Economic Environment
Economic environment refers to all factors/ forces which have an economic impact either negative or positive on business organization. Industrial production, agriculture, planning, basic economic philosophy, infrastructure, national income, per capital income. GNP money supply, price level, population, rate of growth, disposable personal income, annual budgets, rate of saving, investment value of imports and exports, balance of payments, distribution of income and trade cycles are major factors which make up the total economic environment. There is close relationship between business organization and its economic environment. Business obtains all its needed inputs from economic environment and it absorbs the output of business units.
The economic environment consists of following components. These are—
1. Economic System of Nation
2. Economic Policies of Nation
3. Economic Conditions.
1. Economic System of Nation
(A) Capitalist Economic System
(B) Socialist Economic System
(C) Mixed Economic System
The economic system of a particular nation exhibits its economic concept, economic structure and exposure. The economic system mainly may be of four types, viz Capitalism, Socialism Mixed and Communism.
(A) Capitalist Economic System—The system of capitalism stresses the philosophy of individualism believing in private ownership of all agents of production, in private sharing of distribution processes that determine the functional rewards of each participant and in individual expression of consumer choice through a free market place.
The Capitalist economic system has following essentials
1. Economic freedom
2. Profit is main object
3. Freedom to make decisions
4. Full freedom for investment and savings
5. Freedom in allotment of resources
6. Free competition
7. free market place
8. Freedom to select business and profession
9. Limited interference of Govt.
10. Private property
11. Private ownership
(B) Socialist Economic System
The socialist economic systems are those system which is to be organized, managed and owned by the government, with the benefits accruing to the public. This system has following essentials
1. Central planning
2.Govt. ownership
3. Central agents
4. Profits recognized
5. Lack of full competition
6. Govt. play very important role
7. Govt. management
8. Pricing and wages are determined by the Govt.
9. Emphasis on distribution of income between public.
10. Public is free to select an employment viz, occupation, profession, business and work
11. Full control of Govt.
(C) Mixed Economic System
economy which is governed by the capitalism and socialism system called is mixed economic system. This system has co ownership of public and private sector.
"A mixed economic system is a system in which the public sector and private sector are allotted their respective roles in promoting the economic welfare of all sections of the community."Verman Mound and Donald Wolf
This system has following essentials
1. Profit induced commodity production
2. Public sector
3. Direction to economic activities by the market mechanism
4. Economic freedom
5 . Govt. control
6. Sector distribute between public and private
7. Private ownership of the means of production
8. Economic planning
9. Monopoly trends
10. Pre-capitalist relations of production in agriculture
11. Public interest
12. Development of both sector.
Public sector
Private sector
Mixed sector
Co-operative sector
Economic Policies of Nations
The economic policy of the nation needless to say has a very great impact on business, industry and other economic activities—Some categories of business are positively affected by government policy, some are negatively affected while some others neutral. For example, a restrictive import policy or a policy of protecting the home industries may greatly comfort indigenous industries while liberalisation of the import policy may create difficulties for such industries.
The following policies are included in the policy of a nation
1. Industrial Policy
2. The Foreign Exchange Management Act, 2000
3. Control of Foreign Trade
4. Privatization
5. Industrial Labour
6. EXIM Policy
7. Export Promotion
8. Stock Exchanges
9. Fiscal Policies
10. Price and Distribution Control
11. Mineral Policy
12. Employment Policy
13. Income Policy
14. Industrial Licensing
15. The MRTP Act, 1969
16. The Indian Companies Act, 1956
17. Public Sector Enterprises
18. Small Scale Industries
19. Industrial Sickness
20. Infrastructure
21 Development Bank
22. Monetary Policies
23 Agriculture Policy
24 New Economic Policy
25. Foreign Trade Policy
26. Public Loan Policy
27. Public Expenditure Policy.
Economic Conditions
Economic conditions are tools of economy which are used for measuring the economic progress of a particular nation. In other words economic conditions refer base of expectation of economic development of a particular nation. The following conditions are included under Economic Conditions
1.Supply of natural resources
2. Economic development and level of progress
3. National production, national income and distribution
4. Foreign capital
5. Level of consumption
6.Size of market
7. Commercial structure
8. Social welfare work in nation
9. Foreign money acquiring
10. Monetary structure
11. Banking system
12. Use of human resources
13. Capital creation
14. Nature of industry, type and production
1 5. Normal price level of nation
16. Entrepreneurship and venture
17. Industrial development of nation
1 8. Foreign trade
19. Novation and skill development
20. Rate of interest.
