MGT501

Business Environment

Sajjad Akbar
ADELAIDE CAMPUS

11/24/20
 Introduction: Business and its Environment

• Learning objectives
• Recognize different uses of the term business, and understand the
different forms of business in terms of, for example, private, public and
not-for-profit organizations
• Understand controversy concerning the nature and purpose of private
sector business.
• Describe the complexity of the external environment in which business
operates and explain the idea of environmental uniqueness. Understand
how businesses must respond to changing environmental factors in order
to operate successfully
• Use analysis tools such as PEST or SWOT to examine the business
environment

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 Assignment 1
• You need to establish a well verifiable reflective model (e.g.,
any of the 3 covered in class, or any reflective model of their
choice).
• Your reflective structure should follow the established
reflective model – descriptive to resolution/conclusion/future
career direction
• The descriptive reflective part (the first stage of reflection)
must cover considerable business
theories/definition/explanations in relation to yourself. This
will help direct the rest of your writing.

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 Assignment 1
• All the reflective stages of the model should have
some elements of module 1 and 2 (things you have
covered in class, or any other verifiable ones).
Although reflection is to be written in the first
person, ‘all other principles of academic writing
applies’.
• You may not simply follow the suggested points of
reflection on the assignment brief. All of those
should be captured in their established reflective
model

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 Module 2: Economic Perspective and
Business Environment
This Module will cover:
• Module 2.1
– Four types of competition, supply and demand
– Economic policy and how the government can
impact the economy
• Module 2.2
– Microenvironment, macroenvironment
– Introduction to PESTLE and industry analysis

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 This Module will help you achieve the
following outcomes
• Critically evaluate economic principles and
stakeholders’ viewpoints in business
environments.
• Analyse and synthesise the fundamentals of
business in the contemporary environment.

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 Four Types of Competition
• Perfect competition
• Monopolistic competition
• Oligopoly
• Monopoly.

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 Perfect Competition
• Many companies sell identical products
• Price is determined through the mechanisms of
supply and demand
• We can therefore say that the perfect
competition is the situation prevailing in a
market in which buyers and sellers are so
numerous and well informed that all elements of
monopoly are absent and the market price of a
commodity is beyond the control of individual
buyers and sellers.

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 Characteristics of Perfect Competition
• Large Number of Buyers and Sellers
• Homogeneity of the Product
• Firms make normal profits.
• Free Entry and Exit of Firms
• Price is responsive to demand and supply conditions
• One price of the commodity

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 Activity
Considering the definition of perfect competition
and its characterises, identify some examples of
perfect competition.

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 Examples of perfect competition
• Currency and exchange markets
• Agricultural markets
• Internet related industries e.g. eBay

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 Monopolistic Competition
• Monopolistic competition is a type of
imperfect competition such that many producers sell
products that are differentiated from one another
(e.g. by branding or quality) and hence are not
perfect substitutes.
• Many sellers offer similar products that differ slightly
• Sellers exert some control over price by making
consumers aware of product differences

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Characteristics of Monopolistic Competition

• An industry in which many firms offer

products or services that are similar, but not
perfect substitutes.
• Barriers to entry and exit in a monopolistic
competitive industry are low
• The decisions of any one firm do not directly
affect those of its competitors.

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 Exercise
• Keeping in view the characteristics, think and
discuss the examples of Monopolistic
competition.

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 Oligopoly Competition
• A competitive oligopoly is a market that is
dominated by only a few large firms. These firms
prefer not to compete via price wars and therefore
compete in various other ways, such as advertising,
product differentiation and barriers.
• Few sellers supply a sizable portion of products in the
market
• Because of the limited number of sellers whose
products are similar, when one company lowers
prices, the others must follow

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Characteristics of Oligopoly Competition
• Interdependence
• Advertising
• Group Behaviour
• Competition
• Barriers to Entry of Firms (may be high)
• Lack of Uniformity e.g. the size of the firm
• Existence of Price Rigidity
• No Unique Pattern of Pricing Behaviour

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 Monopoly
• one seller in the market
• seller is able to control prices
• A market structure characterized by a single
seller, selling a unique product in the market.
• In a monopoly market, the seller faces no
competition, as he is the sole seller of goods
with no close substitute. ... He enjoys the
power of setting the price for his goods.

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 Types of Monopoly
• Private monopoly:
The monopoly firm owned and operated by private individuals is called the private
monopoly. Their main motive is to make profit.
• Public monopoly:
The monopoly firm owned and operated by public or state government is called
public monopoly. It is also known as social monopoly. The entire operation is
controlled either by central or state government. Their main motive is to provide
welfare to the public.
• Absolute monopoly:
It is a type of monopoly, where a single seller controls the entire supply of market
without facing competition. It is also known as pure monopoly. Their product does
not have even any remote substitute also.

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 Types of Monopoly
• Imperfect monopoly:
It is a type of monopoly in which a single seller controls the entire supply
of the market which does not have a close substitute. But there might be
remote substitute for the product available in the market.
• Simple or single monopoly:
It is a type of monopoly in which a single seller controls the entire market,
by selling the commodity at a single price for all the consumer. There is no
price discrimination in the market.
• Discriminative monopoly:
When a monopoly firm changes different prices for the same goods or
services to different consumers it is known as discriminative monopoly.

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 Types of Monopoly
• Legal monopoly:
When a firms enjoys rights like trade mark, copy right, patent right, etc.
then it is known as legal monopoly. Such monopoly rights are approved by
the government.
• Natural monopoly:
When a firms enjoys monopoly right due to natural factors like location
reputation earned etc, it is called as natural monopoly. Natural talent, skill
of the producer also makes him to enjoy this right.
• Technological monopoly:
When a firm enjoys monopoly power due to technical superiority over
other products in the market, then it is called as technological monopoly.

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 Economic Policy
Gross Domestic Product
• GDP is the total market value of all finished goods and
services produced within a country in a year.
• Finished good is the one that will not be sold again.
• Capital goods are finished goods but these are used to
produce other goods e.g. a tractor.
• GDP only counts production of new goods. A house re-sold
will not count towards GDP.
• Something produced in country A and sold in country B
(exported), will add to the GDP of country A.

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 How GDP can be increased?
• Increase prices (nominal GDP) – may invite
inflation.
• Increase production (real GDP) – good way to
go about it.

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 Monetary policy
Monetary policy 
Actions by a country’s central bank to control the level of
interest rates, money supply and average inflation in the
economy
Supply of money:
1. Modifying reserve requirements
2. Changing interest rates: lower interest rates increase
money supply and boost economic activities
3. Conducting open market operations: selling govt
securities and bonds

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 Fiscal Policy
Fiscal policy is the means by which a
government adjusts its spending levels and tax
rates to monitor and influence a nation's
economy. It is the sister strategy to
monetary policy through which a central bank
influences a nation's money supply.

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 Three ways the government can influence
the economy
• Taxation and interest rate policies
• Public spending on goods and services
• Regulation

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 Three main aims of the government

• Economic growth:
• Full employment
• Price stability.

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Activity-Class Discussion and Presentation

WHAT can state governments do to create jobs

and boost economic competitiveness?

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 Possible actions
• Become a magnet for top talent.
• Increase educational attainment. 
• Make skills, training, and retraining the focus of workforce development.
• Flip the customer: Shift the customer of workforce programs from job
seekers to employers.
• Understand your state’s competitive advantage. 
• Make it easy for businesses to transact with government.
• Reduce and streamline regulatory requirements.
• Make public data more accessible to business.

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 Case study
• Astro-the biggest monopoly in Asia

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