Small Business Economics Analysis

This assignment delves into the critical factors shaping the landscape of small businesses. Students will examine the impact of firm characteristics, industry dynamics, and entrepreneurial behavior on small business performance. Key concepts like capital structure, export orientation, and regional economic growth will be analyzed. Additionally, the role of family ownership in international entrepreneurship and the significance of demand and supply in the economy will be explored.

BUSINESS
ECONOMICS

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1.1 Explain the economic problem of scarcity and demand resource allocation......................3
P1.2 How equilibrium is achieved in the market........................................................................4
P1.3 The importance of differing market system........................................................................4
P1.4 The role of opportunity costs in order to make the economic decisions............................5
P1.5 Importance of elasticity in the market interaction..............................................................5
TASK 2............................................................................................................................................6
P2.1 Explain the implications of pricing and business objectives on its operations...................6
P2.2 How prices can be set in different kinds of market structures............................................6
P2.3 Analyse how operations decisions and market structure affect the business performance 7
P2.4 How UK regulations can affect the market structure and company...................................7
TASK 3............................................................................................................................................8
P3.1 How the structure of UK economy has changed and how it affect the business
environment.................................................................................................................................8
P3.2 Tools available to meet macroeconomic policy challenges................................................8
P3.3 Success of a government’s policies in achieving macroeconomic objectives....................9
P3.4 Evaluate the economic performance of an economy in the global market.........................9
TASK 4..........................................................................................................................................10
P4.1 Theory of comparative advantage.....................................................................................10
P4.2 Advantages and disadvantages of free trade for development..........................................10
P4.3 Analyse the impact of emerging economies on the developed economies.......................11
P4.4 Evaluate the impact of recent domestic and global economic shocks..............................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
.......................................................................................................................................................14

INTRODUCTION
Economics is a science that is used to study the distribution, consumption and production
of the scare goods and products. It mainly focuses on the behaviour of different economic agents
and how economics works at the marketplace. Business economics is used to deals with the
different issues and challenges that are faced by the corporations. It studies the role of different
factors such as supply and demand (Newbold, Carlson and Thorne, 2012). Along with this, it
also explains that how scarcity can affect the operations of an enterprise. Managerial economics
identify the factors which may affect their decision making process. Through this, they will be
able to achieve their goals and objectives. The present report is based on Iceland Ltd which
perform their operations in retail sector. They are offering their products and services in UK. In
this context, report explains the role of supply and demand in the economy. Along with this, it
focuses on the elasticity of demand and its importance at the time of interaction in the market.
Furthermore, it explains that how UK economy is get changed and this affect the operations of
business organization.
TASK 1
P1.1 Explain the economic problem of scarcity and demand resource allocation
Economic is a science where an economist studies the behaviour of human on the basis of
the relationship between ends and scare means. Economic problem is related to the scarcity that
there are insufficient resources in order to fulfil the unlimited needs of the people. Sometimes,
when demand and supply are not met then due to this this problem arises. Scarcity is a biggest
issue that is faced by the business organizations as they are not able to fulfil the wants of human
due to limited resources (Summers, 2014). For this, the top executives of Iceland sLtd have to
make effective decisions regarding to the allocation of the resources so that basic requirements of
the people can be accomplished. Scare commodities are the one which have non zero cost and it
is consumed by an individual.
It is the responsibility of company to allocate the resources as per the demand of people
so that their expectations can be fulfilled. Along with this, goods should be supplied in an
efficient manner so that a balance can be strike between the supply and demand. Through this,
economy of the country can be managed and due to this their overall growth can be improved.

P1.2 How equilibrium is achieved in the market
The demand and supply both play their important role in the overall economy of the
country as through this their growth can be improved (Vasant, 2012). The demand and supply
model is used by the economist so that they can determine the price of the products. Whatever
price is set from this model is known as equilibrium price which is a kind of agreement between
buyer and seller. On the basis of this, an enterprise will be able to enhance their growth and due
to this their brand image can be improved. This kind of model is used by the manager of Iceland
Ltd in competitive market where there are many buyer and seller. Through this, the firm can
make their distinct image at the marketplace as compare to other competitors.
On the basis of demand and supply, the equilibrium in the market can be achieved by
setting the relevant prices. If a buyer wants to purchase the products in bulk then it is available at
the flexible price and they wants to buy less then it is also available at prevailing price as through
this equilibrium can be gained. So, in this manner a balance can be gained between the supply
and demand.
P1.3 The importance of differing market system
Market system is a kind of process where all buyers and sellers are interact with each
other so that they can make an appropriate deal. In this system, overall rules and regulations has
been followed by the people so that operations can be accomplished in smooth manner. It is the
responsibility of owners to identify that in which market they are performing their operations so
that their growth can be improved (Acs and et. al., 2011). Some of these markets are like perfect
competition, monopoly, oligopoly and monopolistic. The differing market system have some
importance are like:
 On the basis of market system, the resources are allocated in an efficient manner so that
overall wants of the people can be fulfilled. If customers desires are satisfied then
companies can survive for a long time.
 Companies perform competition with each other by providing the different services to the
people as per their choice.
 Through price mechanism, overall resources are distributed for the products that are
highly recommend in the market.
 In order to perform well in the market, organizations offer more innovative or quality
services to the consumers so that customers can be retained for a long time.

So, these are some of the importance of different market system and through this they
will be able to enhance their performance in the market. Furthermore, their profits can be also be
achieved.
P1.4 The role of opportunity costs in order to make the economic decisions
Opportunity cost is the fundamental concept of economics as through this best alternative
cost can be selected at the time of decision making. In this, an appropriate option has been
selected out of many alternatives so that best choice can be made. Through this, overall benefits
of the particular project can be evaluated so that the retail industry can achieve high profits.
The opportunity cost play a vital role at the time of decision making process as through
this an appropriate project can be selected (Biondi and Zambon, 2013). So, in this manner overall
financial growth can be improved in more efficient manner. This kind of cost is important for
making the decisions regarding market, political decisions, money and so on. Through this, they
will be able to enhance their growth in the market. This type of cost is not recorded into the
books of account but it is important for making the business decisions. On the basis of this, they
will be able to achieve success than their competitors. Opportunity cost explain the fact that
workers of Iceland Ltd have to focus on those activities in which they can perform better than
any other activities.
P1.5 Importance of elasticity in the market interaction
Elasticity of demand is related to its price that how demand for products is changing or
varies with its prices. Demand elasticity means when price is get changed at higher level then
due to this the demand of the goods is highly affected. On the other hand, if there is small change
in the price then very slightly changes in the demand. So, it can be stated that there is inverse
relationship between these two factors (Benavides-Velasco, Quintana-García and Guzmán-Parra,
2013). The manager of Iceland has to make an appropriate decisions so that they will be able ton
achieve high profits and revenues.
The elasticity of demand is a vital concept of the economics as through this they will be
able to achieve their objectives. The importance of elasticity is as follows:
 In order to perform the business at global level, it is necessary to have some knowledge
of elasticity of demand.
 This concept is very helpful for an enterprise in order to formulate some of government
policies, rules and regulations.

 The monopolist have some knowledge about the price elasticity as on the basis of this
they will be able to make their effective decisions regarding to the prices of the products
and services.
TASK 2
P2.1 Explain the implications of pricing and business objectives on its operations
Pricing is a kind of marketing strategy that has been used by the organisation in order to
identify that how much an individual can give in exchange of the goods and services. In this,
prices are set for the products on the basis of the mutual decision between the consumer and
seller. Each and every enterprise perform their operations by setting the business objectives. As
the main aim of every firm is to enhance their profits and revenues so that their market position
can be improved (Dostál, 2013). Through this, direction can be set by the top executives into the
market so that specified goals can be achieved.
Some of the objectives are like to survive, to increase the market share, to achieve the
leadership, to maximise the profits and so on. When these goals are set then it become easy for
the retail industry to perform well in the market. Sometimes, the pricing strategy can affect the
operations of an enterprise as if competition is get increased in the market then through high
prices company will not be able to sustain their competition. So, it is necessary for Iceland to set
the flexible prices so that if any changes are occur then sustainability can be gained in successful
manner.
P2.2 How prices can be set in different kinds of market structures
Market is a kind of place where all the sellers and buyers are interact with each other in
order to exchange the products. There are many business organisations who offer the identical
goods to their consumers (Mason and Brown, 2013). So, different market structure influence the
buying behaviour of an individual and through this supply is also get affected in an efficient
manner. Some market structure are as follows:
Perfect competition: In this kind of market structure, there are many buyers and sellers
who exchange the services with each other. Market price is set by identifying the equilibrium
between the demand and supply. Here, demand elasticity is infinite so pricing decisions are made
on the basis of that how prices can affect the demand of the products.

Monopolistic environment: In this kind of market, there is one person who set the prices
as they are the one who offer unique products to their consumers. Here, prices are set in more
flexible manner as compare to the perfect competition market (Acosta, Coronado and Flores,
2011). On the basis of product differentiation, they can achieve profits.
Oligopolistic competition: It is the combination of both perfect competition and
monopolistic environment. In this, an enterprise sell similar kind of products but not
homogeneous. The market price is set on the basis of the marginal cost son that people will be
able to feel satisfied with the services.
P2.3 Analyse how operations decisions and market structure affect the business performance
Market structure and operational decisions affect the behaviour of business organisation
in both positive and negative manner. Through the market structure, companies will be able to
know that in which market they perform their operations and in which products customers are
interested. Iceland Ltd can save their cost and time by adopting a particular market. There are
two main elements such as complexity and size as these should be considered in an more
effective manner so that their overall performance can be improved.
When barriers are high and less competitors in the market then through this retail industry
will be able to achieve their profits and revenues in an efficient manner (Baptista and Preto,
2011). Operations decisions can also affect the performance of an enterprise as there are some
decisions which are related to the finance, marketing, human resources, government policies. By
taking the effective decisions in each functional area they will be able to enhance their growth
and market share. But, manager has to take his decisions in timely manner after monitoring or
evaluating the current performance so that customers different wants can be fulfilled.
P2.4 How UK regulations can affect the market structure and company
Government of a country make the acts and laws for local people and business
organisations so that they can ensure the smooth functioning. On the basis of these regulations,
an individual will be able to protect their own rights and through this their satisfaction level can
be increased. Local bodies made some regulations that companies cannot exceed the prices of
products above a level, quality should be ensured, competition should be promoted so that their
growth can be enhanced. So, in this manner these rules can affect the market structure.
Government regulations and policies can also affect the company and their employees in
positive manner. An enterprise have to follow some of the rules like consumer protect act,

employment act, equity act, health and safety act so that all people feel comfortable while
performing their operations (Acs, Audretsch and Lehmann, 2013). Along with this, there are
some regulatory laws which tells the business that how they have to perform their operations.
Through consumer protection acts, it can be analysed by Iceland Ltd that how they have to treat
their all staff members. So, in this manner their overall objectives and goals can be accomplished
in more ethical manner.
TASK 3
P3.1 How the structure of UK economy has changed and how it affect the business environment
Britain has largest economy as compare to other countries as its gross domestic products
is high so due to this their unemployment rate is also low. People will be able to get job easily
and their living standard is also get improved. United Kingdom perform their trade activities
with other countries also and this contribute approx 78% of the GDP. Britain also play a key role
in the overall investment decisions so in this manner their overall economy is get improved.
Economy of the country also affect the business environment of Iceland Ltd as due to
some factors they will not be able to achieve their goals (Czarnitzki and Hottenrott, 2011).
External economic environment is the combination of Micro and macro factors as this may affect
their business operations. Some of the economic factors are like inflation, interest rate,
employment, tax rate and so on. When unemployment rate is high in the nation than due to this
people will not be able to offered luxury services. If inflation rate is get increased then prices of
the goods is also increased. So, in this manner it may affect the operations of an enterprise.
P3.2 Tools available to meet macroeconomic policy challenges
Macroeconomics is a part of economics which deals with all the factors that may affect
the performance of an enterprise. There are some laws and policies that are made by the
government so that smooth functioning can be ensured. These kind of factors can affect the
business while making the decisions, trade activities and hire the staff members. There are some
tools of the macroeconomic which are stated below:
Monetary Policy: It is related to the money supply and the interest change (Bosma, Stam
and Schutjens, 2011). If interest rate is changed then it is beneficial for the country as economy
can be increased and due to which investment can be enhanced. When this get increased then all
workers will be able to get the high wages in more efficient manner. When interest rate is raised

then due to this investments will become expensive and through which overall economic growth
can be increased.
Fiscal policy: In this kind of policy, government interfere and changes the laws which
are related to the tax. Along with this, level of the spending affect the demand of the particular
country. To enhance the growth, state government reduce the tax and control all the spending
level.
P3.3 Success of a government’s policies in achieving macroeconomic objectives
The policies that are made by state government are beneficial for all the local people and
organisations which perform their operations in UK. By adopting these policies, an enterprise
will be able to enhance their growth in the market as compare to other competitors. Along with
this, they can achieve their macroeconomic objectives in an efficient manner. Some of the
microeconomic objectives are related to full employment, price stability, economic growth and
stability in balance payment.
When employment is get increased in the country then due to this company will be able
to achieve benefits as the spending level of the people is get enhanced (Hessels and van Stel,
2011). Through this, the profitability and revenues can be generated that can lead an enterprise
towards success. Same as, if price is stable in the country then an entity can attract number of
people towards their products. Furthermore, if economic growth of UK is improved then due to
this they will be able to attract number of other enterprises so their overall image can be
improved.
P3.4 Evaluate the economic performance of an economy in the global market
The overall economy of the UK market is more as compare to other nations. They are
performing their business at the global level so their relations with countries are good. The
overall GDP of the country is increased by approx 0.3% as compare to last year so its position in
the world is 5th so this is also helpful of all the business organisations. Inflation rate is increased
by approx 1.8% in the first month of year. When inflation rate is get increased then due to this
the prices of the services is also get enhanced. The total unemployment rate is approx 4.6% as
this is less as compare to other countries.
The economic condition of UK is good so this is more advantageous for the all
organisations. Iceland Ltd can perform their business at the global level by performing the export
and import. Due to this, relationship can be improved between different companies at different

locations. Economic of the particular country can affect the performance of an enterprise in
positive as well as negative manner. If recession arise in the market then this may affect their
growth in adverse form. So, due to this they will not be able enhance their growth.
TASK 4
P4.1 Theory of comparative advantage
Comparative advantage is the economic theory about the gains from the trade. The trade
can be take place with individual, firms, nations etc. that have the advantage in different terms in
technology and endowments. It is obvious that one country is having the advantage of producing
the products over the other country and the other country is specialised to produce another
product. In this case trade happen between the two countries. But if one country is specialised in
producing both of the products should they still trade (Degryse, de Goeij and Kappert, 2012).
Yes the country should trade and allocate all the resources which countries has should be used in
the product which another country doesn't have. To reduce the opportunity cost country should
import the products from the another country and company exports those products which they
can manufacture in less cost. UK is specialised in food industry and having the large number of
the retail supermarket in UK. So it is advantage for the ice land company to expand in other
countries also. Iceland have the competitive advantage by having its natural condition for
farming.
P4.2 Advantages and disadvantages of free trade for development
There are merits and demerits of free trade among the countries. Trade trade refers to the
exchange of the product and services between the different countries having low and no
restrictions. Following are advantages and disadvantage of the free trade development.
Advantages Increase the production: Free trade refers to the increase in the production of the
products and services in the particular country which also increase the consumption and
economy of the country can grow by this (Aidis, Estrin and Mickiewicz, 2012). Wider range available with customer: Customers can have the large ranges of product
they can buy the domestic product al well the imported products.
 Improves the quality: wider availability of resources can improve the quality.
Disadvantages

 Impact on domestic market: Free trade can decrease the demand of the domestic market. Cause environmental issues: Free trade can cause the harm on the environment.
 Increase the surplus: This can cause the surplus of the production in many countries.
P4.3 Analyse the impact of emerging economies on the developed economies
Emerging economy is the overall nations economy that is growing on continuous manner
so that overall performance of business organisations can be improved. On the basis of these, the
overall economy at the international level can be improved and along with this they will be able
to achieve the political stability in the market (Piergiovanni, Carrees and Santarelli, 2012).
BRICS is related to the Brazil, Russia, India, China.
Emerging economics may affect the economy of the developed country as through this
they will not be able to establish their business in more effective manner. When prices in the
emerging countries are fall down then this may impact the prices of the services at global level.
Furthermore, policymakers have to take into the consideration about the current economy of the
country.
P4.4 Evaluate the impact of recent domestic and global economic shocks
There are some economic shocks that are arise in the country and this may also affect the
economy of United Kingdom. There are three shocks which are related to the demand, supply
and finance. Along with this, when recessions are occur in the country then due to this overall
unemployment rate in get increased, interest rate, inflation rate is also increased and due to
which prices of the services are get enhanced (Sciascia and et. al., 2012). Through this, overall
performance of the companies at domestic as well as international market is get influenced.
When financial crisis are arise in the market then due to this economy of the country is
highly affected. When economy is poor then overall objectives of the organisation cannot be
improved.
CONCLUSION
From the above carried out analysis it can be summarised that economics is the study of
human behaviour related to their wants and demands. On the basis of this, business organisations
will be able to identify that how supply and demand can be met. Through this, an enterprise will
be able to allocate the resources in more efficient manner so that their overall needs and wants

can be fulfilled. Furthermore, some of the macroeconomic policies can be used by Iceland Ltd so
that their overall growth can be improved.
REFERENCES
Books and Journal
Acosta, M., Coronado, D. and Flores, E., 2011. University spillovers and new business location
in high-technology sectors: Spanish evidence. Small Business Economics. 36(3).
pp.365-376.

Acs, Z.J. And et. al., 2011. Introduction to special issue of Small Business Economics on female
entrepreneurship in developed and developing economies. Small Business Economics.
37(4). p.393.
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.
Aidis, R., Estrin, S. and Mickiewicz, T.M., 2012. Size matters: entrepreneurial entry and
government. Small Business Economics. 39(1). pp.119-139.
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.
Benavides-Velasco, C.A., Quintana-García, C. and Guzmán-Parra, V.F., 2013. Trends in family
business research. Small business economics. 40(1). pp.41-57.
Biondi, Y. and Zambon, S. eds., 2013. Accounting and business economics: Insights from
national traditions. Routledge.
Bosma, N., Stam, E. and Schutjens, V., 2011. Creative destruction and regional productivity
growth: Evidence from the Dutch manufacturing and services industries. Small Business
Economics. 36(4). pp.401-418.
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.
Degryse, H., de Goeij, P. and Kappert, P., 2012. The impact of firm and industry characteristics
on small firms’ capital structure. Small Business Economics. 38(4). pp.431-447.
Dostál, P., 2013. The use of soft computing for optimization in business, economics, and
finance. Meta-Heuristics Optimization Algorithms in Engineering, Business, Economics,
and Finance. pp.41-86.
Hessels, J. and van Stel, A., 2011. Entrepreneurship, export orientation, and economic growth.
Small business economics. 37(2). pp.255-268.
Mason, C. and Brown, R., 2013. Creating good public policy to support high-growth firms.
Small Business Economics. 40(2). pp.211-225.
Newbold, P., Carlson, W. and Thorne, B., 2012. Statistics for business and economics. Pearson.
Piergiovanni, R., Carree, M.A. and Santarelli, E., 2012. Creative industries, new business
formation, and regional economic growth. Small Business Economics. 39(3). pp.539-
560.
Sciascia, S., and et. al., 2012. The role of family ownership in international entrepreneurship:
Exploring nonlinear effects. Small Business Economics. 38(1). pp.15-31.
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.
Online

The economic problem. 2017. [Online]. Available
through:<http://www.economicsonline.co.uk/Competitive_markets/The_economic_prob
lem.html>. [Accessed on 18th May 2017].
The Significance of Demand and Supply to the Economy. 2017. [Online]. Available
through:<https://bellwethercorp.com/the-significance-of-demand-and-supply-to-the-
economy/>. [Accessed on 18th May 2017].
What is Economics and Business Economics?. 2017. [Online]. Available
through:<http://www.ru.nl/economics/@776702/pagina/>. [Accessed on 17th May
2017].
What is the Importance of Elasticity of Demand?. 2016. [Online]. Available
through:<http://www.economicsdiscussion.net/elasticity-of-demand/what-is-the-
importance-of-elasticity-of-demand/21813>. [Accessed on 18th May 2017].