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Economic Factor

The economic factor document discusses how broader economic conditions can impact businesses. It analyzes elements such as growth rates, inflation rates, interest rates, exchange rates, and employment levels. High economic growth can lead to more sales, while high inflation erodes purchasing power and increases costs. Interest rate changes affect borrowing costs. Exchange rates influence import/export costs. Employment levels influence consumer spending. Government policies around taxes and regulations also shape the economic environment for businesses.

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Nkateko Nxusa
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13 views

Economic Factor

The economic factor document discusses how broader economic conditions can impact businesses. It analyzes elements such as growth rates, inflation rates, interest rates, exchange rates, and employment levels. High economic growth can lead to more sales, while high inflation erodes purchasing power and increases costs. Interest rate changes affect borrowing costs. Exchange rates influence import/export costs. Employment levels influence consumer spending. Government policies around taxes and regulations also shape the economic environment for businesses.

Uploaded by

Nkateko Nxusa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Economic Factor:

The economic factor refers to the broader economic conditions and trends that can
influence a business or industry. It involves analysing aspects of the economy that can
impact the organisation’s operations, profitability, and decision-making. This factor
encompasses various elements, including:
 Growth Rates: This includes assessing the overall economic growth of the country or
region where the business operates. High economic growth can indicate
opportunities for expansion and increased consumer spending, while low growth
might pose challenges. This means that our muffins will experience an increase in
sales as an result of economic growth. When majority of our consumers have money
to spend, it results in our company being profitable.

 Inflation Rates: Inflation measures the increase in the general price level of goods
and services over time. High inflation can erode purchasing power and affect costs
for both the business and consumers. This simply means, the more it costs our
company to make/produce muffins, the higher the selling price will be. The more
expensive the product gets, it usually results in a decline of sales as muffins are not a
essential product.

 Interest Rates: Interest rates set by central banks impact borrowing costs for
businesses and consumers. Higher interest rates can increase borrowing costs and
potentially reduce consumer spending. Our business will experience low sales if
consumers spending is reduced, this makes it hard for the business to break-even or
be profitable.

 Exchange Rates: Exchange rates determine the value of one currency relative to
another. Fluctuations in exchange rates can affect import and export costs,
potentially impacting the profitability of businesses engaged in international trade.
Our company will not be directly affected my exchange rates as we are not planning
on importing materials or raw materials. We plan to source our raw material locally.

 Employment Levels: The overall employment situation, including unemployment


rates and wage levels, can influence consumer purchasing power and the availability
of skilled labor for the business. Employment levels will play a role in consumers
spending trends, we classify muffins as a “want” product and not a need,
unemployment means less spending money, consumers may find that spending
money on other essential products is worth it compared to buying muffins to satisfy
a craving.

Regulatory Environment: Economic policies and regulations set by governments can have
far-reaching effects on businesses. These may include tax policies, trade regulations, and
economic incentives. Sales Tax: Changes in sales tax rates or regulations can directly affect
the price of bakery products. Higher sales taxes might lead to reduced consumer demand,
while lower taxes can encourage higher sales. Income Tax: Business income tax rates can
influence the bakery's profitability. Lower income tax rates can improve the business's
financial position, enabling investments in quality.Market Trends: Economic factors
influence market trends and consumer behaviours. Businesses need to understand these
trends to adjust their strategies and offerings accordingly.Supply and Demand: Economic
factors directly affect supply and demand dynamics. Changes in consumer demand or shifts
in resource availability can impact a business's ability to maintain a competitive position.

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