Watch this video and read this article where we explore economic factors in a PESTEL analysis.
Economic factors include economic growth, percentage of unemployment, inflation, interest and exchange rates, and commodity (oil, steel, gold, etc) prices. These affect the discretionary income and purchasing power of households and organisations alike.
Boom and gloom
Economic factors may also affect the availability of credit and finance, and the capacity to purchase or access key resources. Generally, there are periods of boom, as experienced before the 2008/09 financial crisis, followed by periods of gloom, that temper the ability of organisations to produce, and consumers to buy.
A stable political climate with good governance is more likely to generate a conducive economic environment for businesses to thrive. In recent years, the failure of politics and governance in Venezuela and Zimbabwe led to an extraordinary rise in prices (known as hyperinflation). The subsequent contraction of these economies meant households and businesses were overwhelmed by additional costs, leading to mass unemployment, low creditworthiness to access financial facilities, and the unaffordability of foreign goods and currency.
Capital and labour flight
In these conditions, the flight of skilled labour and capital to more stable economies worsen the situation, and it can take decades to enter a new phase of economic recovery and growth, as evidenced in Rwanda after the conflict of 1994.
The key questions here are:
- What economic factors will affect my organisation going forward?
- How does the wider performance of the economy affect my organisation at the moment?
- How is my organisation’s pricing, revenue and costs impacted by each economic factor?
FAQs
Economic factors include economic growth, percentage of unemployment, inflation, interest and exchange rates, and commodity (oil, steel, gold, etc) prices. These affect the discretionary income and purchasing power of households and organisations alike.
What are the most important economic questions to answer quizlet? ›
the reason why we must answer the three basic economic questions (what and how much g/s to produce, how will they be produced, and for whom will they be produced) occurs when wants are greater than resources available.
What are the economic factors influencing decision-making? ›
Individual decision-making in economics is influenced by factors such as income, price, personal preferences, and external influences. Income is a significant factor that influences individual decision-making in economics.
How do economic factors affect consumer behavior? ›
Economic factors are another key factor that influence consumer behavior and preferences. Economic factors include income, purchasing power, inflation, exchange rates, and taxation. They affect how much people can afford to spend, what they prioritize, and how they perceive value.
What are the three factors of economy? ›
The 3 main sectors of the economy are the primary sector, the secondary or manufacturing sector, and the tertiary or service sector.
What 3 questions must economics answer? ›
Economists address these three questions: (1) What goods and services should be produced to meet consumer needs? (2) How should they be produced, and who should produce them? (3) Who should receive goods and services? The answers to these questions depend on a country's economic system.
What are the 4 main types of economies? ›
Each economy functions based on a unique set of conditions and assumptions. Economic systems can be categorized into four main types: traditional economies, command economies, mixed economies, and market economies.
What answers the basic economic questions? ›
In its purest form, a market economy answers the three economic questions by allocating resources and goods through markets, where prices are generated. In its purest form, a command economy answers the three economic questions by making allocation decisions centrally by the government.
What factors influence economic impact? ›
Economic factors are variables that impact the economy as a whole, as well as individual businesses. Economic factors include tax rates, exchange rates, inflation, labor supply and demand, wages, laws and policies, government activities, and recessions.
What are economic factors in strategy? ›
The economic environment of the business is one of the external factors that can influence strategy and decision-making. Economic factors include GDP, exchange rates, taxation, interest rates, fiscal policy, monetary policy and inflation. The business cycle is an important tool for understanding how the economy works.
The level of credit available to the consumer, as well as the culture around consumer credit within the society, has a big impact within economic factors affecting consumer behaviour. If credit terms are liberal, customers will likely spend more on luxury goods, durables, and everyday essentials.
What is the definition of economic factors? ›
An economic factor is a factor that can affect and influence an individuals' financial status. They include education, employment status and income.
What are the 6 basic factors of every economy? ›
Final answer: The basic factors of every economy are land, labor, capital, and entrepreneurship. These represent natural resources, human effort, man-made resources, and innovative risk-taking respectively.
What are economic factors in pestle? ›
ECONOMIC: Economic factors will include exchange rates, economic growth or decline, globalisation, inflation, interest rates and the cost of living, labour costs and consumer spending.
