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Identifying Economic Environment Factors and Categories (Term Paper Sample)


elaborating economic environment and the issues affecting it.


Economic Environment
Economic environment is a major determinant of a company’s success or failure. It can be defined as peripheral economic aspects that affect how consumers and businesses buy or demand for products and services thus affecting the performance of the company. This is because companies cannot control many of these factors. They are categorized into micro and macro economic factors depending on their level of complexity. Micro economic factors include competition from rival companies, market availability, demand for the goods or services provided, availability of suppliers and an up to task distribution chain. On the other hand, macro economic factors include inflation, interest and tax rates, employment and unemployment, recessions, income levels, currency exchange and saving rates. To best appreciate the effect of economic environment, let us consider a nationwide house building company based in the UK. The company builds up to standard houses across the nation and they support around 2300 employees. For the company to thrive, it must be able to support its employees and be able to produce up to standard housing that its target market can afford. In this case, considering the economic environment, the company cannot be able to control the available size of the market or control demand of houses. This affects the competitive advantage of the company. Also, macro economic factors such as income and inflation affect the capability of people to afford and invest in better housing. This is an adverse effect to the company invested in house building. Though these factors are incontrollable, they can be evaluated to forecast the growth trajectory of the company.
Microeconomics issues
Further elaborated, microeconomics is a branch of social science that studies the implication of individuals and firms’ decision making in regards to the allocation, distribution and utilization of scarce resources. The main objective of microeconomics is to evaluate market forces that establish prices of goods and services in the market as well as the allocation of limited resources. Demand and supply are the basic determinants of prices in the market (Chappelow 2019). Looking at the demand and supply of houses in the UK, it is evident that demand for houses have always been high their supply. Some of the factors that have led to the demand surplus include;
1 Affordability- Due to the economic growth, there has been a tremendous rise in income earned thus people are able to spare enough to purchase houses.
2 Consumer confidence- Due to the steady economic growth, people are confident of the housing market. They expect prices to rise in the future thus the boom in demand.
3 Population- England’s population has been on a steady increase for several years now. This has led to an increase in single households thus increasing the demand for houses.
4 Cost of renting- The cost of renting have increased to about 22%. This is relatively more expensive than buying a house using mortgage. People are therefore opting to buy houses than renting them thus the high demand.
5 Availability of mortgage- banks are now more willing to give mortgages with bigger multiple incomes which has led to an increase in demand for houses.
Despite the booming demand, supply cannot seem to keep up. The supply of house is inelastic and cannot respond to changes in prices. Also, there are a lot of planning restrictions on the use of the greenbelt land. The widespread opposition by local communities to building new houses citing increased congestion has contributed to the slow supply of houses. Lastly, due to the surplus demand of homes, suppliers are enticed to build more which in return reduces the house prices ultimately restricting supply.
When the structure of several firms producing the same goods or services is determined by the competition existing between them, this is referred to as a market structure. The market structure when it comes to house builders is oligopoly. This means that only a few house builders control the majority of supply of homes. This poses several hindrances like; Consumers are faced with a shortage of choice, house builders participating in the oligopoly can easily create market entry barriers to keep new firms from joining the market, house builders can add fees and consumers will be obliged to pay since there is almost no competition, they may also drip the supply of homes into the economy so as to increase their profits and boost shareholders confidence when in the real sense, owner occupies are dropping.

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