Principles of Economics Report: Customer Impact and Inflation in UK

This economics report delves into the principles of economics, examining the impact of an increasing number of customers on market equilibrium, a point where supply and demand meet. It explains the relationship between price and quantity through demand and supply curves, illustrating how shift...Read More

Principle Of Economics
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TABLE OF CONTENTS
INTRODUCTION................................................................................................................................3
PART A ................................................................................................................................................3
PART B.................................................................................................................................................6
CONCLUSION ...................................................................................................................................7
REFERENCES.....................................................................................................................................9
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INTRODUCTION
Economics can be termed as a factor which provides enhanced level of information
regarding production, allocation and usage of diverse accessible resources in order to meet the
needs and demand of economic system. In this support, principles of economics mainly depends
on the effective examination of economical components along with considering its influence on
the external and internal conditions (Tillman, 2012). In current report the learning will focus on
factors which relates with the impact of advancement in number of customers. It will provide
information about influence of advancement over equilibrium price and quantity of a product.
Moreover, it will also focus on description regarding calculation of Consumer Prices Index
measure in relation to UK inflation.
PART A
Impact of increase in number of customers on the equilibrium price and quantity of a product
As per the structured study it can be said that the equilibrium is a economic factor which
impacts the operations of business firms in diverse manner. It is a point where supply and
demand of product in the market is is equal. In the support of this, it can be said that with an
improved focus on supply and demand curve the management of business organisation can easily
understand the relationship among cost and quantity (Aseev, 2012). In other aspect, it is one of
key reason that modifications in the demand and supply curve influences the equilibrium point in
diverse manner.
Demand and supply curve
It is a curve in which graphical plots indicates quantity and price on different axis which
can be termed as horizontal and vertical axis. If demand curve reflects the downward slope that
means the quantity and price is having inverse level of relationship. It has been spotted that the
changes in price influences the demand in diverse manner (Kuhn, 2013). Advancement in price
of product decreases the demand of product and reduction in price increases the demand of
product. If supply curve indicates the upward slope that means price and quantity both have
direct relationship (Sheth, 2011). Moreover, decrease in price also reduces the supply and
increase in price also advance the supply of product. Section where both supply and demand
intersects it is considered as a equilibrium point.
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Impact of increase in number of customers on the equilibrium price and quantity of a product
As it has been spotted that the equilibrium is intersection point of supply and demand and
it indicates the equality among both factors (Xu, 2012). In this aspect, it can be said that supply
and demand curve reflects the direct and indirect relations among price and quantity. This
indicates that changes in curve also influences the equilibrium point.
Demand and supply curve
Demand and supply curve is considered as a graphical statement which consist of x and y
axis which reflects quantity as well as price. In inverse relation among price and quantity the
demand curve reflects downward slope (Nelson, 2012). It has been spotted that it is due to
changes in price as increase in price forces decrease in demand and it increases with decrease in
price. Moreover, the direct relationship among price and quantity indicates the upward slopping
in supply curve. It has been spotted that supply enhances with advancement in price and it
decreases with reduction in price.
Shift in demand and supply curve (increase in customers)
In the support of these curves it can be said that it provides information about consistency
among economic system. In inconsistency situation the curves will shift in upward and
downward manner. Reason behind changes can be any regarding economic system such as
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Illustration 1: Demand and supply curve

unemployment, consumer taste and other rates (Kamien, 2012). If supply and demand of sugar is
not equal then equilibrium point will also have some changes. In this respect, increase in
numbers of customers also enhances the demand of product. While considering the supply curve,
it can be said that the constant ratio of supply of sugar will impact the price in negative manner
and forces market to increase prices of sugar.
Effect of shift in demand and supply curve
In this support, changes in demand and supply curve influences equilibrium point in
diverse manner. Condition or point where supply curve shift upward that means the quantity is
increases with the advancement in price (Walras, 2013). In vice versa situation, if supply curve
shift downwards then price of equilibrium will be decreased and quantity will be increased.
Example
For example, the demand of sugar is 10 but it has up to 12. It means there is advancement
in number of customers. It is a situation, where the price of sugar will also be increased. It means
the equilibrium point has also shifted to point B from point A.
Illustration 2: Change in equilibrium with the increase
in number of customers
As per the example, it can be stated that the equilibrium point of price and quantity will
have some advancement in the economic system. It will also have some advancement in number
of customers. If demand curve is having right shift then equilibrium point will have some
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shifting upper level (Walras, 2013). In vice versa, equilibrium point will be attained at lower
level when it demand curve shift to left.
PART B
Description of computation of Consumer Prices Index measure of inflation in UK
Cost of living can be considered as a modification in the average ratio of buying aspects
as compared to income level of household. Calculation of inflation rate is considered as one of
critical aspect as it has some direct impacts on the overall living cost (Debray, 2015). In the
support of this, it can be said that the inflation rate changes can also impacts the customer buying
power.
In UK, there are two measures which can be classified as Retail price index and
Consumer price index. Consumer price index (CPI) is considered as calculation method which
provides information about the inflation in consumer prices in the UK. It is a standard set by EU
for effective calculation of inflation (Barmby, 2012). In UK, inflation rate can also be calculated
with an focus on annual percentage change in context of prices. CPI calculates rate by
multiplication of prices and it is also refereed as number of items involved in the basket.
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Illustration 3: Calculation of CPI

In the support of this, the calculation of CPI renders a figure regarding average price
advancement. In order to the calculation the information regarding pricing is collected in the
middle of the month from different retail outlets in UK. It provides effective information about
various economic factors as well as income point. Moreover, the information is calculated for the
grouping of components at its lowest degree (Posner, 2012). Due to mathematical price and
geometric mean the CPI mostly lies less as compared to the RPI. Another rationale fact is that the
customer decreases the purchase of any product which its price increases n comparison other
products in the market.
Collected information for calculation of CPI in respect to any specific month can be
compared with any other previous figure. It will provide actual information about the changes in
average income and inflation rate. As per the result of analysis the average price change
decisions are taken into account for effective balancing among factors. It has also been spotted
that the computed values relates with the earlier years figures (Schön, 2012). It is beneficial for
effective calculation of CPI. It also provides effective comparison of inflation rate with the
changes in time. Moreover, the two consequent years are also taken into account as feasibility
factor in different years. In this support, the number of changes can also be taken as per the
critical measurement of inflation rate.
In respect of current market situation of UK, it can be said that the inflation rate has
decreased by 0.1 as compared to previous year. It was also expected in previous year the business
organisations in order to boost the effectiveness of economic system. Moreover, the reduction in
CPI has also been identified in UK economic system (Andersen, 2013.). In the support of this, it
can be said that the transportation services are contributing effectively in the development of
system. Other than this, it has also been noticed that the average inflation rate in the UK is
2.67%. Moreover, the CPI also have some impacts due to transportation, electricity, water, gas
and fuels (Posner, 2012). Other retail products and services are have great level of involvement
within economic system.
CONCLUSION
As per the above study it can be concluded that the principles of economics mainly
depends on the effective examination of economical components along with considering its
influence on the external and internal conditions. It has also been identified that the point where
supply and demand of product intersects is considered as a equilibrium point. It can be
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influenced by changes in price as well as average income rate. Inflation rate also impacts the
supply and demand of product in UK market. Cost of living can be considered as a modification
in the average ratio of buying aspects as compared to income level of household. Calculation of
inflation rate is considered as one of critical aspect as it has some direct impacts on the overall
living cost.
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REFERENCES
Books and Journals
Andersen, E.S., 2013. Evolutionary economics: post-Schumpeterian contributions. Routledge.
Aseev, S.M., 2012. Maximum principle for infinite-horizon optimal control problems with
dominating discount. Sage.
Barmby, T., 2012. Incentives, learning, task difficulty, and the Peter Principle: Interpreting
individual output changes in an organisational hierarchy. Labour Economics. 19(1). pp.76-
81.
Debray, E., 2015. Evolutionary Economics: A Specific Form of Evolution?. In Handbook of
Evolutionary Thinking in the Sciences. Springer Netherlands. pp. 809-823
Kamien, M.I., 2012. Dynamic optimization: the calculus of variations and optimal control in
economics and management. Courier Corporation.
Kuhn, H.W., 2013. Mathematical Systems Theory and Economics I/II: Proceeding of an
International Summer School held in Varenna, Italy. Springer Science & Business Media.
Nelson, J.A., 2012. Is dismissing the precautionary principle the manly thing to do? Gender and
the economics of climate change. Sage.
Posner, E.A., 2012. International Paretianism: a defense. University of Chicago Institute for Law
& Economics Olin Research Paper. pp. 606.
Schön, W., 2012. Fundamentals of international transfer pricing in law and economics. Springer
Science & Business Media.2(1). pp. 20-30.
Sheth, J.N., 2011. Mindful consumption: a customer-centric approach to sustainability. Journal
of the Academy of Marketing Science. 39(1). pp.21-39.
Tillman, D. A., 2012. Wood Combustion: Principle, Processes, and Economics. Elsevier.
Walras, L., 2013. Elements of pure economics. Routledge.
Xu, B., 2012. Test the principle of maximum entropy in constant sum 2× 2 game: Evidence in
experimental economics. Physics Letters A. 376(16). pp.1318-1322.
Online
How is the Consumer Prices Index calculated. 2013. [Online]. Available through
<http://www.ons.gov.uk/ons/infographics/how-cpi-is-calculated/index.html>. [Accessed
on: 10 December 2015].
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Inflation Measuring Inflation. 2015. [Online]. Available through
<https://www.unison.org.uk/content/uploads/2014/11/TowebFull-report-Consumer-Price-
indices-in-the-UK2.pdf>. [Accessed on: 10 December 2015].
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