Microeconomic Analysis of Tesco's Supply Chain

The provided assignment is an analysis of microeconomic concepts as applied to Tesco, one of the UK's largest retailers. It examines how Tesco operates within a market-driven economy, focusing on its supply chain management, competition with other retailers like ASDA and Sainsbury's, and international sourcing practices. The assignment also touches on the importance of domestic sourcing and the need for reliance on local services. It concludes by highlighting the relevance of microeconomic concepts in managing an organization effectively.

Learning Journal

Table of Contents
Microeconomic Concept .................................................................................................................1
Introduction to Economics..........................................................................................................1
Production Cost...........................................................................................................................1
Demand and Supply....................................................................................................................2
Analysis of Micro economic Concept in organisational Context ...................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

Microeconomic Concept
Introduction to Economics
Economics is the study of production, consumption as well as transfer of wealth.
It deals with all the economic aspects of a business, thus, Economics considers not only
the financial aspect of a business but also the economic aspects as well.
Economics deals with the issue of allocation of scarce resources that a country
has towards production of goods as well as services to satisfy the unlimited wants in an
effective manner. Thus it is much broader concept then managing finances of a
business. It involves decisions which shapes the business of a concern.
The Economic Concept is divided into two parts Micro Economic as well as
Macro Economics. Micro economics deals with management of resources of an
organisation in a way that it will be most economical as well as beneficial to the firm. It
involves decisions like production, demand and elasticity. On the other Hand, Macro
economics refers to managing the whole resources of the organisation in general. It
covers the concept of Monetary policy, and fiscal policy that affects Production policy
that may have a direct impact on the overall working of businesses within the nation.
Macro economics also oversee the Taxation matters that prevails within an economic
environment and how the same can be effectively managed over period of time through
proper policies and procedures (Altman, 2012).
There are different types of economies like free market economy, Socialist
economy, and a mixed economy which is a blend of both free market and socialism.
The policies followed by these economy differs and thus will going to have a different
impact on the businesses and individuals in general. Free market economy believes in
making the resources available to private sector, while the social economies are
opposed to it. Hence, Some nations follow free market system and some follows
socialism system for the purpose of managing the resources of their respective country.
Production Cost
It refers to the cost that occurs while production of goods as well as services.
The various types of cost that is involved in producing any goods as well as services are
actual cost, average cost, Marginal cost etc. The profit is achieved by an organisation
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after deducting the Total Cost from Total Revenue, (Profit= Total Revenue-Total Cost).
From the economic standpoint a firm has to incur some other cost as well except
accounting cost. These are Opportunity Cost which basically means the cost borne by
the entrepreneur or the owner for investing capital in the business which would have
generated money, if invested elsewhere. The production cost are divided into three
parts, These are:
Variable Cost: These are cost that are basically variable with the size of output of the
organisation. As the firm increase its size, the level of cost also increases, and a major
part of the same belongs to the Variable cost like, the cost of labour, cost of raw
material etc. Thus, Variable cost either increase or decrease with the size of production.
Fixed Cost: These are cost Which occurs for once and does not changes with the
change in production of an organisation. The example of such types of cost are, Cost of
Land, Cost of Building, Cost of Plant as well as Machinery etc.
Total Cost: These are cost which is a sum total of all the cost that is incurred by the
organisation for the purpose of production. Total cost is the Sum of Variable cost as
well as fixed cost.
Marginal Cost: It refers to the additional cost that is incurred by an organisation for
producing one extra unit of goods, A Manager will have to keep a close eye on this cost
to maintain optimal costing within the business (Bauer, 2018).
Demand and Supply
The demand and supply refers to the ultimate behaviour of people as they
interact with themselves at the market place. A market is a place where buyers and
sellers bargains with each other for the purpose of buying and selling commodities.
The central Law of demand states that there is a inverse relationship between
prices of goods and quantity demanded, provided all other factors that affects the
demand pattern remains constant i.e. Citrus Peribus. The law of demand can be
depicted through this table effectively:
Price of a Chocolate ($) Quantity Demanded
0.50 20
1 16
2

1.5 12
2 8
2.5 4
3 0
Thus, the above table clearly depicts that as the price of chocolate rises the
quantity demanded falls and is even 0 when the price of chocolate has surged to 3$.
A shift in demand curve is seen, when the shift is caused by various factors like
consumer income, expectations, consumer tastes as well as preferences, consumer
expectations etc. There are various other factors except price that influence the
demand, these includes
Substitute Goods: These are goods which can replace a particular product and is
considered as a the competitor of the same, for example, if coke will reduce its price in
comparison of Pepsi, the people will prefer coke instead of peps. This is because they
both operate in the same sector and sells identical products (Wang and Fu, 2013).
Complementary Goods: These are those goods that is a part of the ultimate product
and a change in the prices of these goods, leads to a change in the price of ultimate
products.
Size of Market: The Structure of the market, like number of suppliers and buyers can
influence the overall demand and supply of the market.
Analysis of Micro economic Concept in organisational Context
There is a direct impact of various macro as well as micro economic concepts on
the overall working of an organisation in the longer run. Thus, there is a need to
overcome the effects of various micro and macro economic policies on the working of
organisation. Tesco is a company which deals in the retail sector in United kingdom and
is having diverse operations around the world as well, which makes it a big company
within the retail industry. The company make sure that the its production cost remains to
a minimal in order to ensure higher profitability and low cost goods as well as services
can be provided to the consumers in an effective way. The major cost of company is the
cost of purchasing products from the various business suppliers and showcase the
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same within the stores in a attractive manner that will spur growth of the business over
period of time (Olitsky and Cosgrove, 2016).
Introduction to Economics
Tesco is a big company of United Kingdom which engages a lot of people with
itself by giving employment to them on a regular basis. UK is a economy which runs on
capitalism and has opened up its market for investors as well as businessman in an
effective way. The polices framed by the government are usually pro business and thus
Tesco works in a conducive economic environment to conduct its business effectively
as far as United Kingdom is concerned. But some of the other countries of Asia and
also in some of the parts of Europe the company is struggling to establish itself. This is
because most of these countries are having stringent policies regarding retail sector as
there are various small and medium retail shops that exist within these nation, and due
to big players like Tesco there is a threat to these players for conducting business
effectively. Company is planning to venture into new countries which are having a high
disposable income and a better Purchasing power, so that a bigger market can be
reached in a short span of time (McCarty, Bennett and Carter, 2013).
Production Cost
The company incurs more fixed cost as compared to Variable cost as it have to
incur heavy expenditure on the setup cost of its stores. The stores of the company is
usually quite big enough which requires a large amount of investment and is usually
fixed in nature. A major chunk of the cost is given by the company to its farmers as they
are one of the major cost contributor for the organisation.
Tesco is an organisation which deals with almost every products that are being
offered by most of the reputed companies in United Kingdom. The company also
operates in more then 7 countries with around 6500 stores (Leishman, 2015).
Demand & Supply
Demand refers to the quantity demanded by buyers at a particular price, As far
as the economic demand is concerned, The company is able to fulfil the demand of its
consumers over period of time and thus usually charges a higher prices from its
consumers as compared to other competitors. UK Consumers can be said to be as one
of the richest in the world. Thus, they make their daily vegetable and other grocery
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purchases from a retail store ( Upto 80%) and Tesco holds a large chunk within the
same in an effective way, Thus it can be said that around 33% of the money that is
being spent by an individual in England on food occurs in a Tesco shop. This shows
that company holds a big chunk of the demand of UK and is responsible for shaping the
retail sector of united kingdom through offering a high level of competition on a
consistent basis (Kader, 2013).
Supply refers to the the amount of goods that can offered by the market at a
predetermined price. The company is having a strong supply chain management that
allows it to deliver even perishable goods like milk and other dairy products to its every
stores locates in nooks and corners of the nation. The company carries a reputation in
the retail market that allows it to charge a slightly higher prices then its competitors like
ASDA, Sainsbury's etc. A large chunk of supplies of Tesco also comes from
international sources and thus international pricing and policies have impacted the
supplies within UK, This particular aspect have been criticised by most of the
economists and thus it can be said that there is a need to overcome this issue of
international sourcing and reliance shall be made on domestic sourcing of goods as well
as services for effective outcomes (Djankov, 2014).
CONCLUSION
From the above discussion, it can be said that various microeconomic concept
are very crucial for better as well as effective management of an organisation and
business managers shall consider those concepts in a constructive manner to frame
right kind of policies as well as procedures for the organisation over period of time.
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REFERENCES
Books and Journals
Altman, M., 2012. Human agency and material welfare: Revisions in microeconomics and their
implications for public policy. Springer Science & Business Media.
Bauer, M.J.R., 2018. Principles of microeconomics.
Djankov, S., 2014. The Microeconomics of Postcommunist Transformation. The Great Rebirth
—Lessons from the Victory of Capitalism over Communism. pp.187-204.
Kader, A., 2013. Locus of control, student motivation, and achievement in principles of
microeconomics.
Leishman, C., 2015. Housing Supply and Suppliers: Are the Microeconomics of Housing
Developers Important?. Housing Studies. 30(4). pp.580-600.
McCarty, C., Bennett, D. and Carter, S., 2013. Teaching College Microeconomics: Online vs.
Traditional Classroom Instruction. Journal of Instructional Pedagogies, 11.
Olitsky, N.H. and Cosgrove, S.B., 2016. The better blend? Flipping the principles of
microeconomics classroom. International Review of Economics Education. 21. pp.1-11.
Wang, X. and Fu, Y., 2013. Some characterizations of the Cobb-Douglas and CES production
functions in microeconomics. In Abstract and Applied Analysis (Vol. 2013). Hindawi.
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