Economics for Business Models PDF

Economics For Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
TASK 1............................................................................................................................................1
1. Identify the factors which determine the price of private housing in UK by using supply &
demand analysis...........................................................................................................................1
TASK 2............................................................................................................................................7
1. Evaluate the government policies that used to stimulate the demand for private housing in
the UK..........................................................................................................................................7
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Business economics include the applications of economics in the organization and
manager develop their strategies through analysing the concepts of demand & supply. Before
formulating any strategy they have top determine those factors which impact the business & their
operations (Berck, 2018). Through implementing various theories & models of economics in the
organization will helps the business to improve their productivity as well as profitability. This
project report contain various topics such as factors which impact the price of private housing in
the UK by using demand & supply analysis. In addition, include the government or economic
policies which used to impact the demand of private housing in UK.
MAIN BODY
TASK 1
1. Identify the factors which determine the price of private housing in UK by using supply &
demand analysis
Economic: It is the study of resources which utilized in order to maximise production as
well as profitability. Basically, business has to follow economics rules for optimum utilization of
resources and produce valuable products which satisfy customer needs & demands. In context of
business, economics will used to manufacture commodities, distribution and trade to maximise
value of business. There are various factors need to identify before developing any strategies
such as identify demand & supply of product on competitive price range. Law of supply and
demand will impact the production as well as profit margin by using at the time of formulating
strategies and it discuss below:
Law of supply & demand: It is an theory which show the interaction between seller or
buyer of particular product or resources. This theory show the impact of product or price due to
availability of resources (Demil and et.al., 2015). Basically, in this law price and quality plays an
important role and its relationship will affect the demand as well as supply of goods.
Law of demand: This theory represent the behaviour of individual according to the
change in product price. It has been assumed that other factors are constant and only price will
impact the demand of consumer. For example: When price of product is high then demand will
be automatically reduced and similarly, when price of goods reduce then demand of product will
automatically increases (Law of Demand, 2019). There is opposite relationship between price or
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quantity demanded by the individual. This relation will be represented in graphical form which
mention below:
Illustration 1: Law of Demand, 2019.
(Source: Law of Demand, 2019)
From the above mention graph it clearly represent that when price of product increase
then it will reduce the demand product. Where increase in price from P2 to P1 will reduce the
quality from Q2 to Q1. Similarity, it will happen in the case of reducing price from P2 to P3 will
increase demand from Q2 to Q3.
Law of Supply: In case of product supply, there are positive relation between price or
quantity (Law of Supply, 2019). When price of the commodity increase then supplier increase the
production and the other hand, when price of product low then produce reduce the production
because of low demand of goods. Below mention graph will provide better understating of law of
supply:
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Illustration 2: Law of Supply, 2019.
(Source: Law of Supply, 2019.)
Above mention supply curve provide the clear understanding of law of supply. In this
case price or quantity have positive relation as clearly mention in the graph. When price of
product increase from P2 to P1 then supply quantity also increased from Q2 to Q1. On the other
hand, when price reduces from P2 to P3 then production quantity also reduced such as Q2 to Q3.
Basically in case of supply, price and quantity has positive relation which impact the demand of
product, it will be possible when other then price all factors are constant.
Factors which impact the price of private housing in the UK:
Demand of private housing: In the UK, demand of private housing affected by the
various factors including prices (Dirican, 2015). There are inverse relationship between price or
demand of housing and its relationship will be presented below in graphical form:
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Illustration 3: Demand of Private Housing, 2019.
(Source: Demand of Private Housing, 2019)
Above graph presented that when price of private housing increased then it will reduce
the real income or reduce the demand as well. For example: Increase in the price from £200,000
to £250,000 will reduce the demanded quantity such as Q to Q1.
There are various factors which impact the demand of private housing in the UK. Some
the factors discuss below:
 Interest rate: High interest rate for housing will reduce the demand or similarity low
interest rate will increase the demand of private housing in the UK.
 The income effect: Change in the income and distribution also impact the demand
because high income will increase the demand and similarly low income of individual
will reduce the demand of private housing in the UK.
 Population: Demand of properties will based on the size or structure of total population
(Demand of Private Housing, 2019). So if people shift from one place to another place
then it will impact the demand of property.
 Social trends: Social or lifestyle trends also impact the demand of private housing
because according to young generation they buy houses from their own saving. So it will
take longer time to save which reduce the demand or impact the housing sector of UK.
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Shift in demand curve: Shift in demand curve occur when demand of the product
changes and curve mover to the right or left (Elgelal and Noermijati, 2015). Below mention
diagram will represent the change in the demand curve and it will based on the price factor.
Illustration 4: Supply of Private Housing, 2019.
Because of the above mention factors, demand curve will shift, if price of properties
reduces then it will shift from D to D1. On the other hand, if price of housing increased then
demand curve will mover from D to D2. It will be possible because of change in price and other
factors become constant.
Supply of private housing: In the UK, supply of private housing determined by the price
of houses and other factors as well which impact the demand. Relationship between supply or
high price will encourage to produce high quantity. Similarly, low price will reduce the supply of
private housing in the UK (Freire, 2014). There are positive relation between price and quantity
which mentioned below with the help of supply curve:
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Above mention supply curve represent the inverse relation of price or quantity supplied
to fulfil demand of customers. Due to increase in the price from £200,000 to £250,000 which
automatically increase the supply of private housing in the UK.
Cost: In case of new building, it significantly impact the supply or force the supply curve
to shift on the left side. For example: because of shortage of labour, wage rate increases which
automatically increase the overall cost of building so it will reduce the quantity of supply.
Government legislation: Legal regulations also impact the supply because they required
permission for construction (Hummel, Pfaff and Rost, 2018). So government can provide
relaxation or strict restriction on building which impact the overall supply of private housing in
the UK.
Technology: In order to uses new technology or building method also impact the supply
as well as increase the elasticity of supply of properties in the cheaper market.
Shift in supply curve: Change in the supply curve will occur due to change in the price
of private housing (Shift in Supply Curve, 2019). Below mention graph represent the impact of
price on quantity and both will impact the overall supply curve.
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Illustration 5: Shift in Supply Curve, 2019.
(Source: Shift in Supply Curve, 2019)
From the above mention graph, supply curve shift right or left when price of the product
constant. High supply of goods will force to shift supply curve to right side from S to S1 and low
supply will shift the curve from S to S2.
TASK 2
1. Evaluate the government policies that used to stimulate the demand for private housing in the
UK
Government formulate various strategies which focus on increasing economic growth as
well as demand in the market. At the time of preparing policies they have to make sure through
analysing all the factors which impact the demand or supply of private housing in the UK
(Lawrence, 2018). There are various government or economic polices which impact the demand
of private housing. Government develop policies to increase demand as well as supply where and
some of them discussed below:
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Illustration 6: Demand Curve, 2019.
From the above mention graph, it has been concluded that Y represent the real GDP or P
represent the price of housing sector. Gap between the aggregate demand (AD) will fulfil with
the help of long run aggregate supply (LRAS). It is possible when government follow fiscal
policy through increasing their spendings. According to graph, increase in the price will increase
the real GDP.
Demand side policies: Main aim of this policy is to increase aggregate demand (AD) and
it required at the time of recession or the period when economic growth is low as per the trend.
If economy have spare capacity which means negative output gap then demand side policies
implemented which play very important role in order to increase the growth rate (Government
policies, 2019). There are major two policies which implemented for economic growth such as
Fiscal policy or Monetary Policy and it discussed below:
 Fiscal Policy: This policy used by the government to maintain their economic growth
by using spending and taxation which influence the overall economy. Government use
fiscal policy to impact the aggregate demand and done various efforts to achieve
economic objectives. In context of private housing in the UK, with the help of fiscal
policy government can increase or decrease the demand through cutting taxes, increase
government spendings etc.
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Illustration 7: UK Government Borrowings, 2019.
(Source: UK Government Borrowings, 2019)
In order to boost demand, government cut the tax rates and increase their spendings
because low income tax will increase the will power of an individual to spend in the private
housing. Basically low tax will increase disposable income and encourage people to spend more.
Along with this, high Govt. spendings will create job opportunities which stimulus economy.
Main aim of expansionary fiscal policy is to offset the fall in the private sector spendings.
 Monetary Policy: It is the most common tool which used by the economy to reduce its
impact on private housing. When price of properties increase the demand of it
automatically reduced (Milne and Parboteeah, 2016). In order to increase the demand of
private housing, government have to reduce interest rate and on the other hand, when
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flow of cash increase in the economy them they increase the rate of interest. It help the
economy to balance flow of cash through cutting interest which also impact the demand
and reduce the supply of private housing in the UK.
Illustration 8: GDP growth Rate, 2019.
(Source: GDP growth Rate, 2019)
Above graph represent that how monetary policy impact the overall GDP of the country
due to cutting interest rate.
Factors which impact the demand of private housing in the UK:
There are various factors which impact the demand of private housing in the UK and
government implement various policies in order to maintain demand in the economy. These
factors discuses below:
 Rents not affected by interest rates: Interest rate impact those people who purchase
houses through borrowings. So if interest rate is high then it will reduce the demand of
purchasing private house in the UK. Because of this reason, people prefer rental house in
comparison to buy properties because it will cost high because of high interest rate
(Salvatore, 2015). On the other hand, if interest rate reduced then demand of private
housing raise in the UK.
 Supply more elastic: Rental properties are more elastic in comparison to private
housing. If in the economy, demand of rental properties increases then it will
automatically increase the price of renting. It further increase the demand of private
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houses and encourage them to put on rent. If demand will increase in the area of housing
so government follow the fiscal policy where they increase the taxes. This step will be
taken in order to balance the flow of money in the economy. Similarity, if demand
reduces, then Govt. reduce the tax rates or increase their spendings.
 Buying home as investment: When interest rate or taxes are low then individual have
more disposable income so they purchase properties as investment. High supply of
property will increase the price and at certain point money from the economy will
reduced (Storey, 2018). So in order to maintain the cash flow from the economy they
government have to take necessary actions where they increase tax rate or interest rate in
order to reduce demand as well as supply of private housing in the UK.
Above mention factors will impact the demand so government introduce various policies
such as fiscal or monetary which helps in maintain demand in the economy and make sure that it
does not impact the growth of the country. Through cutting interest rate, taxes and government
spendings will used to increase or decrease demand which further impact the private housing in
the UK.
CONCLUSION
From the above discussion, it has been concluded that economic for business help the
organization to understand the business environment. Along with this, they have to analyse that
how change in the price of products will leads to change demand or supply for the period. In case
of demand, price or quantity have inverse relation but on the opposite site in case of supply, price
or quantity have positive relation. Other than price, there are various factors which impact the
price of private housing in the UK. In addition, there are various government or economic
polices which impact the individual as well as whole economy demand in respect of private
housing. Government implement fiscal or monetary policy which used to stimulate demand for
private housing in the UK. Where they cut interest rate, income tax or increase or decrease Govt.
spendings accordingly.
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REFERENCES
Books & Journals
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Forestry (pp. 237-252). Routledge.
Demil, B. and et.al., 2015. Introduction to the SEJ special issue on business models: business
models within the domain of strategic entrepreneurship. Strategic Entrepreneurship
Journal. 9(1). pp.1-11.
Dirican, C., 2015. The impacts of robotics, artificial intelligence on business and
economics. Procedia-Social and Behavioral Sciences. 195. pp.564-573.
Elgelal, K. S. K. and Noermijati, N., 2015. The Influences of Transformational Leaderships on
Employees Performance (A Study of the Economics and Business Faculty Employee at
University of Muhammadiyah Malang). Asia-Pacific Management and Business
Application. 3(1). pp.48-66.
Freire, C., 2014. Academic misconduct among Portuguese economics and business
undergraduate students-a comparative analysis with other major students. Journal of
Academic Ethics. 12(1). pp.43-63.
Hummel, K., Pfaff, D. and Rost, K., 2018. Does economics and business education wash away
moral judgment competence?. Journal of Business Ethics. 150(2). pp.559-577.
Lawrence, R. J., 2018. Applications in economics and business. In Lognormal Distributions (pp.
229-266). Routledge.
Milne, A. and Parboteeah, P., 2016. The business models and economics of peer-to-peer lending.
Salvatore, D., 2015. Managerial economics in a global economy. OUP Catalogue.
Storey, D. J., 2018. The economics of smaller businesses: some implications for regional
economic development. In Technological Change, Industrial Restructuring and
Regional Development (pp. 215-229). Routledge.
Online
Law of Demand. 2019. [Online]. Available Through:
<https://economictimes.indiatimes.com/definition/law-of-demand?from=mdr>
Law of Supply. 2019. [Online]. Available Through:
<https://economictimes.indiatimes.com/definition/law-of-supply>
Demand of Private Housing. 2019. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
Government policies. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/5272/economics/policies-for-economic-growth/>
UK Government Borrowings. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/5272/economics/policies-for-economic-growth/>
Shift in Supply Curve. 2019. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
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