Economic Environment of Business for midsem

1) What are the important elements of Business environment?

Ans:
COMPONENTS/TYPES/CONSTITUENTS/FACTORS OF BUSINESS ENVIRONMENT
Every business face two types of environments simultaneously i.e. Internal Environment and
External Environment.

1. INTERNAL ENVIRONMENT

All those factors within an organization which impart strengths or cause weaknesses constitute the
internal environment.

2. EXTERNAL ENVIRONMENT

All those factors outside the organization which provide opportunities or pose a threat to the
organization make up the external environment. These factors are those over which the business
organization has no control.

TYPES OF EXTERNAL ENVIRONMENT

MICRO ENVIRONMENT

Micro environment consists of factors in the company’s immediate environment that affect the
performance of the company. These include the suppliers, marketing intermediaries,
competitors, customers and the public.

1. Suppliers
Suppliers are those who supply the inputs like raw material and components to the company.
Organizations should keep two things in mind regarding suppliers:

Reliability
Multiple suppliers

2. Customers or clients
A business exist only because of its customers. Hence, a major task of a business is to create
and sustain customers. Monitoring the customer’s sensitivity is a pre-requisite for business
success.

3. Competitors
Competitor means other business units which are making similar products or a very close
substitute of our product. Competitors play a vital role in running the business enterprise.
Business has to adjust its various activities according to the behaviour of the competitors.

4. Market Intermediaries
Every business enterprise may be assisted by market intermediaries which include agents,
brokers who help the company find customers. It is a link between company and final

Srabon Barua
MBA in Business Analytics (2nd Sem)
 consumer. Market intermediaries help the company to promote, sell and distribute its goods to
final buyers.

Examples:
Wholesalers, retailers, advertising agencies, consultancy firms, banks, insurance companies,
warehouse, transport agencies etc.

5. Public
Public is any group that has actual or potential interest in the business. To achieve this
interest, it has its impact on the business. Public includes users and non-users of the product
like Environmentalists, NGOs, Local Community, Media.

MACRO ENVIRONMENT
A company and the forces operate in a larger Macro environment that shape opportunities and pose
threats to the company. These factors are generally more uncontrollable than the micro forces.

1. ECONOMIC ENVIRONMENT
Economic environment consists of economic factors that influence the business in a country.
Key components of economic environment are:
(A) Economic Conditions of Public
(B) Economic Policies
(C ) Economic System

2. POLITICAL-LEGAL ENVIRONMENT
Political environment affects different business units significantly. A stable and dynamic
political environment is essential for business growth. Whenever there is a change in the
Government in a democratic country, it is a sign of change in economic policies. The
Political environment of business depends on:
1. Ideology of the Government
2. Political Establishment
3. Political Stability in the country
4. Relations with other countries
5. Defense and Military Policy
6. Centre State Relationship
7. Approach of Opposition parties towards business

3. LEGAL ENVIRONMENT
Legal environment constitutes the laws framed by the Government and various legislations
passed in the parliament. The businessman cannot overlook the legislations because he has to
perform his business transactions within the framework of legal environment.

4. SOCIAL & CULTURAL ENVIRONMENT

Influence exercised by social and cultural factors is known as socio-cultural environment.
These factors include: attitude of people, family system, caste system, religion, education,
marriage, habits and preferences, languages, urbanization, customs and traditions, ethics etc.

Srabon Barua
MBA in Business Analytics (2nd Sem)
 5. TECHNOLOGICAL ENVIRONMENT
A systematic application of scientific knowledge is known as technology. Everyday there are
vast changes in products, services, lifestyles and living conditions, these changes must be
analyzed by every business unit and should adapt these changes.

6. DEMOGRAPHIC ENVIRONMENT
Demographic environment refers to the study of the features of population i.e. size of
population, growth rate, gender ratio, age composition, income level, education level, family
size, family structure etc. All these factors affect size of demand, tastes, fashion, liking,
preferences of consumer etc.

7. NATURAL OR ECOLOGICAL ENVIRONMENT

It includes geographical and ecological factors such as natural resources, weather and climatic
conditions, port facilities, topographical factors such as soil, rivers, rainfall, pollution etc.
Every business unit must look for these factors before choosing the location for their business.

8. INTERNATIONAL/ GLOBAL ENVIRONMENT

International environment is important for industries directly depending on import and
export. A recession in foreign market or protection policy by foreign nations may create
difficulties for industries depending on exports. Liberalization of import may help some
industries but may adversely affect other industries. Following factors of International
environment affect business:
A) Globalization
B) Liberalization
C) International agreements and declarations
D) International terrorism
E) Cultural exchange

2) How international business environment can affect the domestic business

environment? Explain.
Ans:
International environment is important for industries directly depending on import and
export. A recession in foreign market or protection policy by foreign nations may create
difficulties for industries depending on exports. Liberalization of import may help some
industries but may adversely affect other industries. Following factors of International
environment affect business:
A) Globalization
B) Liberalization
C) International agreements and declarations
D) International terrorism
E) Cultural exchange

Srabon Barua
MBA in Business Analytics (2nd Sem)
3) How social environment can affect the domestic business environment?
Ans:
Influence exercised by social and cultural factors is known as socio-cultural environment.
These factors include: attitude of people, family system, caste system, religion, education,
marriage, habits and preferences, languages, urbanization, customs and traditions, ethics etc.

The social environment of the workplace can also have an effect on an employee's job
satisfaction. In businesses where employees experience a positive social environment, they are
more likely to have a greater sense of job satisfaction and enjoyment.

4) What is the difference between outlook of government and Business?

Ans:
1. Government is stated as an entity or an organization whose aim is to work for the welfare of
the society. On the other hand, the Business is stated as a group or organization that mainly
works for their profit.
2. The government mainly emphasizes the society’s welfare, on the other hand, Businesses
mainly emphasize the profit of their self-organization.
3. The Government has to introduce hundreds or thousands of schemes and offers that benefit
the society, on the other hand, any certain business has to introduce a few of the schemes
and offers that attract the customer.
4. The main revenue or money source for the Government is from the taxes or bonds, on the
other hand, the income or revenue source for any business is through selling goods or
products, taking loans, raising stocks or bonds, etc.
5. A certain party working as Government is for a limited period of five years, on the other hand,
any business doesn’t have any expiration date for their setup.
6. For making any new rules and regulations Government must have to involve all the
members of the party and opposition too, on the other hand, making any certain new rules
and regulations in a business is quite an easy process.
7. The decision-making process by any Government is very slow, on the other hand, the
decision-making process in business is fast.

5) What are the different economic system, explain?

Ans:
An economic system is a means by which societies or governments organize and distribute
available resources, services, and goods across a geographic region or country. Economic
systems regulate the factors of production, including land, capital, labor, and physical
resources.
Economic systems can be categorized into four main types: traditional economies, command
economies, mixed economies, and market economies.

Srabon Barua
MBA in Business Analytics (2nd Sem)
 1. Traditional economic system
The traditional economic system is based on goods, services, and work, all of which follow certain
established trends. It relies a lot on people, and there is very little division of labor or
specialization.
2. Command/ planned economic system
In a command system, there is a dominant centralized authority, usually the government, that
controls a significant portion of the economic structure. The command economic system is
common in communist societies since production decisions are the preserve of the government.
3. Market economic system
Market economic systems are based on the concept of free markets. In other words, there is very
little government interference. The government exercises little control over resources, and it
does not interfere with important segments of the economy. Instead, regulation comes from the
people and the relationship between supply and demand.
4. Mixed Economic system
Mixed economic system is a mixture of Planned and Market economic system. It combines aspects
of both capitalism and socialism. It protects private property and allows a level of economic
freedom in the use of capital, but also allows for governments to interfere in economic activities
in order to achieve social aims.

6) What kind of economic system does India have, Explain?

Ans:
India has a mixed economy. Half of India's workers rely on agriculture, the signature of
a traditional economy.
One-third of its workers are employed by the services industry, which contributes two-thirds
of India's output. The productivity of this segment is made possible by India's shift toward
a market economy. Since the 1990s, India has deregulated several industries. It's privatized
many state-owned enterprises, and opened doors to foreign direct investment.

7) List Merits and demerits of Capitalism?

Ans:
Capitalism:
an economic and political system in which a country's trade and industry are controlled by
private owners for profit, rather than by the state.

List of the Advantages of Capitalism

• Under the structure of capitalism, consumers get to choose what they want to consume.
• Capitalism focuses on goods and services that are produced based on the amount of
consumer demand that exists for the item.
• The GDP increases when capitalism is present in the economy because innovation leads
to higher demand, which then leads to more purchasing.
• All members of society get the same opportunity to find their fortune.

Srabon Barua
MBA in Business Analytics (2nd Sem)
 • capitalism places the focus of goods and services on individual needs.
• Consumers have more choices available to them.
• Supply and demand determine the fair prices of everything.

List of the Disadvantages of Capitalism

• the most powerful business in every industry will eventually gain control over the rest of
its competition.
• Capitalism eventually leads to inequality.
• Capitalist economies do not always stay in a pattern of growth.
• It marginalizes the people who are unable to maintain high productivity levels.
• Profit is the sole motivation in a capitalist economy, which comes at the detriment of
everything else. There is no consideration of the environment unless it generate enough
profits.
• The capitalistic approach doesn’t consider ongoing opportunities.
• Capitalism can create more segregation.
• Capitalists don’t like the idea of income redistribution because it feels like some people
get to have their needs met without the obligation to work.

8) List Merits and demerits of Socialist economic system?

Ans:
Socialist economic system
a political and economic system in which property and the means of production are typically
controlled by the state or government. Socialism is based on the idea that common or public
ownership of resources and means of production leads to a more equal society.

List of the Advantages

• There are no concept of strikes and lock-outs.
• No Wasteful Advertisement, since the government is virtually the owner of almost every
sector.
• In order to solve various problems, there is proper economic plan in this type of economy.
• Economic stability is maintained by the government on the basis of economic planning.
• It provides equal opportunities of employment to all individual according to their abilities.

List of the Disadvantages

• A consumer has no choice of his own, he acts as a mere slave under this system.
• Socialist economy is always less democratic as it possesses no element of freedom.
• all economic activities are controlled by the government, and thus is subject to
bureaucracy.
• Socialist economy is very rigid and not susceptible to change according to requirements.
• it gets very less time to think and plan for the economic prosperity of the economy.

Srabon Barua
MBA in Business Analytics (2nd Sem)