Definition: Economic factors are the fundamental data about the market and economy taken into consideration when an investment or business value is calculated. In other words, these investors and businessmen have to pay attention to outside economic forces when valuing an investment besides the intrinsic value of the asset.
What Does Economic Factors Mean?
What is the definition of economic factors? Economic factors may include costs such as wages, interest rates, governmental activity, laws, policies, tax rates, and unemployment. All of these factors occur outside of the business or investment itself, but they heavily influence the value of the investment in the future.
These factors can also include any information that has an effect on the current or future value what is being examined.
Let’s look at an example.
Labor costs have been and continue to be one of the largest and most controversial economic factors in the world. Discussion and actions about it has led countless companies to turn to other countries for labor, commonly called outsourcing. US companies have found it economically relieving to send simple functions of the business and production to places outside the United States. Numerous countries, namely nations in Southern Asia have factories, call centers, and other production process buildings established there because they will accept much lower wages. Fair wages and working conditions in these foreign countries remain a topic of discussion, but despite some of the opposing views, it is a practice that prevails today.
Interest rates are integral to determining the costs and benefits of certain ventures and business decision. Interest rates are highly regarded in investment terms. When interest rates are higher, a response from many investors is to turn to more secure vehicles for returns, such as bonds or certificates of deposit (CDs). On the other hand, when rates go down, most investors take risks because lower interest rates make it more affordable.
Government policies, laws, and taxes make up yet another reason why so many businesses and organizations have used foreign countries or have chosen particular to become incorporated or to handle operations. Some business set up their main offices in states across the country while actually operating in the state of origin because the way taxes or regulations are set up in that particular state.
Management is also considered a factor even though it is not technically an outside force. Instead it is highly specific a unique to each company. Businesses with effective management structures are much more likely to prosper and, therefore, should be invested in with trainings, schooling, and regular innovation.
Define Economic Factors: Economic factor means an outside influence on the marketplace including supply and demand.