SOCIO-ECONOMIC FACTORS

AFFECTING BUSINESS AND

INDUSTRY

Target

Socio economic factors are important characteristics which mostly influence

consumers. These factors are associated with the quality of life and determine the
behaviors, tastes, preferences, attitudes and lifestyles of people living within a
society.

Socio economic factors have a high impact on businesses, whether big or

small. This is because the consumers are often at the heart of businesses and tend
to affect growth of all ventures. There are many socio-economic factors that
business persons need to look out for in order to excel and compete effectively in an
ever changing market.

In this lesson, you will be able to gain knowledge and better understanding
how socio-economic factors can affect business and industry.

After going through this module, you can attain the following objectives:

Learning Competency:

• Explain the effects of the various socio-economic factors affecting business and
industry (ABM-AE12II-e-g11)

Subtasks:

1. Define the various socio-economic factors affecting business and industry.

2. Discuss the various socio-economic factors affecting business and
industry.

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 Jumpstart

The first step to understanding what socioeconomic factors

are is to understand social economics. This is a specialized branch of economics
that concerns itself with studying the intimate relationship between economics and
social behavior. Such things as ethics, social norms and different social
philosophies have an impact on how consumers behave in an economy and the
eventual shape that economy will take.

The study of social economics seeks to predict what kind of results to expect
when the society has been changed. It does this by studying politics, history and
other social sciences.

Socioeconomic factors are, therefore, the social and economic factors that
shape and determine the dynamics a society will experience. These are factors that
affect the behavior of a particular group, also known as a socioeconomic class.

Perhaps the most interesting behavior of members of a socioeconomic class

is their behavior as consumers.

Different socioeconomic classes will generally have different priorities, and

this will affect how they spend their money.

In this activity, it will help you introduce the concept of socio -

economic impact of a business.

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Pre-test

Direction: Read each item carefully. Use a separate sheet for your answers. Write
the letter of the best answer for each item. Answer in a separate sheet of paper.

1. Which of the following that study how economic activity affects and is shaped by
social processes?
A. Applied economics C. Psychology
B. Biology D. Socio-economics

2. This is an important factor to consider for any business involved in importation

and exportation of various goods and services.
A. Educational level C. Interest rates
B. Exchange rates D. Social status and income

3. It is a macroeconomic term that refers to a significant decline in general

economic activity in a designated region.
A. Educational level C. Recession
B. Interest rates D. Social status and income

4. It influences the type of occupation a person can get and ultimately their income
level.
A. Educational level C. Interest rates
B. Exchange rates D. Social status and income

5. It attract more investors into the country and increase employment rates.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

6. Such things as safe homes, workplaces that are healthy, safe drinking water,
clean air, wholesome communities and updated infrastructure are important
determinants of good health in a society.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

7. It is the amount a lender charges for the use of assets expressed as a percentage
of the principal.
A. Educational level C. Interest rates
B. Exchange rates D. Social status and income

8. It plays a large role in their health, their lifespan and their probability of
contracting certain diseases.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

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9. It predisposes an individual to better health. A. Educational level
C. Interest rates
B. Exchange rates D. Social status and income

10. It includes support from family, friends and the community at large, which
will be predisposed to better health.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

Discover

THE VARIOUS SOCIO-ECONOMIC FACTORS AFFECTING

BUSINESS AND INDUSTRY

Here is a closer look of these factors and their connection to businesses:

Interest Rates

The interest rate is the amount a lender charges for the use of assets
expressed as a percentage of the principal. The interest rate is typically noted on an
annual basis known as the annual percentage rate (APR). The assets borrowed
could include cash, consumer goods, or large assets such as a vehicle or building.
Interest rates are everywhere, and are imposed by many different people. In fact,
banking institutions are obsessed with knowing what the status for interest rates in
the economy is for a good reason. It is how they determine their lending practices.
It is also good information for a company that relies on debt capital to finance
ambitious projects.

Exchange Rates

An exchange rate is the value of one nation's currency versus the currency of
another nation or economic zone. This is a slightly more nuanced topic than that of
interest rates. At the heart of it, exchange rates are an important factor to consider
for any business involved in importation and exportation of various goods and
services. When exchange rates fluctuate, they affect the ability of a company to pay
its international suppliers in a satisfactory manner. This can also affect the profit
margin of the company, as well as the amount of resources it needs to stay afloat.

Recession

A recession is a macroeconomic term that refers to a significant decline in

general economic activity in a designated region. It had been typically recognized as
two consecutive quarters of economic decline, as reflected by GDP in conjunction
with monthly indicators such as a rise in unemployment. However, the National
Bureau of Economic Research (NBER), which officially declares recessions, says the
two consecutive quarters of decline in real GDP are not how it is defined anymore.

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The NBER defines a recession as a significant decline in economic activity spread
across the economy, lasting more than a few months, normally visible in real GDP,
real income, employment, industrial production, and wholesale-retail sales.

Whenever an economy faces a recession, it has the potential to change the

attitude taken by consumers toward their purchasing decisions. This may force
companies to drop prices to stay afloat.
Social Status and Income

Having a high social status and an above average income predisposes an

individual to better health. In fact, lots of studies have shown that as the gap
between the rich and the poor increases, so does the gap between their levels of
health.

Income capacity of consumers determines how much they can spend on

certain products. If citizens in a country have access to high incomes from
employment and personal business ventures, then they are more likely to spend on
luxurious products. This is because they can easily afford the products and also
have a taste for good things. On the other hand, low income earners may not be
able to afford basic commodities, let alone the luxurious products. The struggle to
meet their basic needs may blind these consumers from purchasing luxurious
products.

It is thus essential for a business person to consider the income capacities of

the consumers before setting up the business. This factor should affect where the
entrepreneur sets up shop and the target clients he chooses. For high end
products, an entrepreneur should look for a shop in an up market area with access
to high income earners. For basic commodities, an entrepreneur should look for
cheap suppliers and set up shop near the low income earners.

The occupation of consumers is largely related to the income they earn. Low
skilled laborers who work in menial jobs cannot earn the same as corporate
managers. The differences in occupations more often than not determine the
income gaps of the consumers. As an entrepreneur you must carry out research on
the occupations of your consumers. This should influence your decision to venture
into certain businesses with a specific target at consumers who have good
occupations or lowly jobs.

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Education Level

It is also commonly observed that the level of education is directly linked to

health. Communities with low average education levels tend to have poorer health,
overall. Low education levels are also linked to lower self-confidence and more
stress. Education levels influence the type of occupation a person can get and
ultimately their income level. Consumers with higher education tend to be skilled
and also have better jobs and incomes as compared to those without education.
Education is determined by the opportunities presented to the consumers and can
influence how much a consumer can afford.

In addition to this, the educated consumers have different tastes for

products as compared to the uneducated ones. The educated consumers are not
only more conscious about the contents of products but may also come off as
demanding as compared to the less educated ones. An entrepreneur may have to
work harder to fulfill the demands of these consumers as compared to when
dealing with less educated folk who are less demanding.
Physical Environment

Such things as safe homes, workplaces that are healthy, safe drinking water,
clean air, wholesome communities and updated infrastructure are important
determinants of good health in a society. Of particular relevance to businesses is
the working conditions of those who are employed. The mere fact of being
employed, to begin with, predisposes an individual to better health. Also, the more
control an individual has over her working conditions, the better her health.

Social Support Network

When individuals have lots of support from family, friends and the
community at large, they will be predisposed to better health. More support factors
include the culture of the community, such as traditions, beliefs and customs. The
improvement of these factors can lead to the improvement of the health of the
community.

Genetics

Genetics is the study of genes and inheritance in living organisms. This

branch of science has a fascinating history, stretching from the 19 th century when
scientists began to study how organisms inherited traits from their parents, to the
present day when we can read the “source code” of living things letter-by-letter.
People's genetics play a large role in their health, their lifespan and their probability
of contracting certain diseases. There are also other personal factors that affect
health, such as a person’s coping skills and behavior. Do they keep active? Do they

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smoke? Do they drink alcohol? How do they deal with stress? All of these things
have an impact on the health of an individual.

Economic growth

Economic growth and development of a country can also have an impact on

the social status of its citizens. Emerging economies such as China and India have
proved that if a country experiences high economic growth then the citizens may
have better access to incomes and also the middle class and upper class may grow.
This may also attract more investors into the country and increase employment
rates. Inevitably positive economic growth rates will increase spending and help
businesses to grow.

Explore

Here are some enrichment activities for you to work on to master and
strengthen the basic concepts you have learned from this lesson.

Activity Assessment 1 Check your Understanding!

Directions: Read the sentences carefully. Identify the word or phrase that is
appropriate to each item. Copy and answer in a separate sheet of paper.

1. __________ of consumers determines how much they can spend on certain

products. 2. __________ influence the type of occupation a person can get and
ultimately their income level.
3. More _______________ include the culture of the community, such as
traditions, beliefs and customs.
4. ________________ are important factors to consider for any business that
involves in importation and exportation of various goods and services.
5. _______________ are everywhere, and are imposed by many different people.
In fact, banking institutions are obsessed with knowing what the status for interest
rates in the economy is for a good reason.

Activity Assessment 2

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Direction: Read each statement carefully. Write TRUE if the statement is true and
write FALSE if it is false. Copy and answer in a separate sheet of paper.
______ 1. People's genetics play a large role in their health, their lifespan and their
probability of contracting certain diseases.
______ 2. Whenever an economy faces a recession, it has no potential to change the
attitude taken by consumers toward their purchasing decisions.
______ 3. It is thus essential for a business person to consider the income capacity
of the consumers before setting up the business.
______ 4. Education is determined by the opportunities presented to the consumers
and can influence how much a consumer can afford.
______ 5. Such things as safe homes, workplaces that are healthy, safe drinking
water, clean air, wholesome communities and updated infrastructure are important
determinants of good health in a society.
Activity Assessment 3

Direction: Discuss the following questions briefly and concisely. Use a separate
sheet of paper for your answers. (10 points each)

1. Why socio-economic factors have a high impact on businesses, whether big or

small?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

2. How is the social status and income of a consumer predisposes an individual to

better health?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

3. What is the impact of recession in our economy?

__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

4. How is education level impact the lives of consumers?

__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

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__________________________________________________________________________________
__________________________________________________________________________________

5. What will happen if exchange rate fluctuate?

__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

Deepen
At this point, you are now ready to apply your knowledge of what you had learned
about the socio-economic impact of a business.

1. Interview a typical mother or housewife in low-income community on

how she budgets the income of her family. Further, ask her if said family budget
can still provide for some amenities (e.g., cellphone load, DVDs) and if so, how
much and what kind? Look around the said community and find the kind and
number of micro enterprises serving its consumer needs. Identify their market
problems and figure out what you would do if you were in their shoes. (10 points)

2. Look for a successful small business in your neighborhood. Interview

the owner, find out the reasons for putting up the business, the problems
encountered, and the reasons for its success. (10 points)

3. Observe and talk to the small producers/sellers in your barangay

(farmers, fishermen, and vendors cottage industries). Is there any lack of public
infrastructure facilities that limits their operation? How this inadequacy limits their
business activities and profit? What support services do they lack and how has this
limited their business activities and profit? Have they experienced registration and
licensing delays and how they have limited their business activities and profit?
What are the possible ways to explore to minimize or even avoid the aforementioned
impact? (10 points)

You will be graded using the rubric below:

Poor (5-6 pts.) Good (7-8 pts.) Excellent (9-10 pts.)

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 Interview Learner generated Learner generated Learner generated in-depth
Questions basic questions questions about the questions about the owner and
about the owner owner and her his/her business. Questions
and his/her business that reflected prior research and
business. paralleled on another. knowledge of the business,
Questions were simple, allowing the owner to
but directly related to elaborate with detail. Some
the business and its questions were added during
owner. conversation.

Record of Learner gathered Learner gathered Learner gathered an abundant

Answers limited information adequate information amount of information from
from the interview. from the interview. interview. The owner's voice is
Learner paid attention heard in the responses.
to details.
Report Learner takes Learner create a short Learner created an energized
interview questions essay based on essay based on the interview.
and responses, interview. Essay is very The essay reflects the voices of
writing one to two simple and lacks any both the learner and the
paragraphs about personality. business owner.
the experience.

Great job! You have understood the lesson. Are you now ready to
summarize?

Gauge

Post-test
Direction: Read each item carefully. Use a separate sheet for your answers. Write
the letter of the best answer for each item. Answer in a separate sheet of paper.

1. What the social science that studies how economic activity affects and is shaped
by social processes?
A. Applied economics C. Psychology
B. Biology D. Socio-economics

2. This is an important factor to consider for any business involved in importation

and exportation of various goods and services.
A. Educational level C. Interest rates
B. Exchange rates D. Social status and income

3. It is a macroeconomic term that refers to a significant decline in general

economic activity in a designated region.

11
A. Educational level C. Recession
B. Interest rates D. Social status and income

4. It influences the type of occupation a person can get and ultimately their income
level.
A. Educational level C. Interest rates
B. Exchange rates D. Social status and income

5. It attract more investors into the country and increase employment rates.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

6. Such things as safe homes, workplaces that are healthy, safe drinking water,
clean air, wholesome communities and updated infrastructure are important
determinants of good health in a society.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

7. It is the amount a lender charges for the use of assets expressed as a percentage
of the principal.
A. Educational level C. Interest rates
B. Exchange rates D. Social status and income

8. It plays a large role in their health, their lifespan and their probability of
contracting certain diseases.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

9. It predisposes an individual to better health. A. Educational level C. Interest

rates
B. Exchange rates D. Social status and income

10. It includes support from family, friends and the community at large, which
will be predisposed to better health.
A. Economic growth C. Physical environment
B. Genetics D. Social support network

12