Economics: Scarcity and Market Structures

This assignment delves into the fundamental principles of economics, focusing on the concept of scarcity as a driving force behind economic decision-making. It examines different market structures, including perfect competition, monopolistic competition, oligopoly, and monopoly, analyzing their characteristics and impacts on resource allocation. Students are tasked with evaluating real-world examples and applying economic theories to understand how markets function in diverse scenarios.

BUSINESS ECONOMICS
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EXECUTIVE SUMMARY
ASDA Group Ltd is a subsidiary organization of American owned enterprises named Wal-
Mart. It was established in the year 1949 and headquartered in Leeds, West Yorkshire, England
(UK). Company offers wide range of grocery products to large customer base. It is a largest food
and grocery company of United Kingdom. Economic system is the process of distribution, resource
allocation, exchange and distribution of foods and services in wider geographical place. There are
various types of economic system such as free, command and mixed economy.
In free economy, all the decisions are taken by consumers and producers without any
intervention of government. In command economy, all the decisions are taken by government so as
to allocate scare resources effectively. UK is a mixed economy which combines characteristics of
both the free and command economy. In private sector, decisions are taken by the intervention of
producers and consumers. However, in public sector such as police and defence, resources are
allocated by UK government.
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TABLE OF CONTENTS
INTRODUCTION ...............................................................................................................................4
TASK 1.................................................................................................................................................4
A. Explain the economic problem of scarcity and demand resource allocation and explain that
how...................................................................................................................................................4
equilibrium can be achieved............................................................................................................4
B. Evaluate the importance of different market system and evaluate the role of opportunity costs
in determining the economic decisions............................................................................................5
C. Explain elasticity of demand and assess the importance of elasticity in market interactions.....6
TASK 2 ................................................................................................................................................7
A. Explain the implications of pricing and corporate objectives on its operations.........................7
B. Compare how prices can be set in different market structure and analyse the market structure
and....................................................................................................................................................8
operational decisions and on company's performance.....................................................................8
C. Evaluate the impact of UK regulations on market power...........................................................8
TASK 3 ................................................................................................................................................9
A. Analyse how the structure of UK economy has changes in 21st Century and its impact on the
business environment.......................................................................................................................9
TASK 4...............................................................................................................................................11
A. Demonstrate theory of comparative advantage using relevant illustrations from emerging
economies against the UK economy and justify the advantage and disadvantage of free trade
with impact on the organization.....................................................................................................11
B. Analyse the impact of emerging economies such as the BRICS on developed economies and
evaluate the consequences of the recent domestic and global economic shocks on the UK
economy and its impact on the organization..................................................................................11
REFERENCES...................................................................................................................................13
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INTRODUCTION
Present project report will address the business economics on Asda Store Ltd. It is a
supermarket retailer established in the year 1949 and headquartered in Leeds, West Yorkshire,
England. It provides grocery, general merchandise and financial services to large number of
consumers and it is the subsidiary of Wal-Mart. Present report will explain the different market
structure, pricing decisions, elasticity of demand and its impact on Asda Ltd.
TASK 1
A.
Explaining scarcity of economic problem
Scarcity is the term which means limited quantity of sources available in the economy. The
situation due to which Asda cannot acquire resources in required quantity is called scarcity of lack
or lack of resources (Mehta, 2013). Therefore, they allocate resources in such a manner so that best
use of these can be assured. In order to make optimum resource allocation, following 5 things are
considered by Asda, listed below:
1. What to produce?
2. How much quantity of goods will be produce?
3. How goods will be produce means production process?
4. When goods will be produce means time?
5. How goods will be distributed to the community?
Equilibrium point meaning
Equilibrium point is the point at which demand and supply curve intersects with each other.
It is the optimum level at which Asda's product market price will generate equal amount of its
demand and supply as well (Miller, Friesz and Tobin, 2013).
Achieving equilibrium
It can be achieved by comparing supply and product market demand. In this context, supply
means the quantity of goods which is available in the market for sale.
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D S
(Price) P E
S D
Q
(Output and quantity)
B.
Command market system: In this, government has full right to allocate resources to the
business entity. It takes intervention in resource allocation and takes decisions so as to develop
economy (Schneider and et.al., 2014). Its strength is that government has full control over
resources allocation while its weakness is firms cannot obtain resources as per requirement
henceforth, they can face production difficulties due to lack of resources. In this economic system,
government has centralized control over resource allocation. Socialism is an example of command
market economy,
Free market system: In this, enterprises are free to allocate resources in their required
quantity. Government do not interfere in resource allocation. Freedom in resource allocation is its
strength whilst inefficient uses of resources are its weakness. Capitalism is the best example of free
market system in which capitalists have right to allocate resources so as to assure community
welfare.
Mixed market system: It is a mixture of both command and free market economy. In this
market system, entities are free to use resources as per their requirement but still, government has
right to control it so as to community welfare. It is a mixture of both socialism and capitalism. The
example of this market system is more or less freedom is available to the entities in few areas.
Opportunity cost meaning: Opportunity cost is the cost of sacrificing one alternative so as
to pursue a specified action which is already taken.
How Asda take economic decisions with reference to opportunity cost
In the situation of scarcity, Asda has to choose best option from the available competing
alternatives (Kurzban and et.al., 2013). For instance, if Asda wants to invest £50000 for business
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expansion than its opportunity costs will be loss of bank interest which Asda can earn by keeping
their money into bank a/c. Another, if Asda wants to close its one retail store who was earning a
profit of £35000 per month and open it at a new place at which Asda earns £45000 profit. Thus, its
economic profit will be £10000 but still, loss of £35000 at previous retail store is its opportunity
costs.
C.
Elasticity of demand
The level at which product demand get changes with the fluctuation in price is called
elasticity of demand.
Explained in appendix:
Asda's managers can measure demand elasticity so as to assess that in what extent
consumers are sensitive to the product's prices (Andreyeva, Long and Brownell, 2010).
In market interactions, elasticity of demand impact Asda in following ways, given below:
Consumer- producer rivalry: Consumer often demands Asda's goods at less pries while
company intend to charge high prices so as to get high revenue and profitability as well.
Consumer-consumer rivalry: Scarcity or lack of supply will reduce negotiating power of
the consumers as they compete to acquire goods to fulfil their demand.
Producer-Producer Rivalry: Less number of consumers increase competition between
producers as they will need to enhance their customer base to increase turnover and profitability.
The Role of Government: Government discipline the market processes by using elasticity of
demand.
TASK 2
A.
SMART Criteria:
S – Specific; Asda's corporate objective is to fulfil customer need by providing best services.
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M - Measurable: Profitability and revenue are the measurement use to evaluate business progress.
A – Assignable/ attainable: Conducting training and development program for the staff member
helps to develop skills, abilities and positive attitude so that they will be able to accomplish targets.
R – Realistic: It set realistic goal to gain a global or leading position in the market.
T – Time related: Asda's goal is time based in which it try to get a leading market positing by
fulfilling customer demand timely (Haskel and Sadun, 2012)..
Pricing methods
Penetration Pricing
As per this, Asda can set low offering prices for a new product or services so that, it can
attract large number of customers at the time of product introduction or launch.
Premium Pricing
It is also called prestige pricing in which Asda can set high prices for its products or services
for which customers will be willing to pay more as they will be highly satisfy
Cost-plus pricing
This is the simplest method in which prices can be decided by adding an appropriate profit
or mark-up percentage into the cost.
Market-based pricing
In this, Asda will determine the prices of similar products which are available in the market
and set prices accordingly.
Competitor-based pricing:
In the present age of throat cut competition, it is essential for Asda to decide prices by
considering their competitor prices.
Asda buy material from the competitive suppliers and use their own packing and brand
name so that cost can be minimised. This in turn, Asda can offer products at affordable prices. It
helps to attract more and more customers across the world. The most important reason for lower
price is customers are highly price-sensitive henceforth; they will buy goods only at reasonable
prices.
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B.
Illustration 1: Types of market structure
(Source: Bachmann, Elstner and Sims, 2010)
Perfect competition
Prices are decided by the industry on the intersection point of demand and supply and firms
are only price takers. In this market structure, Asda will sell whole of the stock when the prices are
high. It will enlarge business productivity, market share, sales and profits which lead to enhance
performance. On contrary, when prices are low, than it will hold its inventory till the time prices
will increase again results in declining performance because of declined turnover, market share and
profit as well. Asda will refuse to sell its products beyond the set standard prices, called reserve
prices.
Monopoly
Monopolist is able to decide whatever price he wishes to charge for their products (Roberts,
2014). If Asda works as monopolists than it will charge high prices but still, it must be keep in mind
that very high prices will reduce overall performance. It is because consumers will not be able to
buy costly products. By setting few higher prices, Asda will be able to increase its turnover,
productivity, market share and serve larger customers which will increase its performance or vice-
versa.
Oligopoly
All the oligopolistic match their product price with each other because if any producer will
charge high price than it can not sell their goods (Schneider, 2013)In this, highly concentrated
prices will increase Asda's sales, market share, productivity and profitability to a great extent.
While, less prices will decline production, turnover, market share and business performance as well.
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Monopolistic:
Every firm has some monopoly power in the market due to differentiation in their products
and services therefore, they own decide their product prices so as to maximize their profitability.
C.
Competition Act, 1998
Its main aim is to promote fair business practices and competition as well. It as per the
legislation, Asda need to comply with all the provisions and run operations in faithful manner
(Rose-Ackerman, 2013).
Enterprise Act, 2002
It includes merger assessment, investigation of market, tougher UK regulations as compare
to EU, disqualifying the directors in case of breach of the competition regulations. The act provides
rights to the consumer to complain for uncompetitive prices. Thus, according to the regulations,
Asda cannot charge very high prices for their product so as to increase its market share
Employment act, 2002
Asda is obliged to follow all the regulations of the act by treating employees equally and
provide them equal opportunities. No discrimination will be done at workplace regarding personal
factors like sex, age, gender etc.
Immigration act, 2014
This act aims at preventing private landlords from renting or hiring houses to people who
have not very well status in the community.
Advertisement act, 2012
Furthermore, Asda has to comply with advertisement regulations to create awareness in the
market about its offered products and services. The act aims at preventing any illegal or
unauthorized advertisement in the market to prevent consumer’s rights and interest.
TASK 3
A.
Economic structure:
Maturity of industry
In 21st Century, UK economic structure changed at staggering rate. Changing shopping
patterns, retail policy, product quality, customer choices, experience and convenience bring
significant changes in the retail industry. Moreover, technological improvement due to extensive
research and development operations increased UK nation growth rate to a great extent (Levy, Yu
and Prizzia, 2016). Thus, it the changing environment, it becomes essential for Asda to track
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changing customer demand and meet expectation by providing best quality of services.
Wage competition from third world countries
It is often can be seen that in developing countries, minimum wages are comparatively lower
than developed countries. With reference to Asda, it is obliged to pay minimum standard wages to
all the workers to comply with the regulations.
Crowding out:
It is a situation in which high interest rate will reduce organization ability to take more
borrowings and results in cut spending and investment. For instance, in case of high interest rate,
tax rates and less spending, Asda has to pay high tax and will not be able to take excessive
borrowings through bank. Moreover, consumers will spend less on their buying habits which results
in declining demand and thereby productivity and profitability as well.
Labour and manufacturing productivity
With the changing market conditions, more skilled, experienced and talented labour force
are available to Asda which results in high labour productivity. While, growing use of advanced
technology provides benefits of high manufacturing productivity. It increase business production of
Asda and make it able to meet customer expectations.
B.
Objectives of macroeconomic policy:
Macroeconomic policy is related to the operations of overall UK economy. The main
objectives of such policy are to ensure stable and sustainable economic growth. Moreover, price
stability, increase employment rate, economic growth and making balance of payment may be the
objectives of UK government policy.
Fiscal policy:
As per the fiscal policy, UK government changes their spending and its level by altering the
types of taxes levied and government borrowings as well (Weale and et.al., 2015). In this, UK
government can directly influence economic operations through changing their capital expenses and
indirect influence can be seen by the effect of taxes on consumption, investment and export. If
government decides to decrease tax rates than more money will be available to consumers so that
they will spend more on Asda's products results in maximised turnover and profit margin and vice-
versa.
Monetary policy:
It increased employment rate and Gross Domestic Product (GDP) as well which results in
strong economic growth. Further, in context to Asda, company is able to take borrowings from bank
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to meet its capital need while growing market demand will create a favourable effect on operations
by increasing turnover, market share and productivity UK economy, n.d.). With reference to Asda,
stable price helps to attract and retain new and existing customers. However, high employment rate
will increase global demand for their products and services which helps to increase its turnover and
profitability to a great extent. Furthermore, growth of industry will helps to enlarge economic
growth and development and create favourable balance of payment (BOP).
C,
Importance of economic performance
It helps to measure economic growth or assess that how well a country is operating in the
market. There are different factors that helps to evaluate economic growth and progress over the
period like GDP, employment rate, increase in production, inflation rate etc.
 In 2014, GDP has been increased by 2.8% however, the expected growth was only 2.6%
which is very good sign of UK economic performance. On contrary to it, in USA. GDP
growth is 2.4% comparatively shorter than UK which indicates that economic performance
of UK is quite superior to USA.
Illustration 2: GDP growth of USA for the year 2014
(Source: U.S. 2.4% Economic Growth In 2014 Strongest Since Recession, 2015)
 Moreover, its unemployment rate was fallen higher than expected. In this year, UK
unemployment rate has been declined by 6% and the number of jobless people decreased by
1.97 million which is very good sign of improved economic performance. However, in
USA, unemployment rate is 5.6% which is shorter than UK. It indicates that high proportion
of UK population is unemployed.
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 UK inflation rate in 2014 is 1.2% which is lowest in five year. However, retail price index
has been fallen by 2.4% to 2.3%. However, inflation rate of US in the year is negative
0.09% is a sign of economic recession.
TASK 4
A.
Comparative advantage is the ability of an organization to manufacture goods at less
opportunity costs than other business organizations. These advantages will make Asda able to
compete effectively in the market and ensure long run sustainability. Free trade legislation plays a
great role in this as it helps to expand operations across globe. So that, company becomes able to
expand its operations across various lands of the world and provide services to the customers. It
provides number of benefits to the firms. In context to Asda, after globalization, firm became able
to operate at global level and take benefits of comparative advantage (Cicala, Fryer and Spenkuch,
2014).
After free trade policy, international transactions are increasing rapidly. It brings number of
benefits for Asda to overcome from production difficulties and gain competitive advantage over
rivals. In emerging countries, Asda expanded its operations at foreign lands results in high turnover
and sales margin (Kawai and Wignaraja, 2013). Moreover, large customer, massive food
production, economies of scale, good market share and strengthened competitive position are the
benefits of this. In addition to it, high production efficiency, wider choice of products for
consumers, foreign earnings and balance of trade surplus are the advantage of free trade policy.
Furthermore, expanding operations in various countries result in high employment for the labours
which help to make the economy grow.
On contrary, political slavery, different national and international trade regulations, non-
cooperations, unbalanced development, reduction in welfare, throat cut competition and
international monopolies are some of the drawbacks of free trade policy. Moreover, destruction of
home and domestic countries, unemployment, economic instability, high inflation and deficit
balance of payments are its disadvantages. All this factors influenced Asda adversely and resulted in
declined business performance.
B.
Concept of emerging market:
Emerging market economy (EMA) can be defines as economy in which per capita income
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ranges from low to middle level. Emerging economies constitutes 80% of the world population and
has 20% of world economy. It increases local and foreign investment which results in enhancing
economic growth. It allows expansion of business operations across distinct lands of the country.
BRICS stands for Brazil, Russia, India, China and South Africa which is the best example of
emerging economies. It has a strong and leading position in the global economy. It creates a huge
impact on developed economies. It developed cooperation among countries by active engagement
in foreign trade and economic cooperation.
It creates a remarkable growth in foreign trade by enlarging the import-export. Moreover, it
brings benefits of increase in Foreign Direct Investment (FDI). During past 8 years, FDI has been
significantly increased from 10 million USD to 146 million which is a commendable growth
(Czinkota and et.al., 2009). Furthermore, it developed financing especially from China and India
because of available grants, concessional loans and larger packages helps to develop trade and
investment across internal boundaries. Moreover, cheaper availability of resources for production,
wider choice of products for consumers and increase political connection among different countries
are the advantages of emerging economies.
Overall, it makes a huge contribution in the economic growth and development of countries
due to enlarging product demand and high employment opportunities. With reference to Asda,
emerging economies bring advantage of high consumer demand, high customer base which resulted
in maximizing company's turnover and profit as well. UK economy was greatly influenced by
global demand, supply and financial shocks. Global economic volatility creates an adverse impact
to the UK country. It is because global shocks results in declined UK stock market by very high
proportion. On the other hand, domestically, high fuel and food prices due to high rate of inflation
resulted in high production cost and declined profitability margin of Asda Group. Further,
destruction of home and domestic countries, unemployment, inflation, deficit balance of trade are
the disadvantage of emerging countries.
Impact of emerging economies on ASDA
In the emerging economies, Asda has become able to reduce their labour costs by recruiting
skilled personnel at fewer wages. Moreover, firm can purchase goods from other countries where
the rates are comparatively cheaper than UK based suppliers resulted in less material costs.
Moreover, hiring talented and experienced staff from other countries assists Asda to enhance their
productivity due to high efficiency. All this factors contributes to get high competitive advantage
and product goods at cheaper rates. This in turn, Asda is able to accomplish its objectives of
supplying cost effective goods to large number of consumers.
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CONCLUSION
Presented report concluded that different market structure decides prices on different basis
but the basis of it demand and supply forces. Moreover, the report concluded that free trade policy
make it possible to enhance globalization which resulted in high international regulations on the
corporations. Moreover, the report concluded that UK economic performance is good in 2014
because of declined inflation rate, unemployment rate and growth in GDP.
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REFERENCES
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