On the other hand, people with high income have a tendency to spend more money on entertainment and luxurious services and goods. For example, people with low income tend to buy only goods and services which are necessary for living and don’t spend much money on entertainment and luxurious items.įor example, a person with low income will prefer to spend money to pay the tuition fee for his children’s education rather than buying an expensive car. There is a direct relationship between the buying habits of an individual and his income. Income affects the buying habits of the consumers and thus impacts the commercial businesses. Income is the total earning of an individual or an entire family.
Similarly, the production cost will also increase with the increase in the price of supplies by the supplier. The production of a company will halt if its suppliers suddenly stop to provide supplies of raw material to produce a product. For example, a company which produces asthma inhalers has a small market size as it can sell inhaler to people who suffer from asthma. Meaning of market size is the total number of potential buyers in a market. The profit margin of the organization will be low if it has a small market size. Therefore, companies use various strategy to increase the demand for their product in the market.
Increased demand for product results in more profits whereas a decrease in demand for your product cause loss. In this section, you will learn about all the factors which affect the economic environment and will also learn how these factors affect an economic environment. The examples of microeconomic factors are inflation, unemployment, interest rates, taxes, tariff, the trust of customers, etc. Macroeconomic environment factors are those which impacts at a larger level and does not only impacts one company but impact the whole economy. The examples of microeconomic factors are demand, competitors, market size, distribution chain, suppliers, supply, etc. Microeconomic environment factors are those factors which affect and individual organization and do not affect the whole industry.
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