Economic Constraints: Definition & Concept

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  • 0:00 Definition of Economic…
  • 0:29 Macroeconomic Factors
  • 1:26 Microeconomic Factors
  • 2:35 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

There are some things that you just can't control. In this lesson, you'll learn about economic constraints from the perspective of a business, including some of its important concepts. You'll also have a chance to take a short quiz.

Definition of Economic Constraints

Economic constraints are a type of external constraint. An external constraint is some factor in a company's external environment that is usually out of the company's control. An economic constraint involves external economic factors that affect a company and are usually outside of its control. A company is influenced by both microeconomic and macroeconomic factors in its external environment.

Macroeconomic Factors

Macroeconomic factors are things that influence the entire economy and all of the participants. Examples of macroeconomic factors include tax rates, inflation rates, money supply, interest rates, currency exchange rates, unemployment rates, periods of high economic growth, and periods of economic contraction, such as recessions and depressions.

Let's look at how these macroeconomic factors may affect a business. If the unemployment rate is high, you can usually get cheaper labor, which will lower your cost of production. On the other hand, if unemployment is too high, your sales may suffer because people can't afford your products. If interest rates are low, money is cheap to borrow, and you can more easily finance new ventures. If interest rates are too high, financing may not be possible. High tax rates take money out of your pocket and your consumers' pocket that could be used either for investment or for purchases.

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