Elements of Business Environment NET exam - paper 2,

Elements of Business Environment.

• Economic condition
• Economic systems
• Economic policies
• Global/International Economic Environment
• Economic Legislation

 Economic condition

 Before creating business plans or when evaluating existing ones it is important to 'scan' the external environment. This takes the form of a SLEPT analysis, i.e. an investigation of the Social, Legal, Economic, Political, and Technological influences on a business. In addition it is also important to be aware of the actions of your competitors.

SLEPT analysis

All industries are influenced by SLEPT factors. For example, some of the SLEPT factors affecting the airline industry in recent years include:
Social
Increased popularity of foreign travel leading to a boom in demand for air travel. However, this has been adversely affected by international terrorism.
Legal
There are increasingly tight rules about the materials that need to go into aircraft construction in order to make them safer and more resistant to fire hazards. This has had the impact of raising costs.
Economic
Lower interest rates, have meant that people have more disposable income to spend on luxuries like long distance air travel.
Political
The development of freedom of movement and trade in the European Union has led to greater levels of competition on European routes coupled with increased movement of people.
Technological
Modern aircraft are safer and more economic to run than in the past making possible cheap air travel.
The interest rate is the cost of borrowing money. The interest rate is established each month by the Monetary Policy Committee, although there will be different interest rates for different types of credit, depending on such factors as risk and length of the credit arrangement.

Economic systems: is a set of institutions for allocating resources and making choices to satisfy human wants. Resource allocation is the assignment of resources to specific tasks to determine the basic economic choices, which are what to produce, how to produce, and for whom to produce for. Resources may be allocated by markets, , by planning or mix systems . in a market economy, goods and resources are allocated according to the decisions of individual producers and consumers. In a Planning economy, goods and resources are allocated according to the central directions of a government agency.

Its include

• planning, coordination, and reform
• productive enterprises; factor and product markets; prices; population
• public economics; financial economics
• national income, product, and expenditure; money; inflation
• international trade, finance, investment, and aid
• consumer economics; welfare and poverty
• performance and prospects
• natural resources; energy; environment; regional studies
• political economy; legal institutions; property rights.

Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labor market, national ownership, and many other areas of government interventions into the economy.
Most factors of economic policy can be divided into either fiscal policy, which deals with government actions regarding taxation and spending, or monetary policy, which deals with central banking actions regarding the money supply and interest rates.
Such policies are often influenced by international institutions like the International Monetary Fund or World Bank.
Policy is generally directed to achieve particular objectives, like targets for inflation, unemployment, or economic growth. 

 The international economic environment can be described as the global factors that are outside of the control of individual organizations, but that can affect the way that businesses operate. These factors include unemployment rates, inflation rates, and labor costs. External factors found in the macroeconomic environment can also affect organizations' decision-making and performance activities. They include cultural and social influences, legal issues, demographics, and political conditions, as well as changes in the natural environment and technology. 

The Business Cycle

To gain a good understanding of the international economic climate and how or why particular factors can affect it, it's important to have an understanding of the business cycle. The business cycle represents the four stages of economic growth, followed by economic decline. The four phases consist of:

• Peak/Boom
• Contraction/Slump
• Recession
• Expansion

As the business cycle repeats itself on a continuous basis, the expansion stage would be followed by another peak

  Economic Legislation 

 1 .The process through which statutes are enacted by a legislative body that is established and empowered to do so.

2.A particular billh or other piece of legislation.