Economics for Business - Assignment Example

?ECONOMICS FOR BUSINESS 1 Micro- economic environment is important for business organizations for it advocates adoption of various means to reduce problems related to scarcity. Micro- economic environment is also helpful for predicting future effects of business, implementation of policies related to price, wage, labor, controls on income and expenditure and regulations related to market competition. Relative scarcity is the chief concern of micro- economic environment. Through it, the business organizations could easily understand the level of interdependence the independent components have in between them. Thus, policies of business organizations could be framed not only by considering the decisions of consumers, employees, investors and management but also pattern and shape of future discourse of market behavior as well as behavior of individual consumers. This makes micro- economic environment more popular among industries which involves influencing of choice through interaction. Thus, micro- economic approach is usually adopted in educational institutions, hospitals and different charitable organizations. External market environment is much dependent on usage of resources. A supportive and adaptive micro- economic environment results in utility maximization as far as consumers are concerned, but most importantly it contributes in profit maximization of firms. By adopting micro- economic approach, business organizations could effectively manage their resource allocation among alternative possibilities. 1Since social trends and customs affect choices of people, organizations require using their resources in a much practical terms. In present times, market mechanisms are merged with state intervention. 1.2 Business objectives are important for numerous reasons. Profit making: Earning profit is the elementary objective of any business. Profit is earned through a series of business activities. Profit making can further be categorized as ‘maximum profit’ and ‘sufficient profit’. While the former concept supports generation of artificial deficiency, excessive price hikes, adulteration, etc, the later one focuses more on sustenance, prestige and recognition, development and growth of business. In present times, most business organizations adopt the path of sustainable development merged with profit maximization objectives. Creation of customers: Irrespective of type or expansion, every business must expand their customer base. Creation of customer implies generation of potential customers. Amount of such creation is directly proportional to profit making of organization. Thus, customer base is a major determinant in framing of organizational profit- maximizing policies. Advertisements, pricing strategy, and superior quality of goods and services are popular approaches for generation of potential customer base. Ensuring customer satisfaction results in customer retention. Innovation: Innovation is the latest mantra in modern business scenario. Changing trends and mindsets have made people more cautious and aware about the goods and services they are purchasing. Thus, marked research, use of newer technologies, customized facilities, and varieties of products have become indispensible for modern customers. Presently, organizations are finding out ways to make use of old products in production of new ones. This contributes in satisfaction quotient of customers belonging to different age groups. Thus, from economic perspective, innovation is as important as marketing, promotion, finance and other business activities. Innovation definitely helps in expansion of business2 Scientific management is the cornerstone of business behavior of modern firms. Every organization maintains certain codes or behavioral principles. Business policy, policy implementation as well as overall behavior of a business depends on numerous aspects. Some of these are- business objective, hierarchy, span of control, labor division and specialization, managerial authority and responsibility, coherence and connection between command and direction, communication and data inflow, channelizing of instructions and commands, coordination, centralization, decentralization, specification of roles of each organizational section and employees, mission and vision, etc. All these are invariably related to economic stability of a business organization since all these factors affect business activities in some ways or the other. Profit making as well as recognition and expansion of business depends on how a business responds to these factors and the challenges that are generated by these factors from time to time. For instance, the ‘Hawthorne effect’ stresses the impact of employee- behavior on an organization’s directive approach and its economic policies3 1.3 Theoretically, an existing market could be categorized into three broad groups- monopoly, duopoly and oligopoly. Behavior of business organizations is determined by type of market structure. Demand and supply are invariably related in a business. All demands of consumers are categorized as market demand. Some of the factors that affect price elasticity of demand are- type of industry, time and knowledge of markets to customers, buying habits of consumers, etc. In a monopoly market, the demand and supply is controlled solely by the business organization. Integration of market is one of the features of monopoly market. In case of a monopoly market, if the demand exceeds the supply, it would result in formation of niche market. Industry rationalization results in less market power of each organization, which would result in failure to cover the fixed costs. As because industry rationalization would decrease overall business activities but will increase economic gains, linking average costs and supply with number of firms. In case of oligopoly market, there are few competitors in a market, but the competitors are dependent on each other. In this market structure, limit pricing, colluding, predatory pricing and cost- plus pricing are mostly used. Vertical integration controls demand and supply of business organization under this market structure. In case of duopoly market, more firms are attracted for higher profits and smoothness in business organization. This market type is characterized with more supply. This could be observed in case of Organization of Petroleum Exporting Countries. In its native zone, it exerts monopoly, but viewed from global perspective, it exhibits qualities of duopoly market. In this particular organization, price elastic of demand was kept low to ensure that supply does not decrease when price is increased. The elasticity of supply was also kept low to bar other competitors from entering into the existing market. Often, organizational production was lowered as a strategy to increase demand. Effective management of business activities such as negotiations over price, production quota, human resource management, etc has also contributed to its success4. 3.1 By international business environment, we understand different mechanisms of market economics. In past few years, the business scenario has undergone a drastic change, even from global perspective. Removal of tariff barriers has resulted in free trade. Numerous measures are taken by international organizations like WTO. Transcending the geographical boundaries of trade has resulted in development of balanced- trade relations, especially between the developed nations and the third- world countries. However, it is estimated that around twenty countries account for majority of world exports. The major three are USA, Germany and Japan. At present, international economic environment is expanded by exploring the existing potentials and making regional groupings. International economic environment is influenced by scopes and practice of international trade. This has popularized trends of “macro- economic policies, exchange rate determination, strategic trade policy and international organizations for smooth trade”. Gains from international trade come mostly in the form of mutual benefits. Thus, trade relations between countries result in national profit. International trade, thus, is helpful for developed as well as developing countries. Nations differ from each other in patterns of trade. This is primarily because, resource and natural reserves of one country differs from another. Also, competitive advantage influences rate of benefit reaped by respective nations. At the same time, patterns of trade largely depend on use of the economies of scale. Though most nations at present support free trade, yet there are certain trade restrictions. This is to ensure that development of one nation does not take place at the cost of the other. Balance of payment is essential for it monitors a nation’s transactions. It is a record kept to track inflow of income and expenditures in the form of payments and costs. In case of developed countries, generally the income surpasses the expenditure. Exchange rate is determined on perceived value of currencies of different nations. Determination of exchange rate is extremely important in international economic environment. According to present economic practice, often nations devaluate the value of their currencies to increase trade. However, this might result in shortages in domestic market. Thus, at any point of time, stability is required in international trading scenario. Also, different nations have their own trading policies 5 3.2 Economic implications have wide and deep impacts not only on business environment, but on business as a whole. Business environments change continuously and with it its economic implications also change. At present global trading has created a standardized quality for all business activities of all nations. Free mobility of resources, especially capita has enhanced business activities. The international economic environment is made up of different elements. Generally managers of an organization consider different economic measures so as to judge overall performance and potentials. Components that build economic environment are “growth rates, income distribution, inflation, unemployment, wages, productivity, debt and the balance of payments”. Gross national income is one of the factors of international economic environment. It measures total income that is addition of domestic production and internal production. Thus, it incorporates net value of domestic economy and net flows of factor income. GNI is calculated on selling price of final goods and services, as far as the domestic factors are considered. When goods of one country is sold in another, but produced with technology and resources of the previous country, then profit is calculated as GNI of that country. Gross Domestic Product is the most important parameter of measuring economic activities of any nation. GDP is referred to as the collective value of all goods and services that are produced in a country. GDP measures a country’s economic development and is particularly helpful in accessing economic contribution of multinational sector6. References Bhat M.K. International Trade & Financial Environment. India: Ane Books Pvt Ltd Business Management. n.d. India: FK Publications, 2010 Daniels, D. John. Operations. Instructor's manual. US: Pearson Education, 1998. Eicher, Theo, Mutti, H. John and Turnovsky, H. Michelle. 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The New York Times. retrieved from: http://topics.nytimes.com/top/news/business/companies/wal_mart_stores_inc/index.html (accessed on Jun, 13, 2013) Read More