Impact of Economic Factors on Business Decision Making

Business Economics

TABLE OF CONTENTS
REFERENCES...........................................................................................................................7

Economics is a study of human behaviour with regards to their needs and desire. It
looks at the demand for goods and services and what happens when the demand for the same
changes. It focusses on how business supply goods and services along with facing the
challenges they come across. Across the world, people are living in different economic
environments where some countries are quite reach with high standard of living and on the
opposite people can only image such luxuries. The government worldwide also have a great
to impact on the economy in relation to making laws, taxation, controlling the flow of money
in the market. In this essay, the impact of change in economy on the business decision
making and the behaviour of the firms is evaluated. It also includes analysis of market
operation and the influence of market structure on eh firm’s production and decisions.
The problem occurs when economy becomes unstable, when there is shortage of
supply of goods and services or the prices tends to be high and people are not able to afford
it. For instance, a rise in unemployment may infer that production has decreased and wages
have been reduced and taxes paid to government is less (Abdixhiku and et.al, 2017). Thus, an
unstable economy has these impact. The business firms are required to make many decisions
with respect to change in economic environment which includes what to produce, how to
produce and for whom to produce. First in respect to what services or product to be produced
needs to take into account various factors such as cost of raw materials, improvements and
upgrades in the technology, competition in the market, customer loyalty etc. Second, for how
to produce, business is required to look at resources it has like capital, premises, equipment,
labour etc. At last, for whom to produce, business firms are required to consider both the
present and the future potential of the customers. It can be for either consumers or businesses
(Ross and et.al, 2018). But the business decision is greatly affected by the economy in which
it operates and the changing economic conditions can cause inadequate amount of raw
material, inflation, increase in interest rate and unemployment, may cause government
restrictions and may put competitive pressure.
If there is a change in the economy, there are various other areas where business and
firms need to take account of, which are as follows.
Inflation levels: Inflation is basically known as rise in prices. For example, 10 years
ago, from supermarket bought 10 which would have cost £3 and nowadays if we bought the
same thing it may cost nearly £5, this is because of inflation which arises because of number
of factors such as increase in cost of production. In 2006, inflation was 5% which increased
to 7% in 2007, a rise by 12% in these two years (Sieroń, 2019). During the recession,
inflation usually slowdown and in very tough situation the prices may decrease causing
deflation. From the business point of view, both the increase in inflation and slowdown of the
same is required to be studied thoroughly and based on which decisions needed to be taken.
Areas where businesses should account for are- first cost, means changing the price of the
products, labels, catalogues etc. Second, customers, in case of customers with fixed incomes
makes it harder for them to afford that product (Van, 2019). Third is international trading,
which turns out to be very difficult in the times of inflation as the UK costs are higher in
comparison to the cost of other countries.
Availability and cost of credit: Businesses have the necessity to borrow money for
financing its business. For the business firms who are low on money and facing the difficult
time, it could be to tide them over or to upgrade the utensils. It does not matter who borrows