Wednesday, 4 March 2020

Economic Environment of Business


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
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 of
essential goods, 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 leather
costs, menu costs, tax anomaly etc.

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
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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