Economic environment: Economic environment refers to all those economic factors,
which have a bearing on the functioning of a business. Business depends on the
economic environment for all the needed inputs.
which have a bearing on the functioning of a business. Business depends on the
economic environment for all the needed inputs.
It also depends on the economic
environment to sell finished goods. Naturally, the dependence of business
on the economic environment is total and is not surprising because, as it is
rightly said, business is one unit of the total economy.their elements are : –
environment to sell finished goods. Naturally, the dependence of business
on the economic environment is total and is not surprising because, as it is
rightly said, business is one unit of the total economy.their elements are : –
(A). Economic
condition:-
The economic condition keeps on changing over time in the line with the economic the business cycle, as an economy goes through expansion and contraction. The economic condition can be influenced by macro and micro-environment.
Including monetary and fiscal policy, GDP growth rate, inflation rate,
exchange rate.
Including monetary and fiscal policy, GDP growth rate, inflation rate,
exchange rate.
The
business cycle is also an important condition that has five different stages:-
business cycle is also an important condition that has five different stages:-
(B). Economic system:
Normally
there are three types of economic systems. capitalism and Socialism and a mixed
economic system.
there are three types of economic systems. capitalism and Socialism and a mixed
economic system.
Market
economic/capitalism:
economic/capitalism:
The
business unit is privately owned and governed is called capitalism. The profit
earn is only the sole aim of the business. The government doesn’t interfere in
economic activity in the country. It is also known as the free market economy.
business unit is privately owned and governed is called capitalism. The profit
earn is only the sole aim of the business. The government doesn’t interfere in
economic activity in the country. It is also known as the free market economy.
Command
economy/socialism:
economy/socialism:
The
business units are owned and governed by the government in the interest of the
public. under this, the central government appoint a central planning authority
that takes all economic decisions.
business units are owned and governed by the government in the interest of the
public. under this, the central government appoint a central planning authority
that takes all economic decisions.
Mixed
economic:
economic:
It is the
mixture of capitalism and socialism economic system.and the economic system in
which both private and public sectors are co-existed. the factor is private or
some are publicly owned.
mixture of capitalism and socialism economic system.and the economic system in
which both private and public sectors are co-existed. the factor is private or
some are publicly owned.
(C). Economic Policy:
Business
policies may or not have a favorable effect on a business unit. The economic
policy of the government plays a significant role in determining the business
environment of the business in any country.
policies may or not have a favorable effect on a business unit. The economic
policy of the government plays a significant role in determining the business
environment of the business in any country.
Further,
we can divide policy into different parts:- monetary policy, fiscal policy,
foreign trade policy, foreign investment policy, industrial policy, etc
we can divide policy into different parts:- monetary policy, fiscal policy,
foreign trade policy, foreign investment policy, industrial policy, etc
(D)International
economic environment:-
With the
increasing foreign trade, investment and with the increasing scope of the
world trade organization, the international monetary fund, world bank the role
of the international economic environment has increased. the international environment is particularly important for industries directly depend on imports and exports.
increasing foreign trade, investment and with the increasing scope of the
world trade organization, the international monetary fund, world bank the role
of the international economic environment has increased. the international environment is particularly important for industries directly depend on imports and exports.
Components of economic
environment:
environment:
Gross national income:
The income generated both by total domestic production as
well as the international production activities of national companies.
well as the international production activities of national companies.
Gross domestic
product:
product:
The total value of all final
goods and services produced in a country in a given year equal to total
consumer, investment, and government spending, plus the value of exports, minus
the value of imports.
goods and services produced in a country in a given year equal to total
consumer, investment, and government spending, plus the value of exports, minus
the value of imports.
Per Capita Conversion:
The per capita GNI is taking GNI of a country and
converting it into a standard currency say at US DOLLARS at prevailing market
rates and then dividing this sum by its population leads to a per capita
conversion estimator.
converting it into a standard currency say at US DOLLARS at prevailing market
rates and then dividing this sum by its population leads to a per capita
conversion estimator.
It helps to explain an economy’s
performance in terms of people who live in that country.
performance in terms of people who live in that country.
Importance of Economic
Environment
Environment
- Manager assess economic
environment and forecast market trends in the effort to make better investment
choices and competitive strategies.
- Economic analysis look
at several indicators of an economic environment with emphasis given to how
local conditions require adjusting analysis and interpretation.
- The economic environment
of foreign companies and markets can help managers predict events that might
affect the company’s future performance