Economic Systems And Scarce Resource Allocation

The Micro environment

The micro-environment of an organisation are factors or forces that are close and affect the ability of a company to serve its channels like market channels, firms, suppliers, customers, markets, competitors and the public which combine to make up the company’s delivery systems.

The company:

The company includes marketing plan, marketing management and other groups such as top management, finance, research, and development, accounting, purchasing, and manufacturing. Top management sets mission, objectives, and broad strategies and policies. The finance finds and uses funds to carry out the marketing plan. Purchasing gets supplies and materials, operations is responsible for producing desired quality and quantity of products. Accounting measures revenue and costs to help marketing know how well its objectives are being achieved.

Suppliers:

These are firms and individuals that provide an organisation with goods and services that are transformed by the organisation in to value added products. They also provide for the company’s competitors. They link the company’s deliver system. It is also right to note that one company’s supplier is another company’s customer. Suppliers need to be monitored to make sure there is always the right quality and quantity of products available. If affected by strikes, weather or delays, the company is bound to suffer in terms of marketing and loss where there are no products available to trade.

Marketing intermediaries:

These are firms that help the company to promote, sell, and distribute its goods and services to the final buyers. They include resellers who are individuals and organisations that buy goods and services to resell at a profit, physical distribution firms that help stock and move products from their points of origin to their points of destinations, Marketing services agencies, marketing research firms, advertising agencies, media firms, and marketing consultancies that help a company target and promote its products to the right market. Financial intermediaries like banks, credit companies, insurance companies and other businesses that help insure against the risks associated with the buying and selling of goods

Customers:

The organisation must monitor its customers closely. Customers are people that buy goods and services for personal use and consumption. Others buy goods and for further processing or use in production process. Some customers buy goods to resell at a profit.

There are different types of customers market:

Consumer markets-they buy goods and services for personal use and consumption.

Reseller markets-buy goods and services to resell at a profit

Business markets-buys goods and services for further processing

Institutional markets-schools, hospitals, nursing homes, prisons provide goods and services to people in their care.

Government markets-government agencies that buy goods and services to provide public services to those that need them.

International markets-buyers from other countries which include resellers, business, governments and producers.

Competitors:

These are markets competing against the organisation. The organisation is required to provide good and services with better values than its competitors. The organisation must position itself stronger against competitors in the mind of their customers and consumers in terms of its offerings. The organisation should consider its own size and industry position compared to its competitors.

Publics:

This is any group that has actual potential interest in and on the impact of an organisation’s ability to achieve its objectives. There are seven types of publics and they include:

Financial publics-these influence a company’s ability to obtain funds. They include banks, investment houses and stock holders.

Government publics-these are government developments. Organisation must consult company lawyers on issues of product safety, advertising truth, and business trading laws and regulations.

Citizen action publics-help gain help from public relations to help it stay in touch with consumers and citizen groups such as pressure groups, environmental groups, minority groups and consumer organisations.

Local publics-these are the immediate neighbourhoods, residents, and community organisations. They should appoint community officers to attend meetings and answer questions.

Media publics-are newspapers, magazines, radio stations, TVs, and editorial opinions.

Internal publics-are workers, managers, board of directors and volunteers. Organisation should use newsletters, notice boards, to inform these groups of what is happening. If they are satisfied, then the external publics are attracted.

The general publics-organisation must be concerned with the general public’s attitudes towards their products, services and activities. This is because the public’s image will affect their buying.

The macro-environment

The organisation’s macro-environments are those factors that shape opportunities and pose threats to the company. These are general forces and trends which may not affect a company now but sooner or later. Macro-environmental change can alter the nature of relationships a company has. Macro-environmental factors include demographic environment, political environment, economic environment, the social and cultural environment, technological environment and natural environment.

Political environment:

The political environment of an organisation can be unpredictable. Organisations need to monitor the changing political environment such as change in governments because political change affects its marketing. This happens because governments pass legislations which can directly affect a firm. They protect public interest, government stability, affect natural market. Political parties formulate policies that affect growth rate of an economy. Political environment consists of laws, regulations, and government agencies that can limit organizations from performing. These regulations include Consumer Acts, Health and Safety regulations and hygiene regulations Acts.

Demographic environment:

Demography is the study of human population in terms of size, location, age, density, gender, occupation and race. Demographic environment helps the organisation know the age structure of a country, the population distribution, gender balance, and size. This will help in terms of trade and production, distribution of goods and resources so as to supply the right quantity to the right market and people.

Technological environment:

These are forces that create new technologies, hence creating new products and market opportunities. Organisations need to know how technological developments and advancement might affect them as technology change rapidly. Business areas related to technology changes are affected and need to know how these changes affect them because,

New technologies allow new goods and services to be offered to consumers for example telephone banking and mobile telecommunications.

New technologies allows existing products to be made more cheaply hence widening the market area.

New technologies create new markets and opportunities.

New technologies allow easier methods to distribute goods and services for example Automated bank machines (ATM).

New technologies give organizations opportunity to communicate with their target customers for example through the internet.

The social and cultural environment:

Organisations need to know and appreciate the cultural values of a nation and society where it is seeking to do business because attitudes to specific products change through time and at any time between different groups. Organisations should understand how cultures change and be prepared to satisfy the changing needs of customers and consumers. For example change in fashion trends and tastes in different age groups defines what type of products to suit both groups. The role of women in society and leisure involvement all affect an organisation.

The natural environment:

These are natural resources that are needed to input and are affected by market activities. These include environmental concerns like eco friendly products, shortages of raw materials, increased pollution and increased government intervention in markets.

The economic environment:

This refers to the savings, income distribution, credit availability, out sourcing and free trade. It consists of factors that affect mainly consumer purchasing power and spending patterns. Factors in consideration are gross national profit (GDP), balance of payments, per capita income and fiscal policies.

ECONOMIC SYSTEMS

Economic system is described as a country’s plans and objectives for the services, goods produced and the way in which the country’s economic plans are carried out. It is the way a country handles its economic systems during decision making.

There are four main types of economic systems and the first three are the major ones; market economy, planned economy and mixed economy. The four one though not a major one is known as the traditional economy.

Market economy:

A market economy is one where the consumers and their buying decision drive the economy and national and state government play a minor role. The right path of the country’s economic development is decided by the assumptions the market plays. In market economy, households own resources

Market economy has a main aim of eliminating subsidies for an industry because their decisions are majorly dominated by supply and demand. The government helps to make sure that the market is stable to carry out its economic activities properly.

A market economy motivates staff to work harder because they are paid for the amount of work they have done. Profits and income is only increased when the worker decides to work harder.

Command or planned economy:

This is a type of economy where all the questions are answered by the government. The government runs all aspects of the economy like distribution, production, commodity and services and makes all major decisions concerning each one of them. Individuals are not given the opportunity to decide what they want or need which makes it difficult for them since the government cannot know what each individual wants and what is best for every citizen.

In command economy, there is no flexibility of the economy as they have very little or no say at all. They therefore reacts slowly to change because all their decisions are planned for and made by the government that does not know about every individual needs. They therefore react very slowly to change and their supply and demand pattern fluctuates.

Planned or command economy does not provide help to their workers and hence lack of motivation since everyone is given the same amount of goods and services and the standard of living is the same. Every person whether a hard worker or not makes as much as the other. An example of this type of economy is Cuba where all their decisions are made by the government..

Mixed economy:

A mixed economy combines both the market and planned economies in the market place and in the government. This type of economy involves the producers working closely with the government in order to make the economic system a stable. It consists of both the capitalist and socialist economic policies and is in economies that want to balance a wide range of political and economic views.

In a mixed economy the government or the command economy does not have control over the economic activities of the country; they only play part in decision making. This means that there is flexibility where other areas are controlled by the government. Some resources are owned by the government while others are owned by private sectors. The public sector suppliers merit goods, quasi-public, public and intervenes in markets to correct perceived market failure. An example of a mixed economy is China.

Traditional economy:

This is the type of economy that makes decisions based on the social customs of the society and how the society deals with these decisions in the past. This type of economy varies from each other because each country has different customers from that of its neighbouring county. Decisions in this type of economy are based on the customs and traditions.

Free enterprise economy:

This type of economy involves businesses. They are free to trade in any way they wish. There is no control of the economy by the state. Example is the UK where any business that has registered with company’s house and has a licence to trade can start a business with the aim of making profit as well as providing employment to the local people.

Transitional economy:

This is an economy that is moving from a total command economy to a free enterprise economy. Example of this type of economy is Brazil where businesses some are now allowed to trade freely in any way they like.

Scarce resource allocation

A scarce resource is one which is not available in plentiful supply or it is limited.

Scarce resources in the UK include oil, farming land, money, steel, coal, and copper and many others.

When resources are scarce, it is important to allocate them sensibly. The UK government has been very sensible and very careful when allocating money to different sectors and departments and this has led to the current ongoing CUTS in the country.

Impact of fiscal and monetary policies on business organisations and their activities.

Monetary policy:

This is a policy that controls the macro economic variables in an economy through interest rates.

This influences the growth rate of aggregate demand, money supply and price inflation.

The monetary policy of the UK is in the hands of The Bank of England. This is because they set the rates of interest and inflation and provide reports on a quarterly basis.

Monetary policy involves setting the base interest rates and influencing the supply of money through quantity easing to increase the supply of money.

In monetary policies, through quantitative easing, creating more money becomes ineffective is banks wants to keep the extra money in their balance sheet. Government spending also creates demands in the economy and provides for a means to get the economy out of problems like recession.

Monetary policy is stimulated and contracts money supply. It is long term policy and requires months before its effects can be seen. It can expand the money supply and contract it as well. Monetary policy measures in terms of interest rates.

Quote: Mervyn King on Monetary Policy’s Role in Britain

“What is the mechanism by which monetary policy contributes to a more stable economy? I would argue that monetary policy is now more systematic and predictable than before. Inflation expectations are anchored to the 2.5% target. Businesses and families expect that monetary policy will react to offset shocks that are likely to drive inflation away from target. In the jargon of economists, the “policy reaction function” of the Bank of England is more stable and predictable than was the case before inflation targeting, and easier to understand.4 More simply, monetary policy is not adding to the volatility of the economy in a way that it did in earlier decades”

Adapted from “The Inflation Target – Ten Years On” a speech given by Mervyn King in October 2002-12-19

Fiscal policy:

Fiscal policy is carried out by the government and it involves influences of the government on the economy like level of government spending and taxation and borrowing to influence the economic activities of an organisation. It also influences the demand, output and employment.

Fiscal policy involves taxation and the revenue and has several other types of taxation that affect it like;

Direct taxes-these are levies on income and wealth and profit and include income tax, national insurance contributions, capital tax gains and incorporated tax. These taxes include;

Progressive tax which is the marginal rate of tax as income rises and goes up.

Proportional tax where the marginal and average rate is constant. An example is the national insurance contributions.

Repressive tax where the rate of tax falls on income rise.

Fiscal policy has a side effect on the business because in order to reduce inflation, higher tax and lower spending becomes unpopular and the government does not pursue them. Lower spending leads to reduced public services and higher income tax creates disincentives to work.

Fiscal policy is controlled by the legislative branch of government. The government uses measures like tax reductions or spending hikes to stimulate the economy.

Fiscal policy has an immediate short term effect. The government spend on infrastructure projects as well as pump money in to the economy.

TASK 4

Impact of competition policy and regulatory mechanism on the activities of a selected organisation

Competition is where businesses rival with each other to win customers’ business. They rival in terms of pricing, developing new products, provision of excellent goods and services and modernising the existing products to suit customer requirements as well as satisfy their needs and want.

Competition policy is a process where the government sets policies that help to prevent and reduce the abuse of monopolistic power that leads to market failure and that are against the public interests.

In the UK, the Office of Fair Trading (OFT) is responsible and investigates where there has been suspected abuse of monopoly power.

Competition policy is set up to either foster competition or reduce competition in the market place through proper implementation by both the government and the organisations involved.

Competition can either be fair or unfair.

Fair competition is where organisations like Milky Bits Ltd produce goods that are of good quality, cost efficient by optimising resources and adopting technologies that are the best. They also carry out investment and research in to the market.

Economic policy:

This is a policy that is adopted by the government to enhance competition in local and national markets. The government sets these actions and monitors them; economic policy involves interest rates, government budgets, labour market and government inventory. Economic policies can be influenced by systems like International Monetary Fund and World Bank and political beliefs.

Economic policies include trade policies like tariffs, money supply and trade agreements which are all directly affect Milky Bits Ltd and Mr Parks needs to be up to date with them

Competition law:

This is a policy that has been designed to stop businesses like Milky Bits Ltd carrying out anti competitive practises. They promote and maintain market competition by regulating anti competitive conducts. These agreements include limit on production, fix prices for goods and services, discrimination between prices charged to customers for the same products but by different businesses.

Consumer policy:

This is a policy set out to promote the interests of businesses and health and safety. It ensures that internal markets are open and fair and transparent. It allows for the consumers to exercise their rights through making real choices and it helps consumers and businesses take full advantage of the potential market. This means that Milky Bits Ltd needs to provide consumers with choices on products they have and be open, fair and set prices that are reasonable. The company should also provide a safe environment for their consumers and customers.

Government policy:

Government policies are laws set by the government that affects how businesses operate. These allow businesses to compete fairly against each other. The government also sets tax policy which affects businesses like rise in corporation tax and increase in costs. They also set interest rates and determine how it changes. Milky Bits Ltd needs to be aware of these government policies as they directly affect the business and can have various consequences on them if they do not comply.

Monopoly:

This is a process where the market is dominated by one seller or producer and has 25% of the market share. It takes place where the business has high profits and invests in new products and also improves existing ones. In a monopolistic state, consumers have less choice to make. It makes a business inefficient with their resources since costs cannot be reduced and there is less innovation and consumers pay higher prices because there is no competition. Should Milky Bits Ltd has the highest share in the market, they are then allowed to dominate the market place.

Regional policy:

This is a policy set to govern how a business operates in a certain region. It requires that the business provide the region with employment and modernisation, improve and support the community. This means that Milky Bits Ltd must be involved in community projects where the business is situated and help the community through donations.

Duopoly:

This is a system where two suppliers dominate the market selling a particular products, commodity or service. It helps to illustrate the nature of competitive behaviour in a business like Milky Bits Ltd. This means Milky Bits Ltd can decide to focus on a particular supplier for their products and services. In unregulated markets, duopoly is rare and has high prices where both companies are profitable.

Oligopoly:

This is where few large businesses produce identical and similar products. Examples are automobile, beer industries and many others. Prices are unstable and this will make a business like Milky Bits Ltd to shade or lower their prices slightly to gain competitive advantage.

Perfect competition:

Also referred to as pure competition, affects market structures. It involves all companies like Milky Bits Ltd selling the same products, price taking, having fairly small market share. It does not have barriers to entry which means Milky Bits Ltd can enter and exit the market at the will of Mr Parks. It allows Milky Bits Ltd to determine the level of its production based on prices it sets and allocation of resources is allocation of resources.

monopolistic competition, competitive advantage and enterprise strategy.

CONCLUSION

The economic system a country has is based on what is best for the country. One person might feel a market economy is best for one country but it may not suit another. Determining how an economy works can help you make better decisions as an individual and participate more in issues involving the economy as a whole. And becoming an economically-effective citizen helps you benefit the entire country.

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