Economics for Business (MOD003327): UK Food Industry Report

This report provides an executive summary and in-depth analysis of the UK food industry from an economic perspective. It examines supply and demand dynamics, market equilibrium, and the impact of factors such as Brexit and Covid-19. The report explores market failures, including changes in consumer behavior, supply chain disruptions, and business failures, and discusses government policies implemented to address these issues. It covers concepts like market control and industry quotas. The report aims to provide a comprehensive understanding of the economic challenges and policy responses within the UK food industry, offering valuable insights into the interplay of economic principles and real-world events.

Economics for business

Executive summary
UK has market oriented economy and government only intervene in the marker for the
purpose of social welfare and to restore the equilibrium in the market that cause due to many
factors which can not be control by market forces. This report has been develop keeping the view
of economic principles of many demand and supply that used impact on food industry. Apart
from that principles of market failure has also been evaluated and policies that is adopted by the
government to improve the situations. So, some of the intervention has been maintained by the
UK government for the purpose of short-term equilibrium and to make the industry strong.

Table of Contents
Executive summary..........................................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Supply economic theory..............................................................................................................4
Demand economic theory............................................................................................................6
Market equilibrium......................................................................................................................7
Shortage and surplus....................................................................................................................9
TASK 2..........................................................................................................................................10
Market failure.............................................................................................................................10
Policies adopted by the government to address market failure..................................................11
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Economics refers to the social science that concerned with the production, distribution
and consumption of goods and services to study how individual make choices and make
allocation of resources. Study of economics focuses on the human being and based the
consumption that act the human needs and will lead to optimal benefits. Market equilibrium gets
disturbed through many external and internal factors that are managed by the forces and they
have own the intervention in the food industry in the UK and impacting factors that was being
impacted Brexit and Covid-19. These factors create many imbalances that was being render by
the government of manage social situation. Many situation has been arise that used to impact the
lot to the economy and leads to many changes in the nation and evaluating the condition of the
organisation is being done or created by the government.
TASK 1
Supply economic theory
According to the Krugman and Wells, supply in the market has created lots of producers
that used to produce the commodities and were ready to supply those commodities on the
specific price in the market. In the market condition, sellers were willing to supply more
commodities at higher price that indicate th positive relationship between the price and quantity
supplied. This kind of nature will serve the graphical representation of the relationship and that
behaviour is shown in the supply curve that is has an upward slope.
Movement in supply curve

In the changes in the price, there is supply change in the company and movement indicate
the single supply curve with the movement along the supply curve. In the increase in price,
quantity supply moves upwards and that leads to decrease in the price, quantity supplied moves
downward on the same curve. For example, if there is decrease in supply of the food in the UK
there is increase in the prices of concerned food and that increase the supply.
Shifts in supply curve
 Left shift- When determinants other than the price decrease, supply curve changes its
position and shifts towards left and that create the another supply curve. For example,
pandemic period saw various distraction in supply chain which increases in the price of
raw material due to supply lesser the quantity.
 Right shift- When the determinants other than the price increases, supply curve changes
its position and that shift towards right and leads to creating of another supply curve. For

example in order to enhance government provided subsidy to them and that enable to
produce more supply.
Demand economic theory
According to the Krugman and Wells, demand side of market is decided by the customer
who were concerned to purchase more commodity and it is dependent on the buyers. In the
demand theory, there is negative relationship between the demand and price where if the demand
is increasing then there is more price of the commodity and vice versa. Customer tends to buy
more products when there is less price and the graphical representation has shown the downward
slope in the curve.
Movement in demand curve
In the change in the price, quantity demanded changes as when there is reflected in single
demand curve with the movement along the demand curve. If there is increase in price, quantity
demanded moves downward and will going to decrease in price and quantity demand moves
upward on the same curve. For example, if there is reducing in the price of foods in the UK,
there is rise in the another price in the foods products.
Shift in demand curve

 Left side- When determinants other than price is fall down, demand curve changes its
position and shift towards left, creating the another demand curve. For an example, the
loss in food availability leads to low consumption of food items and this will leads to
shift in the curve towards the left. This has also changes the demand of food items that
leads to many changes.
 Right shift- If there changes in the determinants other than the price increase, demand
curve will going to change its positions and shifts right and that creates another demand
curve. For example, changes in the Covid-19, inspired the people to consume healthy
food and vegetables and that also leads to increase in the demand of these demand. This
tends to shift in demand to the right.
Market equilibrium
According to the Krugman and Wells, there is point where certain point of price, demand
and supply curve interact with each other and that point known as market-equilibrium. Price ij
market-equilibrium is called as equilibrium price and quantity at market-equilibrium termed as
equilibrium quantity.
Shift in equilibrium

 Changes in supply curve- Market-equilibrium is based on the interaction of two
different forces and one force id supply and its determinants. In the free market
conditions, supply of the commodity changes due to multiple determinants as in 2020,
food market of UK has faced failure due to Brexit and Covid-19, forces prices of raw
material rise that gives negative impact on the supply level. To develop the situations,
government policies and some relaxation will gives positive affect the supply level.
Prices are then adjusted according to strike new equilibrium.
 Changes in demand curve- Another forces is force of demand and its determinants. In
the free market equilibrium, demand of commodity changes due to the multiple

determinants such as Covid-19 had impact negatively over the consumption level of
customers. People were inspired to stay healthy and eat healthy and such changes shift
the demand curve. Changes in supply responds and creating the situations of
disequilibrium and then prices are adjusted accordingly to strike new equilibrium point.
Shortage and surplus
Demand and supply used to interact to achieve the equilibrium and movement of either
two disproportion of the other is capable to build the situation of disequilibrium. This might to
lead to the both the shortage and surplus and to resolve this the adjustment in prices will
influence either demand or supply.
Shortage
Demand of the commodities exceeds supply in the market and this situations is known as
shortage and this could be understand when there is situation that happen due to change in
consumer behaviour in the UK because of Covid-19, demand of foods has increased and due to
the complication in the supply of foods they unable to cope up in the demand of foods and leads
to the situations of the shortage of food items. To take the benefit it increases and earn the short-
term profit where seller has increase the prices of the products.
Surplus
When supply of commodities exceeds its demand in the market is known as situations of
surplus. In order to increase the food industry government has launched many subsidies and

schemes. This has done to help the producers to increase the supply level. This however reduces
the income level and demand of products. This also lead to situations of surplus in the market
and to control the demand, sellers has to reduce the prices. With the decline in the prices,
demand will going to increase and thus creating new point of interaction that is called as new
market equilibrium point.
TASK 2
Market failure
Market generally operates with the flow of market resource and allocation and market is
unable to ensure effective allocation of resources. This created the condition of disparity in the
market. These condition leads to market failure and its related to demand and supply. In the year
2020, market condition in the nation has between impact by the Brexit and Covid-19 and has
negatively impact the conditions. Both of these impact positive and negative impact over the
food industry in the UK. Following are the challenges are as follows-
 Change in the consumer behaviour- It has been observed the regularly changes in the
customer and due to the pandemic, people were more and more moves towards
consuming the healthy products and that leads to increasing in the demand. On the other
hand, it reduces the demand of unhealthy food products and that was the positive changes
in the consumer behaviour. In additional, people were facing the loss in the income effect
due to loosing job and that puts decline on the overall demand of products. This has
impact on those who were having the logistic and manufacturing and that further git
worse due to the reduced in the demand and that leads to major loss. This reduces the
food market demand and this needs to be done in 2020.
 Disrupted supply chain- UK business were dealing with confusion created by the
unclear policies owing to Brexit. Things got further worse due to impact of pandemic and
lock down where business were forces to cut down manufacturing. Food industry has
been the increasing but facing the disruption in the logistic and supply chain with the
increased in cost of raw material. Also in the lock-down there is shortage of labour which
leads to worse situations.
 Failure of business- Food industry includes both manufacture and supply of foods
products. Manufacturing and supply chain exposed the weaknesses in infrastructure of

the industry and further suppliers of food products like small food outlets, cafes and
hotels has suffered a lot during the pandemic. As there fixed cost were still, variable cost
is increase in raw material and income was continuously reducing. This will led to failure
of business in 2020 which become difficult to stable their condition. Failure in units will
increasing the failure of whole market system and that puts extra pressure over the
economy of the whole country. This has reduces the income of many business and people
and it majorly impact on the start-ups who were ready to start their new business and it
become impossible for them to restart their ideas. Many has commits suicide after facing
such huge losses and that will lead to many factors.
Policies adopted by the government to address market failure
From above situations the demand and supply side factors that contribute to the failure of
market in the UK. Food industry comes under the necessary products and become important to
all kinds of people in the UK society. Therefore, it is integral part of the government to adopt
such measure that are bailing out the food industry and not just temporary relief as infrastructural
development measure to develop the resilience in the food industry. To control the situation of
the country the policies measures are adapted by the UK government to enhance the food
industry-
 Market control- As, people become panic and has some fear regarding the disease and
stop attending the supermarket due to fear. Due this there is huge loss in supermarket and
to ensure the regular business it is important to strengthen the supply chain and to
regulate the regular business. To make it more effective there is need to control the
demand and make it provision to allow one customer and that strengthen small retailers
and suppliers so that there id demand can be even out and people need to panic and make
necessary provisions.
 Industry quotas- Brexit deal was on-going in 2020 and that reason of the policy has
impact the performance of the industry and nations as well. Situations become worsen by
the Covid-19 related impact and weaknesses of the food industry infrastructure. In order
to enhance the growth of food industry, government has introduced better services for
coordinated delivery in the food sector and making relaxed norms to facilitates the better
growth. It was allowed emergency services and manpower ro work in supply chain of the
sector. Food labelling norms were relaxed but hygiene was strictly to follow and use of

all rules and regulation. Apart from that tariff has been done and implemented by the
government to avoid negative impact on the food retailers.
 Taxation- Taxation is one of the important measure of fiscal policy of the government to
reduce the control and market situations. In these conditions, economy need money to
enhance the demand in the market. Government adopted money market measure
additional took fiscal measure to support the market. Government has announced rate cut
on VAT on food and hospitality business from 20% to 5%. This lead to flow of money in
the hands of business in the form of credit, benefits and that passed on to customers to
reduce the rate. Tax has play essential role in improving the conditions of customer and
to develop the efficiency to increasing the demand of products and helps in improving the
consumption of food products. As, decreasing in price will stimulate demand and help
food business to grow additionally.
 Other social welfare scheme- In 2020 is such a difficult year for everyone in the country
and its impact varies from place to place. Business were falling, people has lost their job
and that reduce their income and consumption in the market. In order to support the both
the situation, government has come up with several schemes to boost the confidence
among the people who lost the hopes. For example, “ Eat out to help out” scheme. In this
scheme government has offered people to consume foods at small food outlets at discount
of 10 pound per person on non-alcoholic products.
CONCLUSION
From the above report it is concluded that Economics has important subject that deals in
the demand and supply in the market and that is influenced by many factors. In this report it is
being discussed about the factors of demand and supply in various conditions and draw the
graphs according to the situations in the market. It has been observed that 2020 was difficult year
and that has impacted by lifestyle and overall situations of market immensely and to control this
government has introduced many scheme to reduce the situations of the country. To control this
they have tackle the supply related challenges with the immediate and long term measure such as
Market control, Industry Quotas, Taxation and other social welfare scheme to cope up with the
situation and to bring the situations back into the track.

REFERENCES
Books and Journals:
Krugman & Wells 2017 EFB MOD3327 textbook
Online
Coronavirus and the impact on output in the UK economy: December 2020. 2020. [Online].
Available through:<
https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandthei
mpactonoutputintheukeconomy/december2020>
Disequilibrium. 2021. [Online]. Available
through:<https://www.investopedia.com/terms/d/disequilibrium.asp>
Eat out to help out: Coronavirus scheme offering UK diners 50% off begins, 2020. [Online].
Available through:<https://www.bbc.com/news/uk-53631611>
Effects of COVID-19 on the food supply system, 2020. [Online]. Available
through:<https://post.parliament.uk/effects-of-covid-19-on-the-food-supply-system/>
How Coronavirus is changing grocery shopping, 2020. [Online]. Available
through:<https://www.bbc.com/future/bespoke/follow-the-food/how-covid-19-is-
changing-food-shopping.html>
through:<https://www.bbc.com/news/business-54277285>
Shift in demand curve. 2021. [Online]. Available
through:<https://www.tutor2u.net/economics/reference/shifts-in-market-demand>
Shift in market supply. 2021. [Online]. Available
through:<https://www.tutor2u.net/economics/reference/shifts-in-market-supply>
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