Economics for Business: Factors Affecting Cheddar Cheese Pricing in UK

This report provides an economic analysis of the British cheddar cheese market. It begins with an introduction to economics for business, explaining how economic principles assist in making business decisions, particularly at an international level. The report then delves into the application of economic concepts, such as supply and demand analysis, to determine the price of cheddar cheese, and discusses factors that influence both demand and supply, ultimately affecting price determination. It covers the language of economics, exploring how individuals and businesses allocate resources to meet unlimited wants, and the basic economic problem of scarcity. The report also examines models used in economics and their application to real-life situations, including the laws of supply and demand, equilibrium, and factors that shift these curves. Furthermore, it analyzes real-world situations that can impact the cheddar cheese market, such as externalities, monopolies, and other economic conditions, providing a comprehensive overview of the economic considerations involved in the production, pricing, and consumption of British cheddar cheese.

Economics for
Business

Contents
INTRODUCTION...........................................................................................................................1
LO1 Understand the language of economics...............................................................................1
LO2 Basic methodology and models used in Economics and their application to real-life
situations......................................................................................................................................2
LO3 Demonstrate the ability to analyse real world situations that occur in economy................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Economics for business include the part of economics knowledge which assists the business
organisations to make appropriate business decisions (Suleiman and et. al., 2012). Such theory
helps the managers to assess the practical issues that are faced by organisations working at
international level. Present essay is based on British Cheddar cheese in UK. This assignment
includes the various aspects of economics and its application in business organisations. It
includes the supply and demand analysis to determine the price of a product. Also, it covers the
factors that affect the demand and supply and in turn the price determination of a product. Also it
includes the real life considerations that are to be kept in mind by enterprises to arrive at the final
selling price of product.
LO1 Understand the language of economics
Economics is the study of how societies, governments, businesses, households, and
individuals indulge in allocation of resources as resources are limited in response to unlimited
human needs (Petria, Capraru and Ihnatov, 2015). The language of economics is all about how a
person utilizes limited resources for the satisfaction of unlimited wants such that it results in
maximum satisfaction. This is the subject matter of Economics.
As people live in an economy, it is imperative to study economics because economics
affects almost every activity happening in the world. Everyone is a part of economic system
where economic activities take place every minute. Economics is based on the concept that
human wants are infinite and keep on changing and evolving constantly resources against which
resources available are limited and scarce. This excess of wants over what can be produced with
the aid of limited resources available is the essence of economics. This brings about the basic
economic problem of scarcity. Thus, in result brings the choice of what to produce, how to
produce and who will finally consume the finished products. The study of economics helps
people in making choices in relation to business entities driving to gain profitability, consumers
seeking for more of less quantity of goods and services. It also aids government in trying to make
policies in a manner that aims at welfare of society.
Economics depicts the behaviour of business organisations in relation to taking decisions
about allocation of scarce resources to fulfil the needs and preferences of its wide base of
customers. It includes the factors that determine the demand and supply of products and services
of an economy. The economic decision of what to produce of business organisations is based
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upon pricing mechanism. Higher price of a product or service means utilisation of more
resources in production whereas lower price implies optimum utilisation of resources in
production and diverting the remaining towards other productive uses. The decision of how the
commodity is to be produced is based upon cost of factors of production, their availability and
productivity (Michelberger, 2017). In relation to British Cheddar cheese, study of economics is
imperative as it helps the organisation involved in its production in understanding the
consumption and demand patterns of consumers. More demand for the product would mean
more production of British Cheddar cheese by the company. Conversely, lower demand for
product would imply company lowering the price of Cheddar cheese to retain the identity of
product in market and not letting the demand fall beyond acceptance. Economics is all about the
demand and supply of goods and services and the factors that lead to significant increase or
decrease in their demand, supply and consumption. The pricing of British Cheddar cheese is also
determined after considering the analysis of economic environment of cheese industry. Brexit is
yet another factor that impacts the production, demand, supply and consumption of British
Cheddar cheese. Study of economics is also imperative for business organisation to determine
the export levels of cheddar cheese to countries across the globe and for consumers in UK and
different parts of the world to decide their consumption levels.
LO2 Basic methodology and models used in Economics and their application to real-life
situations
Economics is basically the study of production, distribution and consumption. Demand is
the willingness and ability of a person to buy a product or service while supply is the willingness
of sellers to sell a product or service (Ioannidis and Doucouliagos, 2013). Demand and supply
analysis is the study of how buyers and sellers interact to determine transaction prices and
quantities of products. Prices reflect both the value to buyer of next substitute product
(opportunity cost) and cost of that unit to seller. The relationship between demand and supply
determine the production levels of a product.
Law of Demand states that all other factors remain constant, higher the price of a good,
the less will be demand for that good (Gugler and et. al., 2012). The quantity of product
purchased at higher price is less because as prices of product goes up, so does the opportunity
cost for consumers to buy that good. This results in unwillingness of consumers to buy that
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product at higher prices and replacement of products with substitutes in some cases. Demand
relationship with price is a downward slope.
Law of Supply states that higher the price, higher is the quantity supplied (Fanelli, 2012).
Unlike the law of demand, the supply relationship shows an upward. Producers supply more at
high price as this means larger supply at high prices resulting in larger revenue for them.
Equilibrium is a state when supply and demand of a product or service are equal
(Gonzalez and Ortega, 2013). At this stage, allocation of goods is most effectively done as the
quantity of goods produced is the state as the quantum of goods supplied. Normally, everyone in
the economy is satisfied with this economic condition. It indicates that at a constant price,
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Source: Law of Demand, 2018
Source: Law of Supply, 2018

suppliers are able to supply what they have produced and consumers are able to get what they
demand.
Shifts in supply curve takes place due to change in prices of factors of production, prices
of substitute goods, technology, taxation policy, goals of firm and number of firms present in an
economy (Geetha, N. and Ramesh, M., 2012). The supply curve can shift to either left or right
depending on changes that occur in economy.
Shifts in demand curve takes place due to factors like change in price of complementary
goods, price of substitute goods, income of people, taste and preferences, expectation of change
in the price in future etc.
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Source: Equilibirum, 2018
Source: Increase in Supply, 2018

Increase in Demand
(Source: Decrease in Demand, 2018)
Change in demand and supply largely impact the prices of products. A decrease in demand and
an increase in supply lower the price of a good. An increase in demand and a decrease in supply
raise the price of a product (Danish, Ramzan and Ahmad, 2013). When there is both increase in
demand and supply of product, the change in price is uncertain as the increase in demand raises
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Illustration 1: Decrease in Demand

the price while the increase in supply lowers it. On the other hand, when there is both decrease in
demand and supply, the change in price is uncertain as decrease in demand lowers the price
while the decrease in supply raises it.
In relation to British Cheddar cheese, a number of factors affect the determination of
pricing for this product. These factors include prices of substitute goods, prices of
complimentary goods, rise and fall in cost of factors of production, government policies, taxation
legislations, foreign trade restrictions (Figueira and et. al., 2013). A decline in price of substitute
goods may pose a threat of substitutions by consumers of cheddar cheese with other likely
products because of the high opportunity cost involved. This will lead to lowering of price for
product to retain the customers and existence of products and its stake in market. Conversely, a
rise in price of substitutes may increase the demand for cheddar cheese as it is the cheapest
product in range of relative products. This will lead to increase in price of cheddar cheese finally.
Increased prices and increased quantity of supply will ensure more generation of revenue and
profitability margin. Considering the price of complimentary goods, it has an inverse relation
with demand for the product. An increase in price of complimentary goods of cheddar cheese in
UK would lead to trigger in demand for product as people are not willing to spend more for the
same product. The price of cheddar cheese would then be lowered to sustain its existence in
market. Conversely, a decrease in price of complimentary goods would cause a rise in demand
for the product as consumers. Thus, the price of cheddar cheese in UK would be increased so as
to gain more revenue and profits. Factors of production include land, labour, capital and
entrepreneur (Danish, Ramzan and Ahmad, 2013). All of them are important for production of a
product. Change in value of any of these 4 factors of production would mean a change in price of
factors of production. A rise in price of factors of production would mean that the same quantity
of British Cheddar cheese would now be produced at a larger cost. This would lead to increase in
cost of final product i.e. Cheddar cheese for consumers as it is imperative that the cost of
production is recovered through sale of same in market. Conversely, a decline in price of factors
of production would result in scope of gaining higher profits by keeping the price of cheddar
cheese same as it was when there was no decrease in factor cost. Government in UK is stable
which means that policies and regulations of operations in UK have remained constant over
years. UK market structure is also considered the most competitive for countries across the globe
(Figueira and et. al., 2012). Higher competition ensures superlative benefits for customers in
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terms of wide range of products and services to choose from, competitive pricing and high
quality of products and services. Competition laws of UK also provide protection to business
organizations from unfair and unethical business tactics used by rival firms within same
industry. A positive shift in supply of Cheddar cheese takes place if all the laws and regulations
made by UK government in relation to manufacturing and supply of product are efficiently
followed. An increased supply tends to cause a rise in price of Cheddar cheese. Also the extent
of relaxation in foreign trade regulations affects the determination of effective price for British
Cheddar cheese in UK. All these factors need to be kept in consideration before arriving at a
price to sell British Cheddar cheese in UK.
LO3 Demonstrate the ability to analyse real world situations that occur in economy
A number of situations occur in an economy which affects the operations of organisation
and also the demand and supply of its products. These situations can either be at micro level or
macro level. In relation to determination of price for British Cheddar cheese, these factors have
to be kept in consideration. The real life situations that may occur in an economy affecting the
products and their demand and supply for an entity can be monopoly, inequality, volatility in
prices, recession, inflation etc. Firstly it involves externalities which is one of the most recurring
problems because there are several impact of external effects on economics decisions. It supports
to negative positions, that managers cannot take them into business account during supply of
British Cheddar Cheese. This is the reason of overconsumption in order to complete all taxes and
duties in export and import procedures. Moreover, it creates several personnel problems during
market failure for instance: tax evasion. Secondly, monopoly phase also indicate many issues by
which firms can acquire monopoly power. Through this cognition, an enterprise enables for set
high prices of British Cheddar Cheese to gain high level of profits from their potential
consumers. It also emphasize on compensation structure which addressed to lower wages to
workers for making. For solving this problem, a country's government can encourage
competition in ethical manner for example, franchising and price setting to control excessive
price (Petria, N., Capraru, B. and Ihnatov, I., 2015). Thirdly, poverty in economic condition that
create when normative opinions are occur for instance: injustice in distribution resources. In
context of British Cheddar Cheese businessmen can present their suggestions for decreasing
marginal utility-grade of wealth, if it has small proportion of the grouping. Moreover, inequality
creates problems in understanding how to reduce poverty. For this British Cheddar Cheese, here
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manager need to select a aim of perfect equality for decreasing or finish poverty. Fourthly, In
many countries have volatile price for agricultural market. It arises, when supply scale of British
Cheddar Cheese shows excess level so consequently people face lower revenue situations. Last
phase is irrational moods, In some cases, people have meet with volatile prices during irrational
enthusiasm.
Macro economic problems indicate to unemployment situations in advance economy
(Figueira and et. al., 2012). It arises when people face laid off problem during recession period of
time. This shows depressed circumstances of economy which create through instability in
demand and supply of British Cheddar Cheese. It includes situations like recession. This period
is considered as negative time which addressed to unemployment during bad economy growth.
Second is inflation, these high rate creates solemn difficulty, in this case prices rise more faster
in comparison of nominal interest rate. Apart from this, it create many confusions and
uncertainty for a firm. Secondly, during small sum of amount of payment, an country importing
maximum goods and services than exporting. In developing countries, it is a big problem when
payment balance crises arise which lead to devaluation of a country's currency (Gonzalez and
Ortega, 2013). It occurs during value of medium of exchange is fall. This directly affect to
international target customers of British Cheddar Cheese who cannot served this product during
low value of currency.
Brexit also affect the determination of pricing for British Cheddar Cheese in UK (Gugler
and et. al., 2012). The separation of UK from European Union is likely to cause many favourable
and adverse effects for individuals, government, business organisations. To determine an
effective price for cheddar cheese, the present and future impact of Brexit need to be considered.
The product availability and its supply in present and future scenario need to be kept in mind for
which reserves of British cheddar cheese should be kept so that unavailability of raw materials in
future due to Brexit does not hamper the manufacturing of product. All these situations have to
be analysed to determine the price for British Cheddar cheese in UK.
CONCLUSION
From the above assignment it can be concluded that business economics play a
significant role in decision making process undertaken by managers. It is analysed that
apart from the price of a product, there are many other factors that affect its demand and
supply in market. These factors are to be considered before determining the selling
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price of a product. It can also be said that business economics aim at profitable
growth of enterprise and development of effective solution to deal with changes in
economic scenario of country.
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economics. 33(3). pp.159-175.
Ioannidis, J. and Doucouliagos, C., 2013. What's to know about the credibility of empirical
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Michelberger, K. J., 2017. Survey On Competence and Administration of Supervisory
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