Economic forces
Encyclopedia
Economic forces are the factors that help to determine the competitiveness
of the environment in which the firm operates.
These factors include:
These factors determine an enterprise’s volume of demand for its product and affect its marketing strategies and activities.
The economic system is made up of three main steps. The first one being production
and then there is distribution of the produced goods and then the last step is consumption
of the same. Now all this is possible because of two factors- Human resource
and Natural resource
.
Natural resources include the raw material
which is generally used in the production process, and human resources
help to convert the raw materials to finished products which are then ready for distribution.
Taking another example where a firm pollutes and throws its waste in a private pond. The owner of the pond may charge the firm the polluting cost and the firm has to pay. But if the same firm dumps its waste in a river, it does not have to pay anything as the river is a public good
. But the dumping of the waste in the river causes many environmental problems. It damages the aquatic life, may lead to a lower water standard and health problems.
Hence to reduce the pollution emissions from these firms in water and air, a pollution tax can be charged from these firms which can be indexed (in slabs) in accordance of the pollution level done by the firms.
compares the benefit from the reduction in pollution to the cost that would be in cured to reduce the pollution level. Here benefits can be both environmental as well as health benefits.
Everyone, ideally, would love to live in a pollution-free environment. But technology used most times do emit pollutants. these pollutants affect human health as well as environment. Hence there is an urgent need to find the optimum economic level of pollution reduction.
But with changed circumstances, the optimum level also changes. Due to improved technology the pollution reduction cost will also go down.
During the period 1990-2000, 3M Corporation reduced its air pollution by 88%, water pollution by 82% and waste by 35% by using eco efficiency program.
Cost-Benefit Analysis takes into consideration only those benefits which can be measured in terms of money. It does not consider the aesthetic benefits which is and always has been a vital part of the environment like a beautiful clear running stream.
Competition (economics)
Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services...
of the environment in which the firm operates.
These factors include:
- UnemploymentUnemploymentUnemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
level - Inflation rateInflation rateIn economics, the inflation rate is a measure of inflation, the rate of increase of a price index . It is the percentage rate of change in price level over time. The rate of decrease in the purchasing power of money is approximately equal.The inflation rate is used to calculate the real interest...
- Fiscal policiesFiscal policyIn economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....
- Government changes etc.
These factors determine an enterprise’s volume of demand for its product and affect its marketing strategies and activities.
The economic system is made up of three main steps. The first one being production
Production (economics)
In economics, production is the act of creating 'use' value or 'utility' that can satisfy a want or need. The act may or may not include factors of production other than labor...
and then there is distribution of the produced goods and then the last step is consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...
of the same. Now all this is possible because of two factors- Human resource
Human resource
human resource may stand for:* another name for an employee* human resources, another name for labor* Human resource management, the strategic approach to management of human resources* Human Resources , a Doctor Who audio drama...
and Natural resource
Natural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
.
Natural resources include the raw material
Raw material
A raw material or feedstock is the basic material from which a product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state. Latex, iron ore, logs, and crude...
which is generally used in the production process, and human resources
Human resources
Human resources is a term used to describe the individuals who make up the workforce of an organization, although it is also applied in labor economics to, for example, business sectors or even whole nations...
help to convert the raw materials to finished products which are then ready for distribution.
External costs
When an economic activity is carried out, it mostly affects the environment and the effect is adverse. This is the case of a firm which pollutes the environment. The society considers the cost of cleaning up of the environment as a relevant cost but the firm doesn’t. But when the negative effects of pollution and the cost of treatment are added, the total cost most of the times adds up to be more than the production cost. And when this cost is added to the production cost, the overall price becomes higher and leads to a fall in demand of the product. With this again the pollution level is reduced.Taking another example where a firm pollutes and throws its waste in a private pond. The owner of the pond may charge the firm the polluting cost and the firm has to pay. But if the same firm dumps its waste in a river, it does not have to pay anything as the river is a public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...
. But the dumping of the waste in the river causes many environmental problems. It damages the aquatic life, may lead to a lower water standard and health problems.
Hence to reduce the pollution emissions from these firms in water and air, a pollution tax can be charged from these firms which can be indexed (in slabs) in accordance of the pollution level done by the firms.
Cost-benefit analysis
A cost-benefit analysisCost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
compares the benefit from the reduction in pollution to the cost that would be in cured to reduce the pollution level. Here benefits can be both environmental as well as health benefits.
Everyone, ideally, would love to live in a pollution-free environment. But technology used most times do emit pollutants. these pollutants affect human health as well as environment. Hence there is an urgent need to find the optimum economic level of pollution reduction.
But with changed circumstances, the optimum level also changes. Due to improved technology the pollution reduction cost will also go down.
During the period 1990-2000, 3M Corporation reduced its air pollution by 88%, water pollution by 82% and waste by 35% by using eco efficiency program.
Cost-Benefit Analysis takes into consideration only those benefits which can be measured in terms of money. It does not consider the aesthetic benefits which is and always has been a vital part of the environment like a beautiful clear running stream.