Impact of Global Economic Shocks on Economy

The report discusses the importance of understanding the advantages and disadvantages of free trade, which can help develop demand products and services to customers. It also explores the impact of current domestic and global economic shocks on the economy, including the effects on business cycles in emerging economies.

Business Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Economic problem of scarcity and demand resource allocation......................................1
1.2 How equilibrium in a market is achieved.........................................................................3
1.3 Importance of different market systems...........................................................................5
1.4 Role of opportunity cost in determine how economies make decisions..........................6
1.5 Importance of elasticity in market interaction..................................................................8
TASK 2............................................................................................................................................9
2.1 Implication of pricing and objectives on business firms operations................................9
2.2 Compare how price set in different market structure.....................................................11
2.3 Analyse firms behaviours on market structure and operations......................................12
2.4 Impact of regulation on market power in given situations.............................................12
TASK 3..........................................................................................................................................13
3.1 Analyse how the structure of an economy has changed.................................................13
3.2 Evaluate tools available to meet macroeconomic policy challenges..............................14
3.3 Evaluate the success of government policies in achieving objectives...........................15
3.4 Economic performance of an economy in global market...............................................16
TASK 4..........................................................................................................................................16
4.1 Theory of comparative advantage using relevant illustration........................................16
4.2 Advantage and disadvantage of free trade......................................................................17
4.3 Analyse the impact of emerging economies on developed economies..........................19
4.4 Impact of recent domestic and international economic shocks......................................20
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22

INTRODUCTION
In modern time period, the level of competition is continuously increased day by day.
Business economics help in facing financial challenges and shortcoming which arises in an
organisation. There are many problems that an enterprise can handle and also few issues such as
elaboration, schemes, organisation and business management. This report is based on Tesco Plc
which is British Multinational grocery company (Acs and et. al., 2011). Its headquarter is located
in Welwyn Garden City, Hertfordshire, England. Its stores are covered more than 12 countries of
Asia and Europe and this is leader of all retail stores of UK. The purpose of this report is to
identify the problem of business economics and analyse how it is affects on UK business
organisation. In United kingdom, economy rate is highly formed and market oriented. It is stands
for fifth largest economy of the world. Government mainly intervene energy sector which has
lead to difficult system. The growth rate of UK is 1.5%. Fiscal that policy which changes the
level of consumption of government expenditure and monetary policy help in maintaining RBI
rate.
TASK 1
1.1 Economic problem of scarcity and demand resource allocation
It refers to the study of human behaviour relationship between users and scare which
have secondary usage. Economic is the examination of resources involved when they choose
between alternate form of several conclusion. On the hand economic analysis means to a method
which help in distributing scare resources in limited value. There are various source of economic
approach such as cost benefit analyses that influence the nominal value of result. Tesco can
divide the economic analysis into three primary divisions that includes microeconomics,
macroeconomics and econometrics. Microeconomics- In this company will try to estimate the
behaviour of a person in different situations basically they are only private and firms customers
(Brabham, 2013). They can focus on how the business select to produce its demand of products
with compare to supply of consumers of specific goods. Macroeconomic- It directly effects on
business operations decisions on the whole economy. This includes affects of economics
decisions on employment, development and inflation of entire economy.
The econometrics is determined with usage of mathematics theory of economic. The
economic branch which is use the method of statics for measuring and calculating the concepts
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of relationship of economic. The whole world resources are limited. All the researchers are said
that resources are used in very limited value. Scarcity refers that economical factors that includes
government, global and organisation authority which can obtain large value of resources at
particular time period. The economists have three parts which assist in solving basic problem of
economic that are as follows:
 what to be produced?
 How to be produced?
 For whom to be produced?
Scarcity and demand resource allocation- Scarcity refers to the limited value of goods
that may be demanded by customers in the market place. The capacity of an individual is totally
depends upon their selling and buying commodities of available resources by an organisation.
Demand allocation refers to that process which distribute products and services and supply to
their customers, and when supply is affected for the demand of whole allotment of group. These
regulations are defined to solve all supply confinement within an portion group if need is scare.
Marks and Spencer firm has face problem with scarcity of resources because they sell
various types of products and services. It includes branded clothes, food items and home
products which are sell in the large market. The scarcity of resources is face by cited firm and
this create lack of customers base. They can not provide branded clothes from outside the
country by this they can not attracts more buyers towards their goods and services.
For example, NHS is the health care company which is based in UK. They are face
scarcity resources problem in badly manner. The issue is that lack of qualified doctors and
labours who help in increasing factors of production. By this, they can not take care of patient
who are come for providing proper care to the required customers. Scarcity of qualified doctors
are creates major problem within an organisation and this will face by company in effectively.
This will directly affects on patient health by lack of proper advice and they suffer from heavy
loss regarding diseases. The scarcity of doctors will affects patient health by which some people
are die and some are suffer from their disease. The company will also arrange certain required
resources which assist in taking care of customers by using these resources. It is the duty of
company manager is to arranged needed equipments and techniques which required within an
organisation. At some time, the demand of higher resources but firm have lack of resource by
this they can not fulfil all requirements of enterprise in effective manner.
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Demand- When a customer need some products and services they ask seller for purchase
only such type of good so that it is known as demand. The capacity of an individual is totally
depends upon their selling and buying commodities of available resources by an organisation.
In UK, the problem of scarcity of resources can drive for maintaining high in the nation.
The major reason behind value of products is that the supply does not getting increasing in
specific time period but their demand will enhancing more than expected from suppliers and rise
in production capacity. Each economy have limited resources for managing allotment challenges
in proper manner. For example, UK government want to invest their financial resources for
generating more jobs at the same time for saving money.
1.2 How equilibrium in a market is achieved
Market equilibrium refers to that situation in which supply of actual products is
competitive with its need by the consumers (Czinkota, Ronkainen and Moffett, 2011). It is that
particular rate point when the quantity which manufacturer produces will be purchased by buyers
without left any commodity as remaining.
For understanding how to achieve market equilibrium point of TESCO organisation, a
graph is representing as below:
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Illustration 1: Market Equilibrium, 2017

(Source: Market Equilibrium, 2017 )
As shown in the above graph, it can be seen that price of grocery items at $60 and the
supply unit is 500 of these products that will demand in the marketplace. The demand of grocery
goods is 500 units in the market and producer will also produce same unit of products. It is that
point which is clearly shows the market equilibrium point.
At some level the price is higher than equilibrium point and it affects to reduce the
demand by less than 500 units. Currently consumers can spend more because there are many
multiple options of items in the market (De Clercq, Danis and Dakhli, 2010). The grocery
products provide benefit to the company consumers by reducing price at reasonable rate produce
low cost goods which attracts large number of buyers.
Supply and demand- Demand means to how much quantity of goods and services is
willing to purchase by customers. The demand quantity is the cost of products which has to be
buy by people at specific rate. On the other manner, the relation between quantity and value is
also called as demand. Supply presents the demand of potential buyers of particular goods and
services.
Role of advertising and public campaign- The main purpose of advertising is to promote
company specific products in the marketplace. There are various sources which help in
promoting goods such as TV, radio, newspapers, templates, magazines and internet. The
advertisement agency assist in making effective strategies which target the desired customers.
Public campaign is that which is non profit organisation and its main motive is to spread
information and qualities of products in the large market among potential buyers. The publicity
of goods also assist in attracting more customers towards TESCO commodities and services.
Equilibrium- It is that state in which balance between market supply and demand in each
manner and it is stable in price rate. When there are increase in the supply of goods and services,
it affects to reduce the price and the outcome is increase demand. The balance between demand
and supply which represents the equilibrium point.
Supply will change demand quantity of products of individual in effective manner. It is
the duty of company is to satisfy demand of customers and also fulfil needs and wants of buyers.
So that supply will affects on demand factors which are help in analysing customers wants
regarding any products and services.
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Equilibrium in the market can achieved when demanding amount remain equal to suppler
amount. Quantity and price are components that includes at the time of understanding market
equilibrium. If equilibrium price is equal to the price where a person is ready to pay and in
similar condition they follow different themes of quantity when they can achieved the market
equilibrium.
1.3 Importance of different market systems
The market system is different in present industry. It is essential for small business firms
owners to understand the various types of market system which help in developing production
and pricing decisions. It will also assist in evaluating the rule of enter or leave in a specific
market place. There are some different market systems which are discussed as under: Perfect competition- It is that market where large number of buyers and sellers are
present. In this market, there are limitless buyers and sellers. It help in exchange products
and money with each other in proper manner. Monopoly- It is totally opposite form of perfect competition market system. In this, there
is only one manufacturer of specific products or services and they are not fixed any
reasonable price. They are usually take their wise price and there is no fear of
competition. Oligopoly- A oligopoly is very similar to monopoly market (Fidrmuc and Korhonen,
2010). The major difference in between is there are only one producer of particular
products or services and it is some type of dominant market system. Monopolistic competition- In this market, there are large number of competitors who sale
different types of goods or services. They also charge high price rate compare to the
perfect competitive market.
 Monopsony- It is that market system which are differentiated according to the number of
suppliers within the marketplace. In this there is only one buyer of specific goods or
services and it has power to determined the price of products produced in market.
There are five types of market system that are discussed as under:
 Capitalism- The market system introduced free trade and the capital of economy is
managed by private sector. The main aim is to earn money by producing products which
are required by customers.
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 Socialism- Market system present in different nation like China. State government
operate all business resources of an economy and the main motive of attaining social
gain.
 Mixed economy- This refers to an economy system which consist of mixture to either
market and economic planning, private ownership and public ownership on the economy.
Mixed economy protect private property and gives freedom to government to interfere in
economic activities.
 Free trade- This is that economic system which does not owned or operated by
government. There are two factors which run free trade market system in which one is
demand and another is supply. Free trade market system is important for fast innovation
process, lack of government interference, reduces tax burden and many other.
1.4 Role of opportunity cost in determine how economies make decisions
Opportunity cost is simple and it is one of the important concept of microeconomics. It is
that cost which satisfy an individual desires that will provide alternative activities. For example,
in an organisation, an employees has to choose between time to spend on complete their task or
take part in his favourite activity. The opportunity cost of taking participation in favourite
activity is sacrificed and likely to finished the important task or work. There are very limited
resources in the world. So people has to choose between among these scare resources. In TESCO
decision making process is mostly ignore opportunity cost and it can included while making
effective decision. Every company has to analyse cost benefit in their decision making
procedures that will assist in providing extra cost which is higher than its regular cost. There are
five steps which help in making accurate decision by economist which are as follows: Define the problem- Firstly, they need to identify the problem or issues which arise in an
organisation. It is very important for tesco to understand the errors and barriers of
problems in effective manner. Find the objectives- Economist also determine main objective of company which assist
in enhancing growth and success (Glen and Mondragón-Vélez, 2011). They should
analyse goals and objectives which required to achieve by firms employees. Observe the choice- Organisation should assume wants and demand of their customers
and try to satisfy them in appropriate manner.
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 Predict the consequences- After discover choice then they need to estimate the result
which help in target their customers in different segments. They should also try to solve
all problems and issues which occurs in the firm.
 Form a preference- Lastly, they need to select a correct decision which are suitable for
their enterprise growth and development.
Income elasticity of demand- It measures the demand for products and services changes
with relative change in revenue and rest of the elements are remaining same. This term is used
for economics in refers to the sensibility of supply of specific goods and services in state to
alteration in profit of customers.
Formula:
Income elasticity of demand= % change in Quantity Demand / % change in price of related
goods
For example: TESCO products with optimistic income elasticity of demand. Economy is
booming and every one revenue increase by 400% and quantity of demand rise by 16%.
Income elasticity= 16%/ 400%= 0.04
Elasticity of demand= change in quantity demanded/Initial quantity of demanded X 100
change in income/ initial income X 100
= Q2-Q1/Q1
Y2-Y1/Y1
Pricing strategy of TESCO- The price of tesco is focus on attracting large number of
customers towards lower rate of products and services. They deal with good quality products
which provide profit and productivity to the company. Tesco pricing strategies is totally based on
its marketing strategies that is “Every little helps”.The management aim of firm is to decreasing
the cost of buying and operational cost.
Market skimming-It is that pricing strategies which set by manufacturer in high price for
high rate products or specific technical goods. TESCO also use this pricing strategy which main
aim is to increasing the income from the market before substitutes of products and services. After
achieving that particular goods, the manufacturer can reduce their price to cover the target
market place.
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Market penetration- It is the percentage of market target which ingest goods and services
in the market. It can measures the firm selling ratio and also calculate it in proper manner.
TESCO will adopt this strategies for analysing their selling percentage portion in the market.
Product mix pricing strategies:
 Product line- It is used when the price are keep in the product line which purchase
customers products or services within product line.
 Optional pricing- An enterprise change goods features and characteristics which provides
price on the basis of features in effective manner.
 Captive product pricing- In this strategies, the company provide goods and services at
very low cost. Tesco can minimise their products cost which attracting large number of
customers towards goods and services in the marketplace.
 By product pricing- It is simple and easy to understanding pricing strategy which provide
complete goods to the company.
 Product bundle pricing- The most line of products prices that deal with person goods but
its bundling of products deals with combination of multiple goods and services.
1.5 Importance of elasticity in market interaction
The elasticity is majorly affected in market by government intervention. The government
is directly effects on price of products which can fixed by company. If they change rules and
regulations of specific items rate than the firm will change their goods price according to the new
policies of authority. The elasticity is important for changing price of products by organisation.
There are certain importance of elasticity in market place which are as follows: Minimum and maximum pricing- If government always change products price it can
create confusion among the mind of consumers. They does not understand which item
rate is high and less. The elasticity help in making effective pricing strategies that will
attracting large number of buyers. Black market- Some firm doing black market of products in the large area. In this a
company provide high price goods in less rate to their customers which develop black
market.
 Indirect taxation- It is that tax amount which h is not directly paid to government by
common people. The elasticity help in providing right price to right consumers in
marketplace. Also it will aid authority for collecting indirect taxes among the markets.
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 Consumer- producer rivalry- Consumer attempt to negotiate of locate low prices.
 Consumer-consumer rivalry- this will reduces the negotiating power of consumer in the
market place.
 Producer-producer Rivalry- Producer attempt to negotiate the high prices.
TASK 2
2.1 Implication of pricing and objectives on business firms operations
Price is the critical element in market place. Pricing objective provides guidance to taking
decision in formulating effective strategies and set actual prices. The main objective of all
companies is to maximise their profit (Mandell, 2015). It is the basic goals that help in analysing
wants of firms which can be achieved by business operations. They are making pricing
objectives, select target market and evaluation of price, analyse competitors, choose suitable
price, adopt pricing strategies and determined specific rate. The significance of price by
achieving target goals and objectives in an effective manner. It help in attracting large number of
customers towards reasonable price products and services. TESCO also develop that strategy
which assist in increasing demand of particular goods and services to their buyers.
Mixed economy with free market- In UK, government will spend more than 35% in
GDP growth rate and this means that authorities intervention in conceived and industry system.
Free market economy is that states where prices of goods and services are considered as the open
market place and consumers. In this system , the laws and rules will gives power to supplying
and needs are totally free from any interference by the government.
There are four types of market structure that are as follows:
 Perfect competition- This is that factor where all the buyers and seller are purchase and
sale their product and services in the large market place in proper manner. It is that factor
which is opposite from monopoly in which only one seller are sale all the products in the
large market place. So they will charge any amount because customer have no option for
purchasing the products and it make difficult for the poor consumers.
 Oligopoly- This is that market where industry and market is dominated by small sellers.
Oligopoly have its own market structure which they are followed. TESCO Is also capture
whole market place for gaining maximum number customers as well as profitability.
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 Duopoly- This is also form of oligopoly where two sellers present in one marketplace. In
this, only two companies are controlled over the large market area. They are independent
and free to take decision.
 Monopoly- In this, only one seller sale each products and consumers have no other option
for purchasing goods so that the company will charge any price.
There are certain pricing strategies of TESCO which are relates to oligopoly that are as under:
 Strategic- The company can used different pricing strategies during selling of products
and services. The goods price can be set for maximisation of profitability in all over the
world. This will used for defending the present market from new entry which help in
increasing share of market while enter in new market location.
 Skimmed- The pricing strategy of skimming which charges the high rate which have to
pay the customers. According to the demand tesco products they will improving their
quality in best manner.
 Premium pricing- Tesco pricing strategy of premium is also known as image pricing.
They will setting the price of products which is higher than same products in proper
manner. This strategy will also known as skimmed pricing.
 Penetration pricing- This refers to that marketing strategy which is used by business
person for attracting large number of customers for offering different types of goods and
services.
 Cost plus pricing- This is cost based method which set the goods and services price. In
this concepts, the cost includes direct material cost, direct labour cost and overhead cost
for the particular costs.
 Market based pricing- this is also known as competitive based strategies. The pricing
strategy of the firm has to evaluate the prices of same goods which are offered in the
market.
 Competitor based pricing- This refers to that products price or services that are totally
based on charging of competition. It is the method of pricing which is used by business
who sell different goods.
TESCO pricing strategies- company sale of products are increasing day by day in the first half of
2016, the rise in sale by 0.6% in the six month in 2015. The firm will plan for making effective
functions and strategies in proper manner. They prepare their budgets for for attracting large
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number of customers that will help in making profit and productivity. The average price rate of
firm is approx. 6% lower in last year and sale is rise by 0.7% in previous year in the UK.
2.2 Compare how price set in different market structure
There are various market systems which directly or indirectly affects the company
business operations. An organisation operates in a market and not in separation. In perfect
competition price is ascertained by the force of supply and demand. Every enterprise under
perfect competition is price taker not price maker. In this the price influence the change in other
price in accurate manner. Monopoly market is different situation and it is always price maker. In
this market, seller can fix their products price according to them. Its equilibrium point is arises
where MR=MC (Marginal Revenue=Marginal Cost). Company will earn maximum profit in this
market structure. On the other hand, monopolistic may charge different price to various buyers
and in different areas for similar type of products. Seller are usually sell their products in
international marketplace at low rate. In monopolistic competition, a group of producer make
similar type of goods and services but they are not compete with each other in large market. Firm
will make differentiated goods by charging different price with each other. On the other side,
oligopoly are that market where few sellers are compete in large market.
This can be affects on 4ps on marketing mix such as product, price, place and promotions of an
organisation and these are as follows:
 Product: Operational decisions can affect on companies product because it is the
decision regarding company's products and services what they are selling in the market
so it depends on the Tesco company as how they make this decision and take action plan
ineffective manner.
 Price: it is important part in the marketing mix as to decide the price of products that
cover all factor of production and generate profit margin on products and service.
 Place: place is also very important where products and services make available for final
consumption as distribution channel helps to provides goods and services to the
customers.
 Promotions: company generally use various promotional tools for selling their products
and services such as advertisement, online marketing, internet, hoardings billboard,
gorilla market etc. so these decisions also can affects on its operations and company
should have to consider all factors while making any decisions
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2.3 Analyse firms behaviours on market structure and operations
There are different types of market structure whose behaviour are affects business
operations. They are manage and control firms functions and activities in proper manner.
Market structure- These are directly affected organisation behaviours whether it is
efficiently and create level of earnings or profits. The market structure includes number of firms
in the various marketplace, market share and some other characteristics that affects the rivalry
level of market (Meliciani and Savona, 2014). Market structure such as perfect competition,
monopoly, monopolistic and oligopoly.
Operations- The behaviour of firm usually affects business operations which help in
attracting large number of customers in appropriate manner. It is essential for TESCO that they
need to analyse whole market structure and also evaluate each and every function of an
employees within an organisation. The business operation can run smoothly for analysing entire
behaviour of company towards their products and services. Firms actions are basically affects
their employees performance and growth.
2.4 Impact of regulation on market power in given situations
The government regulations are directly or indirectly impact on market structure. If UK
authorities changes their rules and regulations than it will affects the cited firms policies and
strategies. There are some rules and regulations which should be followed by firms: Fixed price- Ever organisation has to charge that amount which will fixed by
government. They only get fix rate to their customers of specific products or services.
Only deliver such items that should be demanded by their buyers and also follows all
terms and conditions of delivery. Positive impact on market- The government regulation also influence positive affects on
market by providing higher price of each products and services. In this customers will
pay greater amount which can not afford by every buyers. Enterprise Act 2002- This is that act which made changes to UK competitive law in
respect of merger and alter the governing law. Employment act 2002- this act will attain the UK sculpture book which is established in
July 2002, announced new provision and law that can concerned with working of friends
and family, solve person conflicts and disputes at workplace, equality should be maintain
by employees.
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 Immigration act 2014- This is that act which is established in the year of 2014 in may.
The act will develop provision to defend private landowner from rest of the rental homes
to people and support prohibited migratory from obtaining bank accounts and permit.
Role of competitions and market authority such as:
 monitoring and regulating prices: in this, regulator aim is to ensure that company do not
exploit their monopoly power by charging excessive prices. They decide that how much
profit companies should be allowed to earn in exchange of their risk so they set the price
on particular products or services.
 Standards of customer services: in this company decide their products according to
customer's standards. The regulator may also require that unprofitable services that are
maintained in the wider public interest.
TASK 3
3.1 Analyse how the structure of an economy has changed
In recent time period, UK economy structure has changed and structure can be defined as
various sectors. The major change in its sector which help in identify parts of different industries.
In 1983, the household expenditure is approx. 198% and in 21st century it increases by 412%,
food and alcohol expenditure is also increased by 41.6% and in recent time it reduces by 4.2%.
United Kingdom is developed country and there are 8 million people whose age is approx. 16-24
year in 1981. The country provide car output from 1.2 million to 1.1 million in current time
period. The manufacturing and construction expenditure is increased approximately 2.9% and
1.8% in the respective country (Myant and Drahokoupil, 2011). And it fall by 1.2% and 1.4% in
current period. There are some sector in which economic changes were identified that discussed
as under: Primary sector- In this, all natural resources functions works for achieving goals for
example, mining, farming and oil extraction. Secondary sector- It is that sector where goods are produced and processing other
materials. Production is the main component in this industry such infrastructure,
construction, water and electricity board and gas industry.
 Territory sector- In this all the private sector services such as insurance, banking, finance
and other is public sector which includes health and defence industry.
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Economic structure-
This term is describe as the changing balance of output, trade, Income and employment
drawn from different economic sectors from primary such as farming, finishing, mining etc. to
secondary like manufacturing and construction industries and tertiary or quaternary sectors like
tourism, banking and software industries. So it brings various challenges in terms of reallocating
factors of production.
3.2 Evaluate tools available to meet macroeconomic policy challenges
Macroeconomic policy provide a stability towards economic environment which is
conductive to raising powerful and sustainable growth which develop jobs and also modify
standard of living of people. There are certain macroeconomic policy which are as under: Fiscal policy- It is that policy which changes the level of consumption of government
expenditure and also analyse various kinds of taxes which are formed by authorities. The
government directly affects economic activities by repeated and capital expenditure and
indirectly sources effects on different payment, transfers and taxes on private
consumption, net exports and expending. It is only macroeconomic policy which is
control and managed by system. Monetary policy- The Reserve Bank is totally responsible for setting monetary policy. Its
decisions are applied for making effective changes in cash price. By using open market
operations, the Reserve Bank target cash price for increasing and reducing supply of
various amounts which has to settle by banks. The changes in interest rate is directly
affects the economic activities and functions in better manner.
 Exchange rate policy- It is that policy which help in exchanging value of domestic
currency in comparison to other currencies. It is help in intermediate inflationary force
and they required to provide facilities that flow resources to production sector.
Objectives of government
Price stability: the objective of price stability consider the general level of price in the
economy. In this define as it implies avoiding both as inflation and deflation. It contributes to
achieving high level of economic activity and employment by improving the transparency of the
price and reducing inflations risk in interest rates.
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Full employment and Economic growth: its objectives should be distinguished from
each other because it implies exploitation of job opportunities by lifting the actual production
and utilise available resources and it is static notion.
3.3 Evaluate the success of government policies in achieving objectives
The main and basic objective of government policy are discussed as under: Steady and sustainable economic growth and development- This is main objective of
economy which provide effective stability, economic growth and enhanced development.
It will assist in increasing living standard of people, generate more income, increase
education etc. Stabilised price- The government works on providing stable price products and services
to their customers (Rokach, 2010). It refers to average increased rate which is small price
approx. 2% per year. Balanced payments- This objective is important for company to stable the payment of
country and it directly affects its performance. Full employment- It is that policy which help in providing job for unemployed people
and give a chance to earn income by doing good work.
 Equal distributing of income- An authority can not make biasses between rich and poor
people. The objective is to provide equal revenue to each level of person in effective
manner.
3.4 Economic performance of an economy in global market
The economy growth rate is stable of UK country. Its GDP rate is 2.3% and its
performance is steady in 2016. This is the second quickest rate among G7 economic system. The
economic growth is accurate in quarterly month in 2016 but it slow down in 2017. The
economist predicted that increasing in inflation, depreciation of money, fluctuations in the price
of household and increased expenditure of consumers which arises in current economic growth.
The performance of economy in large market is affects country growth and development
(Business economics. 2017). The government of UK borrow funds money which evaluate gap
between amount received and spends. This will also impact on demand and supply of specific
goods and services in marketplace. In the country the employment rate is reducing day by day
which majorly impact on economic success in previous years.
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Economic performance of UK government:
Key measure of economic performance in macroeconomic includes:
 Economic growth as real GDP growth.
 Inflations such as CPI inflation of 2%
 Unemployment
 current account for satisfactory
other measures of economic performance can includes:
 Government borrowing
 real disposable incomes labour productivity
 investment levels
 exchange rate
TASK 4
4.1 Theory of comparative advantage using relevant illustration
It is the important approach which help in comparison between two countries or firms
goods and services. The comparative advantage will assist in suggesting which product is
produced by different countries There are basically two types of cost advantages such as absolute
and other is comparative (Roztocki and Weistroffer, 2011). The absolute advantage refers to
produce more or cost efficient than other country which relates to comparative advantages that
help in evaluating total productive or cost effective of one country.
Illustration
Which concept of comparative advantage will be implemented in real world, a simple
example of two countries who producing various products- motor cars and commercial trucks:
Maximum outputs Country A Country B
CARS 30m 35m
TRUCKS 6m 21m
AS the above example, the country A produce 30m cars or 6m trucks and on the other
hand country B produce 35m cars and 21m trucks. The absolute advantage of country B produce
both type of products because it is comparatively better and in country B is 3.5 times improved at
trucks and only 1.17 times improved at cars.
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4.2 Advantage and disadvantage of free trade
There are some advantages and disadvantages of free trade for development are as under:
Advantages
 It help in enhancing economic growth
 This will provide more changeable environment
 Help in expending lower funds of government
 Company can direct investment in free trade market
 International firms are experts in comparison to domestic firms Easily transfer of latest techniques and technologies
Disadvantage
 It assist in increasing job communicator
 Fear of stealing intellectual property
 Huge gathering in domestic industries
 Very miserable practical condition
 Does not protect environmental natural resources
 Decreased in tax income
There are various persons which provide benefits from free trade that are as under:
 Consumers- Free trade is that agreement where government can not interfere for doing
exports and exports in another countries. Consumers gain benefit by free trade that they
are purchase products at reasonable and cheap prices from other countries sellers.
 Suppliers- Free trade will also provide benefits to suppliers, they are easily done export
and import of their goods in one country to another and sale their products at any price.
Government can not restrict them for making different charges for the manufacturers.
 Producer- This trade also helpful to the producers while they are making and developing
innovative and creative products and serve in the international as well as domestic
market place without any restrictions.
Effect of free trade on tesco- The free trade is effect on TESCO firm because this is not
easy to export and import of different type of grocery item from other countries. But company is
establish their branch in many countries without any restrictions and rules. So free trade will help
in maintaining business operation and its major functions in easy manner.
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Advantages- Export will create jobs for more people and also help in increasing
economic growth. Tesco will gain competitive advantage by doing international trade. On the
other hand import assist in allow global companies for reduces the goods rate for their customers.
This will provide large choice and variety for the shoppers. Free trade also increasing the annual
turnover of the company.
Disadvantage- Free trade will increasing job outsourcing. Most of developing countries
have not their own laws and rules for protecting the inventions, innovations, patent and new
process. With the use of free trade firm will facing poor working conditions.
Free trade is beneficial for TESCO- Yes, free trade is beneficial for the company because
this will help in providing export and import facilities in all over the world without any
restrictions. Tesco provide different types of grocery products and services which mainly offer in
various branches which are located at several places so free trade help in easily serve products in
another countries.
Benefit of globalisation on Tesco- It is the largest grocery store firm which is situated in
United kingdom. The size of business can be predicted and this will operates in approx. 6784 in
all over the world. The international market provide extra benefits to the firm is to make
innovative and creative products and services for attracting their customers.
Globalisation made positive and negative impact on TESCO and they gain high income
by expanding another nation but at the same time MNC enter in the UK market and stole
important cost of market share of them. The outcome of this will gives loss to them. By
transferring the latest technology, this can reduces the business cost of TESCO and offer them
different advantages.
Advantages and Disadvantages of free trade
free trade agreement are designed to increase trade between two countries. There are some
advantage of the free trade such as:
 Increased economic growth
 more dynamic business climate
 lower government spending
 foreign direct investment
 expertise
 technology transfer
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disadvantage of free trade agreements are as follows:-
 it increase job outsourcing
 theft of intellectual property
 crowed out domestic industries
 poor working conditions
 reduced tax revenue
4.3 Analyse the impact of emerging economies on developed economies
Tesco has to identified impact of emerging economies on developed countries are
majorly present in the world. They need to predict national income, sub regions and other level
of countries which directly affects UK economic market. This will directly affects on customers
goods price and analyse demand or supply of respective firm (Smallbone and et. al., 2010). They
required to estimate whole market situations which are identified effective position of company
in large marketplace. An organisation should evaluate the current trends, risks and results that
impact on business operations. Emerging market are directly create huge impact on developed
country which reducing its growth and development process in effective manner. Also they will
develop strategies and policies that aid them in attracting international customers towards their
products and services. The negative effect of emerging economies are developing some positive
impacts on developed economies. Such countries like UK, USA have latest technology when
they earn billion of pound by selling such technologies for developing economy. They have gain
foreign currency for supporting emerging nations in maintaining sustainable infrastructure.
Concept of Emerging markets – BRICS
there are many emerging markets around the worlds and four largest are known as
BRICS such as Brazil, Russia, India and china. So every investor have to consider its factor
before any investments. It helps in contributing economic growth of the country. It is best way to
invest in foreign markets as well as it builds a solid and diversified portfolio with BRICS.
4.4 Impact of recent domestic and international economic shocks
The UK economy is closely integrated with the remaining world through sale of specific
products and services and also exchange company assets . There are two sources by which UK
economy shocks to economy such as domestic and international. Domestic economic is not
affected by this country development but it takes part with remaining countries. The international
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economics has to play an important role in processing business operations. They should
understand all the necessary results and outcome which help in developing effective goods and
services to global based customers. This activity aid company in attracting large number of
buyers towards specific products. UK has to set effective outcome which help in building growth
and provide success to the firm by offering demanded goods to potential buyers (Storey and
Greene, 2010). Domestic economics will assist in enhancing performance of organisation as well
as increase growth for providing different types of products in the marketplace.
CONCLUSION
As per above report it can be concluded that business economics help in facing financial
challenges and shortcoming which arises in an organisation. There are many problems that an
enterprise can handle and also few issues such as elaboration, schemes, organisation and
business management. There are also various types of market structure which help in analysing
market situations such as perfect competition, monopoly, monopolistic and oligopoly.
Opportunity cost assist in making effective decision for business operations. Some tools of
government policy which help in measuring economic growth that includes fiscal policy,
monetary policy and exchange rate policy. There are certain objectives which aid in achieving
government policies such as full employment, stable economic growth and price, balanced
payment and equal distribution of revenue. Also understand advantages and disadvantage of free
trade which help in developing demand products and services to their customers. In this report,
also describe the impact of current domestic and global economic shocks to economy.
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