Amazon's Business Model and Impact

This assignment delves into the intricacies of Amazon's business model, examining its core elements, evolution, and influence on various sectors. It analyzes Amazon's strategies across different markets, including e-commerce, cloud computing (AWS), and digital content, considering their impact on consumer behavior, competition, and economic growth. The assignment also explores the ethical and societal implications of Amazon's dominance in the marketplace.

Running Head: Financial and Economics Concepts
Financial and Economics Studies
Name of the student
Name of the university
Author’s Notes
Course ID

Financial and Economics Concepts 1
Table of Contents
Question 1: Business economics of Amazon.........................................................................................2
Question 2: Consumer price index of a commodity...............................................................................5
Question 3: UK economy and its various policies..................................................................................7
Question 4: Concept of financial statement........................................................................................10
Question 5: Financial Intermediation..................................................................................................10
Question 6...........................................................................................................................................12
Part a) Ratio Analysis.......................................................................................................................12
Part b): Future value of cash flows..................................................................................................14
Part c) Selection of best alternative plan.........................................................................................15
References:..........................................................................................................................................16

Financial and Economics Concepts 2
Question 1: Business economics of Amazon
Introduction
Amazon.com is an e-commerce company whose headquarter is based in Washington and was
founded in July 1994. It is also one of the largest company in the industry of cloud
computing. Amazon.com is now recognised as the largest internet retailer in the entire world
because of its market capitalisation which is also the highest (Amazon.com 2017). It has
employed on an around 341400 employees under it and has generated revenue of around
$135.98 billion.
Business economics concept
Amazon.com is setting up more and more business models with excellent infrastructure
which is contributing to its revenue growth and ultimately to its phenomenal success. The
success of the company is also motivating its workforce to promote the company’s
international brands. As per the recognised structure-conduct-performance paradigm, the
corporate performance of an international organisation primarily depends on the behavioural
pattern of demand and supply chain managed by the game players of the respective business
(Klaus 2013). Amazon.com operates its business across the world in the electronic commerce
market which is developed remarkably in the last few years through the use of advanced
technologies. The innovation in the internet and other related technologies has enhanced the
use internet globally. As Amazon.com has gained the top position in the e-commerce industry
through its excellent functionalities, it is attaining tremendous growth and success for its
products and services over the geographical boundaries thereby widening its customer base
all over the world.
The infrastructural facilities of Amazon.com have largely contributed to the extraordinary
performance of the company and has also provided the competitive edge over its competitors.

Financial and Economics Concepts 3
Also, the distinguishing feature of the company to remain focused on the customer needs
adds to its functional capabilities. It analyses the demands and needs of its customers and
potential customers from all the corners of the world. Amazon.com has always believed in
the team building concept to attain the organisational efficiencies and to smoothen the overall
functioning of the company. Therefore, it has strived to maintain an adequate organisational
structure for all its geographical divisions in the proper hierarchal order. The favourable
conditions in the areas of consumer behaviour and technological trends is promoting the
organisational development (Ritala, Golnam and Wegmann, 2014). Amazon has created its
goodwill in the market place by always performing as per the expectations of its customers in
terms of demands and the quality of products and services provided.
Figure 1: Figure representing Six Dimension of Amazon
(Source: Amazon.com 2017)
The above figure shows that Amazon has achieved a top position by rendering its products and
services across the world and by winning the trust of its customers for its own brand.
The figure below incorporated indicates the growth of Amazon’s sales over several years:

Financial and Economics Concepts 4
Figure 2: Figure representing Revenue of Amazon over the years
(Source: Amazon.com 2017)

Financial and Economics Concepts 5
Question 2: Consumer price index of a commodity
A consumer price index of a commodity is defined as the weighted average mean of the
relative future or spot prices of the commodities in a particular set. A comparative study chart
is prepared to incorporate all the prices of the commodities (Eichhorn and Voeller, 2012). It is
determined through the use of chart that is constructed with the statistical estimates of prices
of relative commodities whose price data is collected over a period of time, generally a year.
It is calculated by a mathematical formula where price of the basket of commodities in a
particular year is divided by that of base year. Then the ratio that arrives after the division is
multiplied by 100. The final result that comes after performing the mathematical calculation
is the commodity’s price index and it is used to determine the inflation rate of the particular
period. It indicates the change (in percentage) of price index between the two given periods.
The changes in prices of a commodity is generally affected by the change in the demand of
that commodity.
Change in the price index of potato
The price index of potato is influenced by the change in the demand pattern of the potatoes
and their prices. Therefore, the value of potatoes can be said to be dependent on the factors
that mentioned above. Though, it is given that with increased competition has led to confined
supply of potatoes and even the price index of potatoes between February and March 2017
has been found to be increased by 3.2% which is lower than the rise in price index of
February and March 2016, i.e. 9.6%.Yet, the price index of potato depicts that the price of the
potato in the month of March 2017 was comparatively higher than that of March 2016
(Azevedo and Leshno, 2016). The rise is the price was mainly due to two reasons: one is the
demand of the potatoes and other is the increase in the inflationary rate in this particular
industry.

Financial and Economics Concepts 6
It is evident that due to several economic reasons there has been significant increase in the
potato price index but the supply of potato could not be increased in the same proportion. It
can said that when the potato supply is not being increased in the same proportion of rise in
potato’s price index, the rise in the price index of potato is due to the overall increase in the
potato’s price level in the economy. Also, the increased inflation in the economy has also
caused the rise in the prices of various products.
Figure 3: Figure representing Elasticity of Demand
(Source: Frank, Bernanke and Lui 2015)
As potato is one amongst the most commonly used edible items its, the demand for this item
does not get easily affected. The supply of potatoes will also not affect its demand. From the
above graphical representation it is clear that not just the inelastic demand of a product
affects its supply but sometimes price level of a product also influences the supply of

Financial and Economics Concepts 7
products (Frank, Bernanke and Lui, 2015). This facts makes it simple to compare potato’s price
index in current year with that of previous year
Question 3: UK economy and its various policies
The economy of United Kingdom is recognised as one of the most developed as well as
market oriented economies all over the world as it has successfully faced extreme economic
fluctuation many a times. The UK government has formulated several policies to achieve the
aim of economic success of the country (Laibson and List, 2015). Those policies are discussed
as follows:
To attain economic development of a country it is necessary to either undertake the demand
sided policies or the supply sided policies. Each of those policies are being discussed below:
Demand side of policies:
These policies are aimed at increasing or decreasing the aggregate demand to affect the
output, employment and inflation. This sort of policy can further be divided into two
categories. One is the monetary policy and the other one is the fiscal policy.
Monetary policy:
These policies involves use of interest rates and the other monetary tools to increase the level
of consumer’s spending and the aggregate demand. It will thus ultimately influence per
person’s investment and expenditure in a nation. However, the UK government could not
succeed to take into account the probability of liquidity situation in improving the overall
economy (McCombie and Thirlwall, 2016). In situations like this reduction of interest rate may
not be improved with the actual level of spending.

Financial and Economics Concepts 8
Figure 4: Figure representing Base rate and Real GDP growth in UK
(Source: McCombie and Thirlwall 2016)
The above shown figure indicates that the interest rate in year 2009 in UK economy could no
create a good impact on its overall GDP due to the reason that banks did not give enough of
consideration to the activities of borrowing as well as investing.
Fiscal policy:
With the failure of UK government to formulate appropriate monetary policies thereby
increasing the borrowings of the economy. To deal with this it introduced the fiscal policies
to improve the economy. To improve the monetary policy, a country has to reduce the tax
burden with government’s initiatives to increase the employment in the economy (Otley,
2016).

Financial and Economics Concepts 9
Figure 5: Figure representing borrowing of UK following the implementation of
expansionary fiscal policy
(Source: Otley 2016)
Devaluation:
It is one of the most important method of improving the overall prosperity of the economy
through the means of bring devaluation in the currency of that particular country. The
purpose of devaluation was to promote the exports for the country as it will ultimately
contribute to the advancement of economy of the country.
Supply side of policies:
To implement the demand sided policies, UK Government has also formulated and
implemented the supply sided polies (Taussig, 2013). In the past years labour market of UK
faced extreme disturbance due to labour strikes. This was dealt by reducing the powers of
trade unions and by formulation of strategies in this context for the economic growth.

Financial and Economics Concepts 10
Question 4: Concept of financial statement
Financial statements of an entity are the comprehensive set of all the financial information
relating to the business of the entity. It contains necessary information about the transactions
and events occurred in any business in a particular period. The managers of the company
forms these financial statements as the basis of financial planning by making future financial
projection and various types of budgets (Pradhan, Nishigaki and Hall, 2017). Those budgets and
plans helps the managers in allocating the resources available with the business to different
departments. The financial planning enables the managers to effectively and efficiently utilise
the available business resources while carrying out the business in the short run as well as
long run. Also, financial statements provides a concrete platform to analyse the profitability,
liquidity, solvency and other financial positions of the company through the use of ratio
analysis tools (Afonso and Sousa, 2012). This analysis provides support to the business
managers in decision making. Moreover, in making various decisions regarding the capital
investments to be made or to appraise capital investments alternatives various tools and
techniques of capital budgeting are employed such as net present value method, payback
period method, internal rate of return etc. These techniques are used to identify whether the
investment plan involving the huge capital expenditure is worth undertaking or continuing or
not. Managers are responsible to maintain a reasonable structure of debt and equity in the
business and therefore a proper capital structure must be built through the deployment of
capital budgeting tools and techniques.
Question 5: Financial Intermediation
Financial intermediation is the process of accepting the deposits from the people who has
surplus funds and lending the money deposited to the parties who needs financial assistance.
The banking and other financial institutions are generally involved in the mechanism of

Financial and Economics Concepts 11
financial intermediation. They charge interest rate from the borrower of the funds and pay the
interest on the deposits to the lenders of the funds at a lower rate than they charge from the
borrowers. Financial instruments are the contracts in the form of monetary assets which are
generally traded between the parties to the contract (DaSilva and Trkman, 2014). These
instruments can easily be created, traded, modified or settled. These financial agreements can
either be in the form of cash (currency) or a right to receive or an obligation to deliver cash,
or in any other form like derivative instruments.
The risk and returns on a particular asset or investment are generally directly proportional as
an investment with higher risk can offer higher returns to the investors and the investments
that are less risky, does not normally have the potential of offering higher returns. Even the
variability of return determines the risk involved in the investment (Rios, McConnell and Brue,
2013). For example, an investment with 5% of interest rate for next 3 years involves no risk as
the interest payment i.e. the return generated by it is same for all the years. But at the same
time an investment that will offer fluctuating rates of interest every year will involve higher
risk as it may offer higher returns or may not offer the returns up to the investor’s
expectations. It may offer 10% return in one year and 3% in another year whereas the
investor expects it to generate at least 5% return per year. The variability of return has
increased the level of risk in this particular investment.
Therefore, it is necessary to assess the uncertainty or variability of return while considering
the other risks attached to the investment (Ghysels, Plazzi and Valkanov).

Financial and Economics Concepts 12
Question 6
Part a) Ratio Analysis
Ratio analysis of Morrison Supermarket PLC
(All figures in £ millions)
Liquidity Ratio 2015 2014
Quick Ratio= Quick Assets 480 577
Current Liabilities 2273 2873
0.21 0.20
Working notes:
Quick Assets 2015 2014
Cash And Cash Equivalents 241 261
Accounts Receivables 239 316
Total Quick Assets 480 577
Market Value Ratio 2015 2014
Earnings Per Share Net Earnings -761 -238
Weighted Average No. Of Shares 2332.5 2327
-0.33 -0.10
Asset Management Ratio 2015 2014
Fixed Asset Turnover Net Sales 16816 17680
Average Fixed Assets 7252 8625
2.32 2.05
Working Note:
Fixed assets 2015 2014
Cost of Fixed Assets 10675 12350
Less: Accumulated
Depreciation 3423 3725
Net Fixed Assets 7252 8625
Debt Management Ratio 2015 2014
Debt Equity Ratio Debt 5577 6037
Equit
y 3594 4692

Financial and Economics Concepts 13
1.55 1.29
Debt = Current Liabilities + Non-Current Liabilities
2015 2014
Current Liabilities 2273 2873
Non-Current Liabilities 3304 3164
Total
Debt 5577 6037
Profitability Ratio 2015 2014
Gross Profit Margin Ratio Gross Profit 761 1074
Sales Revenue 16816 17680
4.53% 6.07%
Ratio analysis of Tesco PLC
(All figures in £ millions)
Liquidity Ratio 2015 2014
Quick Ratio= Quick Assets 4286 4696
Current Liabilities 19810 21399
0.22 0.22
Working notes:
Quick Assets 2015 2014
Cash And Cash Equivalents 2165 2506
Accounts Receivables 2121 2190
Total Quick Assets 4286 4696
Market Value Ratio 2015 2014
Earnings Per Share Net Earnings -5741 974
Weighted Average No. Of Shares 8107 8078
-0.71 .12

Financial and Economics Concepts 14
-
Asset Management Ratio 2015 2014
Fixed Asset Turnover Net Sales 62284 63557
Average Fixed Assets 20440 24490
3.05 2.60
Working Note:
Fixed assets 2015 2014
Cost of Fixed Assets 36791 36585
Less: Accumulated
Depreciation 16351 12095
Net Fixed Assets 20440 24490
Debt Management Ratio 2015 2014
Debt Equity Ratio Debt 37143 35449
Equity 7071 14715
5.25 2.41
Profitability Ratio 2015 2014
Gross Profit Margin Ratio Gross Profit -2112 4010
Sales Revenue 62284 63557
-3.39% 6.31%
Analysis:
The above analysis shows that the current ratio for year 2015 of Tesco PLC i.e. 0.22 is higher than the
Morrison Supermarket PLC i.e. 0.21. Therefore, it can be said that the liquidity position of Tesco PLC
is better than the Morrison PLC. Though the difference is slight but yet Tesco can be said to be more
liquid than Morrison
Tesco PLC is also having higher fixed asset turnover ratio in both the years 2015 and 2014 than the
ratio of Morrison PLC in both of those years. Moreover, the ratio is also showing increasing trend in
the case of Tesco i.e. 2.60 in year 2014 and 3.05 in year 2015. This shows that Tesco is more capable
than Morrison to generate sales from investments in the fixed assets.
The gross profit margin ratio of Tesco is negative 3.39% in the year 2015 whereas the same ratio of
Morrison i.e. 4.53% which is quite greater than Tesco. This indicates that Morrison is more profitably
operating than Tesco. Thus, the profitability position of Morrison is sound in comparison with Tesco
which is operating in loss.
Part b): Future value of cash flows

Financial and Economics Concepts 15
Year
end
Opening
Balance Amount Invested Interest
Closing
Balance
1 £ - £ 400.00 £ - £ 400.00
2 £ 400.00 £ 300.00 £ 22.00 £ 722.00
3 £ 722.00 £ 250.00 £ 39.71 £ 1,011.71
Part c) Selection of best alternative plan
YEAR CASH FLOWS PVF PV of CASH FLOWS CASH FLOWS PVF PV of CASH FLOWS
0 -£ 50,000.00 1.000 -£ 50,000.00 -£ 50,000.00 1.000 -£ 50,000.00
1 £ 25,000.00 0.907 £ 22,675.74 £ - 0.907 £ -
2 £ 15,625.00 0.823 £ 12,854.73 £ - 0.823 £ -
3 £ 5,000.00 0.746 £ 3,731.08 £ - 0.746 £ -
4 £ 12,000.00 0.677 £ 8,122.07 £ - 0.677 £ -
5 £ 32,000.00 0.614 £ 19,645.22 £ 99,500.00 0.614 £ 61,084.37
NPV £ 17,028.84 £ 11,084.37

Financial and Economics Concepts 16
References:
Afonso, A. and Sousa, R.M., 2012. The macroeconomic effects of fiscal policy. Applied
Economics, 44(34), pp.4439-4454.
Amazon.com 2017. Amazon.com: Online Shopping for Electronics, Apparel, Computers, Books, DVDs
& more. [online] Amazon.com. Available at: https://www.amazon.com/ [Accessed 7 November 2017.
2017].
Azevedo, E.M. and Leshno, J.D., 2016. A supply and demand framework for two-sided matching
markets. Journal of Political Economy, 124(5), pp.1235-1268.
DaSilva, C.M. and Trkman, P., 2014. Business model: what it is and what it is not. Long range
planning, 47(6), pp.379-389.
Eichhorn, W. and Voeller, J., 2012. Theory of the Price Index: Fisher’s Test Approach and
Generalizations (Vol. 140). Springer Science & Business Media.
Frank, R.H., Bernanke, B.S. and LUI, H.K., 2015. Principles of economics. McGraw-Hill Asia.
Ghysels, E., Plazzi, A. and Valkanov, R.I., 2016. The risk-return relationship and financial crises.
Klaus, P., 2013. The case of Amazon. com: towards a conceptual framework of online customer
service experience (OCSE) using the emerging consensus technique (ECT). Journal of Services
Marketing, 27(6), pp.443-457.
Laibson, D. and List, J.A., 2015. Principles of (behavioral) economics. The American Economic
Review, 105(5), p.385.
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments constraint.
Springer.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Pradhan, R.P., Nishigaki, Y. and Hall, J.H., 2017. The multivariate dynamic causal relations between
financial depth, inflation, and economic growth. Philippine Review of Economics, 54(1), pp.63-93.
Rios, M.C., McConnell, C.R. and Brue, S.L., 2013. Economics: Principles, problems, and policies.
McGraw-Hill.
Ritala, P., Golnam, A. and Wegmann, A., 2014. Coopetition-based business models: The case of
Amazon. com. Industrial Marketing Management, 43(2), pp.236-249.
Stiglitz, J.E., Walsh, C.E., Gow, J., Guest, R., Richmond, W. and Tani, M., 2013. Principles of
economics. John Wiley & Sons.
Taussig, F.W., 2013. Principles of economics (Vol. 2). Cosimo, Inc..
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley &
Sons.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education

Financial and Economics Concepts 17

Financial and Economics Concepts 18