Economics Environment The definition of economic environment is
the environment in which businesses operate that is dependent on
the sum total of economic factors. Economic factors include income,
employment, inflation, interest rates, consumer behavior and
distribution of wealth. All of the economic factors have effects on
the economic environment, which in turn affects the business
market.
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Economic factors affecting business At what stage of the
business cycle is the economy Inflation rate Prevailing interest
rates Unemployment level Labor costs Levels of disposable income
and income distribution Taxes Tariffs
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The economic environment is constantly changing because of
changes to economic factors. Economic factors are both controllable
and uncontrollable. The controllable factors, such as price, income
and interest rates are politically controlled. Uncontrollable
factors, such as consumer wealth and distribution of wealth,
fluctuate and vary, making them difficult to predict. Both the
controllable and uncontrollable factors cause changes in the market
and consumer demand. The failure to account for economic factors
leads to financial consequences for businesses and the economy as a
whole.
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The economic environment is divided into the macroeconomic
environment and the microeconomic environment. The microeconomic
environment is affected by factors like market size, supply and
demand, which affects business actions and decision-making. The
macroeconomic environment is affected by factors like exchange
rates and taxes, which affects the entire economy on a broader
level. Both divisions of the economic environment plays an
important part in the success or failure of the market.
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Economics Systems 1)In the free market economy all resources
are owned privately. The consumers and firms decide the allocation
of resources. Government has no control over the economy. Consumer
needs are met and necessity goods like education and health are not
available for everyone. Eg. Cuba 2)In the command economy all
resources are owned by the government. The government decides the
allocation of resources; that is what to produce, how to produce
and for whom to produce. Firms are not very efficient as they do
not earn profits. Eg. China 3)In the mixed economy resources are
owned both privately and by the government. It is the combination
of the above economies. Important sectors like health, medical,
education are under the government and less important ones are
under private ownership. Eg. India,Singapore etc. Most countries
follow this economy system.
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Meaning of Privatization The transfer of ownership, property or
business from the government to the private sector is termed
privatization. The government ceases to be the owner of the entity
or business Privatization is sought to be achieved through any or
more of the four important routes: sale to outside owners,
management-employee buy- out, equal-access voucher privatization,
and spontaneous.
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Nature of Privatization Privatization may be understood as the
process whereby activities or enterprises that were once owned and
operated by government and its employees are now performed, managed
by private business and individuals, often with much better results
in terms of cost and quality service.
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THE OBJECTIVE OF PRIVATIZATION Greater efficiency Revealing the
true and full cost of the service provided Promotion of
technological advancement Development of capital markets Broadening
the wealth and achieving widespread private ownerships in society
Curbing inflation Raising extra-revenues for the government
Eliminating hidden unemployment and reducing thepower of public
employee unions
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Privatization Routes Sale to Outside - disinvestment
Management-Employee Buy Out Equal-access Voucher Privatization
Spontaneous Privatization
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Economic Trends: Income Sr. No.Industry Percentage change over
previous year at constant (2004-05 prices)at current prices
2011-122012-132011-122012-13 1Agriculture, forestry &
fishing3.61.812.212.1 2Mining & quarrying-0.60.42.511.7
3Manufacturing2.71.911.27.7 4Electricity, gas & water
supply6.54.910.518.3 5Construction5.65.915.113.9 6Trade, hotels,
transport & communication 7.05.218.512.8 7Financing, insurance,
real estate & business services 11.78.618.717.3 8Community,
social & personal services 6.06.814.916.0 Total
GDP6.25.015.013.3
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Economic Trends: Savings and Investments
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Trade and Balance of Payment Balance of Trade Balance of
Payments Current Account Capital Account
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Money
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Monetary Policy The actions of a central bank, currency board
or other regulatory committee that determine the size and rate of
growth of the money supply, which in turn affects interest rates.
Monetary policy is maintained through actions such as increasing
the interest rate, or changing the amount of money banks need to
keep in the vault (bank reserves).
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Fiscal policy Fiscal policy is how the government manages its
budget. It collects revenue via taxation that it then spends on
various programs