What is the meaning of setting in plot diagram?

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Setting is the backbone of our plot. It is where the story is set. Every person, whether real or imaginary is a product of their environment and this is especially true of characters in fiction.

Move a character from a particular setting and their story will change. Imagine the movie 'Fargo' without the snow and desolation of Montana. In 'Unforgiven', William Munny, would have acted entirely differently had he been a bank clerk in modern day Cardiff (Wales) instead of a former gunslinger turned breadline dirt farmer in the unpredictable Wild West. 'Little Dorritt' by Charles Dickens would never have worked in a contemporary setting, without debtor's prisons, the Circumlocution Office and with today's relatively easy access to solicitors, attorneys and lawyers.

Setting is not just a matter of where and when. In his book, 'Story', Robert McKee argues that setting has four dimensions:

Period
- a story's place in time and history. Contemporary, historical, or futuristic? Only rarely is Period unimportant, such as in romances such as Watership Down, Animal Farm and Bambi.

Duration - how long do the events in your story last? Hours, weeks, months, years, decades, centuries, or even longer? Location -- where in the world (or universe) is your story set? Wimbledon, Wisconsin or the planet Wu? Level of Conflict -- what struggles do your characters experience? Are these conflicts entirely internal or are they caused by outside factors such as war, famine or lawlessness?

 
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