APPLIED ECONOMICS

Name: ____________________________________________________________ Grade Level: _________________

LEARNING COMPETENCY
Explain the effects of the various socio-economic factors affecting business and industry
Subject Matter: Effects Of The Various Socio-Economic Factors Affecting Business And Industry
In this lesson, the learners shall be able to explain the effects of the various socio-economic factors affecting business
and industry. This will also test their critical think ability as they answer all the activities given as they go deeper to the
lesson.
Different mind enhancers are also being provided to boost higher order thinking skills.
Motivational Question:
Directions: Answer what is being asked. Write your answer on the space provided after the question.
1. How does different socio-economic factors affect businesses?
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2. How does these socio-economic factors affect consumers?
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EFFECTS OF THE VARIOUS SOCIO-ECONOMIC FACTORS AFFECTING BUSINESS AND INDUSTRY

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.
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.
HOW DO SOCIOECONOMIC FACTORS AFFECT BUSINESSES?
Understand the socioeconomic 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.
 Environmental Analysis
This is a special term that refers to the process of looking at the external socioeconomic issues in a business. It is
considered a part of general business analysis, so it is useful to the executives of a company. It can help them grow
the organization, increase the streams of revenue the company receives and also get ahead of competitors.
A subset of environmental analysis is the PEST analysis, or some of its variants, such as the PESTLE analysis.
This is a form of analysis that looks at four relevant factors that affect a business environment, and these – Political,
Economic, Social and Technological factors – create the acronym “PEST”. There are other variations, such as
PESTLE, which includes Legal and Environmental factors. However, the four factors in PEST analysis are the
main economic factors that affect a business.
 Economic Factors and Their Effect on Business
Economic factors are an essential part of all business analysis, no matter whether it is PEST analysis, PESTLE
analysis, or any other kind of business analysis. These are the main factors considered when a company makes
financial decisions.
These factors are connected to money, goods and services. They affect businesses on a micro-level, but they are a lot
more powerful than that – they also affect the entire economy on a macro-level. The economy, whether a local
economy or a global one, will pretty much be the determining factor in the details associated with the operation of a
company, such as the value of its assets, consumer demand and even taxes.
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 Some economic factors you must think about in your business include exchange rates, interest rates, recession,
inflation, taxes, and demand and supply. Here is a closer look into three of these factors and their connection to
businesses.
 Interest Rates
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
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
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.
WHAT ARE THE SOCIOECONOMIC FACTORS THAT AFFECT HEALTH?
There are many factors that come together to affect the health of both an individual and an entire community. The
health of a person or people, in general, is to a great extent determined by the environment as well as their
circumstances.
These include such things as the level of education of a person, their genetics, the state of their environment, their
geographic location, the relationships they have with their family and friends, and so on. In fact, these factors have
an even greater effect on health than access to health-care services.
All in all, there are three major factors that affect the health of a society:
 Socioeconomic environment
 Physical environment
 Individual behaviors and characteristics.
In other words, context is the most significant determinant of health. You cannot blame a person for his ill health,
and neither can you give him credit when he's in good health. For the most part, he's just in the right environment. In
fact, individuals do not have much control over most of the factors that affect their health.
Determinants include:
 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.
 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.
 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. 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 smoke? Do they drink alcohol? How do they deal with stress? All of these things have an
impact on the health of an individual.
 Access to Health Services. The ability of people to access and use quality health facilities has an effect on their
health. Of particular importance is their access to preventive medication and procedures that protect them from
certain diseases.
 Socioeconomic Factors That Influence Educational Development. Socioeconomic status is not based solely on
income. There are a slew of other things, such as education level, financial security, and the perceived social class
and status of the individual. Along with the quality of life enjoyed by the individual, consider the privileges and
opportunities gained as a result of this socioeconomic status.

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 With that in mind, poverty isn’t necessarily a socioeconomic factor but is brought about by the combination of many
different factors and stressors in the environment.
DEFINING IMPORTANT SOCIO ECONOMIC FACTORS AFFECTING BUSINESSES TODAY
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.
 Income Capacity
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.
 Occupation
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.
 Education levels
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.
 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.

A. Directions: Using a fishbone diagram, write the cause and effect of socio-economic factors to
consumers.

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 B. Directions: As a business owner, it is your responsibility to raise the socioeconomic status of your
employees and those in your community, even as you seek to raise your own. What do you need to
consider in doing it and how will you do it? Prove your answers by giving examples.
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