Page 113 - Introduction to Business

CHAPTER 2 The Environment of Business 87

Careers with the Service Industry. Broadly categorized as the hospitality
and tourism sector, this industry includes the airlines, shipping, cruise lines, hotels,
entertainment, national parks, and so on. The service industry requires close inter-
acting with customers and meeting customer needs. Cultural sensitivity and for-
eign language proficiency could be crucial requirements for successful careers in
this business sector.

Summary

The focus of this chapter is the contemporary business economic policy tools that they can use to achieve
environment, and the most important fact to remem- economic goals. Yet, some of these policy tools may
ber is that business is global in nature. work against each other. The role of economic
policymakers is to coordinate policies that reinforce
each other to arrive at the right economic goal.
LEARNING OBJECTIVE 1
Define the major goals of effective economic man- LEARNING OBJECTIVE 3
agement.
Explain why trade is better than no trade for society
The primary goals of sound economic management are as a whole.
a high rate of real GDP growth; low levels of unemploy-
Countries gain from free trade, since on the supply
ment; low rates of inflation with free markets; and sta-
side, it leads them to specialize in the production of
ble exchange rates with relatively open trade. A country
goods and services in which they perform compara-
that can consistently achieve most of these objectives is
tively well. Equally important, on the demand side,
bound to have a solid economy with a booming busi-
international trade benefits consumers by providing a
ness environment.
greater amount of choice in the availability of goods
and services, competitive prices for those goods and
LEARNING OBJECTIVE 2 services, and higher living standards. It is a win-win sit-
Summarize the key policy tools available to manage uation for society as a whole.
an economy.
LEARNING OBJECTIVE 4
Governments have some important direct and indirect Evaluate the different forms of trade and foreign
policy tools to help them achieve their economic goals. investment barriers and their impact on business,
These instruments include fiscal policy, monetary consumers, and government.
policy, incomes policies, and trade and exchange rate
policies. Fiscal policy consists of government While free trade is the best form of conducting business
expenditures and taxation. Governments purchase with partners overseas, quite often countries try to
goods and services to serve the needs of the general restrict trade as well as FDI for various political reasons.
public. Taxes are the source of government revenue, Barriers to trade have a cost, and they also distort mar-
without which governments would not be able to ket-based trade patterns. While domestic firms gain
spend money on social programs and defense. because the competitive pressure from abroad is
Monetary policy deals with the control of the money reduced through protection (and domestic firms could
supply in an economy. A central bank’s primary conduct business less efficiently), the person who ulti-
objective is to make sure that there is sufficient money mately pays for this inefficiency is the domestic con-
in the economy to promote economic growth with low sumer in the form of higher prices or lower-quality
inflation. Incomes policies consist of wage and price goods or services purchased. Protectionist policies in
controls that are usually implemented during periods developed countries have severe negative effects on
of hard economic times. Finally, trade and exchange developing countries’ production, employment, and
rate policies involve the elimination of quotas and economic growth. There are five major types of trade
tariffs on the one hand and the maintenance of stable barriers: tariffs, quotas, voluntary restraints, counter
exchange rates on the other. The objective is to trade, and embargoes. Protection penalizes consumers
increase trade, investment, and global economic in the importing country and producers in the export-
growth. Countries therefore have a wide range of ing country.

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