Demographic environment refers to the study of the size, composition, and distribution of the population, as well as other characteristics such as age, sex ratio, and social class. It is an important aspect of the business environment as it helps in understanding the market potential and consumer behavior.

The correct option that constitutes the demographic environment is option 'B', which includes the size, composition, and distribution of the population, as well as the sex ratio. Let's understand why this option is the correct answer in detail.

Size of Population:
The size of the population is an essential factor to consider for businesses as it determines the potential market size. A larger population generally indicates a larger market and more potential customers for businesses. On the other hand, a smaller population may indicate a smaller market size and limited growth opportunities.

Composition of Population:
The composition of the population refers to the various demographic characteristics such as age, income level, education level, occupation, and social class. These factors play a crucial role in determining consumer behavior and demand patterns. For example, a population with a higher average income level may have a higher purchasing power and demand for luxury goods and services.

Distribution of Population:
The distribution of the population refers to how the population is spread across different regions or areas. It helps businesses in understanding the geographic concentration of potential customers and in planning their marketing and distribution strategies accordingly. For example, if a significant proportion of the target market is concentrated in urban areas, businesses may focus on setting up stores or distribution centers in those locations.

Sex Ratio:
The sex ratio refers to the number of males to females in a given population. It is an important demographic factor as it affects consumer behavior and demand patterns. For example, a higher proportion of females may indicate a higher demand for products and services related to women's health and beauty.

In conclusion, the size, composition, distribution of the population, and the sex ratio are key elements of the demographic environment. Understanding these factors helps businesses in identifying market potential, consumer behavior, and demand patterns, which are crucial for making informed business decisions.