Applied Economics

Quarter 2 – Module 9:
Effects of the Various Socio-
Economic
Factors Affecting Business and
Industry
(Week 10)
 What I Need to Know

This module was designed and written with you in mind. It is here to help you
explain the effects of the various socio-economic factors affecting business and
industry.

The scope of this module permits it to be used in many different learning

situations. The language used recognizes the diverse vocabulary level of students.
The lessons are arranged to follow the standard sequence of the course. But the
order in which you read them can be changed to correspond with the textbook you
are now using.

The module has one lesson, namely:

Lesson 1: Explain the Effects of the Various Socio-Economic Factors Affecting
Business and Industry

After going through this module, you are expected to:

□ identify and explain the effects of the various socio-economic factors affecting
business and industry

What I Know

Choose the letter of the best answer. Write your answer on a separate
sheet of paper.

1. Spending and saving are mutually exclusive which means that if income is
fixed, any change in household’s savings will inversely affect
.
a. Inventing c. Producing
b. Spending d. Buying
2. Changes in tax rates can clearly affect net income thus affect household
.
a. Investing c. Borrowing
b. Producing d. Spending
3. Businesses need the support of this industry to provide the tools needed to
produce goods/services.
a. Consumer c. Supplier
b. Entrepreneur d. Income
4. A successful business influences the behavior of _ _.
a. Capital c. Consumers
b. Supplier d. Entrepreneur
5. A rise in interest rates stimulate less spending, more .
a. Spending c. Exploring Business
b. Business Transaction d. Savings
6. Distributor of goods and services needed in the operation of the business.
a. Entrepreneur c. Consumer
b. Supplier d. None of the above
7. The unemployed spend less because of _ .
a. Lower personal income c. High income
b. No income d. None of the above
8. Example of web – based business is an _ .
a. e – Commerce c. Exporting
b. Hotel and Restaurant d. Importing
9. A increase in spending means .
a. More income c. Personal wealth
b. Economic growth d. All of the above
10. When consumers are likely to respond to promotional advertisements that
connect to their feeling to influence them, then the business
.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
11. When consumers are likely to be influence to switch on your product when
it meets their expectations and get higher value.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
12. When consumers are likely to patronize your products and services
when business contribute to the community by being socially active
such as scholarship and tree planting.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
13. When business let customers feel that they are important and give an
excellent service then the business can _ _.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
14. Below are list that company take into account in choosing the right supplier.
Which of the following does not belong to the group?
a. Quality of products/services provided c. Reliability of Service
b. Customer preference d. Supplier's Reputation
15. Which of the following is not a determinant of spending?
a. Expectations c. Interest Rates
b. Rates of Income Tax d. The Level of Production
 Lesson

1
Explain the Effects of the Various
Socio-Economic Factors Affecting
Business and Industry

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.

What’s In

In the previous lesson, you have learned about industry and environmental analysis in
particular SWOT Analysis. As you go through the lesson, I want you to do a word search to
check if you still remember the following terms about socio economic factors affecting the
business and industry.

1. CONSUMER 6. SOCIO ECONOMIC

2. BEHAVIOR 7. INVESTORS
3. SAVINGS 8. SPENDING
4. HOUSEHOLDS 9. INTEREST
5. SUPPLIERS 10. TAXES

R E C D I T I S R O S G N I V A S C E S M C
G N P O M E D S E G A T R O H S S H S E I I
S T N A N K M A C R O E C I N I M H C S X M
K A P L E S C O M M A N D N I M P O R T S O
E D A M C A U I T A L T R T D E O U F L D N
L A B O R M S M A R C I T E V I R S S E R O
G M I C R O E C E N T A X R S C O E I D O C
P I H S R I E N E R P E R E N E C H G S I E
P O S I L I V E E C O N O S I C S O D E V O
N O R P A T I V E E C O N T M I C L P O A I
 G D S P E N D I N G E V I T A L E D O O H C
A U S O L U T E S S R O T S E V N I N E E O
S P S U P P L I E R S C O S T R A H I N B S

Notes to the Teacher

The teacher should encourage the learners to read books in Economics. This will
help them to easily understand the lesson.

What’s New

To understand more about the socio economic factors affecting business and
industry, Let us read first a part of an article written by Manny Ayala of Rappler
dated April 20,2020.

Entrepreneurs turn up

It is classic entrepreneurial stuff – see a problem and figure out how to solve it, whether or not you
have the resources to do it. Linda Rottenberg, the founder of the non-profit Endeavor, has a great line
that describes the situation neatly: “When economies turn down, entrepreneurs turn up.”

Mind you, these entrepreneurs have all been walloped as hard as the rest. As I write, most are going
through unprecedented declines in their business and are scrambling to conserve cash, reduce
expenses and pivot the business to be ready for the inevitable recovery from this pandemic.

But in the middle of this chaos, they have also been moved to do something concrete to help the
country.

Entrepreneurs are defined by how they respond to a crisis, which as the Chinese word for crisis
suggests is the co-existence of danger and opportunity. The great ones are those who find opportunity
in the face of danger. The great ones do right by all the stakeholders they serve: employees,
customers, shareholders, suppliers and the communities they operate in. The great ones rise to the
occasion when the moment demands it of them.

In the words of the Count of Monte Cristo – a man who lost everything then gained it back: “Life is a
storm, my young friend. You will bask in the sunlight one moment, be shattered on the rocks the next.
What makes you a man is what you do when that storm comes.”

Below is a list of some of the noteworthy initiatives I have seen in the little Endeavor community in
the Philippines. In the middle of a storm, this is how entrepreneurs rise to the occasion.
Abetina Valenzuela (Equilife Medical)

Abetina is the founder of Equilife Medical, a company that provides medical services and equipment
to ICUs in hospitals in the Philippines. When COVID-19 started to escalate, Abet and her team
scrambled to get all the critical care equipment at their disposal - such as ventilators - to the hospitals
that needed them most. As with all hospitals they have stepped up their efforts to send their nurses,
respiratory therapists and engineers into the frontline, at ng theigreat personal risk to themselves.

Paul Rivera (Kalibrr)

Paul is the co-founder and CEO of Kalibrr, a technology company that aims to transform how
candidates find jobs and how companies hire talent. Currently, his team is partnering with bld.ai, a
technology company founded by Danny Castonguay. The COVID Sentinel mission is to detect,
manage, and defeat pandemics. The sentinel surveillance system not only aggregates high quality data
from public sources, but also collects targeted data from sources such as sewage testing and patient
symptoms tracker apps. This intelligence is put in the hands of doctors for tactical solutions and
researchers for systemic interventions.

(by Manny Ayala published by Rappler on April 4, 2020)

After reading the article, you now have an initial idea about the lesson. But before
we begin the lesson, answer the following:
1. What type of products/services was created during the pandemic?

2. In your opinion, what are the social and economic factors that the business
owners considered in creating their business?

What’s New

Socio Economic Factors Affecting the Business and Industry

This lesson will focus on various socio economic impacts on the following sectors
such as consumers, suppliers and households.
How do Socioeconomic Factors Affect Businesses?
Understanding the socio economic factors affecting business will help you make
better decisions about the future and direction of your business. To have an
intimate understanding, however, you will have to understand both external and
environmental factors, as well as how their interplay affects your business.

Socioeconomic factors are, therefore, the social and economic factors that shape
and determine the dynamics a society will experience. These are the factors that
affect
the behavior of a particular group, also known as socioeconomic class. Perhaps the
most interesting behavior of member of a socioeconomic class is their behavior as
consumers. Different socioeconomic classes will generally have different priorities,
and this will affect how they spent their money.

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

Effect of Business on Consumers

A successful business influences the behavior of consumers to encourage them

to buy its products. The business does this by studying consumer needs and
adopting strategies to persuade as many consumers as possible that the products
have value. You can use several methods to influence consumers, and you have to
know your markets well to get the results you want.
1. Influence Consumers Emotionally

To affect consumers’ behavior, you have to communicate a message or present

consumers with information. Consumers’ are more likely to respond to material
that connects on an emotional level, and surprise combined with repeated episodes
of joy or humor is effective.

2. Encourage Customers to Look for Value

If you solve a common problem for consumers more effectively than your
competitors, or solve it at substantially lower cost, you can influence consumers
to switch to your brand. Your message emphasizes the higher value consumers
get when they solve their problem using your products. The key is to make sure
your products meet the expectations of consumers.
3. Offer Social Responsibility

To have a more general effect on consumer behavior is to offer ways of acting in a

socially responsible manner. You can promote your brand as environmentally
green and socially responsible, carrying out corresponding initiatives and
informing your target markets of your action. Consumers who want to buy from
socially active and environmentally responsible companies respond positively.
4. Change Behavior with Excellent Service

The level of service customers experience when dealing with your company can
have a profound effect on customer behavior. Customers who experience bad
service will not buy from your company again, and are more likely to share their
negative experiences with friends and online. Your customer service goal must be
to deliver flawless service every time a customer interacts with your business. The
effects on customer behavior result in a positive reputation for your company and
increased sales over the long term.
Factors that Impact Business and Consumer Confidence
With policymakers in the major economics working hard to restore and maintain
confidence levels and shifts in sentiment indicators playing a key role in risk
assessments of investors, it is worthwhile to consider the various influences on this
qualitative economic measure.

Several common factors that have the potential to cause marked shifts in sentiment
includes the following:
1. Changes in interest rates and/ or exchange rates, particularly if they are
rapid, large and unexpected;
2. Swings in the business cycle and associated movements in employment/
unemployment levels and business investment intentions;
3. Shifts in the relative prices of nondiscretionary goods and services, notably
petrol, healthcare, education and utilities prices;
4. Announced policy shifts in the stance of government fiscal policy
including large structural spending cuts or increases/ decreases in taxation
rates.

Selecting the Right Suppliers

It is important to select suppliers carefully as suppliers can affect the businesses they
provide goods to. If a supplier provides a poor quality product to a firm, it may affect
the firm’s reputation as the firm will need to use the goods or sell them onto their
customers. Similarly, if a supplier provides a slow or poor service, this may slow down
the service the business provides to its customers.
1. Supplier History and Reputation
2. Quality of the Product/Service provided by the Supplier
3. Price Charged by the Supplier and how does this impact on the quality of the
product/service provided by the supplier
4. Financial Strength.

Example: Does it have good cash flow and strong balance sheet?
5. Size of the Supplier and its other Customers.

Example: Does it normally deal with businesses of your size?

6. Capacity of the Supplier
Supplier Management

After agreeing a contract with a supplier it is important to monitor the supplier’s

performance to ensure that they are providing the service that was agreed with them. Some
firms will agree targets known as Key Performance Indicators (KPIs) that suppliers will
need to meet.
Businesses are reliant on suppliers; suppliers provide the tools a business needs to
operate. If a firm manages to negotiate a favorable contract with the right supplier they are
likely to benefit. However, the wrong supplier or unfavorable supplier contract is likely to
have a detrimental effect. If things go wrong with a supplier it may take time to switch
suppliers and even if you do manage to switch suppliers quickly it could take time to
recover from the effects of a poor supplier.

Factors Affecting Household Spending

Household spending is the most important part of aggregate demand. It can be broken
down into a number of categories, covering major spending items such as transport, food,
fuel, holidays and clothing.
The pattern of spending changes over time as a result of changes in:
1. Household income – some goods are normal goods while others are inferior, so
increases in income encourage households to shift spending from goods with a
low income elasticity of demand, like food, to those with high income elasticity
of demand, like holidays.
2. Tastes and Fashions – over time spending on certain items that are ‘in
fashion’ increase relative to those that go out of fashion.
3. Taxes and Subsidies – as indirect taxes and subsidies rise and fall,
households will be encouraged or discouraged from spending.
4. Relative Prices – as the prices of certain goods and services rise in relation
to others, household spending will adjust.
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

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.
 What’s More
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. Fill Me In
Instruction: This activity is called “FILL ME IN”. Your task now is to classify the
given descriptions inside the box to which they necessarily belong. You may
indicate your answers by writing on the space provided.

Income business is socially responsible connects emotionally

Subsidies Taxes excellent service

Environmental friendly Prices of Goods Product Value Taste and Fashion

CONSUMERS’ BEHAVIOR HOUSEHOLDS

SPENDING

_ _

_ SOCIO _
ECONOMIC
_ IMPACT ON _
_ BUSINESS _
 What I Have Learned

Now, after discussing the lesson. I want you to answer the enumeration to
test your understanding about the lesson.

Enumeration. (10 pts/ 2 pts. each) Rubrics: (Focus-1 pt; organization-

1pt.)

What are the factors that will lead the household to spend his/her money.
Write five (5) factors and explain each in the space provided below.

What I Can Do

In this part of the module, the teacher would like to know how you can apply the
lesson in real life situation.

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?
5 PT. RUBRIC
5 points Comprehensive and analytical
4 points Well written and some includes analysis
Well written but lacks analysis
3 points
Weak essay
2 points
Poorly written and lack strength
1 point

Assessment

Choose the letter of the best answer. Write your answer on a separate sheet
of paper.

1. When business put an emphasis on the crucial role of emotions on

consumers’ behavior expect to respond positively, then the
business
.
a. Change behavior with customer service
b. Encourage customers to look for value
c. Influence consumers emotionally
d. Offer social responsibility
2. When business make sure that the products or services their customers
are using solve their problems better than their rivals then the business
.
a. Change behavior with customer service
b. Encourage customers to look for value
c. Influence consumers emotionally
d. Offer social responsibility
3. When consumers are likely to buy products and services when business
safeguard the environment in the community.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
4. When business treats their customers as VIP’s and gives excellent service
then customers can _ _.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
5. After agreeing into a contract with a supplier, this action is important to
ensure that they provide service that was agreed upon.
a. Monitor the supplier’s performance
 b. Follow up order
c. Check price list
d. Request for discounts and allowances
6. Which of the following is not a determinant of spending?
a. Expectations c. The Level of Savings
b. Rates of Income Tax d. The Level of Production
7. A determinants of spending, where in by altering level of savings
will likely arise to higher __ _.
a. Expectations c. The Level of Savings
b. Interest Rates d. The Level of Production
8. The higher tax rate deducted on income will likely affect household
.
a. Investing c. Borrowing
b. Producing d. Spending
9. Businesses are reliant on this industry to provide materials/services to
operate their businesses.
a. Consumer c. Supplier
b. Entrepreneur d. Income
10. The business need to influence these individuals or companies to
patronize their products.
a. Capital c. Consumers
b. Supplier d. Entrepreneur
11. When household shift their spending due to increase in the price of goods
then this is a result of change in _ _ .
a. Household income c. taxes and subsidies
b. taste and fashion d. relative price
12. When household over spending depends items bought because it’s
trendy then this is a result of change in__ _ .
a. Household income c. taxes and subsidies
b. taste and fashion d. relative price
13. Individuals or companies that provide materials and tools needed in the
operation of the business.
a. Entrepreneur c. Consumer
b. Suppliers d. Investor
14. The unemployed cannot afford to buy more goods and services because of
.
a. Lower personal income c. High income
b. No income d. Donations
15. A rise in spending means __ _ .
a. More income c. Personal wealth
b. Economic growth d. All of the above
 Additional Activities

Directions. Below are some products of the well known industries in the
Philippines and to assess what you have learned match the materials
needed to produce the given products. Draw a line to match Column A
and Column B.

Column A. Column B.
1. Jollibee Chicken Joy A. tea, milk, pearl
2. Goldilocks cake B. chicken, spices
3. Selecta Chocolate Ice Cream C. milk, chocolate, freezer
4. Infinitea Milktea D. banana, tomatoes
5. Del Monte catsup E. flour, eggs, butter