ECONOMIC FACTORS AFFECTING BUSINESS

1. Profit

It is common knowledge that the foundation of economic system in most societies is profit and Nigeria is not an exception. In other words, profit is the difference between the cost of production and marketing of a good or service; and what it is sold for. profit is seen as the bottom line for most businesses. It is the driving force that affects business. Its increase of=r decrease in an organisation has remarkable effect on growth.



2. Opportunity cost

Because resources are scarce,opportunity cost becomes an important concept in production of goods and services. In essence, whenever resource is limited,business has to consider how and where best to use the resource for production of goods or service as it may not be available for alternative uses.


3. Competition
In a free society everyone is at liberty to buy from whoever he or she likes. And a producer must compete with some rivals for customer business. Competition is therefore a major determinant of what a business does at any time.


A business may decide to compete in one of the three ways: price, quality and service;and innovation.

a. Competition via price:
A business can charge less and still make a reasonable profit. With lower price, such a business will attract more customers. It may make,less profit per unit than its rivals,but will in the end sell more and hence make a good overall profit. This is achieved through efficiency and taking step to reduce operating costs.


b. Competition via quality and service:
A business may decide to offer higher quality goods or better service and charge extra. There are customers who are willing to pay extra charge provided they get the quality they want.
examples include top banks and insurance firms.


c. Competition via innovation:
We have marked earlier that needs of of consumers are endless. It is therefore a good competitive action to diversify the products or services offered by a business as a means of outwitting competitors.


4. Demand and supply situations:
Demand refers to quantity of goods and services consumers are willing and able to buy at a specified price and time. On the other hand,supply is the quantity of goods and services that the seller is able and willing to make available at a specified price and time. From the laws of demand and supply; it is understood that the higher the price the more the seller will be willing to sell or provide for sale. And the buyers will buy more of the products when the price is lower but less at higher prices.



5. Circular Flow:
This concept is central to the growth of any economy. It refers to the movement of resource within an economy. That is,businesses provide services to households and other businesses including government. Households provide services such as labour,receive wages,provide money to businesses. Government on the other hand provides certain services (like roads,education,hospitals) to households and businesses,and these institutions reciprocate in the form of taxes etc,to the government.
Business may be drastically affected if this flow is not smooth.



6. Multiplier effect:
This refers to the chains of changes and effects caused by changes in one economic variable,which affect other variable thus,resulting in several changes throughout the economic system.
Businesses survive better when a change in one part of the economic system is allowed to create other changes. For example,if the government decides to increae the salaries of workers,and the workers in turn decide to spend extra money on on electronic equipments,then it turns good business for the operators in that industry. And where these operators spend their money on building houses,it also affects building materials market etc.
The business manager must not ignore the effects of these forces in the operation of business in an economy.