What Is the Economic Environment in Business?

All the economic factors that affect consumer and market behaviour are referred to as the economic environment. This environment includes all the factors that impact business, economy, and the business marketplace. In the economic environment, the economic factors work as an external hindrance on a business, which indicates limited control over them. 

Microeconomics and Macroeconomics are two types of the economic environment. The microeconomic environment influences the decision making of business – for instance, action and feedback of consumers and firms. Similarly, the macroeconomics affects the entire country’s or business’s economy and its participants. 

Let’s understand these two factors broadly and in more detail.

Microeconomic factors impact only the decision making of a business. It does not have a broader perspective and are less comprehensive in scope and does not change the whole economy. The factors that determine this component are.

  • Market size
  • Demand
  • Supply
  • Competitors
  • Suppliers
  • Distribution chain, such as retail stores

Macroeconomic impacts economic factors that affect the whole economy and its participants directly or indirectly, including businesses. This element incorporates things such as.

  • Interest rates
  • Inflation
  • Taxes
  • Savings rates
  • Consumer discretionary income
  • Currency exchange rates
  • Unemployment rate
  • Recession
  • Consumer confidence levels
  • Depression

Nature of Business Environment

Few distinct nature of business environment are as follows.

  • System Approach – It is a system which is used in manufacturing products and services using different environment inputs like capital, labour, and raw material, etc. 
  • Social Responsibility Approach – This indicates that a company should accomplish all its responsibility towards the consumers, employees, stockholders, society, and government etc.
  • Creative Approach – This approach helps the business to provide shape to the environment by confronting challenges and assisting the opportunities. Here, the business gives attention to the requirements and needs of the society and bring the change.

Significance of Business Environment

The main importance of the business environment are.

  • Help to understand the internal environment
  • Assist the economic system
  • Understand Economic Policy
  • Support understand market conditions

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