Economics for Business: Analyzing Supply Impact of Costs & Competition

This report examines the impact of input costs on the supply and demand of goods and services, focusing on the UK economy. It analyzes how changes in input costs, such as raw materials and labor, affect production decisions, pricing strategies, and consumer demand. The report also explores the influence of highly competitive markets, particularly perfect competition, on the supply of goods and services. It discusses how firms in perfectly competitive markets make decisions regarding production quantity and pricing, and how market dynamics impact profitability. The analysis includes consideration of cost structures, opportunity costs, and the effects of price changes on demand and supply chains. This document is available on Desklib, where students can find a wide range of past papers and solved assignments.

ECONOMICS FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
when and why input cost of production impact on demand and supply of goods and services. 3
highly competitive markets impact the supply of goods and services.........................................6
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Business for economic is the field of applied economic in which studies the financial,
organization and the market related issue faced by the corporation (krugman & wells, 2020).
This report will cover when and why input decision gets impacted due to the supply of goods and
services along with the examples. Further, it will also analyse how perfect competition impact
decision making of supply.
MAIN BODY
when and why input cost of production impact on demand and supply of goods and services
The law of supply is the important concept in the economic theory. The supply of the
product or services is totally dependent on producer or manufacturer. As it stated that as prices
of the goods and services increase as the supply will automatically increase. In this case the
supply curve will go in the upward direction whereas if prices goes downward then the supply
will also fall dawn. It is because producer doesn’t want to sell the product at low price which
reduces the profit margin. Moreover, price and supply move in the same direction. Therefore, it
can be stated that both has positive correlation between quantity supplied and price.
But on the other side, there is negative corelation is exist between price and the quantity
demand of the product. As prices decreases than the quantity demand increases (krugman &
wells, 2020). It is because consumer want to buy more and more product at low cost which occur
quantity demand. Therefore, the demand curve will go right direction when increase whereas it
goes in left direction when the demand decreased.
Cost of production input can be defined as total cost which has been applied for making
goods and services. These costs are direct material, labour and factory overhead. Moreover, all
the other expenses are concerned with the general and administrative activity. In the economy
the production activity is connected with the physical output of the production process due to the
input factor has been invested. Moreover, it has been represented as the maximum number of
outputs which can be obtained from available number of alternatives. Due to this, producer can
achieve high profit margin with less cost.
The law of supply is conjunction with law of demand in the basic market condition which
resultant in the price and the quantity demand exist the relationship with the supplier and

demander. As supply curve the are to be determined by the price that will increases or decreases
the supply and along with the price curve. Under supply of the goods and services, the supplier is
to be provided product in the market. There are many factors which affect seller willingness and
the ability in order to produce the goods and services. These factors are prices of related goods,
conditions of production, expectation and the price of goods, price of input, number of suppliers
etc. Input and output analysis is the micro economic analyse which is based on the
independencies between different economic factors. Production of a good involved taking the
base of input further apply process to get output. In order to increase the production terminology,
it is required to increase the production process. Moreover, as the cost of the production get
increase than this will create an impact on the prices and the demand. As cost of input rises then
the producer doesn’t want to continue with the same level due to low profit margin (krugman &
wells, 2020). Further, the input cost of production includes the raw material, labour and the
overhead which are directly connected with the operation.
Price changes: when the cost of the input of production get increased this will affect the decision
of the organization and government in the economy. Moreover, these supply and demand get
affected due to increase or decrease in prices of input cost which include lack of labour force for
the production, unavailability of raw material, spend the high amount on direct overheads. This
will increase the price of the product which put impact on the consumer demand, producer
manufacturing willingness and the economy as whole. In addition to this, consumer demand gets
decreased as prices increases and on the other hand producer need to increase their budget for
meeting the consumer demand. The demand of the product also gets affected due to high cost
and economy get affected due to high inflation in the market. Bank need to provide the fund to
the producer. This will increase the flow of fund in the economy (Das and Avasthe, 2018).
Therefore, producer need to make decision or prepare the flexible budget for maintaining the
production process.
In the UK economy, organizations who are involved in the manufacturing sector, need to track
the prices of input cost of production. It is because this will put direct impact on the demand of
the population of UK and others (Yu and et.al., 2020). Due to increase in prices, the profit
margin of UK’s organization gets decrease that is why it is required to take decision about the
continue with the same product line or change with others.

Impact on demand: input cost of production create an impact on demand as due to high-cost
consumer avoid buying that product which give the same level of satisfaction. This will affect
the supply Chain of the business. Those organization of UK who are providing product with high
prices (as increase in input cost) their demand gets decrease. As people avoid to buy such
product which crease an impact on the UK economy, organization, consumer behaviour.
Cash flow in the economy: due to the high cost it creates an impact on the monetary cycle of the
economy. As the cost of product and services is high this will require huge fund to meet the
requirement (Vincent and Bessarabov, 2018). Therefore, UK organization need to take loan from
bank to at whatever cost is going on to meet the demand of the consumer. That is why, it
increases the price of the product and give a chance to rethink about their ideas about continue
with the same or will change their suppliers of raw material.
Cost structure: due to change in cost of input prices put an impact on the cost structure, the
quality which producer is willing to give at the higher prices but consumer’s demand is not
satisfied at that level, this may lead to decrease the demand. That is why it is required to reduce
the product supply.
Demand of the substitute product: due to the increase in prices, consumer move to its substitute
product which will decrease the demand of the actual product. Moreover, there are different type
of that which include total, average, variable, marginal etc. The operation segment of UK needs
to determine the cheapest combination of factor of production which can produce the desired
output. This is the best understood in terms of what is called the production function.
Change the production line: due to increase the prices of the product, producers of UK economy
need to think about the change in their mind set to produce the same product in similar quantity
for the long (Hayes, 2019). Moreover, manufacturing sector of UK can change their product line
to input cost which has less price and easy access so that it helps to increase the profit.
In input cost of production there are different types of cost which need to analyse by UK
producers before taking any decision which are fixed cost, variable, total, marginal etc.
Moreover, in the economy the fixed cost is to be defined as the cost which will occur even-after
the production has taken place or not. On the other hand, the variable cost is to be defined as the
cost which increase as the production increase. Likewise, marginal cost is stated that cost of
producing on extra product (Kolmar and Hoffmann, 2018). Moreover, total cost is to the defined

as sum of the variable and fixed cost which is required to calculate how much producer is
required to pay for manufacturing the product.
Cost creates an impact on the product at three stages where the first one is manufacturing
stage. Here all the decision are to be taken on the basis of input cost of production. Further, the
next stage is selling the product where it is required to analyse the demand of the product and
services. Due to high prices demand of the product get decreased and on the other side if the
price of the product get decrease then the demand will automatically increase. As cost of the
labour get increased in UK economy then this will put an impact on the decision for making the
product line. Opportunity cost decision is also an important factor to decide because if company
is paying the less amount on the production cost, then it will continue with the same by earning
high profit.
But on the other hand, if the cost of the input gets increases then producer of UK will look
forward to change their product line in order to garb the market opportunity which will give
more benefit in place of it. Opportunity cost indicate that what factor organization can earn to in
the pace of this cost (Frew, B.A. and et.al., 2017). Further there is two types of cost explicit and
implicit whereas the explicit cost is the cost in which organization need to pay cash for taking the
services such as wages, interest, energy, insurance premium etc. on the other hand implicit cost
is arises when the factor of production is processes and supplied by the organization but their no
requirement of paying cost.
highly competitive markets impact the supply of goods and services
Perfect competition is to be defined as the part of market structure in which many firm offer a
homogenous product. This market provides perfect information and freedom to entry and exist.
Moreover, the firm generate normal profits and prices are to be kept on the basis of competition
in the market. Perfect competition is ideal benchmark through which practical life market
structure is to be compared (Zhang, 2021). Moreover, under the perfect competition prices are to
be decide through demand and supply of the product. In addition to this, it is a homogenous
market where large number of seller or buyer meet their demand and supply. In the prefect
competitive market, there is cheap and easily transportation facility are available to sustain in
competition.

Figure 1 United Kingdom: Distribution of the workforce across economic sectors from 2009 to
2019
Figure 2United Kingdom: Distribution of the workforce across economic sectors from 2009 to
2019
Perfectly competitive firm need to focus only one decision which is what quantity need to
produce to meet the demand of the customer (Podobas, 2018). Moreover, the perfectly
competitive firm need to adopt the price for its finished goods as determined through demand
and supply of product. In addition to this, it is determined through profit equation and the
perfectly competitive industry can sell number of units at the exactly same price. That is why,
other firm of UK who are operating their business in same industry need to adopt the same price.
Moreover, in the highly perfectively market, the quantity of product and services prevail prices
of input and output of total revenue, cost and ultimately the level of profit (Podobas, 2018). As
market price is to be determine by the interaction of supply and demand curves. Moreover, it gets
changes if something major has taken place.
In the perfect competition market of UK, the long-term equilibrium increases the demand of
generating economic profit for the short run but increase the chance of taking entry in long run.

In addition to this, decrease in demand may create economic losses in short run and also forces
the firm to exist their business. Knowledge is available in the market to all the participants which
is stated that the risk taking is minimum and the role of business is limited. As industry apply the
economic concept of supply in the perfect competitive to analyse the UK organization supply
(Manna, 2017). Further, UK, FMCG industry has high competition during the period of 2009 to
2019. Moreover, the price is to be set by the industry as per the equilibrium of demand and
supply. It is because the perfect competition is existed in the market and also consumer has high
information about the product this will lead to consumer reduces the profit margin of the firm in
order to sustain in the same industry.
Moreover, there is no much difference in the product and their quality so that demand and the
supply of the product remain constant. Organizations of UK need to decide whether continue in
the same industry or change the product line to generate high profit. In addition to this, IT sector
of UK has grown more during this period it is because suddenly the demand of the IT product
and services has increased (Azevedo and Gottlieb, 2017). This will lead to give easily entry to
the large number of firms in the technology field. It has also increased the demand and supply of
the product and services. The prices are to be kept on the basis of the equilibrium of Demond and
supply. Moreover, the demand under perfect competition market is sleepy decline or slop
downward as prices get increased. On the other hand, supply chain of the product get increases
the desire to supply the product at the particular price. Moreover, industrialist of UK has earned
huge profit by supplying the product at higher amount. Where the demand and supply curve
interact with each other is shows the equilibrium.
In UK, economy had driven the huge super normal profit from the perfect competition
activity from the short run activity and also give a chance to enter into this market by the new
firm. Moreover in 2019, UK economy is expected to hinder rather than increasing trade position
by increasing imported cost of goods. Further the economy is likely to grow around 1.3 percent
in 2019 (Kirubakaran and Selvan, 2018). The perfect competition in the market influences the
supply of the product. It is because producer doesn’t want sell the product at low profit. In UK,
due to high competition, consumer avoid to pay extra amount to purchase the same goods from
the other firm. It has increased the risk for the business as it is not able to charge the high
amount.

Perfect competition is an important model which is required to compare with others. Moreover,
the industry is price maker and the firm is price taker. The industry is composed of all the
industry where marker price and demand is equal the effect of entering to this industry affect the
supply curve in which it will get shifted to the right or to the down word. As it has increased the
economic power of the country like UK.as it has maximum allocation and productive efficiency.
Figure 3 UK econmy
CONCLUSION
This report has analysed how the decision get impacted due to high cost on demand and
supply of the product. Moreover, it is required to analyse the cost in order to decide the
production expansion of an organization. All the decision related to the purchase and sale of the
product is to be taken on the basis of price of the goods and services. UK industry avoid supply
all those products which create a negative impact on the profitability or change some services
through it can survive for the long. Moreover, this report has also analysed the perfect
competitive market influence the supply of an organization.

REFERENCES
Books and journals
Azevedo, E.M. and Gottlieb, D., 2017. Perfect competition in markets with adverse
selection. Econometrica. 85(1). pp.67-105.
Das, S.K. and Avasthe, R.K., 2018. Development of innovative low cost biochar production
technology. Journal of Krishi Vigyan. 7(1). pp.223-225.
Frew, B.A. and et.al., 2017. Marginal Cost Pricing in a World Without Perfect Competition:
Implications for Electricity Markets with High Shares of Low Marginal Cost
Resources (No. NREL/TP-6A20-69076). National Renewable Energy Lab.(NREL),
Golden, CO (United States).
Hayes, A.S., 2019. Bitcoin price and its marginal cost of production: support for a fundamental
value. Applied Economics Letters, 26(7), pp.554-560.
Kirubakaran, M. and Selvan, V.A.M., 2018. A comprehensive review of low cost biodiesel
production from waste chicken fat. Renewable and sustainable energy reviews, 82,
pp.390-401.
Kolmar, M. and Hoffmann, M., 2018. A Second Look at Firm Behavior Under Perfect
Competition. In Workbook for Principles of Microeconomics (pp. 105-132). Springer,
Cham.
Komleh, R.A., A comparison between conditions of perfect competition market and pure
monopoly in supply, demand and equilibrium.
Manna, E., 2017. Exercises on Perfect Competition, Monopoly, Market Structure and Market
Power.
Podobas, W.J., 2018. The characteristics of the cryptocurrencies mining market compared to the
perfect competition. Available at SSRN 3137162.
Podobas, W.J., 2018. The characteristics of the cryptocurrencies mining market compared to the
perfect competition. Available at SSRN 3137162.
Vincent, I. and Bessarabov, D., 2018. Low cost hydrogen production by anion exchange
membrane electrolysis: A review. Renewable and Sustainable Energy Reviews, 81,
pp.1690-1704.
1

Yu, F. and et.al., 2020. A cost-effective production of hydrogen peroxide via improved mass
transfer of oxygen for electro-Fenton process using the vertical flow reactor. Separation
and Purification Technology, 241, p.116695.
Zhang, W.B., 2021. Cournot-Nash Equilibrium and Perfect Competition in the Solow-Uzawa
Growth Model. Revista CEA. 7(15).
Online references
Perfect competition, 2021. [Online]. Available through <
https://www.economicsonline.co.uk/Business_economics/Perfect_competition.html>
2