Economics & the Legal Environment of Business - Research Paper Example

Macroeconomic factors The macroeconomic conditions are very important for business. Conducive macroeconomic conditions help a business to earn excellent profit, whereas unfavorable macroeconomic situations may convert the profits into losses. There are several macroeconomic factors that can influence the business operation of the company. Some of the vital factors are total production or GDP (gross domestic product) of the country in which the company is located, unemployment situation, prevailing and expected rate of inflation, and rate of interests.

(Culp, 2001) If the country in which the company is located has been suffering from negative growth of GDP, then it will produce some adverse impacts on the construction industry also as it a part of the entire economy. For example, if a country is going through recession, then every industrial sector will feel the heat in the form of decreased demand and lower production. On the contrary, if an economy is going through economic expansion with high rate of GDP growth then, purchasing power of the population will increase which might help in creating higher demand in the construction industry.

(Culp, 2001) Similarly, unemployment situation is also a vital factor that might influence the business operation. . (Culp, 2001) Inflation rate is also a quite vital thing to consider for the growth of a construction company. If the overall consumer price index for an economy is rising for quite a long time, then industry specific consumer price index will also feel its impact. Thus in the presence of high rate of inflation, consumer price index for the construction industry will also be quite high.

This mainly happens because in the presence high rate of inflation in an economy costs of production in almost all the industries increase which is in turn reflected in the prices. Now in the presence of high consumer price index of construction industry, the construction company will loose many customers as the prices may not fit to the pockets of the customers. On the contrary, during low level of inflation, the company will get more customers and thus it can expand its production. (Culp, 2001) Interest rate is another vital macroeconomic factor in case of construction industry.

This is so as most of the potential customers of a construction company very often depend on loans at the time of purchasing a product of this company. no matter whether the buyer is a government or any private agency or any individual, credit lending plays an important role here. Thus, if interest rate becomes higher, then the cost of borrowing becomes higher and consequently, the products of the construction company will look more expensive. This will simply reduce potential customers of the business entity.

However, in the events of lower interest rate, the company will get more customers without changing its prices for its products. (Culp, 2001) Microeconomic factors: Microeconomic factors