Understanding Economic Systems and Markets

This assignment delves into the concepts of economic systems, ranging from capitalism to socialism, illustrating their key characteristics and differences. It further examines various market structures like perfect competition, monopoly, and oligopoly, outlining their defining features and real-world examples. The text provides a comprehensive overview of these fundamental economic principles, aiding in understanding how economies function and businesses operate within different market landscapes.

Business Environment

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Types of organization as well as mission, vision, goals and objectives of cited
organization............................................................................................................................1
1.2 Stakeholders and their objective and how organization attempts to meet the objectives 2
1.3 Various responsibilities of the organization and strategies to meet them........................3
TASK 2............................................................................................................................................4
2.1 The economic systems and their attempt to allocate the resources effectively................4
2.2 Impact of fiscal and monetary policy on organization and country.................................5
2.3 Impact of competition policy and other regulatory mechanism.......................................6
TASK 3............................................................................................................................................7
3.1 Different market structures to determine the pricing, output decisions of the business...7
3.2 Market forces that shape short and long term organizational responses..........................8
3.3 Business and cultural environments shape the behavior of organization.........................9
TASK 4............................................................................................................................................9
4.1 The significance of international trade in UK business organizations.............................9
4.2 Impact of global factors on UK business organizations...................................................9
4.3 Impact of different economic situations and European Union on UK business.............10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business Environment depicts all the internal and external factors that influence the
business operations of organization. Business environment involves all the factors such as
customers, suppliers, competitors, development in technology, market, laws, government
activities, social and economic conditions etc. (Iskanius, Page and Anbuudayasankar, 2010). The
present report is developed on the case scenario of McDonald which is the world's largest fast
food restaurant chain that severs approx. 68 million customers daily in around 119 countries.
This report will help in understanding the organizational purposes of different businesses, nature
of national environment in which businesses operate and behavior of organizations in their
market environment. Along with this, it will help to assess the significance of global factors that
shape national and international business activities.
TASK 1
1.1 Types of organization as well as mission, vision, goals and objectives of cited organization
Different types of organizations in UK are as follows, Private: Private organizations include all the businesses which are made to gain profit.
Main objective of these businesses is to earn profit such as, Tesco, McDonald's and
Google. Public: Public Organizations consist of government, publicly controlled and publicly
funded agencies which deliver public programs, services and products such as TFL,
HMRC etc. Voluntary: This type of organizations is also known as community sector or not for profit
organizations. Voluntary sector is a duty that is undertaken by the organizations which
can be governmental or non-governmental organizations. This is completely different
from the public and private sector such as Cancer Research UK.
 Charitable: Charitable organizations are also known as nonprofit organizations. In some
sort, it is different form the voluntary organizations and it is developed for philanthropic
goals and for social wellbeing. For example, educational, religious and other activities
which are served for the public interest such as Oxfam in UK.
Mission, vision, goals and objectives of cited organization are as follows:
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 Mission: The Statement of McDonald's in terms of mission states that it want to be the
customer's favorite place to eat and drink. This broad mission of McDonald's clearly
defines the values of it and reflects the experience that customers expect when they walk
into McDonald's restaurant. Vision: The vision of McDonald's is to promote the choices of people with real
ingredients, taste and transparency. Also, McDonald wants to create opportunity for
people by creating diversity, offering training to workforce and rewarding their
achievements (Lall and Mengistae, 2005). Goals: Main goal of McDonald is to serve good quality of food in fun and friendly
environment by being a socially responsible firm and provide good returns to all the
stakeholders.
 Objectives: Main objective of McDonald is to provide food to its customers with high
standard, quick service and value for money. Thereby, to achieve this objective, cited
firm facilitates and dedicates itself to the highest levels of quality and safety measures.
1.2 Stakeholders and their objective and how organization attempts to meet the objectives
Stakeholders play a crucial role in the business activities of organization. They are being
impacted by the organization's activities, aims and policies. Stakeholders of McDonald's and
their objectives are as follows, Employees: Employees in McDonald's give their time and effort to make business
successful. Their objective is to gain job security, job satisfaction and satisfactory level
pay for their efforts. Managers: Managers are focused on managing all the operations of business. Managers
lead and control the employees to achieve the organizational goals. Their objective is to
receive high salary, enhancement in status and growth of the business (Johnston, 2015). Customers: Customers in McDonald are the people who buy fast food meals from its
restaurants. Their objective is to get safe and reliable food which gives satisfaction and
value to their money. Suppliers: Suppliers in McDonald supply raw material and fresh food ingredients. Their
Objective from business is to get more profit as well as timely payment.
 Government: Government plays a crucial role in business as a stakeholder which is
responsible for managing economy and tax charges for the business. Other than this, it
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monitors the working of business organizations in country. Their objective from the
organization is related to establish a successful business in country with considering the
laws and regulations. Thus, to meet the objectives of stakeholders, McDonald has to
improve the efficiency of its business practices and needs to increase the sales and
profitability of the organization (Teece, 2010). Through implementing effective business
policy and procedures and by utilizing quality assurance mechanism, McDonald can
increase the revenue and profitability and meet the objectives of all these stakeholders.
1.3 Various responsibilities of the organization and strategies to meet them
Primary responsibility of the organization is to consider the following terms such as
stakeholder’s interest, legal standards, social needs, environmental factor, business ethics,
management responsibilities, public relations and effective corporate image. Thereby, McDonald
needs to implement various strategies to meet these responsibilities (Kovacic, 2004). McDonald
will produce business policy and procedures to increase the efficiency of services and quality of
fast food. McDonald will involve various legislations in the business practices of organization
that are implemented by government such as health and safety legislation, environmental
legislation, consumer legislation, employee legislation and equal opportunity legislation.
Through the implementation of all these policies and legislation in the organizational practice,
cited firm can fulfill its responsibility to operate business in a legal and ethical way.
Furthermore, McDonald is responsible for fulfilling the stakeholder’s interest and
improving the corporate image. In order to meet these responsibilities, McDonald will increase
the efficiency of services and quality of fast food which will increase the sales and profitability
of organization (Shafer, Smith and Linder, 2005). Increased sales and profitability of McDonald
will help in satisfying the objectives of stakeholders and maintaining their interest towards it.
Similarly, McDonald can utilize quality assurance mechanism, cooperation and communication
strategies to fulfill management responsibilities and maintain public relations. Further,
recruitment of skilled and knowledgeable workforce would also be helpful for McDonald to
meet the various responsibilities.
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TASK 2
2.1 The economic systems and their attempt to allocate the resources effectively
Illustration 1: Types of Economic Systems
(Source: Economic Systems, 2015)
There are three types of economic systems. These are as follows,
1. Capitalist Economy: Capitalist economy system depicts the system in which all the
means of production and services are owned and controlled by private individuals for the
profit making. For Instance, right of the productivity factors such as land, factories and
machinery are managed under the private ownership.
2. Socialist Economy: In Socialist economy, material substance of production such as
factories, capital, machines and mines etc. are completely owned by the community
represented in the state. With regards to socialist economic system, all the members of
the particular community will get equal benefits of socialized planned production.
3. Mixed Economy: Main aim of developing mixed economic system is to include the best
features and merits of both the controlled economy and market economy (Economic
Systems, 2015). Mixed economic system acknowledges the benefits of private enterprise
and private property with their intensity on the motive of gaining profit.
UK has mixed economic system with more influence of capitalist system on free trade and
global economy, instead of its limitation which is established by the government of UK. Mixed
market economic systems of UK emphasize that products and services that been demanded by
customers are been produced by the businesses and government can only intervene where the
market fails. Role of government in mixed economy of UK is related to implement laws and
regulations related to health care, education and other sectors. Thus, economic fluctuations can
be avoided in UK due to centrally planned mixed economic system.
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On the contrary, China has capitalist economic system in which whole the production
process is owned and controlled by private individuals for the purpose of gaining profit (Hult,
Hurley and Knight, 2004). According to capitalist economic system, freedom of choice provide
the maximum satisfaction to customers and preserve the fundamental rights, rights of freedom
and rights to consume private property. However, due to capitalism system in China, large
wealth production is distributed by few. Thus, rich individual becomes richer and poor becomes
poorer.
2.2 Impact of fiscal and monetary policy on organization and country
Fiscal policy and monetary policy plays a significant role in business. Fiscal policy is
made by the government of country to adjust the spending levels and tax rates as well as to
monitor and maintain the economy of country. On the other hand, monetary policy is developed
by the monetary authority of country for controlling the supply of money and targeting inflation
rate and tax rate in order to assure price stability and maintain the exchange rate of currency
(Metcalf, 2015). The overall impact of fiscal and monetary policy on organization and country is
described as follows,
Change in taxation and Interest rates: Change in taxation and interest rates are the decisions of
government regarding the spending and taxation. If, government of UK wants to enhance the
economic growth of country then it can increase the spending of products and services which
automatically increases the demand of products and services which will be beneficial for the
economy of country in order to earn from tax and interest rates. However, if demand of the
product will be high than production will also gets increased. If, production increases then firm
will recruit more employees (Merrilees, Miller and Herington, 2012). Thereby, unemployed
people can get jobs and earn money to spend which is beneficial for the economic stability of
country as well as organization to increase its sales and profitability.
Change in currency exchange rate and quantitative easing: Currency exchange rate plays a
crucial role for the organization like McDonald's who operates business in multiple countries so
that exchange rate leads to increase or decrees its growth. For instance, strong or increased
exchange rate of currency can increase the profit margins of McDonald's. On the contrary, low
exchange rate can make negative impact on the business’s profitability.
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2.3 Impact of competition policy and other regulatory mechanism
Competition is an essential factor in business environment. Various competition policies
and regulatory mechanisms implemented by the government of UK are as follows: Competition Act 1998: This act provides the updated framework for identifying and
dealing with restrictive business operations and to deal with abuse of dominant market
position (Leith, Moldovan and Rossi, 2012). Enterprise Act 2002: This act is managed by the parliament of UK which was developed
with the major changes in the competition act of UK with regards to the change in laws
that are governing the economic condition and bankruptcy. European Union Law: European Union law is a body of written agreement and
legislation. Purpose of EU behind this law is for the mutual development and maintaining
peace between competitors.
 Fair trading act 1973: Fair trading act 1973 is implemented by the government of UK to
control the misuse of monopoly of the businesses and encouraging the fair trading in
business.
With regards to above discussed act, the competition policies and regulatory mechanisms
developed by the government of UK helps in controlling the competitions and misuse of
monopoly among the business. Thus, McDonald follows all the policies and acts that are
implemented by the UK government (Davig and Leeper, 2011). For instance, if, McDonald
promotes its fast food by advertising low prices and other attractive offers, then it would also
mention all the terms and conditions regarding the offer. Also, cited firm is responsible for
providing the same offer as it displayed to its customers.
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TASK 3
3.1 Different market structures to determine the pricing, output decisions of the business
Illustration 2: Types of Market Structures
(Source: Market structures, 2015)
Market Structure of McDonald depends on the nature and level of Competition in the
business environment of fast-food and restaurant services. There are four types of market
structures. These are as follows, Perfect Competition: Perfect competition is a structure that consists of several small
buyers and sellers of the similar products and services. In this structure, customers have
complete and accurate information about the prices (Afonso and Sousa, 2012). In this
type of market structure, all the participating organizations make same purchase and offer
high quality products to retain customers. Monopolistic Competition: Monopolistic competition refers to a market structure which
includes all the characteristics of the perfect competition and monopoly market structure.
Monopolistic market structure offers the substitute products and has many buyers.
Although, substitute products can be differentiated on the basis of image, advertisements
and attributes (Trkman, 2010). For instance: McDonald's and subway offer the similar
fast food but they are different on the basis of ingredients, taste and recipe. Thus,
McDonald applies monopolistic market structure to determine the price and other
important decisions of the fast food business.
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 Oligopoly: Further, oligopoly is an industry infrastructure which is dominated by the
limited organizations that function independent businesses without much competition
(Vanhaudenhuyse and et. al., 2011). Oligopoly market structure is normally followed by
the countries who provide undifferentiated products and have limited suppliers of
particular product in the market. For instance: barrels of oil, ounce of gold, airline
services and manufacturer of cars.
 Monopoly: Here, monopoly market structure consists of single producer and supplier of
product and service which has no close substitute. In this structure, business is considered
as a single industry player which controls all the resources and technology as well as
blocks the potential competitors.
3.2 Market forces that shape short and long term organizational responses
There are several market forces that help in shaping short and long term organizational
responses such as, pricing, cost control, collaboration, acquisition and mergers. These market
forces are as follows, Demand and supply: Demand and supply are the effective market forces that shape
organizational responses like price, cost control and collaboration etc. for instance, due to
festive season, demand of fast food is increased, while production and supply of raw
materials and ingredients is limited. So, price will be increased for fast foods in that
particular time (Rugman, Verbeke and Nguyen, 2011). On the contrary, if demand of fast
food is low then prices will be decreased in order attract more customers. Thus, demand
and supply of products and services make its huge impact in shaping the short term and
long term organizational responses.
 Customer perception: Moreover, customer's perception shapes the short term and long
term organizational response in the cost control of organization. Customer's perception
includes buying behavior and decision making ability of the consumer. Customer
perception is based on the receptive content of products and services which is used in
promotion and marketing activities (Gupta, Clements and Inchauste, 2004). Thus, it is
recommended to McDonald's to represent itself in an effectual way to attract more
customers and change their perception. This will put positive impact on customer's
perception and their decision making ability.
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3.3 Business and cultural environments shape the behavior of organization
Business and cultural environment such as changing economic situation, cultural
diversity and life style make its huge impact on shaping the behavior of organization. Business
environment of McDonald consists the economic and non-economic environment. Non-
economic environment of McDonald's depicts all the macro factors of business environment such
as social, political, economic, technological and legal (Cavusgil and et. al., 2014). On the
contrary, economic environment of McDonald depicts the economic system and policies that
affect the business practices of cited firm. For instance: if McDonald decides to expand its
business in culturally and technologically developed country then it must involve the trends and
other social factors of people regarding the food preferences. Through this, cited firm can
effectively maintain cultural diversity in the organization in changing economic situation and
increase the sales and profitability of organization.
TASK 4
4.1 The significance of international trade in UK business organizations
International trade is necessary for all the business organizations as it helps in expanding
business within the country as well as outside the country. Through international trade,
organizations can maintain diversity in business. Some particular products can be available in the
organization and some may be not. In this situation, these products can be exchanged with
products and services through international trading (Carroll and Buchholtz, 2014). This can
provide competitive advantage to the organization as well as customers. Furthermore,
international trading can be beneficial for economy of the country as well. For instance:
businesses from other countries can bring lot of business opportunity for company and also
support the economic growth of country. In developing countries, fast food business can provide
high revenue to the McDonald with the availability of low expenditure.
4.2 Impact of global factors on UK business organizations
Impact of global factors on business can be analyzed through PESTAL analysis. These
factors are as follows:
 Political: As per this factor, McDonald's should analyze the government influence on
business. Political factors are related to regulatory bodies, rules and regulations that are
implemented by the governmental body of UK.
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 Economical: Economical factor of McDonald depicts the economic growth and stability
of business in the country (Hult, Hurley and Knight, 2004). These economic factors
depict exchange rate, fiscal and monetary policies that affect the business of McDonald.
 Social: Social factors refer to social and cultural impact on fast food business of
McDonald.
 Technological: Technological factors depict the technological growth of country which
affects the business practices of McDonald.
 Legal: As per legal factors, McDonald's should consider all the laws, policies, rules and
legislation that are implemented by the government in order to manage business practices
in a legal and ethical manner.
4.3 Impact of different economic situations and European Union on UK business
Business organizations in UK maintain all the rules and regulations that are implemented
by the government with the influence of European Union. Different economic situations of
country make its huge impact on the businesses. Economic stability of the country decides the
growth of organization (Kovacic, 2004). Furthermore, rules and regulations implemented by
European Union are essential in order to manage national and international trade. For instance, if
McDonald's is operating business in European Union country than it has to take prior approval
from the European Union. Furthermore, European Union assists businesses in foreign exchange
and trade.
CONCLUSION
It can be stated from the present report that it is essential for the manager to improve its
knowledge regarding the fiscal and monetary policy before making decisions with regard to the
selection of an appropriate strategy. However, if the mentioned policies will not be considered on
time, then profits of the corporation will be impacted.
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