CHAPTER 2

INFLUENCE OF ECONOMICS IN BUSINESS

MGT153
SITI NOR HIDAYAH TAIB

LEARNING OUTCOME:
2.1 INTRODUCTION TO ECONOMICS 2.2 ECONOMICS SYSTEMS 2.3 BASIC MARKETS MODELS 2.4 BUSINESS ENVIRONMENTS

ECONOMIC
Economics study of how wealth is created and distributed by men. it examines how people choose to use limited or scarcity resources in attempting to satisfy their unlimited wants. There are 2 branches of economics: 1. microeconomics 2. macroeconomics

ECONOMIC RESOURCES
NATURAL RESOURCES

CAPITAL
ENTREPRENEURS LABOUR

Economic Systems
Economic system is defined as the

mechanism by which labor and other economic resources are brought together to produce and distribute the goods and services people need and wants (Lowry and Weinreich, 1994)
An economic system describes how a

Introduction of Economics in Business

Economics is a study on how wealth is

created and distributed by men - wealth can be defined as anything that is of value to people - the distribution of wealth means answering basic questions who gets what Economy is the system through which a society answers economics questions which include what, how, and for whom

ECONOMIC SYSTEM
What How
?????????????????????????????????

Who

ECONOMIC SYSTEM
The system through which a society answer economic questions which include what, how, and for whom.
1. What (What to make) what kind goods and services are to be produced. 2. How (How to produce it) How much of each type of goods to be produced. How will these goods and services be produced - who will produce them. 3. For Whom (Who gets it) Who will get/buy the goods and services the target market.
8

TYPES OF ECONOMIC SYSTEM

CAPITALISM SOCIALISM COMMUNISM MIXED ECONOMY

CAPITALISM
Founder Adam Smith A system where all economics decision are taken by

individual household and firms with no government intervention Recognize the right of individuals to accumulate wealth and maximize their potential This system recognize the importance of private sectors to drive the economy towards progress and prosperity through competition People can choose and use the resources they require and see fit to produce whatever goods they desire
10

CAPITALISM
4 BASIC FORMS OF CAPITALISM

Private ownership
Private enterprise
Freedom of choice

Freedom to compete

11

CAPITALISM

Private ownership of property individuals or groups of individual have the right to purchase,own and sell property. Ex: Genting Highlands- Lim Gong Tong. Sime Darby Private enterprise - business are owned by individual businessman rather by federal, state or local governments. ex: Kamdar, Maxis, Habib Jewels
Freedom of choice free to decide and choose the jobs that suits their qualification and customers free to buy and choose goods and services Country???

12

SOCIALISM
Is an economic system that contains some features of

both capitalism and communism. Government own and control the key industries. Individual own their own human capital and government own most other non human resources The Government make the major economic decisions regarding the production and distribution of goods and services to ensure the whole society gets the benefit fairly. Government ownership of industries are currently limited to important industries
13

SOCIALISM
Government decision on what to produce and

how to produce them are based on the needs of the nation. their choice and desire and the rights of workers.

Consumers are free to buy goods and services of

Country:?????

14

COMMUNISM
Founder Karl Max
All economic resources would be owned collectively

by government rather than by individuals.

Government plans and makes almost all economics

decisions for the benefit of the society.

It totally plans the economy so that resources are

fairly distributed among the members of society

15

COMMUNISM
Government decide what goods and services to be

produced, how they are to be produced and for whom these goods and services will be distributed

Authoritarian single party government.

Disadvantages: Low standard of living, critical

shortage of important consumer goods, limited personal freedom, does not encourage entrepreneur to be creative Country:???? 16

MIXED ECONOMY
Economy system that combines various degree of

private enterprise, government planning and government ownership of certain industries. Has more than one economic system. Allowing free market will permit efficient allocation of resources, offers more profits and attracts more businesses to operate successfully and efficiently. If markets fail, government will intervene Country:???
17

BUSINESS ENVIRONMENT

Historical Environment Natural-Physical Environment Political and Legal Environment Social and Cultural Environment Economic Environment International Environment Technological Environment

18

HISTORICAL ENVIRONMENT
Records of events and activities that have taken

place daily. Need to look at historical records of various companies performance. Good or bad. Can be used as a guide to run business effectively and efficiently. Many lessons from the past that can help a business decide what to do in the future.

19

NATURAL ENVIRONMENT
Businesses relies on natural resources ( water, oil,

air etc.) The resources are depleted as we produce more and more goods. Some are non-replaceable and no substitute. Relate to pollution Business must be innovative and proactive to develop it business. Reduce reliance on natural resources and substitute to be invented.
20

POLITICAL ENVIRONMENT
Law, regulation and activities of government

that restrict business activities and protect the customers. Government intervention to protect customers from unfair business practices, preservation of the environment and to alleviate discrimination in work place.

21

POLITICAL ENVIRONMENT
ROLES OF GOVERNMENT By implementing favorable budget policies that promotes business activities and stimulate economy By encouraging certain business activities target standard living of the nation. Issue guidelines concerning price fixing, advertising, the minimum wage and working conditions which business must follow. Legislation directed to improve the environment to regulate business interaction with the environment.
22

SOCIAL CULTURAL ENVIRONMENT

The demographic characteristic, customs and

values of the population within which the business is operating. Beliefs, attitudes, customs and cultural practices of every group in the society. Eg. Malaysia food business Halal sign Basic facilities at office prayer room, recreation and rest room must be provided to create satisfaction among employees.

23

ECONOMIC ENVIRONMENT
The most important factors of all the

environmental forces Represent the general economic health of the country Consist of buyer, sellers and competitors Includes consumer purchasing power, unemployment rates and interest rates. All factors of production and customers buying habits have impact on business
24

INTERNATIONAL ENVIRONMENT
Globalization Competition with foreign country companies to

produce better quality product and services. Companies going abroad must have adequate knowledge on foreign country laws, customs, ethics, economic and political systems.

25

TECHNOLOGY ENVIRONMENT
Scientific and technological breakthrough and

the advancement in industries as well as in society. Use of quality raw material, right high-tech equipments and engagement of skillful labor Technological knowledge is of importance to business to enable them to produce the best product using the right raw materials, equipment and production process.
26

MARKET MODELS
4 BASIC MARKET MODEL PURE MONOPOLY OLIGIPOLY MONOPOLISTIC COMPETITION PURE/PERFECT COMPETITION

27

PURE MONOPOLY
Monopoly = ONE SELLER

Diamonds Rafflessia

28

MONOPOLY Pure PURE Monopoly

There is only one seller or producer and there are

no substitutes. Eg. Jabatan Bekalan Air & TNB A monopoly has the power to influence the market price. Reduce output will force price up, increase output will reduce the price.

29

How to achieve a monopoly position?

Natural monopolies it is cheaper to have one large company rather than many small ones supplying the goods and services. Eg. TNB electric power 2) One company owns all raw materials. 3) Through development of patens, which allows exclusive control and use of a discovery. Eg Microsoft windows 4) Well-established company known for high quality and good service that prevent competitors from entering the market. Customer unwilling to buy from anyone else. Eg. KFC fried chicken.
1)
30

OLIGOPOLY
OLIGOPOLY = FEW SELLERS

Tobacco Automobiles

31

OLIGOPOLY
There are a few dominant firms/seller in the industry Characteristic: a) Mutual interdependence among the firms If any firm lower its price, anyone else will follow b) Each firm attempts to have differentiation of a standardized product. Eg. Advertising & personal selling c) Entry into the industry is difficult Existing firms are well established, unprofitable for new firms to try to compete. Eg. Automobile, steel, rubber
32

MONOPOLISTIC
MONOPOLISTIC COMPETITION = MANY SELLERS WITH PERCEIVE DIFFERENCES

Fast Food Colleges

33

MONOPOLISTIC
There are many firms in the industry but the

number is fewer. Each firm producing only small share. Firms try to differentiate its product with special brand name, warranty and attractive packaging. Rely heavily on advertising. No one firm has much control over price. Competition is vigorous. Entry into industry is tough unless firm able to differentiate its product. Eg. Colgate Palmolive
34

PURE COMPETITION
PURE COMPETTION : Many independent sellers

Buyer

35

PURE COMPETITION
Many independent sellers, each offering its product

in the same basic way. Products are standardize No control on price Accept the going price. Based on demand and supply. Sometimes government intervention on price ceiling price. Firms can enter and leave the industry easily. Eg. Chicken, vegetables, beef.
36