Amazon Business Model Analysis

This assignment tasks students with analyzing Amazon's business model in detail. It requires a thorough examination of key aspects such as the company's supply chain management, pricing strategies (including the use of dynamic pricing), and competitive advantages within the e-commerce landscape. Students are expected to draw upon economic principles like supply and demand, price index theory, and the role of financial depth in economic growth to provide a comprehensive understanding of Amazon's success.

Running head: FINANCE AND ECONOMICS
Finance and Economics
Name of the Student
Name of the University
Authors Note
Course ID

1FINANCE AND ECONOMICS
Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................5
Answer to Question 3:................................................................................................................7
Answer to question 4:...............................................................................................................10
Answer to question 5:...............................................................................................................10
Answer to question 6:...............................................................................................................11
Answer to question 6A:............................................................................................................11
Answer to question 6B:............................................................................................................13
Answer to question 6C:............................................................................................................14
Reference List:.........................................................................................................................15

2FINANCE AND ECONOMICS
Answer to Question 1:
Introduction:
The Amazon.com, Inc., have started their journey with their headquarters in
Washington, that is recognized as one of the initiator companies in world’s e-commerce
industry in relation with the cloud computing industry. This organization was established in
the year of 1994 that became famous for biggest online retailer with respect to the
international market and gained the highest market capitalization (Amazon.com 2017).
Amazon is having more than 341,400 employees across the world and generating revenues
around $135.98 billion through the development of their operations.
Economic Online of Amazon:
Amazon increases their revenues by establishing their operational models that are
supportive infrastructure for their enormous success all over the world; this provides
inspiration to their employees to deploy more success among the international brands.
According to the popular paradigm of structure-conduct-performance, the performance of the
globally established organization is dependent on the pattern related to behaviour of the
supply and demand chain of the game players in business (Klaus 2013). This is ultimately
managed with respect to the functionalities of the organization. Amazon performs its business
functions within the international e-commerce market, which is comparatively new and has
risen significantly in current years with the help of innovative technology and has also
increased the utilization of internet among people.
Amazon is recognized for predecessors in the e-commerce industry as well as this is
the largest firm operating in the whole world of e-commerce industry. For these reasons the
organization is experiencing growth with respect to geographical boundaries of
functionalities, good and services as well as in development of consumer base.

3FINANCE AND ECONOMICS
The organizational infrastructure of Amazon has various key features that has made
remarkable performance base for the organization. The globally functioned base of the
organization is the remarkable feature among all competitors. Amazon believes in specific
team building for providing best performance to their consumer market (Ritala, Golnam and
Wegmann 2014). Their organizational structure comprises of geographical divisions
hierarchical structure based on the e-commerce world. Another characteristic of Amazon
business is analysis of consumer needs that depends on the geographic range and features.
The business consists of consumer behaviour and trends of technology that suits the
company development. Amazon has created its own good will factors based on their own
trade mark that is developed with respect to the customer expectations.
Figure 1: Figure representing Six Dimension of Amazon
(Source: Amazon.com 2017)

4FINANCE AND ECONOMICS
An evident collected from the above figure, this can be elaborated that Amazon has
gained their position by their own product and services offered to their consumers. The
company is successful in attaining large group of customer’s trust for the reliability of their
products.
The behaviour trend of Amazon is elaborated in the below figure with respect to their
customer growth;
Figure 2: Figure representing Revenue of Amazon over the years
(Source: Amazon.com 2017)
The above figure is stating that the graphical representation of constant growth of
Amazon has been increased with respect to the supply chain of the e-commerce industry.

5FINANCE AND ECONOMICS
Answer to Question 2:
The price index of the commodity basket is considered as the weighted mean of
relative price for the particular basket of commodities (Eichhorn and Voeller 2012). This
price index is computed via drawing a comparative study of prices related to individual
commodities and this is done with respect to the current year of calculations. Prices of
commodities in present year iis considered as the base and then multiplied by the 100. The
price index generally elaborates the charge of price level of the basket in consideration with
the whole year and these are considered with respect to change in demands that affects the
price as the normal overall price level cannot be recognized as the nominal price index.
Price Index Potato:
The above discussion is the evident for the price index and the price index potato
elaborates the overall change in value of potato that are dependent on the demands and prices.
As an evident from the price index, potato throughout the March 2017 was relatively high in
comparison with March 2017. Two basic situations might have influenced the rise in price.
Primary cause was the rise in price may be caused by increase in demands that increased the
potato price and second cause might be rise in inflation of particular economy (Azevedo and
Leshno 2016). Although, this is observed that the supply has been controlled as the rise of
confidence as well as the index found to be rising by 3.2 in the year of 2017 that was 9.6% in
the previous year.
As this is clear from the above discussions that there has been a important rise in the
price index of potato where the supply of this commodity was not increased up to that
proportion in the market. This increase is due to various economic reasons and concepts that
are elaborated below:

6FINANCE AND ECONOMICS
As the amount of supply is not increasing relatively, the rise in the price index is
because of the rise in overall price level within the economy. In contrast with these, the
experience of high inflation increased the price level of products.
For a product like potato, this experienced a less amount of classic demand whereas it
is a necessary item among the majority of population. This item is considered as the primary
item to be consumed (Frank, Bernanke and Lui 2015). Even the supply of the product is low,
the demand of the potato will not fall. This benefit could be distributed among districts for
different demands of other commodities.
Figure 3: Figure representing Elasticity of Demand
(Source: Frank, Bernanke and Lui 2015)
This is an evident from the above figure that the fall in supply is is not only
influenced by the inelastic demand, but also this is impacted by the price level of the product
as considered for the product potato. As a result of this fact, this will be easy to explain the

7FINANCE AND ECONOMICS
price index of potato in the current year in comparison with the previous year. The previous
explanation was indicating towards existence of inflation and subsequent rise of price index.
Answer to Question 3:
Introduction:
The United Kingdom economy is considered as one of the well-known economies all
over the world. The United Kingdom has experienced economic variations along with the fall
and rise in the present state (Laibson and List 2015). A good number of economies of United
Kingdom can credited for the aim of the economic success by the government of the country.
These policies were incurred to attain the goals of the country.
Policies undertaken by UK for economic development:
For economic deployment of any nation an economy can accept either demand of the
policies or the supply side of the policies.
Demand sided policies: If the demand side of the policies are considered with respect to fical
and monetary policies that are targeted by nations for increasing the aggregate demand
completely, it helps in increasing the considerable output of the economy.
Monetary policies:
The United Kingdom government has considered the interest rate by helping the
environmental monetary policies in UK and this happened for increasing the aggregate
demands of the country. This decision will completely influence the consumer spending as
well as investments and expenditures per individual within the country (McCombie and
Thirlwall 2016). However, the government of UK is unsuccessful while considering the
probability of liquidity set up for the improvement of economy. In such scenarios, the
reduction in the interest rate may be not improved with respect to the spending amount.

8FINANCE AND ECONOMICS
Figure 4: Figure representing Base rate and Real GDP growth in UK
(Source: McCombie and Thirlwall 2016)
The above figure is elaborating that the interest rate of UK in the year of 2009 failed
in creating the positive impact on the GDP. This happened due to borrowing as well as
investing was not considered primarily as the banks were not interested for doing so.
Fiscal Policy:
The failure in the part of UK government as per the monetary policies used for
increasing the borrowing, consumption as well as investment of consumer within the
economic growth of the country. The country came up with innovative fiscal policies for
improving their economy (Otley 2016). For increasing the monetary policy this thing will be
perfect for any country to make the taxes lower in comparison with the spending of
government for increasing the work in economy.

9FINANCE AND ECONOMICS
Figure 5: Figure representing borrowing of UK following the implementation of
expansionary fiscal policy
(Source: Otley 2016)
Devaluation:
Devaluation is one other form of equipment in increasing the economic prosperity and
this is done by devaluating the domestic currency. This was primarily done for making the
economy of UK advanced within the global economy with respect to cheaper exports and this
increased the output of the nation.
Supply sided policies:
UK had also implemented the supply sided policies for the implementation of demand
sided policies. During 1970, UK labour market experienced high fluctuations for labour
unrest (Taussig 2013). The lowering of trade union powers as well as creation of inclusive
strategies increase the economic growth of the country.

10FINANCE AND ECONOMICS
Answer to question 4:
In the modern business surroundings significant components namely sales, turnover,
anticipated profit and regulations provides the managers with better-quality appreciation of
financial outcomes. The financial managers will be held responsible for the acquisition,
distribution and management of the resources (Pradhan, Nishigaki and Hall 2017). Financial
projections is viewed as the noteworthy means of increasing the efficiency of the
management. It is generally associated with the planning, distribution of resources, observing
the use of resources in attaining competency for long and short run business objectives of the
organization.
Managers usually implement the instruments of capital budgeting decision that is
necessary in decision making for the managers in order to transact with the significance of
money, which is required for investment opportunities, as well as with the sources with the
help of which they can be militarized. Managers implement the instrument of capital
budgeting with the objective of addressing the difficulties as and when they originate.
Additionally it is aimed at raising the resources to meet the requirements of the investment
(Afonso and Sousa 2012). An important issue that must be taken into considerations by the
managers is determining the equity and debt capital. Managers are accountable for better
structure of capital and thereby increasing the return through correct structure of capital
budgeting.
Answer to question 5:
Financial intermediary can be defined as the financial institution namely, investment
bank or the insurance firm which provides the commercial firm to save their or borrow
money (DaSilva and Trkman 2014). For instance, an individual with risky investment should
approach an insurance company, which would provide the insurance holder with the
distribution of risk of default.

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Financial instrument refers to monetary agreements among the parties. This could be
created with ease and can be traded or modified easily (Rios, McConnell and Brue 2013).
This usually consist of currency, interest of ownership such as shares and contractual rights to
offer cash bonds.
Organizations can apply the theory of risk that is used interchangeably with the
decision of mentioning the deviation in return that is related with the specific asset (Ghysels,
Plazzi and Valkanov). As an example, a government bond having a value of $1,000 offers
assurance to the bondholder with the interest of $100 following 30 days period and has no
risk because there is no variation with return.
Simultaneously investing in common stock an amount of $1,000 might offer an
investor with a return of $0 to $200 however such return carries risk due to higher variability.
Therefore, an organization looking to address risk must also assess the uncertainty of return.
Answer to question 6:
Answer to question 6A:
The liquidity position of Tesco is higher than its counterpart Morrison Plc since the
current ratio stood 0.22 for Tesco in 2015 and 2016 while Morrison reported marginally
lower current ratio of 0.20 and 0.21 for the same period.
The asset turnover ratio stood relatively higher for Tesco with the company reporting
2.60 and 3.05 for both the financial year of 2014 and 2016. While Morrison reported a
somewhat rising trend as the company reported 2.05 and 2.32 in 2014 and 2015 respectively
however Tesco posted a strong performance in this area than Morrison Plc. The profitability
position of Tesco has been tumultuous as the gross margin ratio posted by Tesco stood
negative for -3.39. While Morrison reported a strong gross profit margin with 6.07 and 4.53
for both 2014 and 2015.

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Ratios:

13FINANCE AND ECONOMICS
Answer to question 6B:
Initial Investment
Amount -50,000
Required
rate of
Return
10.25
Total Number of Years 5 NPV
Project A NPV Years Project B
Number of Years
Annual Cash
Flow 0
Year 0 -50,000
-£
50,000.00
Year 1
£
25,000.00
-£
25,000.00 1 £ -
Year 2
£
15,625.00
-£
9,375.00 2 £ -
Year 3 £ -£ 3 £ -

14FINANCE AND ECONOMICS
5,000.00 4,375.00
Year 4
£
12,000.00
£
7,625.00 4 £ -
Year 5
£
32,000.00
£
39,625.00 5
£
99,500.00
Npv
£
17,028.84
£
11,084.37
Answer to question 6C:
Interest Rate 5.5%
Year
Opening
Balance Deposit Interest
Closing
Balance
1 0
£
400.00
£
22.00
£
422.00
2
£
422.00
£
300.00
£
39.71
£
761.71
3
£
761.71
£
250.00
£
55.64
-£
1,336.91

15FINANCE AND ECONOMICS
Reference List:
Afonso, A. and Sousa, R.M., 2012. The macroeconomic effects of fiscal policy. Applied
Economics, 44(34), pp.4439-4454.
Amazon.com 2017. Amazon.com: Online Shopping for Electronics, Apparel, Computers,
Books, DVDs & more. [online] Amazon.com. Available at: https://www.amazon.com/
[Accessed 7 November 2017. 2017].
Azevedo, E.M. and Leshno, J.D., 2016. A supply and demand framework for two-sided
matching markets. Journal of Political Economy, 124(5), pp.1235-1268.
DaSilva, C.M. and Trkman, P., 2014. Business model: what it is and what it is not. Long
range planning, 47(6), pp.379-389.
Eichhorn, W. and Voeller, J., 2012. Theory of the Price Index: Fisher’s Test Approach and
Generalizations (Vol. 140). Springer Science & Business Media.
Frank, R.H., Bernanke, B.S. and LUI, H.K., 2015. Principles of economics. McGraw-Hill
Asia.
Ghysels, E., Plazzi, A. and Valkanov, R.I., 2016. The risk-return relationship and financial
crises.
Klaus, P., 2013. The case of Amazon. com: towards a conceptual framework of online
customer service experience (OCSE) using the emerging consensus technique
(ECT). Journal of Services Marketing, 27(6), pp.443-457.
Laibson, D. and List, J.A., 2015. Principles of (behavioral) economics. The American
Economic Review, 105(5), p.385.

16FINANCE AND ECONOMICS
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments
constraint. Springer.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Pradhan, R.P., Nishigaki, Y. and Hall, J.H., 2017. The multivariate dynamic causal relations
between financial depth, inflation, and economic growth. Philippine Review of
Economics, 54(1), pp.63-93.
Rios, M.C., McConnell, C.R. and Brue, S.L., 2013. Economics: Principles, problems, and
policies. McGraw-Hill.
Ritala, P., Golnam, A. and Wegmann, A., 2014. Coopetition-based business models: The case
of Amazon. com. Industrial Marketing Management, 43(2), pp.236-249.
Stiglitz, J.E., Walsh, C.E., Gow, J., Guest, R., Richmond, W. and Tani, M., 2013. Principles
of economics. John Wiley & Sons.
Taussig, F.W., 2013. Principles of economics (Vol. 2). Cosimo, Inc..
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting.
John Wiley & Sons.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education