SENIOR HIGH SCHOOL

Applied Economics
Quarter 4 – LESSON 4:
Effects of the Various Socio-Economic
Factors Affecting Business and Industry
Lesson 1: Explain the Effects of the Various Socio-Economic Factors Affecting Business and
Industry

After going through this module, you are expected to:

identify and explain the 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
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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

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 Lesson
Explain the Effects of the Various Socio-
1 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. As you go through lesson, you will
learned about the socio economic factors affecting business and industry.

What’s In

In the previous lesson, you have learned about industry and environmental analysis in particular SWOT
Analysis. As you go through the lesson, I want you to do a word search to check if you still remember the
following terms about socio economic factors affecting the business and industry.

1. CONSUMER 6. SOCIO ECONOMIC 2. BEHAVIOR

7. INVESTORS 3. SAVINGS 8. SPENDING 4. HOUSEHOLDS
9. INTEREST 5. SUPPLIERS 10. TAXES

R E C D I T I S R O S G N I V A S C E S M C
G N P O M E D S E G A T R O H S S H S E I I
S T N A N K M A C R O E C I N I M H C S X M
K A P L E S C O M M A N D N I M P O R T S O
E D A M C A U I T A L T R T D E O U F L D N
L A B O R M S M A R C I T E V I R S S E R O
G M I C R O E C E N T A X R S C O E I D O C
P I H S R I E N E R P E R E N E C H G S I E
P O S I L I V E E C O N O S I C S O D E V O
N O R P A T I V E E C O N T M I C L P O A I
G D S P E N D I N G E V I T A L E D O O H C
A U S O L U T E S S R O T S E V N I N E E O
S P S U P P L I E R S C O S T R A H I N B S

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To understand more about the socio economic factors affecting business and industry, Let us
read first a part of an article written by Manny Ayala of Rappler dated April 20,2020.

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?
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 What’s New

Socio Economic Factors Affecting the Business and Industry

This lesson will focus on various socio economic impacts on the following sectors such as
consumers, suppliers and households.

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

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 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.

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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.

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 Selecting the Right Suppliers

It is important to select suppliers carefully as suppliers can affect the businesses they provide
goods to. If a supplier provides a poor quality product to a firm, it may affect

the firm’s reputation as the firm will need to use the goods or sell them onto their
customers. Similarly, if a supplier provides a slow or poor service, this may slow down
the service the business provides to its customers.

1. Supplier History and Reputation

Quality of the Product/Service provided by the Supplier 2.
3. Price Charged by the Supplier and how does this impact on the quality of the
product/service provided by the supplier Financial Strength. 4.

Example: Does it have good cash flow and strong balance sheet?

5. Size of the Supplier and its other Customers.

Example: Does it normally deal with businesses of your size?

6. Capacity of the Supplier

Example: How much can the supplier comfortably provide and what is its

maximum?

7. Reliability of the Service

8. Flexibility of the Service
9. Turnaround Times

10. Payment Terms

Example: How quickly does the supplier expect payment and method of payment?

11. Problem Resolution Process

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
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 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.

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.

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 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.

WORKSHEET
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

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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 ____________________

____________________ ____________________

What I Have Learned

Now, after discussing the lesson. I want you to answer the enumeration to
test your understanding about the lesson.

Enumeration. (10 pts/ 2 pts. each) Rubrics: (Focus-1 pt; organization-1pt.)

What are the factors that will lead the household to spend his/her money. Write five
(5) factors and explain each in the space provided below.
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In this part of the module, the teacher would like to know how you can apply the lesson in real
life situation.

ESSAY:

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
Poorly written and lack strength
1 point

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
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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

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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