Sunday, 27 October 2019

Unit 3: Economic Environment of Business


                                       Unit 3: Economic Environment of Business  

The impact of business is so pervasive that besides judicial and administrative the third important work any government has to perform is to regulate business in the national interest.

Business Environment Notes From the late 1940s, many countries started a new beginning towards growth and development, but almost all of them followed different paths to achieve the goal of welfare of their people.

We see that different countries began their journey towards welfare, growth and development in late 1940s by adopting different routes.

The countries that adopted mixed capitalist structure had a remarkable rise.

India has a slowly developed a multiple mechanism of dual prices, ceiling prices, floor prices, subsidized prices, statutory prices, retention prices, procurement prices, levy prices, and free market prices.

After liberalisation in 1991, the very face of Indian economy has changed.

There is growth in national and per capita income, new opportunities in employment have been generated in telecom, software, call centers, biotechnology, pharmacy,tourism, education, etc.

After approximately sixty years of its journey, the following are the chief characteristics of the Indian economy, which are the basic hindrances in its path of growth: inequitable distribution of income and wealth, low per capita income, increasing population etc.

National income is a measure of the total value of the goods and services (output) produced by an economy over a period of time (normally a year).

As per National Income Committee of India, National Income is defined as-"National income estimate measures the volume of commodities and services turned out during a given period counted without duplication.

"  National income per person or per capita income is often used as an indicator of people's standard of living or welfare.

However, many development economists have criticized that GNP as a measure of welfare has many limitations.

A national income measure serves various purposes regarding economy, production,trade, consumption, policy formulation,etc.

For any economy, whether developed or developing, economic development is very important, which is achieved largely through industrialization.

The activities of an economy are commonly divided into five components: primary, secondary, service, quaternary and quinary sector.

Inflation is measured by taking a 'basket' of goods, and comparing the prices at two intervals, and adjusting for changes in the intrinsic basket.

Thus, there are different measurements of inflation, depending on the basket of goods selected.

There are various types of inflation that can take place: hyperinflation, suppressed inflation, reflation, deflation etc.

In India, there are demand pull and cost pull inflation.

There are two main causes of inflation in India: supply side constraints and demand fluctuations.

Supply side constraints can be fluctuation in agricultural output, hoarding o essentialgoods,restriction on imports etc.

Inflation is measured by observing the change in the prices of a large number of goods and services in an economy.

The prices of goods and services are combined to give a price index measuring an average price level, the average price of a set of products.

Inflation influences and touches the life of every individual and corporate entity.

Hence, Inflation influences the decisions affects our lives in the way of indirect taxes, shoe leathercosts, menu costs, tax anomaly etc.

There are two major ways practiced to control inflation: monetary control and price Notes controls.

Administered Pricing: Inflation caused by the revision of prices by the government  Consumer Price Index: Measures price of a selected goods purchased by a consumer  Cost Pull Inflation: Caused by large increases in the cost of important goods  Deflation: A fall in prices, the opposite of inflation.

Demand Pull Inflation: Arises when aggregate demand outpaces aggregate supply  Disinflation: The slowing of the rate of inflation  GDP Deflator: Index of the average price for goods and services produced in the economy  Hyperinflation: Extremely high rate of inflation  Indirect Tax: Direct liability to pay the tax lies not with the pay  Inflation: Continuous rise in prices, accompanied by a decrease in the purchasing power  Inflation Rate: Rate of increase of the average price level  National Income: Measure of the total value of the goods and services produced in a year by an economy  Reflation: Inflation after a period of deflation  Shoe Leather Costs: Cost of holding of currency and the opportunity cost  Seigniorage: Revenue raised through the printing of money  Whole Price Index: Measures the change in price of a selection of goods at wholesale    

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