Factors Affecting Business
There are different business niches across the globe. The aim of each business is to maximize on its profits. However, every business faces a number of challenges from time to time. Some of the factors that affect almost every establishment include
Inflation is one of the leading factors affecting business across the globe. It occurs when there is a lot of money in circulation and is not supported by the output of different products and services. When there is a lot of money in circulation, the prices of different goods skyrocket in order to maintain the business. As result, the cost of raw materials also increases.
Inflation leads to low buying capacity because the income of consumers is bound to remain constant.
Trading cycles vary from one country to the other. Even so, a trade cycle plays a crucial role in the fluctuating prices of different commodities. This means that recession, depression, prosperity and recovery of a business will depend on the cycle. With a good trade cycle, general price level of different goods will be kept up. This enhances productivity and profitability of a business.
Money and banking policies
Fiscal and monetary policies affect a business. It has been proven that the amount of money in circulation often determines the buying power of consumers. It is also good to note that banking facility can determine the borrowing power of consumers. Even though monetary policies vary from one country to the other, Monetary Policy Transmission Mechanism affects economic activities and can easily lead to inflation.
Demand and supply
Demand and supply affects all businesses. These are two major principle factors that affect business models negatively and positively. With an increased demand of specific products, the prices also go up. For example, mobile companies have been competing and incorporating latest technologies in their gadgets. New sophisticated models are widely sought after by consumers and as a result, manufacturing companies place a higher price tag on the products.
Employment rate and income
Income and employment are important in any economy. They affect business operations bearing in mind that, per capita income and employment density affect demand and supply of products. They also determine purchasing power of clients. For example during an economic upturn, employment opportunities generate more income. It therefore enables people to have a stronger purchasing power.
On the other hand, if income rate goes down, the purchasing power of consumers also goes down especially in an economic recession period.
Interest rate also affects a business. It is one of the factors that have a direct impact on businesses. If a business opts for a loan to propel its growth, it has to work with the prevailing interest rates. Lower interest rates make it easier for business to borrow money. It also offers an opportunity for people to spend more. This creates increased demand for the products and services thus enhancing economic growth. However, businesses find it hard to get loans when interest rates are high.
Government regulations regulate business operations for safety of its citizens, animals and the environment. Such regulations affect productivity and profitability of a business because they discourage uncontrolled growth.
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