Question

how do different environments or external factors affect both firms and consumers ?

Answer 1

External factors affecting firms -

Political situations in the economy play a very important role as if the economy is stable the production process will be smooth but if their instability for an instance coalition government, it might hamper the growth of the firm. A new law or legislation about taxes or prices or even output levels can have a huge impact on the firm's production process which directly affects its revenue. Certain changes in the economy like inflation or unemployment can affect the firms as to control the changes the government will induce certain fiscal or monetary policy for an instance tax increase or subsidies reduced- will impact the firm's growth. With respect to the social aspect, tastes and preferences are important to note for instance people today are shifting to a ketogenic diet hence increased demand for keto-friendly goods has reduced the demand for rice and other cereals hence impacting those industries drastically. Automation or robotics are certain innovations and development taking place which eases the whole working of the firms and makes it effective and efficient, hence the introduction of new technology can positively impact a firm.

External factors affecting consumers -

Consumers are influenced by class, status, preferences, family, and most important culture. For instance its human tendency to purchase something if someone else has, for instance, a new version of the car just because people in the neighborhood or of your social status have that car . A Study on Tesco showed that today people are opting for bulk buy and from one shop hence Tesco increased the discount amounts on the non-food items. With increased female participation in the labor force has reduced the meal preparation time hence Tesco focussed on providing its customers with ready to eat food essentials. Consumers are having a preference for healthy food due to the increase and spread of disease hence shifting their requirement towards non-preservatives and fresh food items hence the markets are providing higher number of organic food items.