Comprehensive Strategic Knowledge

This report identifies various micro and macroeconomic factors that impact the market dynamics and business practices. It discusses consumer expectations, elasticity of demand, production cost, supply and demand dynamics, aggregate demand and supply, monetary and fiscal policies, and current exchange rate.

Running Head: MANAGEMENT 0
COMPREHENSIVE STRATEGIC KNOWLEDGE

MANAGEMENT 1
Table of Contents
Overview....................................................................................................................................2
Microeconomic Aspects.............................................................................................................2
Consumer Expectations..........................................................................................................2
Elasticity of demand...............................................................................................................3
Production cost.......................................................................................................................3
Supply and Demand dynamics...............................................................................................4
Macroeconomic Aspects............................................................................................................5
Aggregate demand and aggregated supply............................................................................5
Monetary and Fiscal policies.................................................................................................5
Current exchange rate............................................................................................................5
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Overview
There are various economic parameters that significantly impact the market dynamics of a
nation and also influence the practices and activities of Business Corporation operating in an
economy. This drive organisation to consider the importance of these micro and macro-
economic factors while formulating marketing strategies and business policies. In this report,
various micro and macro-economic factors are being identified such as cost of production,
elasticity, average demand and supply dynamics and customer choices that plays a vital role
in the success of an enterprise.
Microeconomic Aspects
Depending upon the nature of goods and services the organisation is providing to the
customers, certain micro-economic aspects are available having significant impact on the
profitability and performance of the enterprise. Some of these factors are outlined below –
Consumer Expectations
It is important for an organisation to consider taste and preference of targeted consumers in
relation to demand for product. To that product sold by an enterprise, if the consumer is
highly loyal and do not opt for any substitutes, the organisation can make money on their
loyalty and a small hike in price can really help the corporation to gain more revenue (Fuchs,
Prandelli & Schreier, 2010).
Hence, while building marketing policies and marketing strategies, it is important for XYZ
firm to take in account the brand loyalty of the consumer in respect with commodity there are
offering.

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Elasticity of demand
In economic terms, elasticity refers to the measure of degree responsiveness of one variable
of changes in another (Chetty et al, 2011). Mostly, the commodities which positioned an
important role in nature and also do not have many substitutes, practice less elasticity as with
change in price, their demand does not change substantially. Moreover, those commodities
that consist of close substitutes are not needed for basic sustenance due to the significant
demand change as per price alterations.
Types of demand elasticity
In the above picture, considering elastic demand, the reduction in price raise the demand from
Q0’ to Q1’, and when similar price reduces, there is comparatively smaller rise in demand
(Q0 to Q1) considering inelastic demand.
Considering implications, it can be said that elasticity of demand can be taken out by an
organisation for its product for planning its pricing structure.
Production cost
Including practices and experiences in production activities, an organisation success is based
on long-term and short term cost structure. There are two sorts of costs involved in the
production activities of a firm i.e. variable and the fixed cost. Hence, in the scenario, where
there is high initial fixed cost, if the organisation is in the latter phases start subjected to
economies of scale, with the average cost with more production, then it will be advantageous
for the enterprise in the longer period. Due to efficiency in production, the organisation will

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gain much of the market and thus achieve a competitive edge and also enjoy a natural
monopoly (Augier & Teece, 2009).
Natural monopoly and Economies of scale
In the aforementioned picture, the advent of economies of scale the average cost reduces
considerably, hence raising the level of profit of the particular organisations.
Considering insinuations, it is important for the particular firm to know about the cost
structure relating to the production activities. With regards to production activities, it is
significant for the organisation to gain economy of scale and cost efficiency as it will provide
them with a competitive edge over the competitors and also help in earning them more
market share.
Supply and Demand dynamics
The profitability of a particular firm is also determined by the number of sellers and buyers in
the market. The demand for a product of a particular firm will automatically raise if there are
less number of sellers and more number of buyers. On the contradictory side, if there are
number of suppliers, then the firm profitability will be badly impacted.
Considering implication, if XYZ has many competitors in the market, then it is required for
the organisation to plan the adequate policies related to pricing such that the level of price is
not too high. The organisation also need to emphasize on product differentiation and so focus
on more promotion and advertising.

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Macroeconomic Aspects
There are various macroeconomic variables also which impact the success of the organisation
in particular and also cumulatively affect the market as a whole. Some of prime
macroeconomic factors in relation with these are outlined below,
Aggregate demand and aggregated supply
The profitability of an organisation in an economy majorly based upon the aggregate
demand-supply situations coercing in the market as a total. There will be a fall in the
aggregate demand when the price is higher than normal. On the other hand, when more
suppliers enter the market, there will be an increase in the aggregate supply and lead to
excess supply in the economy. In the same way, a reduction in price indicates a surplus
demand in the market. Considering both cases, the revenue generation of organisation will
get impacted and thus respective prices need to be adjusted.
Hence, XYZ organisation need to consider aggregate supply and demand situations, and the
total prices prevailing in the market as a total in order to plan a strong approach benefit them
in earning more profit.
Monetary and Fiscal policies
Various government policies place a significant effect on the production and consumption
behaviour in the market. Economically monetary policy may increase the currency in
individual pocket, so raising the aggregate demand benefitting the organisation as they can
practice mutually high levels of demand and prices.
Considering implication, XYZ needs to have adequate information about the current and
future economic policies relating to the government. It will help in designing the method of
operations as a result.
Current exchange rate
The imports and exports of the economy are determined by exchange rates prevailing in the
economy. They also have a major impact on the production activities of business corporations

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in relation to distribute their ultimate product to other part of the nation. In addition,
devaluation of currency may raise the cost of import in relation with the enterprise.
Therefore, feasibility of imports of factors of production needs to be considered by the
specific enterprise in relation to their production activities based on prevailing exchange rate
in the economy.
Conclusion
Considering the above discussion, XYZ organisation need to consider both micro and macro-
economic factors as they have significant implication on the profitability of the firm in the
economy. The company need to assess all these related aspects in order to formulate
production, pricing and marketing strategies to attain a competitive edge in the marketplace.

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References
Augier, M., & Teece, D. J. (2009). Dynamic capabilities and the role of managers in business
strategy and economic performance. Organization science, 20(2), 410-421.
Chetty, R., Guren, A., Manoli, D., & Weber, A. (2011). Are micro and macro labor supply
elasticities consistent? A review of evidence on the intensive and extensive
margins. American Economic Review, 101(3), 471-75.
Fuchs, C., Prandelli, E., & Schreier, M. (2010). The psychological effects of empowerment
strategies on consumers' product demand. Journal of Marketing, 74(1), 65-79.