The Economic Environment of Business

A business firm is an economic institution in a market system. Its market behavior reflects the nature of the economic decisions taken by the manager of the firm. Micro-economics decision-making by the firm has, nevertheless, to be made within the broader macro-economics system in which a business firm operates.

The present-day economic environment of business is a complex phenomenon. Business sector has economic relations with the government, the capital markets, the household sector, and the foreign sector. These different sectors, together, influence the trends and structure of the economy. The form and functioning of the economy varies from country to country. The design and structure of an economic system is conditioned by socio-political arrangements. Such arrangements are relevant from the standpoint of macro-economic decision-making.