Applied Economics- Quarter 4

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 b. Economic growth

exclusive which means that if income is c. Personal wealth
fixed, any change in household’s savings d. All of the above
will inversely affect _________________. 10. When consumers are likely to respond
a. Inventing c. Producing to promotional advertisements that
b. Spending d. Buying connect to their feeling to influence
2. Changes in tax rates can clearly affect them, then the business
net income thus affect household _______________________.
________________. a. Encourage customers to look for
a. Investing c. Borrowing value
b. Producing d. Spending b. Influence consumers emotionally
3. Businesses need the support of this c. Offer social responsibility
industry to provide the tools needed to d. Change behavior with customer
produce goods/services. service
a. Consumer c. Supplier 11. When consumers are likely to be
b. Entrepreneur d. Income influence to switch on your product
4. A successful business influences the when it meets their expectations and get
behavior of ______________. higher value.
a. Capital c. Consumers a. Encourage customers to look for
b. Supplier d. Entrepreneur value
5. A rise in interest rates stimulate less b. Influence consumers emotionally
spending, more __________________. c. Offer social responsibility
a. Spending c. Exploring Business d. Change behavior with customer
b. Business Transaction d. Savings service
6. Distributor of goods and services needed 12. When consumers are likely to patronize
in the operation of the business. your products and services when
a. Entrepreneur c. Consumer business contribute to the community
b. Supplier d. None of the above by being socially active such as
7. The unemployed spend less because of scholarship and tree planting.
_________________. a. Encourage customers to look for
a. Lower personal income value
b. No income b. Influence consumers emotionally
c. High income c. Offer social responsibility
d. None of the above d. Change behavior with customer
8. Example of web – based business is an service
_________________. 13. When business let customers feel that
a. e – Commerce c. Exporting they are important and give an excellent
b. Hotel and Restaurant d. Importing service then the business can
9. A increase in spending means ______________________.
___________________. a. Encourage customers to look for
a. More income value

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 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
b. Customer preference
c. Reliability of Service
d. Supplier's Reputation
15. Which of the following is not a
determinant of spending?
a. Expectations
b. Rates of Income Tax
c. Interest Rates
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 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.

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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.

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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

Example: How much can the supplier comfortably provide and what is its
maximum?

7. Reliability of the Service

8. Flexibility of the Service
9. Turnaround Times
10. Payment Terms

Example: How quickly does the supplier expect payment and method of payment?

11. Problem Resolution Process

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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.

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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.

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 Assessment. Choose the letter of the best answer. Write your answer
on a separate sheet of paper. Use intermediate paper only.

1. When business put an emphasis d. Change behavior with

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

References
Dinio and Villasis 2017: Applied Economics. Rex Bookstore, First Edition.
Leano, Roman D. 2016: Applied Economics for Senior High School. Mindshapers Co., Inc.
Competency Based Curriculum and CBLM 2019.Entrepreneurship
https://corporatefinanceinstitute.com/resources/knowledge/strategy/industry-analysis-
methods retrieval date June 10, 2020

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 Development Team of the Module
Writers:Cindy M. Ronquillo
Editors:Jane P. Valencia Ed.D, ABM Supervisor
Karina B. Hernandez, Teacher III
Reviewers: Leilane B. Barawid
Illustrator: Name
Layout Artist: Name
Management Team: Name of Regional Director
Name of CLMD Chief
Name of Regional EPS In Charge of LRMS
Name of Regional ADM Coordinator
Name of CID Chief
Name of Division EPS In Charge of LRMS
Name of Division ADM Coordinator