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
education, skills and experience.
5. Entrepreneurs: Individuals who start up businesses
Examples at Tim
Factors of Production Horton’s How used?
Natural resources Land To operate business
Coffee beans To make coffee
Milk To make donuts
To make other products Labour Workers in franchise Store manager, cashier, coffee
Workers at corporate maker, donut maker, cleaner
managers, finance managers,
other administrative staff
Capital Buildings To run the fast food restaurant
Tools Cooking equipment: to cook
donuts, make coffee
Computers and calculators: to
keep track of revenues and
Information resources or Specialized skills Individuals who understand the
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