. Rates of Income Tax
Changes in tax can clearly affect disposable, post – tax income, and hence affect household
spending.
6. Interest Rates
PALAYAN CITY NATIONAL HIGH SCHOOL-SENIOR HGH SCHOOL
APPLIED ECONOMICS Fourth Quarter-Module 3

By altering the level of saving – a rise in interest rates will stimulate more saving, and less
spending.
By altering the cost of funding existing debts such as mortgages and bank loans. For example, a
rise in interest rates will divert household funds towards the higher loan payments and away
from general spending.
By altering the cost of new credit, and thus encouraging or discouraging household borrowing.
For example, a rise in interest rates will deter new borrows, who may postpone borrowing until
rate fall back.
By altering expectations and confidence. For example, rising interest rates will subdue
confidence and create a ‘wait and see’ attitude by households, who may postpone certain
spending until expectations improve

CHECK YOUR UNDERSTANDING

Activity 1. Below are logos of companies that are well known in the Philippines. I want you to choose
two (2) companies of your preference and answer the question: As a consumer, what are the different
factors that will make you buy their products or services? Write your answer in a separate sheet of
paper. 10 PT. RUBRIC 10 points- comprehensive and analytical 8-9 points- well written and some
includes analysis; 5-7 points-well written but lacks analysis; 2-4 points- weak essay; 1 point Poorly
written and lack strength.

Activity 2:
ESSAY: If you are a consultant in a business and the owners ask you recommend a supplier. What kind of
supplier will you recommend and why?