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
