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COURSE TITLE : Economic Environment of Business(2 credits) COURSE DURATION : 1 hour 30 mins per week for 12 weeks Part

-I- 1) The Nature of Economic System. 1) What is a business? Business is an economic activity. An economic activity is the task of adjusting the means (resources)to ends (targets) or the ends to means. What is a business firm? A business firm is an economic unit. It transforms a set of inputs into a flow of output- either goods or services or a combination of both. What is a business decision making? Business decision making is an economic process. Making any decision involves undertaking a choice among a set of alternative course of action.



Since business is an economic activity, the business firm is an economic unit and the business decision making is an economic process, it is the economic environment of business which is a relevant consideration in evaluating business policy-business strategy and business tactics – of any corporate entity in any economy. Business is a micro-economic unit and it functions in the macroeconomic context. The macroeconomic environment is external to the firm. The internal business decisions should adjust itself to external business environment -both economic and non-economic. The firm should demonstrate adaptability and adoptability. Business Environment is classified on the basis of certain criteria, time, space, forces and economic and non-economic factors. Non-economic environment of business constitute History, Culture, Sociology, Geography, polity and Govt. Economic environment contains three important elements:i) ii) iii) i) Economic conditions Economic policies Economic system. Economic conditions constitute economic resources available, the level of income of an economy, the distribution of income and wealth and the stage of development of the economy. Economic policies – Fiscal policy, income policy, monetary policy, Exim policy, taxation, savings investment policies etc. Economics system – An Economic system is the sum of total of economic activities initiated by private sector or government or both.

ii) iii)

There are three economic systems existing in the world:a) Free market economy – capitalist economy 1) Private enterprises, material means of production are owned by private sector, freedom of interprise, accumulation of wealth, consumer’s sovereignty etc. 2) Market mechanism or price mechanism to allocate resources. 3) Profit motive. b) Socialist and Communist Economies:1) Social ownership of means of production (No Private property) 2) Centralized planning – planning authority prepares plan for resources allocations. 3) Social welfare rather than profit motive. In communism consumption is also controlled by govt. c) Mixed Economy:1) Co-existence of public and private sector. Joint sector also. 2) Planning and price mechanism lead to resource allocation. 3) Profit motive and social welfare objective. When the firms take eco-decisions they should take into consider the economic and non-economic environment existing in the economic system to get a feasible business decision.