Ecnomic Environment

Topics: Economics, Capitalism, Economic system Pages: 5 (1494 words) Published: April 29, 2013
Economic Environment
Meaning of Economic Environment:- Those Economic factors which have their affect on the working of the business is known as economic environment. It includes system, policies and nature of an economy, trade cycles, economic resources, level of income, distribution of income and wealth etc. Economic environment is very dynamic and complex in nature. It does not remain the same. It keeps on changing from time to time with the changes in an economy like change in Govt. policies, political situations. Elements of Economic Environment:- It has mainly five main components:- 1. Economic Conditions

2. Economic System
3. Economic Policies
4. International Economic Environment
5. Economic Legislations
Economic Conditions:- Economic Policies of a business unit are largely affected by the economic conditions of an economy. Any improvement in the economic conditions such as standard of living, purchasing power of public, demand and supply, distribution of income etc. largely affects the size of the market. Business cycle is another economic condition that is very important for a business unit. Business Cycle has 5 different stages viz. (i) Prosperity, (ii) Boom, (iii) Decline, (iv) Depression, (v) Recovery. Following are mainly included in Economic Conditions of a country:- I. Stages of Business Cycle

II. National Income, Per Capita Income and Distribution of Income III. Rate of Capital Formation
IV. Demand and Supply Trends
V. Inflation Rate in the Economy
VI. Industrial Growth Rate, Exports Growth Rate
VII. Interest Rate prevailing in the Economy
VIII. Trends in Industrial Sickness
IX. Efficiency of Public and Private Sectors
X. Growth of Primary and Secondary Capital Markets
XI. Size of Market
Economic Systems:- An Economic System of a nation or a country may be defined as a framework of rules, goals and incentives that controls economic relations among people in a society. It also helps in providing framework for answering the basic economic questions. Different countries of a world have different economic systems and the prevailing economic system in a country affect the business units to a large extent. Economic conditions of a nation can be of any one of the following type:- 1. Capitalism:- The economic system in which business units or factors of production are privately owned and governed is called Capitalism. The profit earning is the sole aim of the business units. Government of that country does not interfere in the economic activities of the country. It is also known as free market economy. All the decisions relating to the economic activities are privately taken. Examples of Capitalistic Economy:- England, Japan, America etc. 2. Socialism:- Under socialism economic system, all the economic activities of the country are controlled and regulated by the Government in the interest of the public. The first country to adopt this concept was Soviet Russia. The two main forms of Socialism are: - (a) Democratic Socialism:- All the economic activities are controlled and regulated by the government but the people have the freedom of choice of occupation and consumption. (b) Totalitarian Socialism:- This form is also known as Communism. Under this, people are obliged to work under the directions of Government. 3. Mixed Economy:- The economic system in which both public and private sectors co-exist is known as Mixed Economy. Some factors of production are privately owned and some are owned by Government. There exists freedom of choice of occupation and consumption. Both private and public sectors play key roles in the development of the country. Economic Policies:- Government frames economic policies. Economic Policies affects the different business units in different ways. It may or may not have favorable effect on a business unit. The Government may grant subsidies to one business or decrease the rates of excise or custom duty or the government may increase the rates of custom duty and excise...
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