What Is Economic Impact?

Economic impact has to do with the level of impact that some type of occurrence or event has on the marketplace. This may include unanticipated events such as sudden changes in the leadership of a major player within a given industry, new governmental regulations that affect a number of industries related to a given marketplace, or even some sort of act of nature that affects the ability of a major company within an industry to deliver goods and services to consumers. Typically, the goal is to not only identify when something changes and exerts an influence on market direction, but also to ascertain just how much of an impact has taken place.

One of the more common examples of economic impact has to do with changes in governmental policies and procedures that affect the ability of companies to produce goods and services at prices consumers can afford. In the event that new taxes are imposed or a government enacts stricter codes for controlling emissions, this may mean additional expenses incurred by corporations operating in a specific industry. That expense may be partially offset by increasing the pricing on the products sold to consumers. This in turn may have the economic impact or effect of reducing consumer demand for those products, a phenomenon that certainly will impact the marketplace.

Shifts in the general economy also exert a degree of economic impact. For example, consumers may lose jobs during a recession or a period of economic depression. This in turn impacts their ability to purchase goods and services. As consumers focus more on securing necessities and reduce consumption of luxuries, some companies find sales dropping considerably. This in turn weakens the entire market structure and can lead to further reductions in employment. Without some type of intervention, the period of recession or depression can severely damage the economy for a number of years before any type of recovery can commence.

Other factors can result in economic impact. Natural disasters that create shortages of products can upset the balance in the marketplace. Unanticipated political coups or sudden changes in consumer demands due to the introduction of new technology will also exert some influence on what occurs within the marketplace. Analysts attempt to project what will happen if a certain set of circumstances should come to pass, measuring the impact on the economy and in some cases attempting to determine what must occur in order to either enjoy the greatest advantage from those events or minimize negative consequences that are likely to result from those events taking place.