You were incorrect in selecting "symbolism" because the element of a story that is most affected by the characters' interaction with their setting is actually "tone." The tone of a story is the attitude or emotional quality conveyed by the author through the characters’ experiences and their interactions with their environment.
Characters' interactions with their setting can significantly shape the tone of a narrative. For example, if characters are in a vibrant, bustling city, the tone might be lively and energetic, while a character in a desolate, abandoned area might evoke a tone that is somber or eerie.
Example through a Disney Movie: "The Lion King"
In "The Lion King," the setting plays a crucial role in shaping the tone of the film.
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Pride Rock: When Simba is in the Pride Lands, particularly near Pride Rock, the setting is majestic and vibrant, reflecting a tone of hope, pride, and belonging. The lush landscapes and the sun shining over the savanna evoke feelings of warmth and vitality.
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The Elephant Graveyard: In contrast, when Simba and Nala venture into the Elephant Graveyard, the setting shifts dramatically. The environment is dark, eerie, and filled with danger, which influences the tone to become tense and foreboding. This interaction creates a palpable sense of fear and foreboding as they encounter the hyenas.
Through these interactions with different environments, the tone of the movie fluctuates between joyful and adventurous to dark and threatening, affecting the audience's emotional experience throughout the story.