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Explain with example: The success of a business will be closely influenced by the external environment, particularly the market economy

A) Explain with example: The success of a business will be closely influenced by the external environment, particularly the market economy.

B) Explain and examine how a market economy allocates resources and how a business needs to respond to the market.

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A) Explain with example: The success of a business will be closely influenced by the external environment, particularly the market economy.

The law of supply and demand predominates in the market economy, influencing prices toward an equilibrium that balances the demands for the products against the supplies.
Thus the interplay of supply, demand and price tend to result in a thriving economy. Competitive bidding fixes prices in the market; it also determines incomes and allocates goods.
Changes in the external environment to the organization are a part of the market economy. At the dawn of the new millennium, if we look back at the last century, we will realize the changes the world has seen. Some of the key changes in today's external environment, which would include the following facts:
1. The world is more competitive, we are all competing in a global economy.

2. Geographic boundaries have become almost incidental.

3. Competitors are coming from outside traditional core business.

4. Margins are thinner, with severe impact on cost structures and profitability.

5. Customers are less loyal, but more sophisticated and ever more demanding.

6. Labor and primary input related cost competitive advantages are short lived at best.

7. Technological shifts in information availability and processing power have virtually eliminated the information float from business processes.
Organization must understand the changes in the environment ...

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