Economic Analysis of Small Business Dynamics and Market Equilibrium

This assignment is a case study that explores the economic analysis of small business dynamics, including regional and business growth, R&D investment, and financing constraints. It also delves into market equilibrium, discussing the concept and its implications for businesses. The study examines various research papers and articles on entrepreneurship, innovation, and economic development, highlighting the importance of understanding these factors in a business context.

BUSINESS ECONOMICS

Table of Contents
INTRODUCTION..............................................................................................................1
TASK 1.............................................................................................................................1
1.1 Economic problem of scarcity and demand resource allocation............................1
1.2 Equilibrium in a market is achieved........................................................................2
1.3 An Importance of differing market systems............................................................2
1.4 Role of opportunity costs in determining how economies make decisions.............3
1.5 Importance of elasticity in market interactions.......................................................3
TASK 2.............................................................................................................................4
2.1 Implications of pricing and objectives on a business firm’s operations..................4
2.2 Prices are set in different market structures...........................................................4
2.3 Firm’s behaviour is impacted by:............................................................................5
2.4 Affect of regulation on market power in given condition.........................................5
TASK 3.............................................................................................................................5
3.1 Structure of an economy has changed in the 21st Century...................................5
3.2 Tools available to meet macroeconomic policy challenges....................................6
3.3 Success of a government’s policies in achieving macroeconomic objectives........6
3.4 Economic performance of an economy in the global market.................................7
TASK 4.............................................................................................................................7
4.1 Theory of comparative advantage using relevant illustrations...............................7
4.2 Advantages and disadvantages of free trade for development..............................8
4.3 Impact of emerging economies on the developed economies...............................8
4.4 Affect of recent domestic and global economic shocks to economy......................8
CONCLUSION................................................................................................................. 9
REFERENCES...............................................................................................................10
...................................................................................................................................... 11

INTRODUCTION
Business economics refers to a study of challenges and financial problems which
are faced through business organisations operating in particular economy. It deals with
many kinds of issues like management, strategy, corporations and also expansion. A
business economics is an applied economics. Marks & Spencer is a UK based retail
organisation. It manufactures many different products such as clothing, food items,
home and furniture etc. In this business report mentions about the economic issues of
scarcity and the allocation of resource in high demand in terms of managing an
economy. In this, there is determination about the role of opportunities costs for
determining the economies in regards to making decisions (Sahut and Peris-Ortiz,
2014). Under this, present business report also mentions about structure of UK’s
economy that has been changed in 21st century. The theory of comparative advantage
by using some relevant illustrations from emerging economies are discussed in this
present assignment.
TASK 1
1.1 Economic problem of scarcity and demand resource allocation
The basic and main economic problems are the availability of efficient and
effective resources or can say scarcity of resources. Scarcity means that the resources
are limited so that the needs and wants of humans are not fulfilled easily. Due to the
scarcity, the choices to consumers are limited. The economic issue of scarcity refers to
the insufficient resources to satisfy needs and demands. In this, there is a proper
opportunity that cost is includes in making the decisions related to economic. This
problem is solved by economics with the help of placing more cost on the scarcity of
products and services. The maximum cost always demotivate demand and also
motivate the business organisations to create the many alternatives. From this, the
demand will be affected (Czarnitzki and Hottenrott, 2011). From the scarcity, cost of
goods will be impacted. Its result is in decreasing the demand and also increasing the
cost of goods and services. The demand resource allocation and also scarcity of
resources are the main economic problems and also issues.

1.2 Equilibrium in a market is achieved
An equilibrium refers to a market where the supply and demand is equal at the
market place. When market is equilibrium, then there will no nay kind of tendency for
make some changes in the cost. The producers and also customers react to changes in
prices. The maximum cost minimises demand while motivating or increasing the supply
and also lowering the cost. If the cost of goods and services minimizes, then the quality
of product will be demanded until an equilibrium will be done. In regards to this, the
surplus minimizes the cost.
If market cost is reduced than equilibrium cost, then the supply of quantity is
minimum as comparison to the demand of quantity. An equilibrium in market can be
evaluated when the supply as well as demand curve is meet (Wennberg and Lindqvist,
2010). The demand curve represents the demand of quantity through customers at
various places and on the other hand supply curve represents manufactures of quantity
that are able and also willing to supply at various costs. When at a particular point,
demand and supply both are meet the price of market is equilibrium.
Illustration 1: Market equilibrium
(Source: MARKET EQUILIBRIUM,
2017)

1.3 An Importance of differing market systems
A market system refers to economic system, under which company has to take
many economic decisions and also cost of services and goods which are guided solely
through aggregate interactions which are related to business and a person. A market is
a place where many different varieties of process social relations, systems and also an
infrastructure are involves in order to engage the parties in exchange. There are 4
different types of market systems such as monopoly, monopolistic competition,
monopoly and oligopoly (Balkyte and Tvaronavičiene, 2010). An importance of these all
market systems are given below as above:
Types of different marketing system Importance
Perfect competition Its main importance is that in this market
there are many small firms and also the
identified goods and services are sold
through business organisation. There is
free entry and exit of any firm.
Oligopoly This type of market is dominated through
less number of big business organisations.
There is a barrier of entry.
Monopoly This market system is the profit maximiser
and also there are many barriers to entry.
In this there is only single seller and also
price discrimination. Its importance is that
there are no close substitutes of products.
Monopolistic Competition Under this market system, there are
large number of sellers and buyers. There
is more product differentiation.
1.4 Role of opportunity costs in determining how economies make decisions
Opportunities cost is a loss and also a cost which is incurred because of the loss
of opportunity because the choosing of one option between many. It is a kind of benefit
or acquire something which is helpful in accomplishing something. It is a fundamental

price in economics which are necessary in determining the analysis of cost benefit of a
particular project. An opportunity cost is essential or important in the theory of economic
(Acs, Audretsch and Lehmann, 2013. It is based on some fundamental facts and figures
that the factors of production are also versatile and scarce. The wants of human being
are unlimited. It is a main part of economics. The main role of opportunity cost is that an
individual should be focus on some activities under which they need to better perform
better to the others. It refers to satisfying the needs and wants of people.
1.5 Importance of elasticity in market interactions
It is an ability of adapt and also change any kind of materials. The price elasticity
in the market interactions is a very essential concept. There are some benefits of
elasticity of demand given below as above:
International trade- For fixing the cost of products and services which needs to
exported, it is necessary that knowledge regard demand elasticity. At the time of
importing demand of products, then in this case the export of goods will be at lower
cost.
Factor pricing- Elasticity of demand is helpful in evaluating the cost which is
paid to production factors. Every factors give their contribution in national goods is
evaluated in context to the demand in activities of productive (Mac an Bhaird and Lucey,
2010). In case if demand of specific factor is inelastic as comparison to some other
factors then it will be helpful in attracting the more and more rewards.
Development of government policies- The elasticity is very important in
creating policies of government like taxation policy. The government enforce more taxes
on products with the inelastic demand, where the minimum prices of taxes are
obligatory on the goods with demand of elasticity.
TASK 2
2.1 Implications of pricing and objectives on a business firm’s operations
The pricing strategy is essential problems because it is connected to the
positioning of goods. To increase the sales, it is necessary that Marks & Spencer should
formulate the effective pricing strategy which is helpful in increasing the sales of an
organisation. The pricing strategies does not reflect on the goals and objectives of

company, it can only impact on the outcome performance of company (Baptista and
Preto, 2011). On the other hand, main motive of Marks & Spencer is to achieve its set
goals and objectives by doing the good business operations. Its other objective is to
increase its profit level. If the business operations will be good and also effective, then it
will be helpful for company to achieving the goals and objectives. In regards to this, it is
the duty of manager is to monitor and also control all tasks and activities related to the
business operations.
2.2 Prices are set in different market structures
A market is a place where sellers and purchasers meet with each other and also
exchange products and services. The market structure impact on the behaviour of
companies. It also impact on the supply of various products at market place. Various
structure of market lead to various strategies for the small as well as large business
firms (Mason and Brown, 2013). In different market structure, pricing strategies are
given below:
Perfect competition- It is evaluated through supply curve and also market
demand of goods. Demand curve particularly shows the amount of goods so that
customers are able and also willing to purchase. Markets fix the cost of goods and
companies are price taker.
Monopolistically competitive market- Under this, business organisation set the
cost of their goods. Each business organisation sell that goods that are some to the
other business firm, Marks & Spencer business firm can fix its price. The cost of good is
totally depend upon quality and quantity of goods.
Monopoly market structure- It can easily set its cost because of the absence of
competitors. If the cost will be increased then the sales will also be minimised.
2.3 Firm’s behaviour is impacted by:
Market structure- It refers to an interconnected features of market like buying
capabilities of sellers and buyer, collusion degree between them (Schoonjans, Van
Cauwenberge, and Vander Bauwhede, 2013). There are 4 types of marketing structure
and these are monopolistic competition, monopoly, perfect competition and also
oligopoly. If these all market structure will not be perfect then from this the behaviour of
Marks & Spencer will also be impacted.

Operations- For making the business successful, it is necessary that the
operations of company should be effective or in a systematic manner. The manager of
Marks & Spencer is responsible for the monitoring all the business operations.
2.4 Affect of regulation on market power in given condition
Market power means the relative ability and also competencies to an
organisation for the purpose of manipulating the cost of product at market place through
also manipulating the supply level as well as demand. Marks & Spencer with the
attainable market power has an ability to influence cost of market and also make control
on the profit margin. In context to regulation, it is necessary that the balancing among
preserving efficiency or effectiveness of an economy and also restraining the power of
market (Wennekers and et. al., 2010). All the regulators face the trade off among the
minimum cost cost for buyers. The impact of regulations on market power is developing
a significance of the two sided markets, a producer produces many goods and services
with the help of technology that helps in making deals to buyer sand also sellers of
products and services. With the help of market power, an organisation increases and
also maintain its costs that will be helpful for the competition. If in case the market
power is reduced, then from this the economic welfare will also be impacted.
TASK 3
3.1 Structure of an economy has changed in the 21st Century
In United Kingdom, there is a Capitalism economy. People of this country follow
Capitalism. It refers to an dynamic system that helps in continuously changes. Under
this, the products and capital are owned and also managed by the private business
organisations or people. The manufacturing of services and also products is according
to the demand as well as supply in market economy other than the planned economy.
But in 21st century, socialism and also mixed economy are developed. Most of the
developed countries used capitalism. The capitalism and also socialism both are most
popular and also common (Summers, 2014). It is a free market capitalistic economy and
it is also an oldest system. But from the change in time, the mixes as well as socialism
economy both come in to an existence.

3.2 Tools available to meet macroeconomic policy challenges
The policies related to the macro economic is related to the operation of an
economy. Macro refers to the economy as a whole. The main objective of macro
economic policy is to give the retain environment of economic that is conductive for
fostering sustainable as well as strong development of an economy under which job will
be generated from unemployed people, wealth will be improved and laps the living
standard of local people will be improved. There are two types of tools which are
available to meet the challenges and issues related to the macro economic policy:
Fiscal policy- It operates by the changes in composition and also level of
government spending, under this the types and also level of taxes which government
takes from public. Government can impact on the activities related to economies by the
capital expenditure as well as recurrent. It is also indirectly impact on the spending
power of an individual, investment etc.
Monetary policy- For setting up the monetary policy, RBA (Reserve Bank of
Australia) is responsible (Vasant, 2012). The decisions of policies are implemented
through changing in the interest rate. The cash rate is evaluated in market through
demand and supply forces.
3.3 Success of a government’s policies in achieving macroeconomic objectives
Macro economics is related to the issues which can be impact on an economy as
a whole. There are some objectives of macroeconomics are given below:
 Stability in cost.
 To keep BOP (Balance of payments) in equilibrium.
 Full employment
 Maximum and also sustainable, economic growth rate.
The objectives are the aims of policies of government and also those instruments
by which business Marks & Spencer achieve its aims and objectives. The government
wants to accomplish its goals and objectives of low cost inflation. The fiscal, monetary
and also policies related to the supply side are the main government policies in order to
achieving the macroeconomic objectives.

3.4 Economic performance of an economy in the global market
Income is an important factor in context to determining the Gross domestic
Product and also the economic performance. These both are helpful in the economic
activities of United Kingdom country (Hill, Cronk and Wickramasekera, 2013). For
achieving the economic objectives, an economic performance is very helpful. Objectives
can be short term and also can be long term. In short term includes economic
stabilisation and on the other hand in long term includes the sustainable development
and also productivity of business. If in case, an economy will perform against al
objectives then in case it will be harmful for business.
TASK 4
4.1 Theory of comparative advantage using relevant illustrations
The theory related to competitive advantage is an economic theory. It refers to a
capability of one country which manufacture products and services at minimum
opportunities cost as comparison to the another country. The theory of competitive
advantage means that in case if one country is specialised and also expert in
manufacturing of products where the opportunity cost is minimised. It will helps in
enhancing the economic welfare. In this there is two a comparison among the two
countries (Naudé, 2010). This theory gives the strongest argument on context to the
specialization and also free trade between countries.
For an example-
Maximum outputs Country A Country B
Trucks 8m 25m
Cars 40m 35m
By using necessary resources, A country can manufacture 40m cars or 8m
trucks and on the other hand B country manufacture 35m cars and also 25m trucks.
Under this table, B country is has advantage in manufacturing cars and also trucks
products but this country has the comparative advantage in the filed of truck because it
is better manufacturing them.

4.2 Advantages and disadvantages of free trade for development
Free trade is helpful in minimising the domestic jobs from enhancing the imported
products from foreign countries. It refers to economic practice where the two or more
than two countries can export and also import products with any kind of government
intervention. In the intervention of government includes limitations, export or import
bans, taxes etc. it provides many advantages to countries ( Ekman and et. al., 2011).
There are some advantages and also disadvantages of free trade given below as
above:
Advantages
 Its main advantage is that it helps in enhancing the manufacturing
process.
 It helps in increasing the employment rated in the developed countries.
 It is helpful in maximising the world consumption as well as the world
production.
 From this, wise allocation and efficiency of production will be increased.
Disadvantages
 Its main disadvantage is that there is an obstacles in the growth of
domestic industries.
 Most of the country import some expensive and also harmful products.
 Under this, some risks are involved for countries.
4.3 Impact of emerging economies on the developed economies
Japan, US and also EU, these three countries are concerned as the leading
powerful countries in all the world. An emerging economies of internationalisation
bought the new perspective to development of business internationally. But the United
Kingdom country is related with the Triad that the threats and also opportunities from
developing BRIC nations. It consists the challenges and issues to present established
industries in UK. Under this the level of competition is high. The various kinds of sectors
of UK will impacted through shifting the powers in various ways. But some of the main
sectors should have to be contend regarding raw materials in terms of enhancing the
competitive market.

4.4 Affect of recent domestic and global economic shocks to economy
In the global economic, big recession is in the 2007-2008 and from this the over
all country is in the shock. This recession was applies in the U.S. From this, an
economic slumps started when housing market of United States went to increasing
point to declining and the maximum amount related to mortgage securities and also the
lost of derivatives of significant value. This great recession is the great depression for
United States (Mason, 2011). On the other hand, the domestic recession in United
Kingdom economy is in 2012. from this an economy of UK is shrank by the 0.3% . It
resulted in negative impact on the economy.
CONCLUSION
It has been concluded from the above mentioned report that the business
economics is helpful in analysing the factors that can contribute in an economy. In this
present assignment studied about the role of opportunity costs in terms of evaluating
the economies makes some decisions. There are some of the implications related to
pricing and also objectives of Marks & Spencer. In this report studied about the theory
of comparative benefits by using the relevant examples from the emerging economies.

REFERENCES
Books & Journals
Acs, Z.J., Audretsch, D.B. and Lehmann, E.E., 2013. The knowledge spillover theory of
entrepreneurship. Small Business Economics. 41(4). pp.757-774.
Balkyte, A. and Tvaronavičiene, M., 2010. Perception of competitiveness in the context
of sustainable development: facets of “sustainable competitiveness”. Journal of
Business Economics and Management. 11(2). pp.341-365.
Baptista, R. and Preto, M.T., 2011. New firm formation and employment growth:
regional and business dynamics. Small Business Economics. 36(4). pp.419-
442.
Czarnitzki, D. and Hottenrott, H., 2011. R&D investment and financing constraints of
small and medium-sized firms. Small Business Economics. 36(1). pp.65-83.
Ekman, I. And et. al., 2011. Person-centered care—Ready for prime time. European
journal of cardiovascular nursing. 10(4). pp.248-251.
Hill, C.W., Cronk, T. and Wickramasekera, R., 2013. Global business today. McGraw-
Hill Education (Australia).
Mac an Bhaird, C. and Lucey, B., 2010. Determinants of capital structure in Irish
SMEs. Small business economics.35(3). pp.357-375.
Mason, C. and Brown, R., 2013. Creating good public policy to support high-growth
firms. Small Business Economics. 40(2). pp.211-225.
Mason, R.D., 2011. Statistical techniques in business and economics-Rev. Homewood,
Ill.: RD Irwin.
Naudé, W., 2010. Entrepreneurship, developing countries, and development
economics: new approaches and insights. Small business economics. 34(1).
p.1.
Sahut, J.M. and Peris-Ortiz, M., 2014. Small business, innovation, and
entrepreneurship. Small Business Economics. 42(4). pp.663-668.
Schoonjans, B., Van Cauwenberge, P. and Vander Bauwhede, H., 2013. Formal
business networking and SME growth. Small Business Economics. 41(1).
pp.169-181.
Summers, L.H., 2014. US economic prospects: Secular stagnation, hysteresis, and the
zero lower bound. Business Economics. 49(2). pp.65-73.
Vasant, P.M. ed., 2012. Meta-heuristics optimization algorithms in engineering,
business, economics, and finance. IGI Global.
Wennberg, K. and Lindqvist, G., 2010. The effect of clusters on the survival and
performance of new firms. Small Business Economics. 34(3). pp.221-241.
Wennekers, S. and et. al., 2010. The relationship between entrepreneurship and
economic development: Is it U-shaped?. Foundations and Trends® in
Entrepreneurship. 6(3). pp.167-237.
Online
MARKET EQUILIBRIUM, 2017. [Online]. Available through:
<http://www.amosweb.com/cgi-bin/awb_nav.pl?
s=wpd&c=dsp&k=market+equilibrium>. [Accessed on 30th October, 2017].