The impact of the economic environment

Introduction to the economy and its impact

Introduction

This website is to explain what kind of impact the economic environment has on businesses. Therefore the impact will be shown on the company EasyJet.

 

This website will explore how EasyJet has managed to operate during different periods in the economy. These periods are economic slumps such as the recession and economic boom periods such as growth periods.

The Economy

The economy is a science that studies human behaviour with regard to their needs and requirements. It is also the state of a country or region in terms of the production and consumption of goods and services and the supply of money. This is a basic Google definition. The economy looks at how businesses try to supply goods and services to meet the demand, and it also looks at the challenges they face in doing so. Another thing that the economy looks at is how businesses relate and react to customers and governments. 

 

 

The importance of Stability

 

Stability is when a structure of sorts is fixed and unlikely to collapse. The economy is a structure and it is important that it is stable because instability causes great problems.

 

There are basic economic problems world wide everywhere amd decisions have to be made on certain things. These things can be what type of goods and services should be produced; how should they be produced; and finally who should get the goods that we produce. The way these questions are answered will determine how stable the economy is. If the economy provides a fairly constant output in terms of products and services, and the prices are affordable for customers, then we will have a stable economy. 

 

Problems will arise when the economy becomes unstable, when the goods and services are in a short supply which will lead to the prices increasing meaning that the customers can't afford them. Rising unemployment will mean that the production and supply of goods decreases because nobody is working on manufacturing them. This will also mean that there is less money available to buy the goods due to the fact that wages have been reduced. As a result of this, it will also mean that there are less taxes being paid to the government and they need the money to pay for essentials such as health care, the emergeancy services and schools.

 

The basic economic environment is the factors that influence the businesses and business decisions. These factors include the phases of economic cycle, interest rates, inflation and they affect supply and demand. 

 

The economic environment is different in most countries and this depends on what the state of the country is like. The West is is quite a relatively rich environment where there is a high standard of living such as education, housing and free health care. Other poorer third world countries can't afford this in their economic environment. The economic environment is dependent on the amount of money or capital that the country has. It can also depend on the resources, in terms of raw materials and the quality and quantity of labour. For example, Dubai and Qatar have a strong luxurious economic environment due to the amount of oil they have drilled and extracted. 

 

Governments have a huge impact on the economic environment because they create laws and taxes that effect the flow of money in that country. These laws and taxes either help the country develop or restrict their development because certain companies are swayed from doing business in that country because the taxes put them off.

 

 

The Impact on Businesses of changes in the Economic Environment

 

A business has to make lots of decisions in terms of how it functions; these are what to produce, how to produce it, and for whome? In determining what to produce or what services to offer, they take on board several factors such as: the supply and costs of raw materials, advances in technology and how these impact products, prices of competitors, the strength of the competition and the loyalty of their customers. 

 

When determining how to produce the goods, the business will again have much to consider. They will have to think of the resources that is available to them including, money, premises, equipment and labour. These will be considered and a decision will be made as to how they produce the goods.

 

When wondering who the goods should be produced for; the business will have to consider present and potential customers. These may be consumers or other businesses within this country or overseas. The nature of the product and what the competition is doing will help determine the prices, the packaging, and the customer to aim for.

 

So it is clear that a business has a lot of decisions to make and a lot of things to consider, but these decisions will be largely affected by the economy that the company operates. Even during times of stability, the business has to constantly monitor its own operations as well as those of the competition and any changes to customer habits or lifestyles. However, during times of instability, the decisions are a lot more difficult and important. Changing economic decisions can cause many things such as a scarcity of raw materials, inflation where costs of materials and labour increase, a growth in interest rates, a growth in unemployment and an increase in goverment restrictions making it harder to trade.