BUSINESS ENVIRONMENT

Business Environment

Business Environment

Section One

Answer Number One

Men live collectively by the impossibility of satisfying all their needs. Human nature also makes the man struggles to improve their level of satisfaction, seeking to improve their welfare. The man lives in society to enhance their intellectual, spiritual, moral, economic chunks of life. All these areas of economic aspects are importance for human development; economic well-being is of greatest interest to economics. Economic welfare involves the ability of people to consume more and better goods and services but there is one basic problem involved in this scenario is:

The resources in the world are scare but the human wants are unlimited, so how to use scarce resources to produce goods and services sufficient to satisfy unlimited wants?

This economics problem give rise two three questions that what to produce, how to produce and for whom to the things should be produced. Economics is the science that studies the way in which scarce resources are allocated among the various competing uses for them. Transformation curve or Production possibility curve intends to identity the ways necessary to solve this economic problem (Barro, 1981, 45). It formulates the way necessary to answer these three basic questions.

Model of Transformation Curve

Because there is a shortage of resources, it is necessary to choose the distribution of resources according to the needs and tastes and preferences. For this reason, it shows the model of the transformation curve or Production Possibilities Frontier. A model in this context is a simplified representation of reality and behavior (Davidson, 1978, 77). To build the model is necessary to make some assumptions, because the reality is usually very complex.

Model Assumptions The Transformation Curve:

The company produces two goods or baskets of goods.

The economy is autarkic.

The curve is plotted per unit of time.

The technology is given and is the best.

The factors of production are given.

Production factors are versatile, but they are equally productive in different activities.

There is full employment of factors.

Individuals act rationally.

For example, suppose an economy that can engage in the production of coffee or shirts, according to the following, where the quantities of coffee are given in thousands of bags per month and the shirts in thousands of units:

This system categorically explicates that which alternative the economy should select to provide better allocation of resources which solves the economic problem (Isenberg, 2000, 33).

Answer Number Two

Following are some of the assumption of the perfect model and how it differ from the real world.

Perfect Model

Good product is homogeneous;

Real life

In real life good produced are not always same

Perfect Model

Businesses operate in conditions of "perfect information" (market transparency), ie all players have complete information on the costs of production, prices, the equilibrium real wage, etc.

Real life

In real life myriad things are not transparent and many business don't know different things about different businesses

Perfect Model

Companies operating in the market does not in any way influence the selling prices, and there are no barriers to entry and exit of competitors (firms are price-taking);

Real ...