Commerce Question Bank – 24 Short Questions With Answers on “Business Environment”

1. What is environmental analysis?

Environmental analysis is defined as “the process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic, and social settings to determine opportunities and threats to their firms.

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2. What is environmental diagnosis?

“Environmental diagnosis consists of managerial decisions made by analysing the significance of the data (opportunities and threats) of the environmental analysis.”

3. What do you mean by business environment and economic environment respectively?

Business environment refers to the totality of all the factors which are external and out of control of an individual, business enterprise and their management. The most important factors are socio-economic, technological, suppliers, competitors and government.

The economic conditions such as, the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets etc., all mean economic environment.

4. Why are internal factors of a business enterprise regarded as controllable factors?

The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organization and functional means, such as marketing mix, to suit the environment.

5. What kind of external factors influence the process of business enterprises?

The external factors are by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors, geo-physical factors, etc., influence the process of business enterprises.

6. What are the important external factors that constitute the economic environment of a business?

Economic conditions, economic policies and the economic system are the important external factors that constitute the economic environment of a business.

7. What do you mean by micro environment?

The micro environment consists of the factors in the company’s immediate environment that affects the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers and the public.

8. Mention some important determinants of business strategies.

The economic conditions of a country—for example, the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, etc—are among the very important determinants of business strategies

9. What do you understand by free market economy?

The free market economy is not planned, controlled or regulated by the government. The government satisfies community or collective wants, but does not compete with private firms; nor does it tell the people where to work or what to produce.

The completely free market economy, however, is an abstract system rather than a real one Today, even the so-called market economies like the United States, Japan, Australia, Canada and member countries of the EEC are subject to a number of government regulations.

10. What factors show that “the freedom of private enterprises is greatest in the free market economy?”

The freedom of private enterprises is the greatest in the free market economy, which is demonstrated by the following facts:

(i) The factors of production (labour, land, capital) are privately owned, and production occurs at the initiative of the private enterprise.

(ii) Income is received in monetary form by the sale of services of the factors of production and from the profits of the private enterprise.

(iii) Members of the free market economy have freedom of choice in so far as consumption, occupation, savings and investments are concerned.

11. Mention the socio-cultural fabric as an important environmental factor that should be analysed while formulating business strategies.

The socio-cultural fabric is an important environmental factor that should be analysed while formulating business strategies. The cost of ignoring the customs, traditions, taboos, tastes and preferences, etc., of a people could be very high.

The buying and consumption habits of the people their language, beliefs and values, customs and traditions, tastes and preferences, education are all factors that affect business.

12. What demographic factors are relevant to business?

Demographic factors like the size, growth rate, age composition, sex composition, etc. of the population, family size, economic stratification of the population, educational, levels, language, caste, religion, etc are the factors that are relevant to business.

13. What do you mean by demarketing?

Demarketing refers to the process of cutting consumer demand for a product back to level that can be supplied by the firm. Some oil companies—the Indian Oil Corporation, for example—have publicized tips on how to cut oil consumption.

When the fertilizer price shot up following the oil crisis, some fertilizer companies appealed to the farmers to use fertilizers only for important and remunerative crops. The importance of natural manure like compost as a substitute for chemical fertilizers was also emphasized.

14. Mention some of the important environmental forces which drive companies towards adopting the marketing concept.

There are certain environmental forces which drive companies towards adopting the marketing concept. These forces tend to make the survival of the companies otherwise difficult. Important among these forces are:

(i) growth of consumerisms and environmentalism;

(ii) demand for social justice;

(iii) government regulations; and

(iv) changing competitive environment.

15. What is meant by the capitalist system?

The capitalist system is one characterized by the private ownership of the means of production, individual decision making, and the use of the market mechanism to carry out the decision of individual participants and facilitate the flow of goods and services in markets.

16. What are the principal characteristics of a “pure” capitalist system?

The principal characteristics of a “pure” capitalist system are:

(i) The factors of production—land, labour and capital—are privately owned, and production occurs at private initiative.

(ii) Free enterprise is merely an extension of the concept of property rights.

(iii) Consumer’s sovereignty where consumers have complete freedom of choice of consumption.

(iv) The individual is free to choose any occupation he is qualified for.

(v) The freedom to save is implied in the freedom of consumption, for savings depend on income and consumption.

(vi) The market mechanism is the key factor that regulates the capitalist economy.

(vii) Competition among sellers and buyers is an essential feature of an ideal capitalist system

(viii) The absence of a central plan.

17. What are the drawbacks of unregulated capitalism?

Unregulated capitalism suffers from certain drawbacks:

(i) As investment allocation is guided by the profitability criterion, sufficient investment may not take place in areas where profitability is low, however essential they may be.

(ii) The right to property and freedom of enterprise are likely to lead to concentration of income and wealth and the widening of interpersonal income disparities.

(iii) Though, according to the theory, there will be free competition, in the real world the large firms are likely to gain an advantageous position which would eventually lead to monopolies.

18. What do you mean by socialism?

Socialism is generally understood as an economic system where the means of production are either owned or controlled by the state and where the resource allocation, investment pattern, consumption, income distribution, etc. are directed and regulated by the state.

19. Mention some of the salient features of a socialist system.

The salient features of a socialist system are:

(i) The major means of production are either owned by the Government or their use is controlled by the Government.

(ii) Existence of a central authority like the central planning agency to formulate the national plan for development and to direct resource mobilization, allocation and investment to achieve the plan targets.

(iii) The consumers have to content themselves with what the state thinks is sufficient for them.

(iv) The freedom of occupation is absent or restricted.

(v) The wage rates and prices are fixed by the Government and not by market forces.

(vi) An equitable distribution of income.

20. What is command economy?

The command economy is characterized by public ownership of the means of production, collective determination of economic decisions, and the allocation of resources by commands issued by the planning elite. The primary feature of the command economy is the centralization of decision-making. There is no horizontal communication between producing and consuming units. All communication is vertical, i.e., between the individual economic unit and the planning agency.

21. What is market socialism?

Market socialism is characterized primarily by the public ownership of the means of production. Decisions with reference to the allocation of resources are made both collectively and by individual producing and consuming units. Prices and markets are the primary mechanisms used to facilitate the exchange of products. The Yugoslav economy contains many of the elements of market socialism.

22. What are the drawbacks of the totalitarian socialism?

Some drawbacks of the totalitarian socialism are:

(i) Civil liberties are suppressed.

(ii) There is no consumer sovereignty.

(iii) There is a limited scope for accommodating different views and making critical evaluations.

(iv) As private enterprise is not allowed to operate, the talents of the nation are not fully utilised.

(v) People may lack incentive to work hard in the absence of private property.

(vi) The absence of freedom of choice of occupation is undemocratic.

23. What do you mean by consumerism? Give two rights of the consumer.

Consumerism is the movement seeking to protect and inform consumers by requiring such practices as honest packaging and advertising, product guarantees and improved safety standards. Rights of the consumer are :

(a) Right against exploitation by unfair trade practices.

(b) Right to protection of health and safety from the goods and services the consumers buy or are offered free.

24. What are the utilities of consumerism?

Well-organized and dynamic consumerism may be expected to produce the following results:

(i) Producers and sellers will not take the consumer for granted.

(ii) Consumerism will provide feedback for the business.

(iii) Producers will be able to enlist the support of consumers to minimise the imperfections on the distribution front.

(iv) Consumerism will make the government more responsive to consumer interests, prompt it to take necessary statutory measures, and make the required institutional arrangements to safeguard consumer rights.


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