Economic Environment of a Business The objective of this work is to summarize the economic environment of a business including information relating to microeconomics, macroeconomics, and international trade aspects

The business organization is a "micro-economic unit" and the business environment is that which makes provision of the "macro-economic context within which firm operates." (Reddy, ) The business environment can be categorized into the 'economic' and non-economic' and the 'micro- and macro-environment. (Reddy,, paraphrased) The firm is an economic institution in a market system with the behavior of the firm reflecting the result of the decisions that were economic in nature that the manager of the firm made.

The economic environment of a business in today's globalized business society is complex in nature. There is an inherent link between the business sector and it relationship with the government, capital market, household sector and the international business sector -- all of which serve to influence the trends and the economy structurally. It is related that the business economic environment affects the non-economic environment and likewise the non-economic environment influences the economic environment.

I. Business Economic Environment is both Exogenous and Endogenous

The economic environment is stated to be "both exogenous and endogenous" according to Reddy ( ). Reddy writes interdependent as well are the educational-cultural environment and the economic environment of business. The political-legal environment and the economic environment of business are stated to be inherently related and to the degree that often, the political economy of business is considered. The economic environment of business is stated by Reddy ( ) to refer to the economic systems of...

Grossman stated, "The set of institutions that characterizes a given economy comprises its economic system." (in Reddy, 2004)
Economic Systems as Group of Economic Institutions

Reddy (2010) states that an economic system can be described as a group of economic institutions that brings into being an organization through the operation of which the various resources scarce relative to the needs for them…are utilized to satisfy human wants. Decisions that are economic during the course of business include those concerning the manner in which:

(1) resources are to be distributed among the various fields of production;

(2) methods of production to be followed; and (3) the patterns for distributing the rewards of production among members of society. (Reddy, 2010)

The determination of the approach in decision-making is dependent upon the type of economy the system is operating in including the capitalist, socialist and mixed systems.

II. Development of Capitalism

In some countries a system of capitalism or 'free' enterprise has developed according to Reddy ( ) who states that in the capitalist system referred to as a 'laissez-faire' system characterized by non-governmental intervention in economic affairs. (Reddy,, paraphrased) The Capitalist system is characterized by the following: (1) promotion and encouragement of private ownership of property as the means by which individuals produce or distribute goods and services; (2) has the mindset that disallows government trespass; (3) the price of commodities and services are determined in the market; and (4) the market rewards individuals who can successfully establish and operate an organization for meting economic needs with profits; (5) the consumer is the…