business environment

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MODULE 2.1MODULE 2.1

Economic Perspective

Introduction:

A group of related businesses within an economy is called an industry.

Typically, businesses within the same industry produce similar goods or

services and compete with each other.

There are four types of competition in a free market system: perfect

competition, monopolistic competition, oligopoly, and monopoly.

1. Perfect competition

many companies sell identical products

price is determined through the mechanisms of supply and

demand

2. Monopolistic competition

many sellers offer similar products that differ slightly

sellers exert some control over price by making consumers

aware of product differences

3. Oligopoly

few sellers supply a sizable portion of products in the

market

because of the limited number of sellers whose products

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are similar, when one company lowers prices, the others

must follow

4. Monopoly

one seller in the market

seller is able to control prices

In competitive markets, supply and demand determine the price of a

good or a service. Demand is the quantity of a product that consumers

are willing to buy at a given price, and supply is the quantity of a product

that producers are willing to sell at a given price. The quantity of a

product consumers will buy depends on its price: they will buy more

when the price is low and less when it is high. Similarly, price influences

the quantity of a product that producers are willing to supply: they will

sell more of a product when prices are high and less when they are low.

Economic PolicyEconomic Policy

Gross Domestic Product (GDP) is a standard measure of the market

value of all the final goods and services produced within a nation’s

borders during a given time period, often annually or quarterly. It is

often referred to as the size of the economy.

On a macro level, monetary and fiscal policy affect the economy, and

thus the GDP, as a whole.

Monetary policy:Monetary policy: actions by a country’s central bank to control the level of interest rates, money supply and average inflation in

the economy

Fiscal policy:Fiscal policy: changes in government expenditures and taxes

The government can influence the economy in three ways:

1. Taxation and interest rate policies

2. Public spending on goods and services

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3. Regulation

To maintain a strong economy, the government tries to achieve three

main economic policy aims: economic growth, full employment, and

price stability. In addition, the government also seeks to maintain low or

stable interest rates, a balanced budget, and a trade balance with other

countries.

Since these aims may conflict with each other, compromises and trade-

offs are essential. For example, controlling inflation by raising interest

rates makes it more difficult for businesses to obtain capital to expand

and hire additional employees. This may lead to a higher unemployment

rate which results in lower tax revenue. Low interest rates, on the other

hand, may cause inflation as spending increases but after a while, wages

and investments cannot keep pace with rising prices. Sometimes a trade-

off between economic policies is the best option and higher inflation is

accepted, as it is the only way to keep business expansion going.

The state of the economy is related to business opportunities. When the

economy is strong, businesses are inclined to take more risks, hire new

employees, and invest in research and development. Contrastingly,

when the economy is weak investments are less likely, and businesses

will cut back on non-essential acquisitions.

ReferencesReferences

BPP Learning Media. (2013). Business Environment [Ebook]. Retrieved

from https://lesa.on.worldcat.org/oclc/883399460

Stiglitz, J. E., Walsh, C. E., Gow, J., Richmond, W., Tani, M. & Guest, R.

(2015). Principles of Economics (2nd ed.). [Ebook]. Retrieved from

https://lesa.on.worldcat.org/oclc/903004760

University of Minnesota. (2016). Exploring Business [Ebook]. Retrieved

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from https://open.lib.umn.edu/exploringbusiness/

Essential Resources:

Stiglitz, J. E., Walsh, C. E., Gow, J., Richmond, W., Tani, M.

& Guest, R. (2015). Principles of Economics (2nd ed.).

[Ebook]. Retrieved from

https://lesa.on.worldcat.org/oclc/903004760

Please read Chapter 15 Stabilisation Policies which examines the

concepts of monetary and fiscal policy. You will develop knowledge

in the trade-offs policy-makers face and how the policies interact.

Lewis, P. (2014). Budget explainer: What do key

economic indicators tell us about the state of the

economy? Retrieved from

https://theconversation.com/budget-explainer-what-do-key-

economic-indicators-tell-us-about-the-state-of-the-economy-40470

A short overview of key economic indicators and what they reveal

about the state of the economy.

Eggers, W. D., Dassel, K. & Malm, S. (2018). Economic

development: Cultivating prosperity. Retrieved from

https://www2.deloitte.com/insights/us/en/industry/public-

sector/state-leadership/improving-quality-of-life.html

Article on how governments can boost the economy in the US but

the issues of job creation, increasing automation and licensing

requirements are global.

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Hayes, A. (2018). Economics Basics. Retrieved from

https://www.investopedia.com/university/economics/

This is a great website that covers some of the basic

concepts in economics such as scarcity, definition of micro- and

macroeconomics, supply and demand, competition, GDP etc.

BPP Learning Media. (2013). Business Environment

[Ebook]. Retrieved from

https://lesa.on.worldcat.org/oclc/883399460

Please read Chapter 5 Resource Issues and Economic Issues. It

explains resource issues like scarcity and allocation of resources in

the economy. This resource also explores government policy in the

UK.

Learning Activity:

Learning activities are not part of summative/graded assessment;

however, they are designed to prepare you for incremental graded

assessment and expand your learning. These activities encourage a

community learning experience between peers, and provide

opportunities for facilitators to offer formative feedback, throughout a

module, to the student cohort.

Learning Activity 2.1: Personal Reflective Journal –Learning Activity 2.1: Personal Reflective Journal –

Personal growthPersonal growth

Please go to your personal Reflective Journal and reflect on the

questions below. This journal is for your own personal learning. It

is confidential and will not be available to anyone except you. Your

journal will be an important resource for preparing your

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submissions for assessments.

Experiencing a significant life change or a challenge – positive or

negative, personal or professional, anticipated or unexpected –

can be confronting or empowering. When change incites personal

growth, your way of thinking might also shift.

Think about a recent change you have experienced and reflect on

the following three (3) questions:

1. How did it challenge some of your assumptions about

yourself or others?

2. As a result, what new assumptions did you generate?

3. What impact did this transition have on your work or career

plans?

Learning Activity 2.2: Quick QuizLearning Activity 2.2: Quick Quiz

Please undertake the following quick quiz to test your

knowledge and understanding on what you have learnt so far.

Note:Note: The Learning activities above are not part of summative/graded

assessment; however they are designed to prepare you for incremental

graded assessment and expand your learning.

These activities encourage a community learning experience between

peers, and provide opportunities for facilitators to offer formative

feedback, throughout a module, to the student cohort.

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