Economic Environment refers to the nature and direction of the economy competes or may compete. It includes general economic situation in the region and the nation, conditions in resource markets, which influence the supply of inputs to the enterprise, their cost, quality, availability and reliability of supplies.
Factors that affect the Economic Environment
1. Economic system
(i) Capitalism: A capitalism economy bis an economy where the laws of demand and supply operates freely. The capitalism system is one which is characterized by the private ownership of the means of production, individual decision making and facilitate the flow of goods and services in the market.
(ii) Socialism: Socialism is generally understood as an economic system where the means of production are either owned or controlled by the state and where the resources allocation, investment pattern, consumption, income distribution, etc. Are directed and regulated by the state.
(iii) Mixed economy: Mixed economy is the outcome of compromise between two diametrically opposing schools of thought. In a mixed economy, private, public and joint sectors and the like all have some say in the major decisions that influence the functioning of the economy.
2. Economic Conditions or Factors
The economic conditions of a nation refers to set of economic factors that have been influence on business organizations and their operations. These includes gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserves, growth of foreign trade, strength bid capital market, interest rates, disposable income, unemployment, inflation, etc.
3. Economic Policies
All Business activities and operations are directly influenced by the economic policies Framed by the government from time to time. Some of the important economic policies are:
(i) Industrial Policy
(ii) Fiscal Policy
(iii) Monetory Policy
(iv) Foreign Investment Policy
(v) Export-Import Policy