Impact of External Shocks on the UK Economy

The assignment content includes a collection of articles, journals, and online resources that discuss various aspects of the UK economy. The papers cover topics such as firm survival, financial market structure, economic science, cultural events' impact on the economy, moral issues in business, prices and decisions, and more. Additionally, there are several online sources providing an overview of the United Kingdom economy, including its inflation rate, unemployment statistics, and economic forecast. The assignment content also includes illustrations from the sources discussing market equilibrium and price elasticity of demand.

Business
Economics

TABLE OF CONTENTS
Introduction......................................................................................................................................4
Overview of UK economy...............................................................................................................5
Task 1...............................................................................................................................................6
A Explaining the economic problem of scarcity and demand resource allocation in managing
economy.......................................................................................................................................6
Explaining how equilibrium in the market can be achieved.......................................................6
B Evaluating the importance of different market system ...........................................................7
Evaluating the role of opportunity cost in determining economic decisions..............................8
Explaining the elasticity of demand and assessing the importance in market interactions........8
Task 2...............................................................................................................................................9
A Explaining the implications of its pricing and corporate objectives on Hilton's operations....9
B Comparing the prices set in different market structure..........................................................10
Analyzing the market structure and operational decision of the Hilton...................................11
C. Evaluation of regulation on market power of the organisation.............................................11
Task 3.............................................................................................................................................12
A. Analysis on how the UK economic structure has changed in 21st century..........................12
B Evaluation of tools available to meet changes in macroeconomic policies...........................12
Evaluation of the success of UK government on achieving macroeconomic objectives........13
C. Evaluating the performance of the economy in Global Market............................................14
Task 4.............................................................................................................................................14
A. Demonstrate comparative advantage theory using relevant illustration...............................14
B. Analysis of the impact on developed economics by emerging economies...........................15
Evaluation of consequences in recent domestic and global economic on UK.........................15
CONCLUSION..............................................................................................................................16
References......................................................................................................................................17
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Index of Tables
Table 1: UK Economy Data.............................................................................................................5
Illustration Index
Illustration 1: Market Equilibrium...................................................................................................8
Illustration 2: Price elasticity of demand.......................................................................................10
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INTRODUCTION
Business economics deal or concerned with the issues like business organization,
management, economics, strategy etc (Galí, 2015). It is a field of economics that includes the
impact of entrepreneurs, how and why corporation make decisions, role of government in
regulations etc. The present report is based on the Hilton hotel and resorts, an international chain
of full service hotels and resorts in UK and also a flagship brand of Hilton Worldwide.
Furthermore, report lays emphasis on UK economy and its economic system, the problem of
scarcity and demand resources in managing an economy. It also covers the structure of UK
economy and the tools available to meet the macroeconomic changes in UK. Moreover, the
implications of prices and corporate objectives on UK's operations are covered in this report.
OVERVIEW OF UK ECONOMY
According to measured by the nominal GDP, UK has the fifth largest national economy
(UK Economic Forecast, 2016). It is the ninth largest in the world according to the purchasing
power parity and also the third largest economy in Europe, it terms of leading trading power and
financial center after Germany and France. Agriculture in intensive and efficient by the European
standards, as about 60% of the food is produced by this sector. In 2005, UK became the importer
of energy but now they have large coal, natural gas and oil resources.
The key growth of British GDP is because of banking, insurance and through business
services (United Kingdom Economy – overview, 2015). In G7, UK is the fastest growing
economy, for the three consecutive years from October 2015. It is one of the largest globalized
economics.
Table 1: UK Economy Data
2011 2012 2013 2014 2015
Population 63.3 63.7 64.1 64.5 64.9
GDP per capita 41049 41436 42366 46412 43875
GDP 2598 2640 2715 2994 2849
Economic growth 2 1.2 2.2 2.9 2.2
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(Source: UK Economic Forecast, 2016)
The pharmaceutical industry in UK plays an important role in economy and they have
third highest share in pharmaceutical R&D. UKL is the major employer and exporter of
Automatic industry.
TASK 1
A Explaining the economic problem of scarcity and demand resource allocation in managing
economy.
The basic economic problem faced by the industry is the scarcity and demand resource.
Scarcity is a situation where there is insufficient quantity of resources to meet the needs and
wants of the customers (Bryman and Bell, 2015). There are different kinds of products are
produce every year, but different people want diverse according to their needs.
Demand is considered to be an important element of economy. As, scarcity is a limited
world resources, to meet the unlimited demands. With an increase in the price of the product,
there will be decrease in the demand by the customers. With a scarcity of resources in the
market, there will be an increase in the price and with a rise in price, the demand will fall
(Robbins, L., 2016). The demand for the products as well as energy for the customers is
continuously rising but the earth has a limited amount of natural resources, to satisfy the
unlimited demands.
The main economic problem faced by the Hilton hotel and resorts is the shortage of
skilled chef. Business struggle to find and fill the vacancies of the chef. Due to the shortage, the
food quality of the industry goes down, and by this, the demand for the food also declines.
Explaining how equilibrium in the market can be achieved.
Equilibrium is the condition, where supply of an item is equal to its demand. It is
happened in that situation when there is no surplus or shortage of resources in the market as well
as the price of that item remain stable (Campbell, Goldfarb and Tucker, 2015).
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With a proper supply of production in the cited company, there will be increased in the
demand of the products. The price mechanism for the product is depended on the supply and
demand of the product (About us, 2016). The price and the amount of goods sold is set on the
basis of supply and demand. If the supply by the company as well as demand by the customer is
in a good flow, the reason is low price of the product. Therefore, the equilibrium can be achieved
when the demand will be equal to the supply.
At most of the prices, planned demand is not equal to the planned supply which shows
disequilibrium. In that case, either the company earn surplus or face shortage, because industry
have incentive to change the price.
B Evaluating the importance of different market system
Market is a place which involved the flow of goods and services from the producer to the
consumer, it includes all the business based activities. A market economy is an economic system,
where economy is regulated by the supply and demand, rather than innervation of the
government (Mas-Verdú, Ribeiro-Soriano and Roig-Tierno, 2015).
A planned economy is an economic system where economy is manages by the
government or workers councils. In this, all the major sectors of the economy is controlled by the
government or by the state and all the decision related to the use or the distribution of income is
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Illustration 1: Market Equilibrium
(Source: Market Equilibrium, 2016)

formulated by them. It is an economy where private owners of the factor of production made
decisions related to production, distribution, investment etc. the main importance is that
company make the decision according to their own interest as well as on the basis of customers
interest (Hursh and Roma, 2015).
Mixed economy which contain both private and state owned enterprises, the importance
is that the state provide the essential services to the company and by this the company encourage
for profits.
Evaluating the role of opportunity cost in determining economic decisions.
Opportunity cost is the value of the best alternative forgone from a limited resources and
the choice is made from the several mutually exclusive alternatives (Saayman and Saayman,
2015). Opportunity cost is the cost of the next most desirable alternatives, which company has to
give up in order to engage in that particular activity. From Hilton's perception, they have two
choice either expanding the hotel or bring innovative changes in the resort. If they choose on
expanding the hotel rather than bring innovative changes in the resort in that case, the changes in
the resort is the opportunity cost or value of the best alternative forgone. As they more focus on
expanding the hotel rather than bring innovative changes in the resort and it also helps in
determining the decisions for the company.
Opportunity cost is the important concept and it helps the company in making decision or
choice from a given set of alternatives (Autio and Fu, 2015). The opportunity concept is very
fundamental to economics, which helps the Hilton in making decision, if the production of one
product or services increases, then the resources from the production of other goods have to be
withdrawn.
Explaining the elasticity of demand and assessing the importance in market interactions
Price elasticity of demand measures the relation between the demand and the price. It
measures between the change in the quantity demanded of a particular product and change ion
price. It is used in economics and show the responsiveness of demand to change in price of a
particular product (Market Equilibrium, 2016).
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If the price elasticity of demand is equal to 0, then the demand is perfectly inelastic which
means demand remain constant with the changes in the price. Demand is inelastic, this occurs
when percentage change in demand is less than the percentage change in price and the value
represent between zero and one (Simon, 2015). When the price and demand will be equal, then
the price elasticity of demand will be equal to one. If it is greater than one, it means demand is
affected to a greater degree which a change in price.
Price elasticity of demand gives an important information to the company, if manager of
the Hilton is able to know the elasticity of demand for their products or services, then they will
easily analyze the rise or fall of the prices. It also helps the cited company to understand the
changes in the price affects the sales of the firm.
TASK 2
A Explaining the implications of its pricing and corporate objectives on Hilton's operations
The pricing strategies used by the Hilton are divided into four categories economy,
penetration, skimming and premium pricing strategies. The implications of this pricing on
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Illustration 2: Price elasticity of demand
(Source: Chand, 2016)

hilton's operations are:
Using economy pricing strategy, mentioned company provide products and services to
the customers at a low budget. By using of penetration pricing strategy, Hilton provides or
offering high quality products and services in low prices. This is because to increase the market
share from the competitors. Skimming pricing strategy is opposite to penetration strategy. In use
of this strategy, cited company provides products and services at a higher rate as compared to the
competitors and the quality of the product and services is high as well as exclusive.
Using of premium pricing strategy, Hilton provide product ans services to the customers
at a high prices and are perceived to have excellent quality and additional features (About us,
2016). The corporate objective of the mentioned company is to offer five star and four star rooms
to the customers and they also sell services such as high status, luxury etc. The pricing strategy
adopted by the Hilton is premium pricing, as they charge their customers at premium level.
B Comparing the prices set in different market structure.
A market is divided into different structure such as perfect competition, monopoly,
oligopoly and monopolistic. The prices set in the different market structure are:
Perfect competition- It is a market where there are large number of companies and all
are producing same product and services (Musmeci, Aste and Di Matteo, 2015). In this market
there is a perfect degree of competition between the companies. The price of the product under
perfect competition is determined by the market force of demand and supply. All buyer and
seller under this are price taker, they set the price according to demand in the market and
focusing on selling more at a higher rate and lesser at a lower rate.
Monopoly- It is a market structure where there is only single seller in the market and
having no substitute (Campbell, Goldfarb and Tucker, 2015). They are the price maker and has a
price setting power, they look to earn high level of profit by charging high prices on the products
and services.
Monopolistic- In this large number of small companies selling differentiated products,
thus the products are close but not perfectly substitute (Autio and Fu, 2015). They set the price
which is higher than the marginal cost. Pricing under monopolistic competitions are related to
short and long run equilibrium. In short run, they set the prices to earn the highest amount of
profit and in long run there is no abnormal profit.
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Oligopoly- Is a market structure where there are small number of firm competing in the
market for a particular product (DeCicca and Kenkel, 2015). They set the price which is not as
low as the marginal cost of production.
Analyzing the market structure and operational decision of the Hilton
Hilton hotel and resorts is an international chain of full service hotels and resorts in UK
(About us, 2016). It covered under the market structure of Perfect competition. The reason of
perfect competition is there are large number of hotel and resort in UK and all these are
providing same services to the customers. It is a hypothetical market and competition of Hilton is
at its greatest possible level. The operational decision that affects the performance is, Hilton has
to strives to make their decision more efficient which can be done by rationalizing business
processes. Cited company have to reduce the prices of the products and services in order to
improve the capture the higher market as compared to competitors.
C. Evaluation of regulation on market power of the organisation
There are various laws in UK that are required to be followed by the Hilton Hotel (About
us, 2016). Working Time Regulation(1998) is one the important regulation that are to be
followed by the Hilton Hotel. This act states that various regulations regarding weekly monthly
hours, working time regulations etc. Time as well as working limits have been assessed in this
Act and if any violation is there. The employees is eligible to fight against his right.
Another important act is of Inequality Act, this Act states that the organisation should not
discriminate its employees on the basis of race, cast, sex etc. All employees are to be treated on
equal basis (UK Economic Forecast, 2016). Distribution Act is also important in the hospitality
sector. This Act states that the employer should not discriminate or exploit its employees on the
basis of gender. The employer is required to distribute income on the basis of work and not on
the basis of gender. He should treat its employee equally.
TASK 3
A. Analysis on how the UK economic structure has changed in 21st century
Economic structure of UK economy in 21st century is adopting various social, political,
technological challenges to the economy. The unemployment rate is decreasing in UK. There is
rise in living standards of citizens in UK as the rate of income distribution has increased in 21st
century. Income inequality rate is less in Britain (Living Standards, Poverty and Inequality in the
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UK, 2015). Britain is experiencing high growth in ageing population. That is further leading
towards various challenges such as gaps in Job Market, pressure on health care, recessions
creates funding issues. With the 21st century there is a rapid growth in technology in UK. Various
technological progress came across 21st century such as rise in informational technology, new
materials, environment protection techniques. Also came up with rise in genetic and energy
technologies (Galí, 2015).
Further 21st century has also leaded towards various changes for society perspective.
Such as telecommunications, teleworking, teleshoping as well as teleleranings. All these changes
have effected the Hilton Hotel favourably as well as unfavourably. For example – With increase
in technologies it has helped to organization to limit the manpower by using advanced machines.
With which the work is done with more efficiency ad effectively. Various new technologies such
as camera, advance kitchen appliances assist the organization in controlling, monitoring its work
effectively (Robbins, 2016).
B Evaluation of tools available to meet changes in macroeconomic policies
With macroeconomic policy Government of UK is concerned to promote stable and
sustainable economic growth. As various factors such as wealth, Jobs and improved living
standards of people of UK depends on stability and sustainable economic growth.
Following are the tools available to meet the changes in macroeconomic policies: Fiscal Policy – This policy is used at the time of changes occurred in spending of
government, at the time of levied taxes and the form of borrowing taken by the
Government (Bryman and Bell, 2015). All these activities of Government directly
influences the economic activities of UK. This tool is completely controlled by the
government for stabilizing the economic activity. Fiscal polity is a intended tool by which
government supports aggregate demand by increasing public spending and cutting taxes.
Fiscal policy is use to balance the spending and savings of the UK government to achieve
stability in wealth, jobs and living standards of people.
 Monetary Policy – A Committee is responsible for handling monetary policy in UK. This
tool is implemented at the time of change in cash rates. Cash rates are the interest rates
applies on overnight loans in money market. Changes in interest rates can effect the
economy activities by effective savings and investment behaviour, supply credits, asset
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prices etc. With the help of monetary policy UK government settle transactions held in
supply of funds among banks (Kuratko, Hornsby and Hayton, 2015). Committee sets
cash rates to maintain full employment ,welfare and prosperity rates in UK.
Evaluation of the success of UK government on achieving macroeconomic objectives
There are various macroeconomic objectives that have been achieved by the UK
government. Positive sustainable economic growth- Maintaining sustainable economic growth was
the primary objective of UK Government. Economic Growth the is a result of increase in
over time real output. Real output is measured by the Gross domestic product ( GDP).
Forecast expected for real GDP is slightly low. Predicted economic growth is still a
fastest growing in the world (Shaw and Barry, 2015) . Low inflation rate – Another objective of UK government was lowering the inflation rate
in UK. For this Government has taken following steps such as lowering the prices of oil,
metals, food, gas and electricity. These initiatives has lead in decreasing inflation rate to
zero in UK by 2015. Low unemployment / Full employment – UK government also focused on lowering its
unemployment rate in the Country. By 2015 it had achieved success in reducing
unemployment by5.5%. Also it had lead to increase in wage rate by 2% (UK
unemployment and employment statistics, 2016).
Depicting effects of changes Hilton Hotel- Increasing in economic growth rate will
automatically increase the purchasing power of the customer. That will further help in increasing
demand for the services of Hilton organisation (Musmeci, Aste and Di Matteo, 2015). This will
lead in increasing the revenue of organisation. On the other hand, with the decr4sae in inflation
rate had also lead to increase in purchasing power of customers. That will again result in
increasing turnover of the firm. Whereas in case of increase in employment rate the organisation
will have to spend more on the wage and salary part of its employees (Campbell, Goldfarb and
Tucker, 2015) .
C. Evaluating the performance of the economy in Global Market
Performance of UK economy in global market can be evaluated as follows:
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 GDP growth rate – UK economy is one of the fastest growing economy in world.
Taking about international context GDP is regarded as a key measure to economic
activity. In terms of GDP UK has the 8th largest economy in world in 2012. Currently it
is having 4th highest GDP per capita (The financial times ltd, 2016) . Inflation rate – UK inflation rate turned positive by November 2016. in November 2015
inflation rate rise to 0.1% which had further reduced to 0.1% in November 2016.
decrease in inflation rate has boosted the cost of utilities, housing, restaurants, hotels etc.
On the the hand it had also lead to decrease in food prices and transport (United
Kingdom Inflation Rate, 2014 ). Unemployment- There is decrease in unemployment rate of UK. The the performance of
UK is going great in global market.
Effects of economic performance oh Hilton Hotel
Increase in growth rate results in increase in increasing purchasing power parity of the
consumers which results in increasing demand. Increase in demand will ultimately result in
increasing the revenue of organization (Mas-Verdú, Ribeiro-Soriano and Roig-Tierno, 2015).
Same with the decrease in inflation rate it will lead to increase in purchasing power. Also there
was decrease in cost of hotels and prices will further lead to less revenue to the organisation.
With the lowering of inflation rate the organisation but there is decrease in wage rate so it will
not affect the organisation. It will balance its resources.
TASK 4
A. Demonstrate comparative advantage theory using relevant illustration
The Theory Comparative Advantage is the ability of one country to produce goods-
services at lower opportunity cost then another country. For Example- While producing
agricultural commodities India has comparative advantage as the opportunity cost forgone by
India for producing agricultural products is low. Whereas, UK has less comparative advantage as
the opportunity cost forgone for producing agricultural products is higher (Hursh and Roma,
2015).
Advantages and disadvantages of free trade
It will help the waitrose organization in attaining comparative advantage. It also helps the
organization to receive cheaper imports which further helps in widening the size of market. Also
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helps in facing competition as well as free trade helps in restricting exploitation. Whereas, there
are some disadvantages to be faced by the Waitrose firm on the account of free trade (Saayman
and Saayman, 2015). Such as unfavourable balance of pavements and may also encourage
interdependence.
Impact of theory comparative advantage on Hilton Hotel
With the help of comparative advantage theory it will lead to increase in production
whereas, it may include extra cost of transaction to its product. It also questions on the food
security of the Hote l (Autio and Fu, 2015).
B. Analysis of the impact on developed economics by emerging economies
BRICS ( Brazil, India, China, South Africa) is a emerging economies that are impacting
on developed economy. By increasing size of their economy and increasing their share of growth
rate in world economy (How have world shocks affected the UK economy?, 2014). BRICS
countries are enjoying high growth rate in global market where China has emerged as a
powerhouse of exports, India has also emerged as a domestic demand driven economy. Whereas
Brazil has develops economic structure and South Africa is the fastest growing region of Africa.
In last few decades BRICS has increased it financial as well as technical assistance in global
economy (DeCicca and Kenkel, 2015) .
Evaluation of consequences in recent domestic and global economic on UK
Different types of shocks such as world demand, supply and financial shocks had
impacted the output of UK. Great moderation has positively impact on overseas demand.
Whereas in 2007 -13 world shock has resulted in decrease in 6% of UK GDP growth rate.
Impact of emerging issues on the Hilton organisation- emerging issues such as BRICS is
covering large share in GDP of global market. Because of which there is decrease in share of
GDP of UK in global market (Simon, 2015). This affects Hilton Hotel while expanding its
business in other countries.
CONCLUSION
This report was based on the UK Economic system and its effects on British business
organisation. Evaluated the importance of differ market systems and the role of opportunity cost
was determined. Again evaluated about the UK regulations that were affecting the market
regulations of Hilton Organisation. Analysed social, political, technological structures of UK
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economy and there impact on the Hilton Hotel. Demonstrated the theory on comparative
advantage with taking illustration of India and UK opportunity cost. Further also mentioned
various advantages and disadvantages of free trade that is reduction in cost, restricting
exploitation etc.
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REFERENCES
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DeCicca, P. and Kenkel, D., 2015. Synthesizing Econometric Evidence: The Case of Demand
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Galí, J., 2015. Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New
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Hursh, S. R. and Roma, P. G., 2015. Behavioral economics and the analysis of consumption and
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Shaw, W. and Barry, V., 2015. Moral issues in business. Cengage Learning.
Simon, H., 2015. Prices and Decisions. In Confessions of the Pricing Man(pp. 97-120). Springer
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