Business Economics Report: UK Economic Analysis of Celsa Steel

This report delves into the business economics of Celsa Steel Company within the context of the UK economy. It examines the economic problem of scarcity, demand, resource allocation, and market equilibrium, specifically focusing on the steel industry's challenges. The report analyzes different marketing systems, the role of opportunity cost, and the significance of elasticity of demand for Celsa Steel. Task 2 explores the implications of pricing and corporate objectives, the impact of various market structures on pricing decisions, and the influence of UK regulations on Celsa's market power. Task 3 assesses changes in the UK economy, macroeconomic policies, and the UK's economic performance in the global market. Finally, Task 4 describes the theory of comparative advantage and analyzes the impact of emerging economies on developed economies, providing a comprehensive overview of the economic factors affecting Celsa Steel's operations and strategic decisions.

Business Economics

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
A: Economic problem of scarcity, demand resource allocation and equilibrium in the market. 3
B: Evaluation of the importance of different marketing systems and economic decisions........5
C: Explanation of elasticity of demand and assessment of its significance................................6
Task 2...............................................................................................................................................7
A: Implication of pricing and corporate objectives on operations of Celsa Steel Company......7
B: Impact of different market structure of pricing decisions of business ..................................7
C: Evaluation of impact of UK regulations on market power of Celsa Steel company in
formulation of pricing strategies.................................................................................................8
Task 3...............................................................................................................................................9
A: Analysis of change in UK economy in 21st Century and its impact on business
environment of Celsa steel company..........................................................................................9
B: Evaluation of tools available to meet changes described by macroeconomic policies........10
C: Evaluation of economic performance of the UK economy in global market on the basis of
key indicators............................................................................................................................11
Task 4.............................................................................................................................................12
A: Description of theory of comparative advantage.................................................................12
B: Analysis of impact of emerging economies such as BRICS on the developed economies..13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

Illustration Index
Illustration 1: Supply and demand curve ........................................................................................5
Illustration 2: Contribution of steel industry in UK economy.........................................................6
Illustration 3: workers employed in steel industry (in '000)..........................................................11

INTRODUCTION
Economic system consists of production, distribution and allocation of resources in a
country. It can be used to measure the productivity and capacity of a country. UK has been the
fifth largest economy in terms of GDP and ninth largest in terms of Purchasing power parity
(PPP) (UK economy at a glance, 2016). It has been among the fastest growing economies of the
world with a growth of 2.1 % annually. In the financial crisis of 2008, UK had to face recession
which continued for almost two decades. Since then, government has made many policies
which have helped in economic recovery of the nation. The report is based on the nature and
characteristics of UK economy as well as its impacts on the business organisations. Celsa Steel
UK has been facing problems in their operations and it has affected their pricing decisions.
Contribution of steel industry in the UK economy has declined in the last ten years. There has
been scarcity of demand and supply which has affected their business.
TASK 1
A: Economic problem of scarcity, demand resource allocation and equilibrium in the market
Economic problem occurs because resources are limited and wants are endless.
Government has to decide what to produce, how to produce and for whom to produce. It takes
into consideration production, consumptions and distribution of goods and services (Williams,
2015). Demand and supply have to be equal to achieve the market equilibrium. Celsa steel has
been facing problem in their business because trading conditions are rapidly deteriorating in UK.
Steel industry is very important for the growth of economy but it has been contributing less to it.
Most of the steel is exported by Celsa steel but they are facing tough competition from China
(UK steel industry crisis, 2016). It is expensive to produce steel in the country because electricity
prices are higher than other EU nations. Business rates and strong pound have further made it
tough for them to survive in the market. It has dragged down the economy with it in the last ten
years. Market equilibrium is not achieved in the steel industry of UK because quantity supplied
exceeds the quantity demanded in the market. Four major economic problems in UK are as
follows:
Problem of allocation: The main problem with resource allocation is to decide whether
to produce consumer goods or capital goods (Strumickas and Valanciene, 2015). All the
activities have to be prioritized in order to efficiently allocate the resources.

Economic efficiency: Resources have to be used to its maximum capacity (Bernanke and
Ryssdal, 2015). It has been a major problem in the production and distribution of goods.
Problem of economic growth: Economic growth refers to the development of
productive capacity of a country. It can be seen from the graphical presentation that supply and
demand curve intersect each other (Poloz, 2015). This intersection point is known as market
equilibrium. Celsa steel has been facing low demand because quantity supplied has increased in
the market.
Illustra
tion 1: Supply and demand curve
(Source: Managerial economics, 2016)

B: Evaluation of the importance of different marketing systems and economic decisions
There are four major marketing systems that exit in the market:
Perfect competition Monopoly Oligopoly Monopolistic
competition
It is the most
traditional type of
economy in the world.
There are large
number of buyers and
sellers in the market.
Here, products are
homogeneous in
nature. Market forces
are only price takers
and they cannot
control the price of
There is only one
seller in the market.
All the decisions are
taken by the seller
himself as he has the
dominant position in
the market. There are
large number of
buyers.
There are only few
sellers in the market.
Each one has influence
on the market and it is
highly concentrated.
There are large
number of buyers.
Monopolistic market is
a combination of
perfect competition
market and monopoly.
Each seller can decide
its own price because
they have differential
products.
Illustration 2: Contribution of steel industry in UK economy
(Source: UK steel industry crisis, 2016)

product.
Role of opportunity cost in decision making of Celsa Steel Company
Opportunity is the cost of alternative options foregone. It is an essential part of Celsa
Steel Company as it involves trade-off between various options. It has to take decisions
regarding the production, procurement, distribution and analysis of competitive advantages
(ECONO, 2015). Furthermore, they have to consider all the environmental factors like life cycle,
inflation, carbon emissions, legislation etc. before taking the decisions. Opportunity cost analysis
is also used in taking financial and investment decisions. It plays an important role in making
good economic decisions (Rostamkalaei and Freel, 2016). It ensures that those options are
chosen which have the greatest benefit for the company at a low cost.
C: Explanation of elasticity of demand and assessment of its significance
Elasticity of demand measures the responsiveness of quantity demanded with the
change in price of the product. It can be calculated by:
Formula: Percentage change in quantity demanded / Percentage change in price
Elasticity of demand can be used to analyse the effects of price on the demand of goods.
Celsa Steel Company has been experiencing the same problem because their products are elastic
in nature. They are facing tough competition from low priced products of China in the market
(UK steel industry crisis, 2016). There are four types of elasticity of demand:
Price elasticity equals to 1: It means that demand is unit elastic. Here, quantity
demanded and price changes are at the same level.
Price elasticity between 0 and 1: It shows the inelastic demand. It means that change in
demand is smaller as compared to the change in price (Elmendorf, 2015).
Price elasticity equals to 0: Here, demand is perfectly inelastic and does not change with
the change in price.
Price elasticity greater than 1: It means that demand will increase more than the level
of change in price.
Importance of elasticity in market interactions
 Products which are a necessity are inelastic in nature. People will buy these products
irrespective of the change in price (Fricke, Grogger and Steinmayr, 2015).

 Luxury products are elastic in nature. If price rises slightly then people will demand
more.
 Availability of substitutes increases elasticity of the products.
 Sensitivity of the price can be used to formulate strategies for the company and its
products (Goddard, 2015).
Task 2
A: Implication of pricing and corporate objectives on operations of Celsa Steel Company
Pricing and corporate objectives affect the operations of Celsa Steel company in many
ways. It affects their profitability and sales. Celsa has been facing stiff competition from China
which is selling goods at low price. The company ad to cut down their expenses and lay off
many employees to reduce the cost of the business (Rajagopalan, 2016). Their products are
elastic in nature and they have to make strategies accordingly. There has been increased in
supply of steel in the global market which has reduced the demand of steel. This has affected the
corporate objectives of the company as it has to be changed. The management of the company
has been focusing on the profitability and quality of the products. But they have to cut down the
cost in order to remain competitive in the market (Acs and et.al., 2016). Celsa has to evaluate the
effects of change in price on the business before taking any decisions. Pricing decisions and
corporate objectives play a vital role in the development and growth of a company. It has to be
changed according to the needs of the business.
B: Impact of different market structure of pricing decisions of business
Celsa Steel Company has to analyse and understand the economic system in the country
to formulate their strategies. The pricing decisions in each marketing system has different effects
on the company which has to be analysed (Johnson and Lamdin, 2015). The impact of different
marketing structures on Celsa Steel company are as follows:
Perfect competition Monopoly Oligopoly Monopolistic
competition
Celsa has to follow the
policies and pricing
decisions of the
market. There are
In monopoly market,
Celsa can change their
policies according to
the needs of the
Instead of one, there
are two or more
dominant companies
in the market. These
Celsa has to produce
differentiated products
in the market. They
can formulate their

large number of sellers
as such they cannot
change the price of the
products. They are
know as price takers
while the market
forces decide the price
of the products.
company. They are in
the dominant position
in the market and the
customers have no
other alternatives.
firms are influenced
by the pricing
strategies of their
competitors. Celsa can
also from cartel with
other steel companies
to reduce the
competition.
own strategies and
pricing decisions.
They have different
brand and quality of
the products.
Monopolistic market
has imperfect
competition.
C: Evaluation of impact of UK regulations on market power of Celsa Steel company in
formulation of pricing strategies
There are many regulation in UK which affect the pricing strategy of a company like
Price Making Order 2004, Contracts Regulations 2013, Price Indications 1992, Consumers
Rights Regulations 2012 and consumers rights Act 2015 (Managerial Economics, 2016). The
impact of UK regulations on pricing strategies are:
Legislation restricts pricing strategies: Celsa has restrictions on pricing strategies and
they have to ensure that all the rules and regulations are followed (Bergstrand and et.al., 2015).
The UK government has set price ceiling which does not allow the company to go too low or too
high on the prices of the products. Celsa has to follow all the rules because non compliance could
result in huge penalties for the company.
Adaptation: Celsa steel company exports its goods to many countries. They have to
ensure that the prices of the products are competitive in the foreign country as well (Audretsch,
Heger and Veith, 2015). It is very important for an international company to follow different
regulations of different nations. The pricing policy is highly dependent on the legislation of a
nation.
Supply/Demand: Pricing decisions affects the supply and demand in the industry. If the
price of the product is high as in the case of Celsa company then it will reduce the demand of the
product. China has been producing steel in huge quantity and low price (Huggins and Thompson,
2015). The price of steel produced by Celsa is much higher than its competitors.
Increase in prices: There are many regulations which increases the prices of the product.
It includes health and safety tax, environmental and other economic factors. The steel industry

has to change their processes and methods of production to reduce carbon emission (Penner,
2015). Celsa company has to pay EU green tax and carbon caps for their products.
Task 3
A: Analysis of change in UK economy in 21st Century and its impact on business environment of
Celsa steel company
The economy of UK has made significant improvements in the 21st century. UK has
shown good growth in many sectors like retail, finance, construction, insurance and health
services. It has helped in the development of many business units in the country. The
government has also increased taxes as they require more funds for the health care services. The
economy as shifted from manufacturing to services sector (Sloman, Garratt and Wride, 2015).
There has been many technological improvements in the country. But the steel industry has been
struggling in the 21st century. Many steel companies like Celsa has been in crisis. These
companies have been laying off their employees in large numbers to cut down their expenses.
UK companies have not been able to compete with the global market. The business rates
are high in UK and it is expensive to produce steel in the country. Steel industry has been a
major contributor in the economy but it has gradually declined (Husain, 2015). EU taxes and
regulations have have increased the prices of the goods which are no longer competitive in the
global market. The demand of UK steel as reduced in the global market. There are many
restrictions on the steel industry in the country which has affected its growth.

It can be seen from the graphical representation that many workers who were employed
in the steel industry lost their jobs (Startiene and Remeikiene, 2015). There has been a significant
drop in the number of employees working in the steel industry.
B: Evaluation of tools available to meet changes described by macroeconomic policies
There are two main tools which can be used to analyse the changes in the macro
economic policies in the country. It includes Monetary policy and fiscal policy. Monetary policy
is associated wit supply of money, interest rates, economic growth and credit rates. on the other
hand, fiscal policy includes government expenditure and revenues (Managerial Economics,
2016). Celsa steel company can evaluate the changes in the monetary and fiscal policy to change
their strategies. Apart from this, they have to take into consideration the exchange rate policies of
the country. Celsa has to export their goods and change in interest rate can affect their
profitability. The production decisions can be taken with the help of demand and supply in the
market. The government also change the market condition with their rules and regulations. Celsa
can use forecasts of the UK economy to expect the demand and volatility in the country.
Macroeconomic policies directly influences the business of Celsa (UK steel industry crisis,
2016). EU has implemented green tax and carbon caps on steel industry. This has reduced the
profits of the business. The changes in interest rates can affect the credit availability for the
company. It can increase the cost of many investments projects that the company has been
planning for. Macroeconomic policies can have positive or negative effects on a company. So, it
Illustration 3: workers employed in steel industry (in '000)
(Source: UK steel industry crisis, 2016)

is essential for Celsa steel company to evaluate the changes in the monetary and fiscal policies of
the government (Johnson and Lamdin, 2015). The strategies of the company has to be altered so
as to ensure growth of the business.
C: Evaluation of economic performance of the UK economy in global market on the basis of key
indicators
UK economy has been growing and expanding at a good pace (Audretsch, Heger and
Veith, 2015). There has been a shift from manufacturing sector to service sector. The annual
growth rate of the economy is 2.1% while the GDP growth rate in 2016 has been 0.4%. It has
improved from the year 2015. UK has been among the fastest growing developed countries. The
unemployment rate has been falling as the economy is recovering. The employment rate in 2016
was 74.1 %. The inflation is also low in the country at 0.3% (UK economy at a glance, 2016). It
is largely because of fall in prices, low cost imports and stiff competition in many industries.
Service sector has been the major contributor to GDP with 75 % while the manufacturing and
construction industry has declined from the past. Trade has been a big problem for the country.
The imports are still more than the exports. A summary of the above data is as follows:
Key indicators Performance
Annual growth rate of the economy 2.1%
GDP growth rate 0.4%
Employment rate 74.1 %
Inflation 0.3%
Major contributor to GDP 75 % (Service sector)
The economic performance of UK has been good but Celsa steel company has been
struggling in their business. Steel industry was the major contributor to GDP before but now it
has been shifted to Service sector. They are hardly making any profits and they had to lay off
their employees in order to continue the business (Penner, 2015). Despite, high employment rate
in UK there has been unemployment in the steel industry. Celsa company is facing tough
competition in the global market. It has not been favourable for the company as their profits have
dropped.

Task 4
A: Description of theory of comparative advantage
The theory of comparative advantage suggest that a country should focus on the
production of goods. It will help them to increase the economic welfare and they will have low
opportunity cost. In China thousands of people make toys which are exported to American toy
companies. They sell the toys under their brand name (Sloman, Garratt and Wride, 2015). China
has developed expertise in toy making by providing low cost products. While the American
company can focus on the core business activities. So, it is important for a country to specialise
in a particular activity. It help them to grow and increase their market globally. For example,
India and Philippines has low cost labour. Many foreign countries outsource their process to
India and Philippines (Rostamkalaei and Freel, 2016). It has helped both the countries to grow
and their major income comes from the service sector. Competitive advantage helps a company
to realise its potential and support other countries in their operations. Many developed nations
have good infrastructure as a result they are using it for production and manufacturing of capital
as well as consumer goods. On the pother hand, developing countries have abundance of labour
and natural resources.
UK has competitive advantage in the following industry:
 Creative industry
 Tidal energy production
 Robotics, smart machines and autonomous systems
 Synthetic biology
 Agri-science
 Space technology
 Foreign investment
Free trade system UK
UK has been focusing on the foreign investments in their country. FDI has increased by
25 % in 2016. Many countries like US, Japan etc. prefer investing in UK because it a great
platform to export goods to other European countries. It has stable financial and political
environment which helps the foreign companies to grow (Bernanke and Ryssdal, 2015).
Advantages
 Foreign investment helps in the economic development of the country.

 It has comparative cost advantage in terms of asset allocation and manpower
requirement.
 Free trade allows UK to import goods at a cheaper cost
 It increases the market for UK companies
 It makes domestic producers more competitive and efficient.
Disadvantages
 Many other countries do not follow free trade policy.
 It may not benefit to the developing nations
 It increases interdependence on other countries (ECONO, 2015).
UK has been progressing and they have shifted their focus to the development of service
sector industry. This has led to the downfall of manufacturing and industrial sector. They are not
getting the support from the government (Williams, 2015). Celsa steel company has been
struggling in the global market. They are facing tough competition from China which has low
cost products. China has been a developing nation in terms of attaining the competitive
advantage (Acs and et.al., 2016). The theory of comparative advantage in UK has affected the
business of Celsa company because their has been a shift from manufacturing sector to service
sector.
B: Analysis of impact of emerging economies such as BRICS on the developed economies
BRICS stands for Brazil, Russia, India, China and South Africa. These countries have
form an association for the development of their countries. BRICS has been a challenge for many
developed countries. It has been expected that BRICS will take over G7 by 2027. UK has been
facing competition from the BRICS because it has been growing at good pace (UK and BRICS
Economies, 2013). These countries have abundance of natural resources, labour and
technologies. They have reduced the barriers of trade and many foreign companies have invested
in these countries. The domestic and global changes have also affected the development of the
economy. There has been shift of power from UK, US and EU to BRICS. UK has been facing
tough times to compete against them (Husain, 2015). There has been uncertainty in the market
and many industries in UK like airline, steel and transportation has been suffering. But UK has
good infrastructure and strong economy to fight against the growing challenges. UK has also
experienced financial crisis and they are cautious in their approach. BRICS have also become
self reliant and they are less dependent on other nations. This has decreased the economic

development of many nations. Celsa steel company has been experiencing tough times with this
change in the industry (Rajagopalan, 2016). China has been producing goods in abundance and
their products are less costly than UK products. It has affected the exports of the company and
the entire steel industry. Steel industry used to be a major contributor in the GDP but now it
pulling the economic growth down with itself. They have to lay off many employees in order to
sustain in the market. High tax rates and less support from the government has led to the decline
of this industry (Goddard, 2015).
CONCLUSION
It can be concluded from the report that macroeconomic factors play essential role in the
success of a business. Celsa company has been facing lot of problems in UK because its business
has been affected by foreign companies. UK government has many rules and regulations like
Price Making Order 2004, Contracts Regulations 2013, Price Indications 1992 etc. which has
affected their pricing decisions and business objectives. UK has shown shown significant growth
in the past few years but there has been a shift from manufacturing sector to service sector. It has
led to the downfall of the steel industry in the country. Furthermore, BRICS, domestic and global
economic shocks have also affected the development of UK economy.

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