Definition and Meaning of Economic System

Economic system refers to the organizations and institutions created for the purpose of satisfying the wants of human beings. In a country, available resources have to be utilized to manufacture and distribute goods and services, which would meet the needs of the people so that they are satisfied.   These institutions and organizations function with their own rules and regulations.

The economic system has certain broad characteristics.

  1. The economic system always functions with scarcity of resources. How the system effectively and efficiently uses the resources will determine the extent to which the needs of the people are met.
  2. An economic system comprises people.
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Economic Policies Affecting Business Environment

The economic environment  of business is composed of various set of economic policies, economic system, strategy of economic growth and development, resource endowment, size of market and status of infrastructural facilities in a country. All these economic policies affecting  business environment one way or the other.

Economic policies include fiscal policy, monetary policy, foreign trade policy, price policy, etc. These policies lay the framework within which every organization has to function.  To understand the impact of these policies on business environment, let us discuss each one of these components in detail.

1. Fiscal Policy

By fiscal policy we mean, the government’s tax efforts, public expenditure and public borrowing.… Read the rest

External Environment Factors of Business

Business involves activities, which links an organization with outside world. Within an organization, a business is governed by the  behavior  of its employees, management or decision makers. But externally a business is influenced by a score of factors, which range from customers to competitors and government. Therefore, a business cannot be independent of the influence of these external factors. It should also be noted that a business has absolute control over all the internal factors, it has no control over the external factors. So often it becomes necessary for business houses to modify their internal decisions and policies, on the basis of the pressure from external factors.… Read the rest

Stagflation and Phillips Curve

Meaning of Stagflation

The present day inflation is the best explanation for stagflation in the whole world. It is inflation accompanied by stagnation on the development front in an economy. Instead of leading to full employment, inflation has resulted in un-employment in most of the countries of the world. It is a global phenomenon today. Both developed and developing countries are not free from its clutches. Stagflation is a portmanteau term in macro economics used to describe a period with a high rate of inflation combined with unemployment and economic recession. Inflationary gap occurs when aggregate demand exceeds the available supply and deflationary gap occurs when aggregate demand is less than the aggregate supply.… Read the rest

Business Competition

Meaning of Competition

To a particular business, competition usually refers to firms that market similar or substitutable products in the same geographic area. In general, the term business  competition refers to the rivalry among businesses for consumer dollars. For example, the manager of a fast food outlet in an airport views all other fast food outlets near the airport as competition but probably does not think fast food outlets in other geographic areas as competition. In general, all the fast food outlets near the airport compete for passengers’ dollars.

In developing and implementing a marketing program, an organization must consider the types of business competition in its markets and assess the actions of its competition.… Read the rest

Competition Based Market Structures

The competitive structure of a market is defined by the number of competing firms in some segment of an economy and the proportion of the market held by each competitor. Market structure influences pricing strategies and creates barriers to competitors wishing to enter a market.

Types of Competition Based Market Structures

There are four basic types of competition based market structures. They are pure competition, monopolistic competition, oligopoly, and monopoly.

Pure competition exists when there are no barriers to competition. The market consists of many small, competing firms and many buyers. This means that there is a steady supply of the product and a steady for demand for it.… Read the rest