Chapter 2 Edit

7/28/2019 Chapter 2 Edit

1/36

CHAPTER 2

INFLUENCE OFECONOMICS IN

BUSINESS

MGT153SITI NOR HIDAYAH TAIB


2/36

LEARNING OUTCOME:2.1 INTRODUCTION TO ECONOMICS

2.2 ECONOMICS SYSTEMS2.3 BASIC MARKETS MODELS2.4 BUSINESS ENVIRONMENTS


3/36

3

Economicsstudy of how wealth is created and distributed by men.

it examines how people choose to use limited orscarcity resources in attempting to satisfy theirunlimited wants.There are 2 branches of economics:

1. microeconomics2. macroeconomics

ECONOMIC


4/36

4

NATURAL RESOURCES

CAPITALENTREPRENEURS

LABOUR

ECONOMIC RESOURCES


5/36

Economic Systems

Economic system is defined as themechanism by which labor and other

economic resources are brought together to produce and distribute the goods andservices people need and wants

(Lowry and Weinreich,1994)

An economic system describes how a


6/36

Introduction of Economics inBusiness Economics is a study on how wealth is

created and distributed by men- wealth can be defined as anythingthat is of value to people- the distribution of wealth meansanswering basic questions who gets

what Economy is the system through which a

society answers economics questions

which include what, how, and for whom


7/36

7

What How

Who

ECONOMIC SYSTEM

?????????????????????????????????


8/36

8

The system through which a society answer economicquestions which include what, how, and for whom.

1. What (What to make ) what kind goods andservices are to be produced.

2. How (How to produce it) How much of eachtype of goods to be produced. How will these goods

and services be produced - who will produce them.3. For Whom (Who gets it) Who will get/buy the

goods and services the target market.

ECONOMIC SYSTEM


9/36

9

CAPITALISM

SOCIALISM

COMMUNISM MIXED ECONOMY

TYPES OF ECONOMIC SYSTEM


10/36

10

Founder Adam SmithA system where all economics decision are taken byindividual household and firms with nogovernment interventionRecognize the right of individuals to accumulatewealth and maximize their potentialThis system recognize the importance of privatesectors to drive the economy towards progress andprosperity through competitionPeople can choose and use the resources theyrequire and see fit to produce whatever goods theydesire

CAPITALISM


11/36

11

4 BASIC FORMS OF CAPITALISM

Private ownership

Private enterprise

Freedom of choice

Freedom to compete

CAPITALISM


12/36


13/36

13

Is an economic system that contains some features of both capitalism and communism. Government ownand control the key industries. Individual own theirown human capital and government own mostother non human resourcesThe Government make the major economic decisionsregarding the production and distribution of goodsand services to ensure the whole society gets the

benefit fairly.Government ownership of industries are currentlylimited to important industries

SOCIALISM


14/36

14

Government decision on what to produce andhow to produce them are based on the needs of

the nation.

Consumers are free to buy goods and services of their choice and desire and the rights of workers.

Country:?????

SOCIALISM


15/36

15

Founder Karl Max

All economic resources would be owned collectivelyby government rather than by individuals.

Government plans and makes almost all economics

decisions for the benefit of the society.

It totally plans the economy so that resources arefairly distributed among the members of society

COMMUNISM


16/36

16

Government decide what goods and services to beproduced, how they are to be produced and forwhom these goods and services will be distributed

Authoritarian single party government.

Disadvantages : Low standard of living, criticalshortage of important consumer goods, limitedpersonal freedom, does not encourage entrepreneurto be creative

Country:????

COMMUNISM


17/36

17

Economy system that combines various degree of private enterprise, government planning andgovernment ownership of certain industries.Has more than one economic system .Allowing free market will permit efficientallocation of resources, offers more profits andattracts more businesses to operate successfullyand efficiently.If markets fail, government will intervene

Country:???

MIXED ECONOMY


18/36

18

Historical EnvironmentNatural-Physical Environment

Political and Legal EnvironmentSocial and Cultural EnvironmentEconomic Environment

International Environment

Technological Environment

BUSINESS ENVIRONMENT


19/36

19

Records of events and activities that have takenplace daily.

Need to look at historical records of variouscompanies performance. Good or bad.Can be used as a guide to run business effectivelyand efficiently.

Many lessons from the past that can help abusiness decide what to do in the future.

HISTORICAL ENVIRONMENT


20/36

20

Businesses relies on natural resources ( water, oil,air etc.)

The resources are depleted as we produce moreand more goods.Some are non-replaceable and no substitute.

Relate to pollution

Business must be innovative and proactive todevelop it business. Reduce reliance on naturalresources and substitute to be invented.

NATURAL ENVIRONMENT


21/36

21

Law, regulation and activities of governmentthat restrict business activities and protect the

customers.Government intervention to protect customersfrom unfair business practices, preservation of theenvironment and to alleviate discrimination inwork place.

POLITICAL ENVIRONMENT


22/36

22

ROLES OF GOVERNMENTBy implementing favorable budget policiesthat promotes business activities and stimulate

economyBy encouraging certain business activities target standard living of the nation.Issue guidelines concerning price fixing,advertising, the minimum wage and workingconditions which business must follow.Legislation directed to improve theenvironment to regulate business interactionwith the environment.

POLITICAL ENVIRONMENT


23/36

23

The demographic characteristic, customs andvalues of the population within which thebusiness is operating.

Beliefs, attitudes, customs and cultural practicesof every group in the society.Eg. Malaysia food business Halal signBasic facilities at office prayer room, recreationand rest room must be provided to createsatisfaction among employees.

SOCIAL CULTURALENVIRONMENT


24/36

24

The most important factors of all theenvironmental forcesRepresent the general economic health of thecountryConsist of buyer, sellers and competitorsIncludes consumer purchasing power,unemployment rates and interest rates.All factors of production and customers buyinghabits have impact on business

ECONOMIC ENVIRONMENT


25/36

25

Globalization

Competition with foreign country companies toproduce better quality product and services.

Companies going abroad must have adequateknowledge on foreign country laws, customs,

ethics, economic and political systems.

INTERNATIONALENVIRONMENT


26/36

26

Scientific and technological breakthrough andthe advancement in industries as well as insociety.

Use of quality raw material, right high-techequipments and engagement of skillful labor

Technological knowledge is of importance to

business to enable them to produce the bestproduct using the right raw materials, equipmentand production process.

TECHNOLOGY ENVIRONMENT


27/36

27

4 BASIC MARKET MODEL

PURE MONOPOLY

OLIGIPOLY

MONOPOLISTIC COMPETITION

PURE/PERFECT COMPETITION

MARKET MODELS


28/36

PURE MONOPOLY

28

Monopoly = ONE SELLER

Diamonds

Rafflessia


29/36

Pure Monopoly

29

There is only one seller or producer and there areno substitutes. Eg. Jabatan Bekalan Air & TNB

A monopoly has the power to influence themarket price.

Reduce output will force price up, increase

output will reduce the price.

PURE MONOPOLY


30/36

How to achieve a monopoly position?

30

1) Natural monopolies it is cheaper to have onelarge company rather than many small onessupplying the goods and services. Eg. TNB electricpower

2) One company owns all raw materials.

3) Through development of patens, which allowsexclusive control and use of a discovery. EgMicrosoft windows

4) Well-established company known for high quality

and good service that prevent competitors fromentering the market. Customer unwilling to buyfrom anyone else. Eg. KFC fried chicken.


31/36

31

OLIGOPOLY = FEW SELLERS

Tobacco

Automobiles

OLIGOPOLY


32/36

OLIGOPOLY

32

There are a few dominant firms/seller in the industryCharacteristic:a) Mutual interdependence among the firms

If any firm lower its price, anyone else will followb) Each firm attempts to have differentiation of a

standardized product. Eg. Advertising & personalselling

c) Entry into the industry is difficultExisting firms are well established, unprofitablefor new firms to try to compete. Eg. Automobile,steel, rubber


33/36

33

MONOPOLISTIC COMPETITION = MANY SELLERS WITHPERCEIVE DIFFERENCES

Fast Food

Colleges

MONOPOLISTIC


34/36


35/36

Buyer

PURE COMPETTION :

Many independent sellers

PURE COMPETITION

35


36/36

PURE COMPETITION

36

Many independent sellers, each offering its productin the same basic way.

Products are standardize

No control on price Accept the going price.Based on demand and supply.

Sometimes government intervention on price ceiling price.Firms can enter and leave the industry easily.

Eg. Chicken, vegetables, beef.

Chapter 2 Edit

Documents

Transcript of Chapter 2 Edit