Economics for Business

London Guildhall College

ATHE Level 6 Diploma in Management
Unit Title: Economics for Business
Submitted by: B. M. Akhtaruzzaman

London Guildhall College

ATHE Level 6 Diploma in Management
Unit Title: Economics for Business
Submitted by: B. M. Akhtaruzzaman

Table of Contents Introduction 2 Task 1 - Understanding of the Micro-Economic Business Environment 3 1.1: The Importance of the Micro-Economic Environment to Business Organisations 3 1.2: An Analysis of Business Objectives and Business Behaviour in the Economic Context 4 1.3: An Analysis of the Impact of Market Structures on Business Organisations 7 Task 02 - Understanding of the Macro-Economic Environment in the Domestic Context of the Country 8 2.1: An explanation of the determinants of national income for the relevant country 8 2.2: An explanation of government policies on the economy of that country 8 2.3: An analysis of the impact of the macro- economic environment of business organisations 9 Task 03 - Understanding of the Implications for Business of Operating in the International Economic Environment 11 3.1: An analysis of the features of the international economic environment 11 3.2: An analysis of the economic implications for business of operating in a global business environment 11 Conclusion 13 References 14

Introduction
Economics is a subject of is being run in the wide range. Economics is not only been in the family but in the business Organisations, Economies, governments as well. It cannot be separated from the people. It is a subject of determining the effectiveness and efficiency of allocating and utilising the resources. Therefore the knowledge of economics is much important to all of the organisations to get their decisions regarding the growth of them. Economics is more important not only as subject but as in our day to day activities too. Hence the knowledge of economics for the managers is more important to operate the organisations successfully.
According to the assignments, this is going to be discussed regarding the understanding and knowledge regarding economics how will be utilised to allocate the organisational resources. This assignment is discussed the impact of the knowledge of economics to the decision makings of the organisations. According to that the assignment has been consisted with two parts. In the first part it has been discussed regarding the importance of micro economics environment to the decision making purposes of the managers. As the purpose of the second part of the assignment, it has been discussed regarding the importance of macro economic to the decision making of the managers and its importance to the business behaviour.
In the third part of the assignment is talking regarding the international context of the economics to the operations of the business. According to that it has been discussed the operating the organisation in international economic environment because the organisations’ activities cannot be limited to the specific tertiary area and specific demographic area.

Task 1 - Understanding of the Micro-Economic Business Environment
1.1: The Importance of the Micro-Economic Environment to Business Organisations
The environment is more important factor to all of the parties in the world. The environment which the people are been is highly affected to the organisations existence within the business environment. The business environment is divided in to two parts in basically as macro economic environment as well as micro environment. The environment is the most critical factor that helps to the all the stakeholders to develop their knowledge about the organisation (Harris, 2001: 03). The micro environment is taking the environmental factors separately and studying their relationship with the economy. According to that the micro economic environmental factors are possessed with consumer demand & supply, consumer satisfaction scarcity, opportunity cost, price level, employment level, economic growth etc. Macro environment is considering all the environmental factors together to lead the scared economic resources more effectively and efficiently to attain organisation goals (Munasinghe, 2004: 04).
Economics is something different from Accounting. In accounting analysis’s, the managers are seeking the profitability of utilising the resources and in economics, the managers are seeking the effectiveness and efficiency of utilising the scare resources (Kadocsa and Francsovics, 2011: 01). Therefore, the studying of micro economics environment to managers is more helpful to take decisions better way. According to that, the most important micro economic factors are the consumer demand and supply plays vital role to take decision making in the organisation. Each and every organisation is in the world was established to attain specific goal. According to that most common goal of any organisation is increasing their sales, protecting the quality of the products, employees’ welfare and maximising profits (Auerbach and Kotlikoff, 1998). Therefore demand and supply to the organisation is bearing considerable importance to attain organisational goals.
As you can see below in the Figure 01 macro economic variable are highly impacting to the organisational decisions. Demand and consumer satisfaction is more important to the organisations because the quality and cost of the product will be driving the consumers to purchase the products in reliable way. The quality product with low cost is trying to protect the consumer’s satisfaction maximum level. Type of market is helping to determine the nature of the elasticity of the demand & supply and nature of the competition. Managers are determining the production plan according to that. The importance of microeconomic environment is being run all over the operational processes in the business and managers can use it towards growth of the business by using for resource allocation (Yahyazadehfar and Babaie, 2012).
Demand & Utility
Demand & Utility
Micro Environment
Micro Environment Pricing
Pricing

Cost & Production
Cost & Production
Supply
Supply

Market
Market
Economic Value Added
Economic Value Added

Figure 01: Micro – Economic Environment (Source: Yahyazadehfar and Babaie, 2012)
1.2: An Analysis of Business Objectives and Business Behaviour in the Economic Context
Every organisation has set of objectives to achieve in their business life time and it is varied from time to time. There have common features in every objective and it mentioned in short firm as SMART. According to the management scientists, the organisational objectives should be SMART. SMART is defined as;
S – Specific: The objective should be specific in your business goals.
Eg: Goal – To be the best seller among the competitors. Objective – Exceeding the annual sales in year 2012 $. 70 Million.
M – Measurable: The determined objectives can be measurable in monetary
Eg: Exceeding the annual sales in year 2012 $. 70 Million.
A – Attainable: The objective can be attainable by your business resources. Unattainable objectives will be occurred inefficiencies in the organisations. As example; if the organisation is eared 5mn revenue in this month, it cannot increase the sales 12 Mn in next month otherwise without expanding the capacity of the organisation. Therefore the managers should have knowledge to set objectives according to the Organisational resources.
R – Realistic: The objectives should be reasonable.
T – Time lined: The objectives should have a time scale to attain it. The effectiveness of achieving objectives is determined by that the organisation how far achieve the objectives within the given time period. As an example, in year 2012 the annual sales should be exceeded $ Mn 70. This $ Mn 70 revenue should be attained before over the year 2012 (Dobbins, 2000: 04).
The organisational behaviour is depending on the leadership, management style & philosophy, nature of the organisation & products, human resource & motivation policies & factors, culture & structure of the organisation and so forth (Mullins, 1999). According to that the management keeps the organisational goals and according to the goals the organisational objectives will be determined. Therefore organisational objectives are determined according to the organisational behaviour.
The importance of economics to the organisational objectives & behaviour cannot be explained specifically. The poor organisational behaviour is shown by poor knowledge of economics of managers. Knowledge of economics is related to the business planning and according to the plans the organisational objectives are determined (Dindire, 2012: pp. 31-35). Through the Economic context, the managers are considered the resource allocation in effective and efficiency way. With the economic context, the managers are guided to prepare the plans according to the organisational goals. The organisational plans, goals, objectives, leadership style, management style and management philosophy is being operated in the economic context. The organisation cannot be separated from the economic context because of it is a part of economic environment (Carliner, 1998: pp. 380-384). The economic environment is consisted with four parts as, house holds, private business organisations, government and foreign sector. The government forces to prohibit the unethical products, limit to unnecessary consumption, impose taxes and give subsidiaries. Intervene commodity market & labour market is other forcing method of the government to control the business behaviours (Marshall, 2008).
Economic Environment

Economic Environment

The house holds are affecting to quality products with low cost. The house holds are expecting to avoid unethical products from the organisations and they need social protection form the organisations (McGinnis, 2008: pp. 01). Foreign sector is affecting to the investments, imports & exports, substitute & complimentary commodities as competitors and so forth. Therefore the organisational behaviour cannot be separated form the economic context (Băleanu, 2007).

Figure 02: Process of business behaviour in Economic Environment
(Source: Băleanu, 2007)
1.3: An Analysis of the Impact of Market Structures on Business Organisations
There have been commonly identified four types of Market structures in the economic perspective. According to Hushke (2010: pp. 217), it as Perfect competition, monopolistic competition, oligopoly and monopoly markets. Perfect competitions are no barriers to access or to exit from the market. Any one can start easily and there have so many suppliers, they cannot force to the market determined price as individual. Most of the food suppliers are belonged to perfect competitors. The supplying of perfect substituted commodities is the reason to work under the transferred price and according to the supplier necessity the firm can access or exit from the industry (Boschma and Lambooy, 2002).
Monopolistic competitors are much powerful than perfect competitors. They are supplying perfect substitutes with making changes of package and advertising. Many suppliers and customers are there. Much capital is not required to start up the business. The monopolies are handling their business organisations as the perception of the supplier. The supplier is more powerful due to without substitutes. But it runs the production to inefficiencies (Sutton, 2006). Oligopolies are working in same line. If one firm has changed its operations & policies, the other firms are also going with the same. Therefore the firms are facing to kinky demand curve. The market type is determined by number of suppliers & customers, level of competition, substitutes to the commodity, and so forth. Therefore the nature of the market type is impact to the business organisations to determine their profits, nature of the demand, quality of their products (World Trade Report, 2004) and level of competition etc.

Task 02 - Understanding of the Macro-Economic Environment in the Domestic Context of the Country
2.1: An explanation of the determinants of national income for the relevant country
The purpose of preparing the national income of the country is to compute the total value of generated by the civilians of the country in the specific time period. The national income can be computed in three ways in all the countries in the world. According to that the national income is calculated from income sources, expenditure sources and production sources (Di Tella, et al, 2003: pp. 02). The common formula of calculation the national income is;
Y = C + I + G + (X – M)
And the national income is always equal in these all the ways. Therefore in the open economy;
I + G + X = S + T + M
It says the withdrawals of the economy are equal to the joining of the economy. Therefore the national income is computed in all the three ways is generated same results. According to that determinates of the national income are investments, government expenses and tax imposing, Exports & imports, savings and consumption of government and public.
Consumption shows the using the national income by the public & government. Taxes, import expenses and savings are withdrawn form the economy and it is joined investments, government expenses and export income to the economic (Perovic and Golem, 2000: pp. 01-05).
In India, the determinants for the national income are the foreign income generated by the domestic people, price level & inflation rate, money supply & demand, savings and investments, interest rate & share market improvements (National Income in India, 2000) and so forth.
2.2: An explanation of government policies on the economy of that country
The government policies of India are utilised to expand the economic income are in different ways as follows; * Controlling the money supply & demand by using the determinants of the money demand and impacting to the national income. According to that the determinants of money demand are; * Demand for Nominal Cash Balances * Demand of Real Cash Balances * Price Level * Inflation Rate * Giving subsidiaries to poors and lower performing organisations. * Imposing taxes from high income holders and large corporations (Prasad, 2005).

2.3: An analysis of the impact of the macro- economic environment of business organisations
According to the environmental analysis, the economic environment is the part of macro economics factor. See figure 03, Micro economic environment is working in the each and every where in the macro economic environment. The macro economic environment is initially consisted with combining the two or more than two micro economic factors. According to the management philosophy the business environment is consisted with six parts as Political, Economic, Social, Technical, Natural Environmental and Legal environment factors. The macro economics environmental factors are been in as the part of the business organisational environments and it will drive the organisations to prepare the goals & objectives (Munasinghe, 2004: pp. 05-08).
Macro economics Environment is initially connected with the National income, government budget, Employment, common price level & inflation, economic efficiency and sustainable development. The macro economic environmental factors are connected with each other and the change of any variable is highly affecting to the change of other variable. And finally it would be impacted to the organisational activities. The increasing of interest rate of the economy will decrease the demand for money and the people are saving money in the bank. The opportunity cost of the demand of money for transactional purposes is higher and the people are saving the money in the banks. The demand on the national income goes down and the organisations are received low turnover than before (Auerbach and Kotlikoff, 1998: pp. 02-03).
And the other way, when the interest rates are gone up, the bankers will be able to attract more savings and they will be able to supply more investments to the economy. With the increasing the investments expanding the business Sector, the employment of the economy will go up and the economy is expanded with expanding the business sector of the country (Yahyazadehfar and Babaie, 2012). Therefore the macro economic activities and the business behaviour of the organisation cannot be separated from each other. The macro economic factors are highly impacting to the business environment. Therefore the organisations cannot be alone from the macro economics environment and it is important part of the organisational environment since it been the part of the economic system - see figure 02 (Kadocsa and Francsovics, 2011: pp. 01-02).

Task 03 - Understanding of the Implications for Business of Operating in the International Economic Environment
3.1: An analysis of the features of the international economic environment
The international economic environment is entangled with the international financial market and the international political, social and legal environmental. Business organisations cannot be limited to specific territory area or specific set of demographic area. Therefore the organisational behaviour in international economic context cannot be ignored when the organisation is operated in international level. The economic, social, political and legal environmental factors are highly affecting to the organisations when it works at international level. The financial environment is the most important to any organisation when it operates in international context. Settling transactions in foreign currencies, exchange rate fluctuations, to be obeyed the country specific rules and regulations, considering moral-social, cultural changes of countries are impacting to the organisational activities in international level (Bordo and Eichengreen, 2005: pp. 01-04).
See the Figure 02: the making connection with foreign sector to the economy is affecting three major markets of any country. According to that the foreign business people are coming to the local financial market and newly invest in the firm or invest in the existing firm. Then the foreign organisations are coming to the domestic factor market to supply factors or to get factors as well as the same is intervene to the commodity market by affecting imports and exports. Therefore the operating in the international context of the organisation is affecting every aspect to the business organisations. According to that the features of the international economic environment is connected with every aspect to the international context (Stals, 1999: pp. 01-03).

3.2: An analysis of the economic implications for business of operating in a global business environment
The global business operating context is connecting with the different environmental. According to the global point of view, there has been explained in above section regarding the organisational connection with its global business environment. The global business environment is possessing with all kind of domestic factors. According to that international financial market and international factor markets are directly implies the international level. The international financial market is the most important thing to the international organisations. The financial crise can be really broken down with the properly operated business activities. Therefore the organisation which is operating in international level should concern with the financial market. The demographic implications are also more important to the organisations because, the demand for commodities is depended on the preference of the demography. The economic indicators of interest rate, inflation rate, national income, per capita income of an individual etc. highly affect to the global business firms (Bordo and Eichengreen, 2005: pp. 01-02).
High variances of interest rates, high variances of inflation rates of different courtiers are disappointed the global investors. Therefore the responsibility of each and every state is create a investor friendly economic system within the country to operates the global firms smoothly (Di Tella et al, 2003).

Conclusion
Economics is the subject of discussing regarding the allocation the resources effectively and efficiently rather than seeking the profit or loss of already allocated resources. Macro economics and micro economics both are much important to the managers to get the decisions in organisational level. Economics is related to finance and therefore the managers can use the knowledge of economics to development of the organisation. Demand & Supply, consumer behaviour, market types, cost & product, economic value added and price & interest like micro economic variables are affecting to the managers’ decisions when setting the objectives and leading the organisation to attain the goals successfully. Knowledge of the macro economics environment is much important to managers to take long run decisions. Because knowledge of national income, employment, common price level interest rate, money supply likes macro economic variable are help to get the effective decisions regarding the firm.

References
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Auerbach, A.J. and Kotlikoff, L.J., (1998), Macroeconomics: An Integrated Approach, 2nd Ed, Cambridge, Massachusetts: MIT Press Băleanu, V., (2007), The Economic Basis in Organisational Behaviour - Behavioural Theory of the Firm, journal - Annals of University of Petroşani, Vol. 07, pp. 29-36
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References: Armstrong, M., (2006), A Handbook of Human Resource Management Practice, 10th edition, Great Britain: Cambridge University Press Auerbach, A.J Băleanu, V., (2007), The Economic Basis in Organisational Behaviour - Behavioural Theory of the Firm, journal - Annals of University of Petroşani, Vol. 07, pp. 29-36 Bordo, M Dindire, L.A., (2012), Organisational Behaviour Influence Elements in the New Economic Paradigm, journal of Theoretical and Applied Economics, Vol. 18, Iss. 4 (569), pp. 31-48 Di Tella, R., MacCulloch, R McGinnis, S.K., (2008), organizational behavior and management thinking, Jones Mullins, L.J., (1999), Management and Organisational Behaviour, Prentice Hall World Trade Report, (2004), Market Structure, Externalities and Policy Intervention, II Coherence pp. 150-174, PDF - Online Available on: http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr04_2c_e.pdf, Accessed on: 2012- 08-15 Yahyazadehfar, M