Effect Of External Factors In Decision Making Process

Contents

Introduction 2.
1. Supply and demand 3.
2. Inflation 3.
3. Taxation 4.
4. Exchange rate 5.
5. Interest rate 5.
6. Government policy 6.
7. Conclusion 8.
8. reference 9.

Introduction

This assignment is about how external economic factors can affect internal organisation decision making process. External factors are the factors that beyond the control of the organisation, and internal factors refer to the factors that organisation can change or reallocate internally.
In this assignment, the writer simply chose 6 most popular external factors that will affect the internal business. These factors are: 1. supply and demand; 2. Inflation; 3. Taxation; 4. Exchange rate; 5. Interest rate; 6. Government policy. In this context, the writer mainly illustrated how these external factors will affect business in terms of revenue/sales, profitability, and various business strategies within the organisation.

1. Supply and demand
In economics, the Demand is defined as the quantity of good that people are ready to buy at various prices within some given time periods . In other words, it comprises both people willing to buy and the ability of buying.
The demand of the products at various prices can directly affect organisations’ revenue. Thus, organisations must carefully look into the demand before their planning of the supply of their products. According to the law of demand, the demand of a product decreases when the price of the product increases. After estimating the demand of their product at various price levels, a company can choose a price to fulfil their target revenue. If a change percentage of prices can lead a greater change percentage of demand, a company can simply reduce the price of their product to reach higher revenue. The revenue is maximised when the change of percentage of demand equal to the change of percentage of price.