Manish Sharma

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Business Environment

Economic Environment

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Economic environment include the economic factors only and it consist of both national and international factors.

Economic conditions, economic policies, economic systems, global environment etc. are part of economic environment of business.

Economic Condition

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• Economic condition reflects the current status of the economy in terms of prices, aggregate demand, aggregate supply, investment, saving, consumption, employment etc.

• Recession, depression, recovery, boom are different type of economic condition.

Economic Policies

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Economic policies of the government can have a great impact on business.

Industrial policy, trade policy, foreign exchange policy, monetary policy, foreign investment policy, fiscal policy etc. are some of the important economic policies.

Economic systems

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Economic system determines the framework within which major decisions are taken in the economy. It decides the role of individuals, market and the government.

There are three major types of economic system- free market economy or capitalism, planned economy or communism, mixed economy.

Capitalism or free market economy

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The main characteristics of capitalism arePrivate ownership of means of productionFreedom of enterpriseProfit motiveCompetition and active entrepreneurshipLimited role of governmentAbsence of central plan

Planned economy or communism

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• Key features of communism are• Public ownership of means of production• Planning authority• Economic equality and classless society• Prices and Quantities to be produced are

determined by government• Social welfare is the motive of the

government• State is the final arbiter of all issues

Mixed economy

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In mixed economy we see the coexistence of both private sector and public sector.

Government controls and regulate the private sector

Resource allocation is through the price system and government directions

Welfare of poor is taken care by the government

Examples

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Capitalism – USA, Canada, Western Europe etc.

Communism – Cuba, North Korea, Erstwhile USSR etc.

Mixed economy – India, Poland etc.