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UNIT 1
The Economic Environment
The economy comprises millions of people and thousands of firms as
well as the government and local authorities, all taking decisions about prices
and wages, what to buy, sell, produce, export, import and many other matters.
All these organizations and the decisions they take play a prominent part in
shaping the business environment in which firms exist and operate.
The economy is complicated and difficult to control and predict, but it is
certainly important to all businesses. You should be aware that there are times
when businesses and individuals have plenty of funds to spend and there are
times when they have to cut back on their spending. This can have enormous
implications for business as a whole.
When the economy is enjoying a boom, firms experience high sales and
general prosperity. At such times, unemployment is low and many firms will
be investing funds to enable them to produce more. They do this because
consumers have plenty of money to spend and firms expect high sales. It
naturally follows that the state of the economy is a major factor in the success
of firms.
However, during periods when people have less to spend many firms face
hard times as their sales fall. Thus, the economic environment moves into a
recession. At that time, total spending declines as income falls and
unemployment rises. Consumers will purchase cheaper items and cut
expenditure on luxury items such as televisions and cars.
Changes in the state of the economy affect all types of business, though
the extent to which they are affected varies. In the recession of the early 1990s
the high street banks suffered badly. Profits declined and, in some cases, losses
were incurred. This was because fewer people borrowed money from banks,
thus denying them the opportunity to earn interest on loans, and a rising
proportion of those who did borrow defaulted on repayment. These so - called
“bad debts“ cut profit margins substantially.
UNIT 1
The Economic Environment
The economy comprises millions of people and thousands of firms as
well as the government and local authorities, all taking decisions about prices
and wages, what to buy, sell, produce, export, import and many other matters.
All these organizations and the decisions they take play a prominent part in
shaping the business environment in which firms exist and operate.
The economy is complicated and difficult to control and predict, but it is
certainly important to all businesses. You should be aware that there are times
when businesses and individuals have plenty of funds to spend and there are
times when they have to cut back on their spending. This can have enormous
implications for business as a whole.
When the economy is enjoying a boom, firms experience high sales and
general prosperity. At such times, unemployment is low and many firms will
be investing funds to enable them to produce more. They do this because
consumers have plenty of money to spend and firms expect high sales. It
naturally follows that the state of the economy is a major factor in the success
of firms.
However, during periods when people have less to spend many firms face
hard times as their sales fall. Thus, the economic environment moves into a
recession. At that time, total spending declines as income falls and
unemployment rises. Consumers will purchase cheaper items and cut
expenditure on luxury items such as televisions and cars.
Changes in the state of the economy affect all types of business, though
the extent to which they are affected varies. In the recession of the early 1990s
the high street banks suffered badly. Profits declined and, in some cases, losses
were incurred. This was because fewer people borrowed money from banks,
thus denying them the opportunity to earn interest on loans, and a rising
proportion of those who did borrow defaulted on repayment. These so - called
“bad debts“ cut profit margins substantially.
