Internal Business Environment
8 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What does UBEE stand for?

Understanding the Business and Economic Environment

Which of the following is part of the internal environment of a business?

  • PESTLE
  • Inflation
  • New government
  • Aims and objectives (correct)

Which of the following is the key assumption of traditional theories of the firm?

  • Owners have different aims from shareholders.
  • Production is organised through markets.
  • Firms seek to maximise profts. (correct)
  • Firms trade-off different objectives.
  • Businesses make decisions based on a PEST analysis.

Economists say that the main cause of the principal-agent problem is:

<p>that agents know more than principals. (E)</p> Signup and view all the answers

The Structure → Conduct → Performance paradigm implies that business performance is strongly affected by the:

<p>degree of competition the firm faces. (C)</p> Signup and view all the answers

Which one of the following is a microeconomic issue?

<p>House prices rise more rapidly. (A)</p> Signup and view all the answers

Assume that a firm can produce 6 units of good X or 12 units of good Y per hour with its current resources. The opportunity cost of a unit of X is:

<p>2 units of Y (E)</p> Signup and view all the answers

What are the factors of production?

<p>Labour, Land and raw materials, Capital, Entrepreneurship</p> Signup and view all the answers

Flashcards

Internal Business Environment

The working environment inside a business.

External Business Environment

Factors outside a business that can affect it.

Aims and Objectives

Goals that a business wants to achieve.

Business Performance

How well a business is doing.

Signup and view all the flashcards

PESTLE

Political, Economic, Social, Technological, Legal, Environmental factors.

Signup and view all the flashcards

Sole Proprietor

A business owned and run by one person.

Signup and view all the flashcards

Unlimited Liability

Responsibility for debts not capped.

Signup and view all the flashcards

Partnership

A business owned by two or more people.

Signup and view all the flashcards

Limited Liability

Liability capped; personal assets are protected

Signup and view all the flashcards

Public Limited Company (PLC)

A company that can sell shares to the public.

Signup and view all the flashcards

Private Limited Company (Ltd)

A company that cannot sell shares to the public.

Signup and view all the flashcards

Consortia

A temporary alliance of companies.

Signup and view all the flashcards

Co-operative

A business owned and run for the benefit of its members.

Signup and view all the flashcards

Profit Maximization

To make as much profit as possible.

Signup and view all the flashcards

Divorce of Ownership from Control

When managers and owners have different goals.

Signup and view all the flashcards

Managerial Objectives

Owners want dividends, managers want stability.

Signup and view all the flashcards

Principal-Agent Relationship

Owners (principals) hire managers (agents).

Signup and view all the flashcards

Asymmetric Information

When one party knows more than the other.

Signup and view all the flashcards

Dealing with Imperfect Information

Monitoring and incentives to align interests.

Signup and view all the flashcards

Sustainability

The goal of a firm is to continue operating long term.

Signup and view all the flashcards

Structure-Conduct-Performance (SCP)

How market structure affects firm conduct and performance.

Signup and view all the flashcards

Basic Conditions

Tastes, technology and input availability.

Signup and view all the flashcards

Structure (SCP Paradigm)

Number of sellers, barriers to entry.

Signup and view all the flashcards

Conduct (SCP Paradigm)

Pricing behavior and product strategy.

Signup and view all the flashcards

Performance (SCP Paradigm)

Efficiency, profitability, market share.

Signup and view all the flashcards

Microeconomics and Choice

What to produce, how to produce, for whom to produce.

Signup and view all the flashcards

Opportunity Cost

The value of the next best alternative forgone.

Signup and view all the flashcards

Marginal Costs and Benefits

Comparing additional costs and benefits.

Signup and view all the flashcards

Scarcity

Limited resources relative to wants.

Signup and view all the flashcards

Factors of Production

Land, labor, capital, entrepreneurship.

Signup and view all the flashcards

Study Notes

  • This lecture covers the Internal Business Environment within the broader context of Understanding the Business and Economic Environment (UBEE).

Internal and External Business Environment

  • The internal environment includes business aims, objectives, and overall performance.
  • The external environment is assessed using PESTLE (Political, Economic, Social, Technological, Legal, and Environmental).
  • External factors include uncertainty, inflation, growth, and potential new governments.

Political Risks

  • Elections and political events can pose risks to businesses.
  • Liz Truss had one of the shortest tenures as a UK Prime Minister, at only 44 Days.
  • The Ukraine war is expected to have a major impact on the UK economy.
  • There are different legal structures a firm can take, these include:
  • Sole Proprietorship: Limited scope for expansion and unlimited liability.
  • Partnership: Includes limited and unlimited liability partnerships, which offer the advantage of spreading risk.
  • Companies: Enable risk-taking through limited liability.
  • Public Limited Companies (plc): Can issue shares publicly which are traded on the Stock Exchange.
  • Private Limited Companies (Ltd)
  • Consortia: Different businesses that work together
  • Public corporations
  • Co-operatives: Consumer and producer cooperatives
  • The John Lewis Partnership is an example

Aims of the Firm

  • Goals of the firm: focus largely on the traditional theory of profit maximisation
  • Alternative theories consider:
  • The divorce of ownership from control, which creates a difference between manager and owner objectives.
  • As well as managerial objectives relating to stability, cost and share price.

Principal-Agent Relationship

  • Describes the relationship between the owner (principal) and manager (agent).
  • Asymmetric information is where the agent has more information than the principal leading to problems.
  • Imperfect information can be dealt with through monitoring and incentives (e.g. bonuses for reaching profit targets).
  • A primary goal is to stay in business, achieved through willingness to take risks and innovate, while avoiding over-caution.

Business Performance Determinants

  • Business performance is determined by Structure → Conduct → Performance.
  • Business structure's relationship with business conduct (behaviour) can create competitive markets and competitive behaviour with limited competition and collusion
  • Consumer tastes and technology are important factors.
  • The relationship between business conduct and business performance can be measured via indicators such as:
  • Profitability
  • Market share
  • Growth

Structure-Conduct-Performance Paradigm

  • Basic Conditions: Supply (availability of inputs, technology, product specifications) and Demand (tastes, substitutes).
  • Structure: Number of sellers and buyers, barriers to entry, cost structures, and product differentiation.
  • Conduct: Pricing behaviour, output, product strategy, advertising, and mergers.
  • Performance: Efficiency, profitability, market share, share price, and meeting social goals.
  • The degree of competition the firm faces strongly affects business performance.

Economist's Approach to Business

  • Microeconomics and Choice: Focuses on what to produce, how to produce it, and who the target market is.
  • Choice and Opportunity Cost: Considers opportunity cost, rational choices based on cost-benefit analysis, and marginal costs and benefits.
  • Microeconomic Choices and the Firm: Applies microeconomic principles to firm-level decisions.
  • Tackling Scarcity: Addresses scarcity through production and consumption, guided by business economists.
  • Considers the economic role of firms and study of consumer behaviour.
  • Factors of Production: Labour, land and raw materials, capital, and entrepreneurship.
  • Demand and Supply: Distinguishes between actual and potential demand and supply and examines the role of firms in satisfying demand.
  • The study of the supply process by business economists is a focus.
  • Balancing demand and supply is required for macro and microeconomics

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Business Economics: Understanding the Business Environment - Lecture 1, PDF

Description

Lecture on the internal business environment, covering aims, objectives, and overall performance. The external environment assessed using PESTLE. Political risks, elections, and the Ukraine war are mentioned as factors.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser