Business Economics: An Essay on Economic Concepts and Market Structures

BUSINESS ECONOMICS- ASSIGNMENT 1

Executive Summary-

The essay has reflected a constructive structure about understanding the changes and the modifications occurring in the economy. The behaviours of firms regarding the changes in the business decisions have also been explained in this economy accordingly. The concept of scarcity and the importance of opportunity cost have been explained in detail. PESTLE analysis has also been considered, and the impact of the same on business organizations has reflected the business structure strategies accordingly. Types of the market structure have also been explained to understand the role of each market structure in the economy accordingly.

Assignment 1- Essay

Business Economics and Importance of Economics to Managers-

Definitions-

Following Siegl Man, business economics is defined as the economics that integrates business operations with the appropriate concept of economics to embrace future tasks and operations by effective decision making (Coase 2019).

Following McNair and Meriam, business economics is the evaluation of the conditions and situations of business firms through the application of economic models.

Differences between Business Economics and Economics-

Some of the differences are-

• The application of business economics assists the business firm with the relevant theories and practices for better practical knowledge. In contrast, economics is concerned with theoretical knowledge and the transfer of wealth.

• The application of business economics assists the micro-enterprises and has no relation with the macro-economic, whereas economics consists of these aspects accordingly (Coase 2019).

Importance of Economics to Business Managers and Firm's Decision Making-

• Business Planning- Economics is very useful in planning the tasks and operations of a business firm. Success is based on the balance between the production and revenue departments, and the approach of economics helps in achieving it.

• Coordination of Business Activities- The economics approach helps manage and control the coordination of the tasks and activities to ensure that desired results are attained by the business firm (Williams et al. 2019).

• Cost Control- Economics helps determine the business structure approach is going through profit or loss. Hence, it is easy to control the cost through such aspects that will eventually help improve the business's decision-making processes.

Concept of Scarcity and Choice and Importance of Opportunity Cost in Business Decision Making-

Concept of Scarcity- The situation when the demand for a service is more than the resource supply.

Concept of Choice- When the consumer has multiple ranges of options accessible at a specific point of time towards the availing of a good or service.

Concept of Opportunity Cost- The potential advantage that consumers avoid when opting for another better option available (Williams et al. 2019).

Scarcity- Fundamental Economic Concept-

One of the most important issues being faced by the economies is scarcity. It is a situation when limited resources are available, and the needs and wants for the resources are high. In simpler words, it can be determined that the economies face this situation as limited resources and unlimited wants affect the economic resources to a greater extent. Choices made by consumers, business firms and governments are as follows-

• Consumers- According to the news, it has been observed that in the UK, consumers and households had to make choices due to limited resources. One of the examples is that consumers had to make choices against the aspect of water, i.e. limited in nature (Bhinekawati 2021). Due to this limited resource, the consumers had to switch to non-potable water, affecting their health of these consumers.

• Business Firms- According to recent news being published in the report, it has been observed that the automobile sector is facing the issue of semiconductor cars in the UK. These cars are directly linked to automation in producing and manufacturing new cars. Therefore, it can be generated due to a halt in the same; the business firms are confused about whether to continue with the production or sell some parts accordingly.

• Government- In the economy of the UK, the population is increasing daily. Hence, it can be generated that the government have to consider the housing facilities effectively. However, the problem of farming is another problem the government faces (Bhinekawati 2021). Therefore, the government will have to consider making a rise in the homes for the people or consider the area for the farmers.

Production Possibility Frontier-

The curve helps reflect the different combinations that the business firm can produce by applying different resources and technology available in the business firm.

(Source: Economics Help, 2022).

Importance of Concept of Opportunity Costs in various economic systems-

• Free Command- It is a type of economy under which the resources and technologies available are owned on a central basis. Therefore, it can be determined that the business organizations will be allocated the required resources in the business structure accordingly (Nafik et al. 2018). The analysis and measurement of opportunity costs have to be considered for the possible combinations that can be considered to make it easy for the government.

• Mixed Economy- It is a type of economy under which free will is opted for by business organizations. Under the same aspect, it can be said that it's up to the business firm about how many combinations need to be produced. Therefore, the business firms will decide on the most beneficial mix combination for this economy.

Changes in Economic Environment affecting Business decisions and Behavior of Firms-

External Environment- This type of environment on which the business has no control. This environment is uncertain, and it can be determined that evaluation of such an environment in advance will lead to a better generation of the results (Nafik et al. 2018).

Context of PESTLE Analysis-

• Political- The impact of policies and guidelines on the government aspect.

• Economic- Factors such as tax rate, inflation and exchange rate may influence business decisions.

• Social- Changes in society's needs and requirements influence business decision-making.

• Technological- Innovations and advanced developments in the business economy influence business results.

• Environmental- Changes in the protection of consumer's interest laws impact the business to focus more on society (Chitonge 2020).

Economic Factors influencing Buying Habits of Consumers-

• Unemployment- This is an economic factor that directly relates to the income of the individuals and impacts the profit margins of the business. Any increase in the economy's unemployment will comparatively lead individuals to possess lesser income. Therefore, this factor directly impacts the revenue of the business firm. For example, the individual's and consumers' lower demand for any product or commodity will result in lesser profits. Such prices decreases will lead to fewer employees required in business firms.

• Inflation- The price rise in general consumer goods is defined as inflation. The impact of inflation has a direct impact on the costs of production. That eventually raises the product's price, influencing the profits of the business firm (Chitonge 2020). For example, a price rise in gas from £50 to £100 will result in a rise in transportation costs. Such a rise will increase transportation costs and eventually lower profit margins.

• Tax rate- Fluctuations in the tax rate will also influence the business economy to a greater extent. It can be determined that such a rise in the tax rate will influence the profit margins by reducing them. That will enable the consumers to reduce their spending accordingly and have lesser demand for the products. For example, a change in the government policy regarding tax rates will enable the consumers to save and spend less accordingly, eventually falling the demand for the products accordingly (Mols and Jetten 2020).

Recommendations on Decision-Making-

Few recommendations need to be followed accordingly for a better decision-making process. They are as follows-

• The unemployment rate shall be reduced. For this purpose, more employment opportunities shall be generated and provide effective training and development approaches to embrace the employment opportunities accordingly.

• The production of goods shall be considered based on the benefits available. For example, manufacturing the product shall ensure that the benefits shall be effectively gained for better resource utilization accordingly (Mols and Jetten 2020).

Operations of Market and Impact of Market structures on Firm's Production and Strategic Decisions-

Concept of Market- A market is where many buyers and sellers meet with each other and buy and sell goods, products, and commodities accordingly.

Operations of Market-

• It acts as a bridge between the buyers and sellers.

• Different types of goods and commodities are bought and sold in one place, i.e. market.

Concept of Demand and Supply-

Demand is the quantity demanded by the consumers to purchase any good or commodity. In contrast, supply is defined as the ability of the manufacturers and suppliers to produce and manufacture the products accordingly (Fukase and Martin 2020). The concept of demand and supply are the market forces that determine the transactions occurring in the market accordingly.

Demand-

(Source: Economics Help, 2022).

The above graph reflects the movements in the demand curve, i.e. increase or decrease. If the price rises and the demand falls, it is a contraction in the demand curve, whereas when the price falls and the demand rises, it is an extension in the demand curve.

Supply-

(Source: Economics Help, 2022).

The above graph reflects the supply curve movements that occur when an increase or decrease in the supply. It can be determined that when the price increase and the supply also increase, there is an extension in the supply curve, whereas when the price falls, and the supply also falls, there is a contraction in the supply curve (Fukase and Martin 2020).

Equilibrium Point-

(Source: Economics Help, 2022).

The above graph is the equilibrium point. It is a point where the demand and the supply of the product meet each other. It can be determined that when the market attains this point, the demand and supply for the product are the same. It shows the balance in the market regarding the products and commodities (Fukase and Martin 2020).

Market Structures and their Characteristics-

There are different types of market structures in the market. They are as follows-

Perfect Competition- A marketplace where many buyers and sellers meet with each other and have the same homogenous products accordingly. For example- Milk suppliers

Characteristics-

• Products are homogenous, i.e. identical.

• Maximization of profits is easy (Byrne et al., 2021).

Monopoly- It is a type of market structure under which there is only one seller who controls the market. For example- Defense Industry

Characteristics-

• Price setter as the price is set by the monopolist.

• There are no close substitutes that are available

Monopolistic Market- It is similar to a perfect competition market. However, the products being there for purchase and sale are differentiated from each other. For example- Restaurants

Characteristics-

• Profit maximization is easy.

• Price discrimination is applied (Byrne et al., 2021).

Oligopoly Market- In this market, a very limited number of firms control the market accordingly. For Example- Pharmaceuticals

Characteristics-

• The price takers are the consumers.

• There is a restricted and limited entry in the market.

Market Structure Influencing Business Decisions and Strategies-

• Perfect Competition- Any change in the price rise in the products will enable the consumers to try different products with lesser prices accordingly. 

• Monopoly: The influence of this market structure will have to be complied with by the consumers (Coase 2019).

• Monopolistic Competition- The firm's aims and targets at improving the goods and commodities to gain better benefits from other sellers.

• Oligopoly- Any change in the decision of the business firm will have an impact on the other business firms accordingly (Coase 2019).

Market Operations- Conclusion

The market structures being explained above have reflected the advantages accordingly. Hence, it can be concluded that various limitations and restrictions are also associated with the market accordingly. A perfect competition market does not exist in the real world. Both monopolistic and oligopoly market enables the consumers to have better choices accordingly. Monopoly firm leads to increased prices for consumers.

References-

• Bhinekawati, R. (2021) Comparing the Concept of Scarcity: Conventional vs. Islamic Economics. The Journal of Applied Business and Economics, 23(3), pp.258-262.

• Chitonge, H. (2020) Urbanization and the water challenge in Africa: Mapping out orders of water scarcity. African Studies, 79(2), pp.192-211.

• Coase, R.H. (2019) Economics and contiguous disciplines. In The organization and retrieval of economic knowledge (pp. 481-495). Routledge.

• Fadhlillah, H., Nafik, M., Ratnasari, R., Widiastuti, T. and Herianingrum, S. (2018) Concept of Scarcity in the Islamic Economic Perspective.

• Fukase, E. and Martin, W. (2020) Economic growth, convergence, and world food demand and supply. World Development, 132, p.104954

• Koufopoulou, P., Williams, C.C., Vozikis, A. and Souliotis, K. (2019) Shadow Economy: Definitions, terms & theoretical considerations. Advances in Management and Applied Economics, 9(5), pp.35-57.

• McGookin, C., Gallachóir, B.Ó. and Byrne, E. (2021) An innovative approach for estimating energy demand and supply to inform local energy transitions. Energy, 229, p.120731.

• Mols, F. and Jetten, J. (2020) Understanding support for populist radical right parties: toward a model that captures both demand-and supply-side factors. Frontiers in Communication, 5, p.557561.