Read the following passage and answer the question.
Governments worldwide are increasingly prioritizing environmental concerns. In a recent move, several state governments have issued directives to prohibit the use of non-biodegradable polythene bags. To support this eco-friendly initiative, subsidies have been granted to the jute industry for the production of bags. The government's rationale behind this decision is based on the belief that, given the rise in people's incomes, they can afford jute bags as an alternative. In the wake of this subsidy, Puri identified significant potential in the untapped market of jute multi-pocket bags, a business concept that had thrived in the USA during his graduation. He launched his product, and the business witnessed remarkable growth. Subsequently, other companies entered the market, introducing various articles and innovations to meet the growing demand.
Which aspect of the business environment is highlighted in the line, “The government’s rationale behind this decision is based on the belief that, given the rise in people’s incomes, they can afford jute bags as an alternative”?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Economic
Option (1) Legal — Incorrect. The legal environment covers laws, orders and court judgments. A rise in people’s income is not a rule.
Option (2) Political — Incorrect. The political environment covers stability, peace and the attitudes of elected representatives towards business. Income is not part of it.
Option (3) Economic — Correct. Changes in the disposable income of people are an economic factor. A rise in income creates more demand, so people can now afford jute bags.
Option (4) Social — Incorrect. The social environment covers customs, traditions, values and social trends. Income is an economic matter.
NCERT (2026-27 Edition): “(i) Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise. Short and long term interest rates significantly affect the demand for product and services. For example, in case of construction companies and automobile manufacturers, low longer-term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money. Similarly, a rise in the disposable income of people due to increase in the gross domestic product of a country creates increasing demand for products. High inflation rates generally result in constraints on business enterprises as they increase the various costs of business such as the purchase of raw materials or machinery and payment of wages and salaries to employees.” |