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Chapter 2

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Administrative Studies
ADMS 1000
Sadia Malik

Chapter 2: The Economic Environment of Business The Economic Environment (EE):  An economic condition in which an organization operates.  An economic condition or variable include job growth, consumer confidence, interest rates etc.  Individuals, Government, and businesses makes up ‘EE’ 1. Individuals: Money is a limited resource; an individual is forced to make spending choices from daily necessities of life suck as food, clothing etc. 2. Government: purchases goods ad services for the welfare and wellbeing of both its citizens and its business-community members. It is also responsible for making laws, regulations and policies to manage the country’s economy. 3. Business: make profit by balancing the right combination of inputs. These inputs are referred to as: Five Factors of Production 1. Natural Resources: Land and raw materials 2. Labour: Workers 3. Capital: Buildings, machinery, tools and equipment Knowledge workers with specialized 4. Knowledge: education, skills and experience. 5. Entrepreneurs: Individuals who start up businesses Example: Examples at Tim Factors of Production Horton’s How used? Natural resources Land  To operate business Coffee beans  To make coffee Sugar Milk  To make donuts  To make other products Labour Workers in franchise  Store manager, cashier, coffee Workers at corporate maker, donut maker, cleaner head office  Executives, marketing managers, finance managers, other administrative staff Capital Buildings  To run the fast food restaurant Machines franchises Tools  Cooking equipment: to cook donuts, make coffee  Computers and calculators: to keep track of revenues and expenses Information resources or Specialized skills  Individuals who understand the Knowledge complexities of the coffee-bean trade, growing coffee Entrepreneur Franchise Owner  Tim Horton is the original founder, but you can own and operate a franchise The Analyzing the Economy: Two Approaches:  ‘EE’ be analyzed on micro or macro level  Microeconomics: study of smaller components of the economy such as the individuals and businesses.  Macroeconomics: study of larger economic issues involving the economy as a whole. Types of Economic Systems (ES):  The way the five factors of production are managed.  Four types of ‘ES’: 1. Market Economy:  A free market system in which individuals can decide to be employees or owners of their
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