LSME505 Business Economics Essay: Market Failure and Strategy

This essay provides a comprehensive overview of business economics, exploring the impact of market imperfections and failures on entrepreneurial activities, labor, and financial products. It uses a case study of the obesity crisis to illustrate market failure. The essay further analyzes how government economic policies, including fiscal and monetary policies, shape business strategies and decisions. It examines the interplay between government actions and business responses, emphasizing the importance of understanding these dynamics for effective decision-making. The conclusion highlights the crucial role of government in guiding businesses through market challenges and promoting sustainable economic practices. The essay is well-researched and provides practical examples to support its arguments.

Business Economics

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
1. using the case study, explain how market imperfections and market failure can affect
entrepreneurship activity?........................................................................................................................3
2. Explain how market imperfections and market failure affect labor and financial products using
relevant examples?..................................................................................................................................4
3. Provide a logical interpretation of how the government’s economic policies can shape business
strategy....................................................................................................................................................6
4. Interpret how government’s economic policies can shape business decisions?...................................6
CONCLUSION...........................................................................................................................................7
REFERENCES............................................................................................................................................9

INTRODUCTION
Business economics is an integral component of ancient economics and is an outgrowth
of financial theory to the real business settings. It is an analytical science in the form of a method
of strategic decision-making and future preparation for management (Barnett, Ziegler and
Byleen, 2015). Among other terms, corporate economics is defined as the application of
economic philosophy to market administration. Business economics is focused on
microeconomic theory in two categories: constructive and normative. The project report is based
on a case study that is related to a case study in which obesity crisis is explained as market
failure. On the basis of it, various tasks are mentioned such as market failure, imperfections and
its impact of entrepreneurs and labors. As well as in further part of report, interpretation of
government’s economy policy is described.
MAIN BODY
1. using the case study, explain how market imperfections and market failure can affect
entrepreneurship activity?
Market failure- Market failure is the financial climate characterized by an ineffective distribution
of goods and services on the market economy. In the event of a market failure, incentive
programs for reasonable thinking do not lead to policies appropriately for the community
(Merigó, Rocafort and Aznar-Alarcón, 2016). In other words, each person makes the right
decision for himself or herself, but that proves to be the wrong decision for the team. In
collective outcome, this sometimes can be shown to be a simple linear imbalance in which the
supply curve does not average the amount requested. Such as in the above mentioned case study
there was condition of market failure in the USA due to obesity crisis and due to which different
obstacles occurred.
Market imperfections- This can be defined as kinds of situation in which an economy of a market
fails to meet standard of competitive market. All real-world economies are hypothetically

flawed, and the research of real markets is always complex by various flaws. Under market
imperfections following situation occurs such as:
 Competition of higher market share.
 Higher issues of entry and exit.
 Various kinds of products and services.
 A small number of purchaser and seller.
Impact on entrepreneurship activity: due to market failure and imperfection each business gets
affected in a negative manner. It depends on companies that how well they deal and prepare their
policies to deal with issues. Herein, below impact on entrepreneurship activity of market failure
and imperfection is detailed in such manner:
 Lack of financial resources- It is essential for each entrepreneur to have enough amounts
of resources so that they can start their business. Due to poor market condition,
entrepreneurs may face issue of enough financial resources. It is so because if market of
an economy is imperfect than entrepreneur will not be able to get financial assistance at
lower cost.
 Higher competition- In addition, due to poor market situation all entrepreneur may face
typical issues which may become cause of higher competition (Summers, 2014). This is
so because in case of market imperfection everyone wants to raise own business and as a
result level of competition increase. So this is also a main issue that is being faced by
entrepreneurs.
 Lack of resources- In the case of market failure and imperfection, entrepreneurs also face
problem of lack of resources. The reason of this issue is that suppliers increase their
prices and as a result entrepreneurs face problem of lack of resources.
2. Explain how market imperfections and market failure affect labor and financial
products using relevant examples?
Along with the entrepreneurs, labor and financial products are also getting affected
because of market imperfections and failure. As above mentioned that each business face some

kinds of issues because of ineffective market condition. Below impact of market imperfection
and failure on labor, financial products are detailed in such manner:
 Impact on labors- During market imperfections, failure each factor of economy gets
fluctuated such as interest rate, inflation rate and many more. As a result, businesses
become unable to keep their employees and workforce. They start to make turnover of
employees and labors. As a result, labors face problem of job security and unemployment
(Granger, 2014). As well as companies start to reduce the wages and salaries of
employees and labors. Like in the above mentioned case study, during situation of
obesity crisis market condition affected badly and most of the food industries faced
issues. It is so because economic and food experts argued that reason of obesity crisis is
food provided by food industries to people that consists higher volume of fat, sugar and
many other elements. Though these industries do not force people to buy these products
but due to attractive advertisement people buy their products. As a result, food industries
of USA faced different issues and due to which labors of these companies faced problem
of unemployment, lower wages and many more.
 Financial products- Under financial products, loans, bonds etc. are included. In other
words, financial products are investment opportunities and bonds that are formed and
provide sellers and buyers with a coming decades or short term economic gain. Financial
products allow risks to be shared, and volatility to flow across economies (Neuberger and
Räthke-Döppner, 2015). Due to financial imperfections and failure these financial
products get affected negatively. Such as loan is main financial product that is provided
by financial companies such as banks. In the case when market is imperfect then banks
start to increase rate of interest and as a result it becomes difficult for small business and
people to get financial assistance from banks at lower cost. For example as per the case
study, in the USA various kinds of financial products cost increased due to which prices
also raised. It is indicating that due to poor market condition financial products get
affected in a negative manner. It is essential for nation’s government to apply various
strategies so that negative impact can be overcome.

3. Provide a logical interpretation of how the government’s economic policies can shape business
strategy.
In every typical condition, government of a country plays a key role. In the absence of
proper contribution of nation, it becomes difficult for companies to overcome from these
situations. Herein, below analysis of government’s economic policies are mentioned in such
manner:
 Fiscal policy- Fiscal approach is the methods by which an administration changes its
spending levels and duty rates to screen and impact a country's economy (Svaleryd,
2015). It is the sister technique to monetary strategy through which a national bank
impacts a country's cash gracefully. These two approaches are utilized in different blends
to coordinate a nation's financial objectives. This policy is useful for companies in order
to take financial assistance at lower cost.
 Monetary policy- Monetary policy, the supply side of monetary strategy, consists of
actions taken by the federal reserve of the country to regulate money supply to
accomplish financial goals that encourage sustained economic development. It is
beneficial for companies because central bank provides funds to economy so that
businesses can get build their strategies and policies accordingly.
For instance, in the given case study government contributed in an effective manner. In order to
overcome obesity crisis, government applied three policies which are taxes, market restrictions
and education. Due to these policies, the obesity crisis can be overcome in an effective manner.
It is so because by help of proper education system, people of USA will be able to consume
foods by analyzing its negative and positive impact. As well as market restrictions also can be
helpful for companies to limit their strategies and policies as per government rules and
regulations.
4. Interpret how government’s economic policies can shape business decisions?
Since businesses are severely influenced by government policy, this is in their best
interest to lead to prolonged about policy making and attempt to manipulate government
decision-making and government policy. There are different basic ways in which a business

approach and behave on their relationship with the company. One point of view is that business
and government should be viewed on "two sides" and in opponents to one another. This is
essential for companies to take corrective decisions so that they can sustain in the competitive
environment. In the case when market conditions are not suitable then role of government
becomes more crucial.
Almost all asserted that this was the powerful dominant position of company in the aftereffects
of the financial crisis at the end of the last decade of the twenty-first century (Joecks, Pull and
Backes-Gellner, 2014). It's been defined as an "anti-regulation" or "limited government" display,
and has been correlated with those who assume that market economies with a minimal
government role are best suited to the functioning of markets. This point of view most often
concentrates interactions with customers with government on trying to decrease legislature and
cut prices and responsibilities on private business and the economy overall related to government
taxes, laws and rules. For example, the same financial firm may leverage any of its relationships
with the government to seek and optimize incentives, such as preferential tax allowances, which
it collects from the government, and at the same time operate in cooperation with the government
and accomplish a social objective, such as lowering carbon pollution, and then attempt to reduce
its tax obligations. These all aspects are determining that this is important for business entities to
take decisions in an effective manner and it can become possible only when government
contributes. Such as in the given case study, all food industries have been affected in a negative
manner because of obesity crisis. As a result, they failed to sustain and afterwards government of
USA applied three tier approaches to prevent negative impact. By help of it, they have taken
decisions which led in higher success (Ejermo and Xiao, 2014). Thus, it can be stated that
government’s economy policies are crucial for businesses to take corrective actions.
CONCLUSION
On the basis of above project report this can be concluded that role of a nation’s economy
is crucial for businesses. An economy is governed by government of a country. The report
concludes that in the case of market imperfection and failure all companies get affected in a
negative manner. Such as entrepreneurs may face problem of lack of resources as well as labor
force also impacted. In these conditions, government of country play a key role by launching

effective economic policies and procedure which helps in better decision making and strategy
formulation.

REFERENCES
Books and journal:
Barnett, R.A., Ziegler, M.R. and Byleen, K.E., 2015. College mathematics for business,
economics, life sciences, and social sciences.
Merigó, J.M., Rocafort, A. and Aznar-Alarcón, J.P., 2016. Bibliometric overview of business &
economics research. Journal of Business Economics and Management, 17(3), pp.397-
413.
Summers, L.H., 2014. US economic prospects: Secular stagnation, hysteresis, and the zero lower
bound. Business economics, 49(2), pp.65-73.
Granger, C.W.J., 2014. Forecasting in business and economics. Academic Press.
Svaleryd, H., 2015. Self-employment and the local business cycle. Small Business
Economics, 44(1), pp.55-70.
Joecks, J., Pull, K. and Backes-Gellner, U., 2014. Childbearing and (female) research
productivity: a personnel economics perspective on the leaky pipeline. Journal of
Business Economics, 84(4), pp.517-530.
Ejermo, O. and Xiao, J., 2014. Entrepreneurship and survival over the business cycle: how do
new technology-based firms differ?. Small Business Economics, 43(2), pp.411-426.
Neuberger, D. and Räthke-Döppner, S., 2015. The role of demographics in small business loan
pricing. Small Business Economics, 44(2), pp.411-424.