Economics and Business environment
Chapter 1 Economics and the business environment
1.1 Economic activity and economics
Scarcity –The excess of human sources to cover needs
Prosperity - The availability of goods and services to fulfill needs
o – Unlimited
o Production/Resources – limited
➔ The more needs are satisfied the higher the prosperity.
Economic activity
- When people making choices to maximize prosperity using scarce resources …
- is how you will allocate your resources to cover more needs
➔ Economic activity is the subject of economic science
- Scarcity forces people to make choices in the use of limited available resources, to maximize
their welfare.
Indicator of Welfare: When the gap between needs and the resources to cover them gets smaller or
broader.
Science of economics
Science of economics – concerned with the study of economic activities.
Can be divided into two groups
- the internal process within a company (financial accounting, management accounting)
- The external process of the company in relationship with the environment (marketing &
macro-economics)
Economic activity in a country can be studied on various levels:
Industry analysis: The supply and demand of goods and the changes that occur when the price
fluctuates.
Macroeconomics: economic activities on a national level (total consumption, all investments, import
& export)
Monetary economics: the phenomenon of money and the role banks play in the economy.
International economic relations: international trade between countries, monetary relations and the
flow of international capital.
,1.2 Business environment
1.2.1
The term Business Environment covers all the changes in the environment of a business that can
have an effect on the company’s results. These effects can relate to buying, selling, market
developments, competition and staff management.
Factors that can influence the result of the company:
The Direct environment: is made up of the buying or selling markets on which the company operates
- Market players: suppliers, distributors and final customers, in ongoing contact with
entrepreneurs
- Sales department tries to obtain as much information about the sales market as it can à
improve effectiveness of ad campaign
- Company flow of goods and services: raw materials, labour and capitals
- Company outgoing flow: products or services that are supplied to various sales market
- Company constantly adapt it´s approach
- there are many companies doing the same business, less chances for stipulating the price
- Different promotional if clients are consumers and not other companies
➔ is made up of the buying or selling markets on which the company operates
- Entrepreneurs are in ongoing contact with the market to collect information to positively
affect their quality-price ratio
- the sales department needs to obtain as much information as possible in order to improve
on the effectiveness of advertising campaigns
- The only way for a company to have a favorable influence on its environment is to detect any
tendencies within its direct environment.
The Indirect environment consist out of:
- Employer
- Employee organizations
- The government
- Public opinions, a bad opinion about the company can badly affect business.
o Public opinion, immense influence on a company, but effect of the company on
public opinion very small
- Social environment, image on the labor market
- The media
- Technology, new technology improves productivity and decreases the production costs.
- Government influences Legislation relating to:
o The environment
o Competition
o Labour
-
➔ The company has a little influence on its indirect environment, but the indirect environment
has a big influence on the company.
,The Macro environment belongs to the wider company environment and consists out of: -
- Economic trends
- Variations in exchange rates
- Price of raw materials
- Demographic developments etc.
➔ The macro environment could have a huge impact on the company but the company has no
influence on it what so ever.
Economic variables
, 1.2.2 The influence of economic variables on a company’s result
- profit and loss account: related to economic variables
o e.g. national and international economic situations, the wage and salary bill,
government influence, amount of capital investments
- Not try to solve business problems in isolation from other changes in the business
environment
- Working with predications relating to environment variables and taking their risk to the
company seriously
1.3 Absolute and relative data
- Turnover is a is a variable that denotes a value and sales is a variable that denotes either
volume or quantity (Umsatz)
- Nominal increase → the increase in value of a variable
- Real increase → the change in quantity
o Nominal increase is therefore equal to the real increase plus the price increase
Chapter 1 Economics and the business environment
1.1 Economic activity and economics
Scarcity –The excess of human sources to cover needs
Prosperity - The availability of goods and services to fulfill needs
o – Unlimited
o Production/Resources – limited
➔ The more needs are satisfied the higher the prosperity.
Economic activity
- When people making choices to maximize prosperity using scarce resources …
- is how you will allocate your resources to cover more needs
➔ Economic activity is the subject of economic science
- Scarcity forces people to make choices in the use of limited available resources, to maximize
their welfare.
Indicator of Welfare: When the gap between needs and the resources to cover them gets smaller or
broader.
Science of economics
Science of economics – concerned with the study of economic activities.
Can be divided into two groups
- the internal process within a company (financial accounting, management accounting)
- The external process of the company in relationship with the environment (marketing &
macro-economics)
Economic activity in a country can be studied on various levels:
Industry analysis: The supply and demand of goods and the changes that occur when the price
fluctuates.
Macroeconomics: economic activities on a national level (total consumption, all investments, import
& export)
Monetary economics: the phenomenon of money and the role banks play in the economy.
International economic relations: international trade between countries, monetary relations and the
flow of international capital.
,1.2 Business environment
1.2.1
The term Business Environment covers all the changes in the environment of a business that can
have an effect on the company’s results. These effects can relate to buying, selling, market
developments, competition and staff management.
Factors that can influence the result of the company:
The Direct environment: is made up of the buying or selling markets on which the company operates
- Market players: suppliers, distributors and final customers, in ongoing contact with
entrepreneurs
- Sales department tries to obtain as much information about the sales market as it can à
improve effectiveness of ad campaign
- Company flow of goods and services: raw materials, labour and capitals
- Company outgoing flow: products or services that are supplied to various sales market
- Company constantly adapt it´s approach
- there are many companies doing the same business, less chances for stipulating the price
- Different promotional if clients are consumers and not other companies
➔ is made up of the buying or selling markets on which the company operates
- Entrepreneurs are in ongoing contact with the market to collect information to positively
affect their quality-price ratio
- the sales department needs to obtain as much information as possible in order to improve
on the effectiveness of advertising campaigns
- The only way for a company to have a favorable influence on its environment is to detect any
tendencies within its direct environment.
The Indirect environment consist out of:
- Employer
- Employee organizations
- The government
- Public opinions, a bad opinion about the company can badly affect business.
o Public opinion, immense influence on a company, but effect of the company on
public opinion very small
- Social environment, image on the labor market
- The media
- Technology, new technology improves productivity and decreases the production costs.
- Government influences Legislation relating to:
o The environment
o Competition
o Labour
-
➔ The company has a little influence on its indirect environment, but the indirect environment
has a big influence on the company.
,The Macro environment belongs to the wider company environment and consists out of: -
- Economic trends
- Variations in exchange rates
- Price of raw materials
- Demographic developments etc.
➔ The macro environment could have a huge impact on the company but the company has no
influence on it what so ever.
Economic variables
, 1.2.2 The influence of economic variables on a company’s result
- profit and loss account: related to economic variables
o e.g. national and international economic situations, the wage and salary bill,
government influence, amount of capital investments
- Not try to solve business problems in isolation from other changes in the business
environment
- Working with predications relating to environment variables and taking their risk to the
company seriously
1.3 Absolute and relative data
- Turnover is a is a variable that denotes a value and sales is a variable that denotes either
volume or quantity (Umsatz)
- Nominal increase → the increase in value of a variable
- Real increase → the change in quantity
o Nominal increase is therefore equal to the real increase plus the price increase
