Applied Economics

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 exclusive which means that if income is fixed, any
change in household’s savings will inversely affect _________________.
a. Inventing c. Producing
b. Spending d. Buying
2. Changes in tax rates can clearly affect net income thus affect household ________________.
a. Investing c. Borrowing
b. Producing d. Spending
3. Businesses need the support of this industry to provide the tools needed to produce
goods/services.
a. Consumer c. Supplier
b. Entrepreneur d. Income
4. A successful business influences the behavior of ______________.
a. Capital c. Consumers
b. Supplier d. Entrepreneur
5. A rise in interest rates stimulate less spending, more __________________.
a. Spending c. Exploring Business
b. Business Transaction d. Savings
6. Distributor of goods and services needed in the operation of the business.
a. Entrepreneur c. Consumer
b. Supplier d. None of the above
7. The unemployed spend less because of _________________.
a. Lower personal income c. High income
b. No income d. None of the above
8. Example of web – based business is an _________________.
a. e – Commerce c. Exporting
b. Hotel and Restaurant d. Importing
9. A increase in spending means ___________________.
a. More income c. Personal wealth
b. Economic growth d. All of the above
10. When consumers are likely to respond to promotional advertisements that connect to their
feeling to influence them, then the business _______________________.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
11. When consumers are likely to be influence to switch on your product when it meets their
expectations and get higher value. a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
12. When consumers are likely to patronize your products and services when business
contribute to the community by being socially active such as scholarship and tree
planting.
a. Encourage customers to look for value
b. Influence consumers emotionally
c. Offer social responsibility
d. Change behavior with customer service
13. When business let customers feel that they are important and give an excellent service
then the business can ______________________. a. Encourage customers to look for value
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 c. Reliability of Service
b. Customer preference d. Supplier's Reputation
15. Which of the following is not a determinant of spending?
a. Expectations c. Interest Rates
b. Rates of Income Tax d. The Level of Production

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.

Entrepreneurs turn up

It is classic entrepreneurial stuff – see a problem and figure out how to solve it, whether or not you have the
resources to do it. Linda Rottenberg, the founder of the non-profit Endeavor, has a great line that describes
the situation neatly: “When economies turn down, entrepreneurs turn up.”

Mind you, these entrepreneurs have all been walloped as hard as the rest. As I write, most are going
through unprecedented declines in their business and are scrambling to conserve cash, reduce expenses
and pivot the business to be ready for the inevitable recovery from this pandemic.

But in the middle of this chaos, they have also been moved to do something concrete to help the country.

Entrepreneurs are defined by how they respond to a crisis, which as the Chinese word for crisis suggests is
the co-existence of danger and opportunity. The great ones are those who find opportunity in the face of
danger. The great ones do right by all the stakeholders they serve: employees, customers, shareholders,
suppliers and the communities they operate in. The great ones rise to the occasion when the moment
demands it of them.

In the words of the Count of Monte Cristo – a man who lost everything then gained it back: “Life is a storm,
my young friend. You will bask in the sunlight one moment, be shattered on the rocks the next. What makes
you a man is what you do when that storm comes.”

Below is a list of some of the noteworthy initiatives I have seen in the little Endeavor community in the
Philippines. In the middle of a storm, this is how entrepreneurs rise to the occasion.

Abetina Valenzuela (Equilife Medical)

Abetina is the founder of Equilife Medical, a company that provides medical services and equipment to ICUs
in hospitals in the Philippines. When COVID-19 started to escalate, Abet and her team scrambled to get all
the critical care equipment at their disposal - such as ventilators - to the hospitals that needed them most. As
with all hospitals they have stepped up their efforts to send their nurses, respiratory therapists and engineers
into the frontline, at ng theigreat personal risk to themselves.

Paul Rivera (Kalibrr)

Paul is the co-founder and CEO of Kalibrr, a technology company that aims to transform how candidates find
jobs and how companies hire talent. Currently, his team is partnering with bld.ai, a technology company
founded by Danny Castonguay. The COVID Sentinel mission is to detect, manage, and defeat pandemics.
The sentinel surveillance system not only aggregates high quality data from public sources, but also collects
targeted data from sources such as sewage testing and patient symptoms tracker apps. This intelligence is
put in the hands of doctors for tactical solutions and researchers for systemic interventions. (by Manny Ayala
published by Rappler on April 4, 2020)

After reading the article, you now have an initial idea about the lesson. But before we begin the
lesson, answer the following:

1. What type of products/services was created during the pandemic?

2. In your opinion, what are the social and economic factors that the business owners
considered in creating their business?

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.
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.

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.

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.
Selecting
the Right
Suppliers

It is
impor
tant
to
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suppl
iers
caref
ully
as
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the
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esses
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de
goods
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a
suppl
ier
provi
des a
poor
qualit
y
prod
uct to
a
firm,
it
may
affect

the
firm’s
reput
ation
as the
firm
will
need
to use
the
goods
or sell
them
onto
their
custo
mers.
Simil
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.
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.

ACTIVITIES

Activity 1. Below are logos of companies that are well known in the Philippines. I
want you to choose two (2) companies of your preference and answer the question: As a
consumer, what are the different factors that will make you buy their products or
services? Write your answer in a separate sheet of paper. 10 PT. RUBRIC 10 points-
comprehensive and analytical 8-9 points- well written and some includes analysis; 5-7
points-well written but lacks analysis; 2-4 points- weak essay; 1 point Poorly written
and lack strength

Activity 2. Fill Me In
Instruction: This activity is called “FILL ME IN”. Your task now is to classify the
given descriptions inside the box to which they necessarily belong. You may indicate
your answers by writing on the space provided.

Income business is socially responsible connects emotionally

Subsidies Taxes excellent service

Environmental friendly Prices of Goods Product Value Taste and Fashion

CONSUMERS’ BEHAVIOR HOUSEHOLDS

SPENDING

____________________ ____________________

____________________ SOCIO ____________________

ECONOMIC
____________________ ____________________
IMPACT ON

____________________ BUSINESS ____________________

AY:
If you are a consultant in a business and the owners ask you recommend a supplier.
What kind of supplier will you recommend and why?
5 PT. RUBRIC
5 points Comprehensive and analytical
4 points Well written and some includes analysis
Well written but lacks analysis
3 points
Weak essay
2 points
1 point Poorly written and lack strength
Assessment

Choose the letter of the best answer. Write your answer on a separate sheet of paper.

1. When business put an emphasis on the crucial role of emotions on consumers’

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

Additional Activities

Directions. Below are some products of the well known industries in the Philippines
and to assess what you have learned match the materials needed to produce the given
products. Draw a line to match Column A and Column B.

Column A. Column B.
1. Jollibee Chicken Joy A. tea, milk, pearl

2. Goldilocks cake B. chicken, spices

3. Selecta Chocolate Ice Cream C. milk, chocolate, freezer

4. Infinitea Milktea D. banana, tomatoes

5. Del Monte catsup E. flour, eggs, butter