Business Economics Report: Analysis of UK Business Environment

This report delves into the intricacies of business economics, focusing on the UK market. It begins by examining the economic problems of scarcity and demand, resource allocation, and the roles of supply and demand, and different market systems, including perfect competition, monopoly, oligopoly, and monopolistic competition. The report then explores the concept of opportunity cost in decision-making and the importance of elasticity of demand. The second part of the report analyzes pricing implications, corporate objectives, and price determination within various market structures. The report continues by assessing the impact of market regulations, changes in the UK's economic structure in the 21st century, and the application of macroeconomic policy tools. Finally, the report evaluates the UK's economic performance and explores the theory of comparative advantage, the pros and cons of free trade, and the impact of BRICS nations and global economic shocks on the UK economy.

BUSINESS ECONOMICS

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................4
TASK 1.......................................................................................................................................................4
1.1 Economic problem of scarcity and demand as well as problem of resource allocation in UK
economy..................................................................................................................................................4
1.2 Role of supply and demand in economy and way in which equilibrium is achieved in market....4
1.3 Importance of different market systems and role of opportunity concept in decision making.....5
1.4 Elasticity of demand and importance of elasticity of demand in market interactions...................6
TASK 2.......................................................................................................................................................6
2.1 Implications of pricing and corporate objectives in firm operations..................................................6
2.2 Way in which price is determined in different market structures and impact of market structure and
operational decisions of company on its behavior...................................................................................7
2.3 Impact of market regulations on market power of Baratt development.............................................8
TASK 3.......................................................................................................................................................9
3.1 Change in economic structure of UK in 21st century and its impact on business environment..........9
3.2 Macroeconomic policy tools and their success in achieving macroeconomic objectives and their
impact on Baratt development.................................................................................................................9
3.3 Evaluation of economic performance of UK economy....................................................................10
TASK 4.....................................................................................................................................................10
4.1 Theory of comparative advantage and merit and demerit of free trade for UK economy................10
4.3 Impact of BRICS on developed economies and impact of global economic shocks on UK economy
...............................................................................................................................................................11
CONCLUSION.........................................................................................................................................11
REFERENCES..........................................................................................................................................13
Figure 1Stamp duty rates.............................................................................................................................8

INTRODUCTION
Business economics is the one of the important domain that have impact on the business
firms. In the current report, scaricty and demand that is in UK construction industry is discussed
in detail. Along with this, different market systems are explained briefly in respect to price
determination. In middle part of the report, change in economic structure of the nation and use of
monetary and fiscal policy to handle situation is analyzed. At end of the report, globalization and
impact of BRICS on developed economies is explained. In this way, entire research work is
carried out.
TASK 1
1.1 Economic problem of scarcity and demand as well as problem of resource allocation in UK
economy
Economic problem of scarcity and demand is observed in economy number of times. In current
time period there is huge uncertainty in global economy and this is also affecting UK economy.
Real estate property market is heavily affected by this global uncertainty and BREXIT. It can be
observed that Baratt development like firms are facing huge problems in their business. Due to
uncertain economic condition people are in confusion and due to this reason they are following
wait and watch approach (Dunfee and Nagayasu, 2013). Due to all these reasons there is less
demand of the real estate property in the market. There is supply in market but there is no
demand. This, demand and supply mismatch is creating big problem for economy. In economy
usually problem of resource allocation is observed. Resource allocation basically reflects the
process under which specific resource is allocated across different entities in proper manner. It is
very important to ensure that there is appropriate match between demand and supply in the
economy so that equilibrium can be bring in the economy. Time to time government take number
of steps to bring equilibrium in the nation economy (Kwon, 2010). It depend on stability of
global situation which make nation condition good specially when there is turmoil in global
condition.

1.2 Role of supply and demand in economy and way in which equilibrium is achieved in market
There is great role of demand and supply in the market. Entire economy goes in growth and
recovery stage due to demand and supply factors. Change in demand and supply factors also
heavily affect entire economy. There must always be balance or equilibrium in demand and
supply. If same will not exist then it will negatively affect entire economy. For example there is
huge supply of real estate property in the market and demand is less than in that case price of real
estate is declining in the UK and due to this reason further less number of people is showing
interest in purchase of homes (Galaskiewicz, 2016). There are number of ways in which
equilibrium can be obtained between demand and supply in the market. For example in order to
boost demand in real estate market government can make available already prepared homes at
low price to people under any construction scheme. This will entice people to make investment
in real estate property and this will boost demand and price of real estate property in the market.
Government may also adopt other alternative options to boost demand of real estate property in
the market. It can take steps to attract foreign investment in real estate property in the nation.
This will boost demand of real estate property in the market and in this way equilibrium will be
achieved and demand will be equal to supply in the market.
1.3 Importance of different market systems and role of opportunity concept in decision making
Market system basically reflect scenario where there are specific number of buyer and sellers
in the market and sort of product they are offering to the customers. There are different sort of
market systems like perfect competition, monopoly, oligopoly and monopolistic competition. All
these market systems are totally different from each other.
 There is importance of perfect competition market because under this different alternatives
are available to people and they according to their preference can make purchase of any item
at any purchase.
 On other hand, there is monopoly market and it has its own importance. In case of monopoly
market there is single firm that offer product to the people. Such kind of firms maintains
quality in their product and by doing so retain customers in the business.
 In case of oligopoly already there are few players in the market that have control on market
(Jarvis, 2011). There is huge competition between these firms in the market and due to this

reason innovation in product takes place on consistent basis. This benefit people a lot but
monopolistic competition have its own importance.
 In monopolistic competition like perfect market there are number of players in the market but
their product can be differentiated from each other. It can be said that people get more
alternatives at best price in monopolistic competition.
 Opportunity cost is one of the most important concept which reflect benefit that firm forego
for next best alternative that can be derived from any product. It greatly affect business firm
because many times there are two best alternatives in front of it. Company has to select any
one of these alternative to achieve objectives. Baratt development managers while making
decisions consider both alternatives and pick one of best alternative to achievement of their
objectives. It can be said that opportunity cost play a very important role in determining way
in which firm can make economic decisions. This is because in opportunity cost there are
multiple benefits that firm can receive. In case firm take one advantage then it lose other one.
Thus, opportunity cost influence company economic decisions because both opportunities
matter a lot for the company. Thus, it become very important for the firm to identify which
sort of opportunity may spur economic growth of the firm. By doing so it can be ensured that
perfect decision is taken by the firm. Overall, it can be concluded that it is the opportunity
cost that have impact on company decisions.
1.4 Elasticity of demand and importance of elasticity of demand in market interactions
Elasticity of demand reflects change that happened in demand of product with change in
price. There is great importance of elasticity of demand for the business firms because it is very
important for them to identify that with slight change in price of product what sort of change
comes in demand of the product (Smelser and Swedberg, 2010). Elasticity of demand plays an
important factor in determining demand and supply in the market. It can be observed that with
change in elasticity of demand interaction between demand and supply also get changed. This is
because now change that comes in demand with change in price get changed and due to this
reason balance that was between both demand and supply in the market also get changed. For
Baratt development there is huge importance of elasticity of demand because on same they can
easily identify whether it will be good for them to keep price of property high or they need to
keep property price low in order to retain customers in the business. Thus, it can be said that
elasticity of demand concept have due importance for the business firm.

TASK 2
2.1 Implications of pricing and corporate objectives in firm operations
There are number of pricing strategies that are used by the business firms and same have
heavy impact on the business firms. It depends on the firm that which of pricing strategy it used
in its business. Baratt development is operating in real estate sector and usually in this sector
high price strategy is followed in the business which cannot be considered completely good. This
is because in current time period demand of real estate property declined (Yan, 2010). In such
kind of situation pricing of product at high price cannot be work out for the business firm. Thus,
it can be said that high product pricing strategies have negative impact on the business firm.
Corporate objective of the business firm is to make available proper number of houses to the
people that have good sort of architecture. By doing so large number of customers can be
attracted towards business. Firm can by considering demand of houses in the market must offer
same at low price to the people. This factor will motivate people to make purchase of property
developed by the firm (Martin, Myant and Drahokoupil, 2011). This is because property is
available at low price and in future if demand of real estate increased then good amount of
capital gain can be earned on sale of asset. It can be said that price have extra implications for the
business firm and appropriate pricing strategy must be followed in the business so that
customer’s base can be increased in business.
2.2 Way in which price is determined in different market structures and impact of market
structure and operational decisions of company on its behavior
There are different sort of market structures on which business firm operate its business
like perfect competition, oligopoly, monopoly and monopolistic competition structure. Way in
which price is determined in these structures is given below.
 Perfect competition market: In case of perfect competition market price is determined by
considering price that is set by competitors. There is high degree of similarity in the
product and due to this reason people are indifferent towards any specific firm product.
Hence, firms have to keep their product price low in the market so that more and more
customers can be made in the business,
 Monopoly market: Monopoly market is one under which there is specific single firm and
it operate entire industry. Monopoly firm offer innovative product to the people and no

competitor and substitute is available in the market. Hence, firm charge high price for the
product because people are prepared to pay more for innovative product (Fan and Yang,
2010).
 Monopolistic market: In case of monopolistic market there are few players and they
offering innovative product in the market which differentiate them from each other. Thus,
here pricing is done by measuring perception that people have towards firm product. If
people have strong good perception then high price is set for product. If same is not done
then medium pricing strategy is available as option to the business firms.
 Oligopoly market: In oligopoly there are one or two firms and product price is
determined by considering competition as well as price and features offered by rivals to
customers.
There is huge impact on market structure and operational decisions on the Baratt development
behavior. Market structure determine whether firm will follow aggressive selling strategy in its
business or which of pricing strategy it will follow in its business. Thus, it can be said that
market structure affects firm behavior (Taylor and Thrift, 2013). Apart from this, operational
decisions also affect business firm. This is because operational decisions are taken in day to day
business days and they have at least short term impact on the business firm in terms of cash
management and resource allocation etc. It can be said that Baratt development is heavily
affected by market structure and operational decisions.
2.3 Impact of market regulations on market power of Baratt development
There are some rules and regulations that are bring by UK government in respect to real
estate firms. Under these rules and regulations very high stamp duty is charged on the properties.
This may create negative sentiments among investors.

Figure 1Stamp duty rates
(Source: Youfei, 2013)
It can be seen that very high rate of stamp duty is charged on assets which may not motivate
people to make purchase of real estate property (Youfei, 2013). Apart from this, after leakage of
panama papers it is was identified that lots of fraud properties were purchased by corporate in
UK. Government brings strict regulations to identify these properties that are purchased by
overseas firms in London. Against wrong doers government can take strict action and due to this
reason demand of real estate property may declined which may negatively affect market power
of the business firm. It is identified that at least there are 3000 properties that are owned by the
business firms in the market (Gibson-Graham, Cameron and Healy, 2013). UK government is
prepared to take strict action against such kind of properties. This may create fear factor among
investors and investment from overseas in the real estate market may declined to great extent.
Thus, such kind of incidents may lead to earning of less revenue in business by Baratt
development and affect its market power.
TASK 3
3.1 Change in economic structure of UK in 21st century and its impact on business environment
Change happened in economic structure of the UK in 21st century. Earlier before 2000
share of primary sector was very low and there was almost equal proportion of secondary and
tertiory structure in the economy. But after 2005 scenario get changed and now share of primary

sector consistently reduced in the economy. Same thing happened in case of secondary economy
and tertiary sector grow at rapid rate and it is now 70% of total UK GDP. Thus, it is clear that
economic structure of UK economy changed consistently and greatly affect business
environment (Change in UK economic structure, 2017). In tertiary sector basically there are hotels,
catering, transportation, real estate, financial sector and education sector. In these sectors in last
decade fast growth is observed in these sectors and due to this lucrative factor large number of
companies comes in the market and competition increased at fast pace. All these things make
business environment more complicated. Means that economic environment heavily affect
demand of service in these sectors. Apart from this, change in social environment and people
preference have direct impact on demand of real estate in the market as can be seen in current
market scenario. In such sectors legal regulatory control is very high and on this basis it can be
said that business environment for Baratt development now is more complex then before.
3.2 Macroeconomic policy tools and their success in achieving macroeconomic objectives and
their impact on Baratt development
There are some of the macroeconomic policy tools like monetary policy and fiscal policy
that are prepared by central bank. These tools to great extent successfully help government in
achieving macroeconomic objectives (Mircea, Ghilic-Micu and Stoica, 2011). During recession
time period lots of fluctuations were observed in UK economy and in that situation frequent
changes were made in interest rate under monetary policy and government of UK increase public
expenditure. All these things lead to increase in demand in economy when same is in recession
and demand is low in the market. Monetary and economic policy positively affect Baratt
development as it can be seen that under public expenditure UK government provide lots of
financial aid to the people. Due to this reason demand of houses does not fall by very high
percentage. However, some decline was observed in demand of real estate but such decline was
not very huge. This reflects that to some extent monetary and fiscal policy that was adopted by
UK government positively affects Baratt development.
3.3 Evaluation of economic performance of UK economy
In current time period UK GDP growth rate is very low which is 0.4% and inflation rate
in the nation is 3% and unemployment rate is 4.3%. On basis of fact it can be said that GDP of
the nation is increasing at very low rate which is not good for the nation. Inflation rate is

moderate and it can be considered good for UK economy as demand will remain maintained in
the nation. Unemployment rate is reducing consistently and now it reduced to 4.3%. Overall it
can be said that UK economy is on recovery stage and it will take time to come in growth stage
as its economic growth rate is very low which is one of matter of concern. Inflation rate is in
control which is well and good for economy (Jansen, Steenbakkers and Jägers, 2012). High
inflation rate lead to decline in economy and this negatively affect demand in the market. Low
unemployment rate ensure that there will be demand in the market and if inflation rate remain in
control then demand will further increased which may accelerate UK economy growth. Thus,
UK economy will be on growth track if current situation of inflation and unemployment persist
further.
TASK 4
4.1 Theory of comparative advantage and merit and demerit of free trade for UK economy
Theory of comparative advantage refers to situation where one country can make
available products at very low price then other. For example IT services from India is very
cheaper and is of best quality then other nations. Due to this reason UK firms prefers to take
service of Indian companies and IT engineers’ then same of their own country. It can be said that
competitive advantage of one nation affects other nation negatively (Taylor and Thrift, 2013).
Free trade positively affects UK economy because due to free trade no charge is made on import
and export of goods. Hence, exports happened at cheaper price cross border and this lead to
consistent demand of product in the market and earning of huge profitability by the business
firms. It can be said that globalization positively affect business firm and UK economy as it play
an important role in promoting sale of UK firms products in foreign countries. Due to this reason
firms earn high profit and they easily expand their business which lead to increase in
employment in UK.
4.3 Impact of BRICS on developed economies and impact of global economic shocks on UK
economy
Impact of BRICS can be observed on developed economies as these nations are able to
make available goods of cheaper price and services of best quality to customers. Due to this
reason BRICS nations are capturing market at fast rate then developed economies. It can also be

said that developed economies are negatively affected to some extent by BRICS nations.
Domestic and global economic shocks are negatively affecting UK economy. Due to change in
global economic conditions and turmoil in it UK economy suffered heavily and currently also it
is struggling to maintain its growth rate (Gibson-Graham Cameron and Healy, 2013). It can be
said that global economic shocks to large extent are heavily affecting UK economy. Decline in
China economic condition and reforms of demonetization may affect demand in two major
developing global economies. Due to this reason demand of UK products and services may
heavily affected. All these things may build pressure on UK economy as in era of globalization if
one economy become unhealthy then other nation economy also gets affected. Hence, global
economic shocks heavily affecting UK economy.
CONCLUSION
On basis of above discussion it is concluded that there is significant importance of
business economics for the business firm because it is one of the factor that have huge impact on
the nation economy. Globalization brings many benefits but it also has many drawbacks also.
Monetary and fiscal policies are the one of the important tools that has impact on the nation
economy and it help government in fighting with challenges that are produced by the global
factors. Firms have to deal with business environment factors in proper manner because if same
will not be done then in that case they face huge problem in their business. In this regard there is
need to keep close eye on changes that are taking place in business environment.

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Online
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