Business Economics Report: Analyzing Duck and Dry's Economic Aspects

This business economics report analyzes the salon business 'Duck and Dry'. It explores the concept of inelastic price elasticity of demand, illustrating it with a figure. The report examines demand and supply diagrams, explaining shifts in demand and supply based on customer preferences, income, and market regulations. It identifies Duck and Dry's market structure as perfect competition. Furthermore, the report discusses market failures, government interventions, and the relationship between GDP and economic growth, including factors contributing to positive growth. It also covers expansionary fiscal policies, monetary policies to address inflation, and the impact of currency appreciation on imports. Additionally, it addresses trade-restricting devices, the advantages and disadvantages of global expansion, and the benefits of trading in a free trade area, referencing relevant academic sources.

Business Economics

Table of Contents
Question 3........................................................................................................................................1
a) Inelastic price elasticity of demand.........................................................................................1
b) Demand and supply diagram...................................................................................................2
c) Reasons for shift in demand and supply..................................................................................2
d) Market structure of Duck and dry...........................................................................................3
e) Difference between movement along the supply curve and shift in the supply curve............3
Question 4........................................................................................................................................4
a) One market failure and government intervention in correcting that failure............................4
b) Relation between Gross Domestic Product (GDP) and economic growth..............................4
c) Factors contributing to positive growth...................................................................................5
d) Expansionary fiscal policy......................................................................................................5
e) Monetary policies to deal with higher inflation.......................................................................5
Question 5........................................................................................................................................5
a) Impact of appreciation in Pound on imports of Duck and dry................................................5
b) Restricting devices..................................................................................................................6
c) Advantages and disadvantages of global expansion................................................................6
d) Benefits for trading in free trade area......................................................................................6
REFERENCES................................................................................................................................7

Table of Figures
Figure 1Inelastic price elasticity......................................................................................................1
Figure 2Increase in demand.............................................................................................................2
Figure 3Increase in demand and supply..........................................................................................2
Figure 4Movement along the supply curve.....................................................................................3
Figure 5 Shift in the supply curve....................................................................................................4

Question 3
a) Inelastic price elasticity of demand
Inelastic price elasticity states that the price inelastic. It means that the percentage change in
the quantity demanded is quite smaller than the percentage change in price of the product or
services.
Figure 1Inelastic price elasticity
It shows that any fluctuation in the service price of duck and dry won’t reduce the
number of customers visiting at the salon. The case may be this because of special blow dry
experience given by the salon which is not common in other salons. Second reason may be that
the salon keeps changing the prices of its services but no significant change has been seen in its
profits (Newbold, Carlson and Thorne, 2012).
1

b) Demand and supply diagram
Figure 2Increase in demand
The above diagram shows that an increase in the demand will increase the quantity
demanded by the customers as well. It shows that there will be increase in customers demand for
the services of Duck and Dry. It is important for the company to increase the supply with the
increase in demand so as to serve the customers.
Figure 3Increase in demand and supply
c) Reasons for shift in demand and supply
The main reasons for shift in demand in the shift in demand in hair salon market are change
in customs, taste and preferences of the customers. Other reason can be change in personal
disposable income of the consumers due to certain occasion such as new year or Christmas. The
2

reasons for change in supply in hair salon market can be change in tax regulations of the country
and increase or decrease in production capability of hair salon.
d) Market structure of Duck and dry
Duck and dry operates in perfect competition market as a number of Salon are being
functioning in Central London. The two characteristics are:
 Homogeneity in the products being offered
 Free entry and exit of the firm (Walras, 2013)
e) Difference between movement along the supply curve and shift in the supply curve
Figure 4Movement along the supply curve
Movement along the supply curve takes place due the sole reason of change in price and vice
versa.
3

Figure 5 Shift in the supply curve
There are various factors other than price that can shift the supply curve. It can be change
in the cost of production or increase in production efficiency etc.
Question 4
a) One market failure and government intervention in correcting that failure
One of the core reason of market failure can be failure in price mechanism. It states that the
price being set for the services are not able to incur the cost being put in the service. Due to this,
the salon is not able to supply the services which are optimal in nature for the society. In that
scenario either the services are over produced or under produced. In order to cope up with this
failure, government intervene in the functioning of hair salon market where it prepares
legislations for the same (Kjellberg, Azimont and Reid, 2015). Other steps taken by the
government includes, tradable permits, subsidies, alteration in taxation policies, etc.
b) Relation between Gross Domestic Product (GDP) and economic growth
Gross Domestic Product helps in measuring the overall output being generated from all the
three main sectors of the country. It helps in ascertaining the overall growth in the economy with
the percentage increase being noticed in GDP in comparison to last year. Hence, it can be
inferred that there is direct relationship between GDP and economic growth.
Positive economic growth leads to demand pull inflation. It includes rising of inflation due
to real increase in the demand as the economy moves towards growth.
4

c) Factors contributing to positive growth
The two factors contributing to economic growth from duck and dry are as follows:
 Higher profits in the entity can further contribute towards GDP of the country. Hence,
capital formation is one important aspect.
 Improvement in technical know how can contribute towards the pace of development.
d) Expansionary fiscal policy
Expansionary fiscal policy is a kind of macroeconomic policy that contributes in expansion
of money supply so as to encourage economic growth and cope up with price increase due to
inflation. The policy will have adequate impact on the following: Economy: It helps in increasing the demand in the economy further leading to economic
growth. Duck and dry: The salon will enjoy paying lesser amount of taxes and hence
contributing towards higher net profits. Customers of Duck and Dry: the customers will have higher amount of money in their
hands to spend on services.
e) Monetary policies to deal with higher inflation
Some of the monetary policies are:
 Setting the interest rates: Higher interest rates leads to decrease in the demand. It can
lead to lower economic growth and hence lower inflation. It will also increase the cost of
borrowing further discouraging spending.
 Increase in reserve requirement: the banks hold back the money so that it can not be
flowed to the economy. It reduces the amount of money in the market and hence control
situation of higher inflation (Curme and et.al., 2014).
Question 5
a) Impact of appreciation in Pound on imports of Duck and dry
Appreciation in the pound can leads to cheaper imports. Hence, the herbs for the product
line being imported by duck and dry from China and Australia can reduce the costing for Duck
and dry.
5

b) Restricting devices
The two trade restricting devices can be EU common agricultural policy followed by the
country currently which may not be in function after Brexit (Dhingra and Morrow, 2012). Other
can be tariff on imports which can have direct impact on imports of Duck and dry.
c) Advantages and disadvantages of global expansion
The main advantage of expansion approach is that the company gets to serve the customers
from all over the world and increase its market share and profitability (Hall and Lieberman,
2012). However, the main disadvantage is that Duck and dry have higher dependency on China
and Australia for its herb import which can restrict its trade and increase the cost of the services
as well.
In the end, it is suggested to expand all over the world only after combating with the
disadvantage.
d) Benefits for trading in free trade area
The three benefits are:
 Elimination of tariffs
 Encourage investment (Ljungqvist and Sargent, 2012)
 More growth and efficiency of salon
6

REFERENCES
Books and journals
Curme, C. and et.al., 2014. Quantifying the semantics of search behavior before stock market
moves. Proceedings of the National Academy of Sciences. 111(32). pp.11600-11605.
Dhingra, S. and Morrow, J., 2012. The impact of integration on productivity and welfare
distortions under monopolistic competition (No. 88). FIW Working Paper.
Hall, R. E. and Lieberman, M., 2012. Microeconomics: Principles and applications. Cengage
Learning.
Kjellberg, H., Azimont, F. and Reid, E., 2015. Market innovation processes: Balancing stability
and change. Industrial marketing management. 44. pp.4-12.
Ljungqvist, L. and Sargent, T. J., 2012. Recursive macroeconomic theory. MIT press.
Newbold, P., Carlson, W. and Thorne, B., 2012. Statistics for business and economics. Pearson.
Walras, L., 2013. Elements of pure economics. Routledge.
7