Economics for Business: Input Costs, Competition, and Supply in the UK

This report examines the impact of input costs and perfect competition on supply decisions within the UK economy, focusing on the period between 2010 and 2019. It discusses how factors like input prices, technology, production factors, and market trends influence production decisions related to the supply of goods and services, using Unilever as a case study. The report also analyzes how perfect competition or highly competitive markets affect supply, considering both short-run and long-run perspectives, and highlights the importance of marginal cost and industry supply curves. The analysis includes specific examples from Unilever's experience in the UK market, such as the effects of pre-Brexit conditions and global trends on input costs and supply chain dynamics.

ECONOMICS FOR
BUSINESS
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Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
When and why do inputs and costs impact the production decisions related to the supply of
goods and services? Explain these economic concept using examples from within the UK
economy between 2010 and 2019...............................................................................................3
TASK 2............................................................................................................................................6
Defining & explaining how perfect competition or a highly competitive markets impact the
supply of goods and services? Explain these economic concepts applied to a specific highly
competitive UK based industry between 2010 and 2019............................................................6
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
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INTRODUCTION
The term economics refers to a branch of study that helps in understanding different
aspects of consumption, production, demand and supply and many others. The business
economics deals with the decision making related to market, organisational finance or the certain
environmental concerns which a company faces during its business conduct (Krugman & Wells,
2020). It also mentioned about the scarcity of resources, distribution or the factors of production.
The present report talks about the impact of input & cost that a company's production department
while making any decision in relation to the products & services supply. Also, further the report
includes the impact of perfect competition upon the supply. Both the concepts are being provided
support through an example of Unilever company that comes under the category of
manufacturing industry of UK for the period of 2010-2019.
TASK 1
When and why do inputs and costs impact the production decisions related to the supply of
goods and services? Explain these economic concept using examples from within the UK
economy between 2010 and 2019
The impact of inputs and cost upon the production decision in relation to supply of goods
& services could be possible due to change in any of the following factor: Input Prices: The prices of materials which are being used as an input is the most
important factor as mentioned in the Law of Supply. The factor says that the minimum
price at which the firm is able to sell its goods or services without experiencing any loss
then such rate or amount is considered as cost of production. When the prices for any of
the input factor raises more than existing then this would leads to an increase in cost of
production which will ultimately be sold at higher prices in market. This results into a
downfall in company's supply and vice versa (Young, 2021). Technology & capacity: With the change in technology with time a company generally
use to either increase or decrease their production capacity. A situation where the
company or market has an availability of goods or services with overcapacity then this
would increase the market's supply and in this case the company is ready to sell higher
quantity of goods at same prices and this will demand for greater inputs which a
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company will buy at lesser price due to bulk purchase. On the other hand when the goods
are being produced with higher capacity then it would allow business to attain economies
of scale which has a potential to reduce various costs. Factors of production: The different factors of production includes land, labour, capital
and entrepreneurship. If these factors are available with ease and in abundance then the
company would have its inputs in matching to the demand which can help them to
produce effective goods. If there is an scarcity of resources then they will be available at
higher prices which will eventually increase the selling price of goods and services. And
a higher price leads to fall in demand therefore company would not be able to supply its
products effectively.
 Market trends: In case the company is able to understand and determine the market
trends which are highly preferred by the customer's and company adopts the same. Then
this would lead to the production of such goods which can be purchased by the
customer's in market. Going with current market trend can lead company to have
effective supply of its goods and services. On the other hand, if the business has not
considered the current market trend into their production decision then they will not be
able to make their supply.
The decision related to the production of goods and services implies the decision making
by a producer of such goods & services within the market. The decisions in a company related to
the manufacturing of items is being taken after considering various factors like demand and
supply, market competition, cost of product, availability of substitute and complementary goods,
etc. The concept of production decision for a supply of product or service includes a connection
among the commodity price as well as the price of factors of production. Lower the prices of
factors greater the profit margin of company so a company would take its decisions in a way that
provides less cost to them. The production decision for a supply of goods and services also
depends upon the marginal cost and marginal revenue that is being associated with the product.
The situation when businesses use to have certain business decisions then at that time
they use to analyse & figure out several factors. The factors like how much & what kind of cost
or inputs are being required as an essential part of the product or service. Here in this case, a
business is required to decide the amount of labour that will be needed for specific quantity of
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product or service that is manufactured for supply in market. The factors acts as a basis for the
determination of higher profits. The change in inputs cost will lead to fluctuation in the
company's profits as higher the prices lower the profits and visa versa. So a company must
decide upon reducing the costs from the production so that can supply its goods or services with
higher margin (UK economic growth 2021).
The concept of supply can be better understood with context to one of the manufacturing
company that is Unilever of UK which is the highly developed and stable economy. The
economy of UK can experience in the growth of country's Gross Domestic Product due to the
crises in product's supply. Due to the clashes or indifferences related to the Brexit, there was an
increase in the prices of different outputs for Unilever which leads to the reduction in the profit
margins of company for its own manufactured products.
The explanation of these concepts with an example of Unilever company from UK
economy between year 2010 and 2019 is done below:
 The manufacturing sector Unilever form UK has experienced a rise within the input
prices during 2010 due to the effects of pre Brexit conditions there was an increase in
demand which has raised the input prices due to which the suppliers has faced difficulty
normally for 2.5 years (UK Office of National Statistics (ONS), 2021).
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 In context to the worldwide trend during year 2013-2017 the Unilever company has faced
steepest increment within the input cost such as raw material, logistics cost, higher
market demand, etc. This increase was due to the shortage of such inputs within the
economy has resulted into delay in supply of products or services.
 This delay in supply delivery time was due to the lack of containers which are being
utilized for shipping of goods because of increase in prices of travel charges.
 The company Unilever from UK economy has also experienced decrease in its sales
volume growth with a high fluctuation in economic conditions or in the prices of inputs
which has ultimately reduced the profit margin of Unilever for subsequent years.
TASK 2
Defining & explaining how perfect competition or a highly competitive markets impact the
supply of goods and services? Explain these economic concepts applied to a specific
highly competitive UK based industry between 2010 and 2019
The perfect competition market is one in which there is a presence of large number of
suppliers who are in tough competition with each other. Under this market these is a huge
availability of identical or homogeneous product which leads to decrease in company's sales.
Since there are huge number of buyers in the perfect competition market so this leads to the high
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Unilever's sales and volume growth for 2008-2017

market demand due to which companies makes high capacity production and hence leads to
increase in supply. Here the firms are considered to be a price takers so the amount of supply
will totally depend upon the prices at which the customer's are agree to buy such product. Due to
the high demand and production a company is able to achieve super normal profits through
which the sellers will be motivated to supply more with the available resources at same prices.
This will show a continuous increase in supply by the companies for those product which is
purchased mostly or very frequently by the customer's (Young, 2021).
The impact of perfect competition upon the supply of goods and services varies in both
short run and long run market. The short run period deals with a time in which the company's
machine and land is treated to be fixed and the market demand is satisfied with the usage of such
available resources. The firm Unilever sells its items in short run above the minimum average
variable cost so to have some money for future use. Whereas, the long run supply of goods and
services includes such condition in which a company changes or switches to another plant or
machinery for its manufacturings. Through this a company plans to have business expansion
which leads to the increase in sales of their products and services. Also, in long run a company
can change its existing technology which will involve less cost of production after the
installation and helps them to achieve economies of scale. A company when achieving
economies of scale is able to sale its goods and services with greater profit margin. A short run is
related to a firm specific whereas, a long run is concerned with an industry specific.
The impact of perfect competition market upon the supply of goods and services could be
understood by knowing about the significance of marginal cost and a industry supply curve. The
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Supply of goods in perfect competition market

supply of goods and services in a perfectly competitive market is different from other. The
supply provides a relationship between the output & the cost in industry. The supply of goods
and services in perfect competition depends upon the below mentioned conditions:
 Marginal rate and marginal cost must be equal (MR=MC) because this will to higher
profits and a situation of higher profits shows an increased sales in market.
 The price and marginal revenue of a product or service is same in case of perfect
competition market.
 The law related to diminishing marginal returns provides a positive cost curve.
If there is any point or condition lacking behind from above then the company's supply of
goods & services will have unfavourable impact in perfect competition market.
The application of this economic concept in Unilever for the year 2010-2019 is
mentioned below:
 During the pre Brexit condition, the UK and EU economy were planning to have
separation which has increased in opportunity of more demand due to a fear of rise in
higher prices in near future so with this Unilever has enhanced its supply of products.
This sales by Unilever was greater then that of in year 2018. whereas the sales margin of
Unilever in year 2011-12 was below but later on with the increase in demand the
company was able to increase its sale in year 2013-14.
 Since there is a presence of tough competition in the consumer product which forces
companies to set lower prices and offer them with higher quality so this leads to the
enhancement of customer's living standards. This increment is possible because of usage
of high quality product by expending less amount of money. This helps country people to
allocate their money in savings or in other items which enhances the circular flow within
the economy of UK.
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 From the above graph it can be easily evaluated that the company is experiencing a
continuous growth in its revenue as well as net income which can be possible only when
the company is having an increased sales from year 2015-2019. The result of greater
sales can be identified from the economies of scale which a company has achieved in its
production or could be a result of higher technological use.
 Being an international manufacturing company Unilever has a complete knowledge of
market as well as offers identical products at reasonable prices. On the other hand the
customer's across the globe are fully aware for the usage or other details of company's
product so allows firm to match market demand and supply.
 The tough competition within the industry of consumer goods is highly competitive
which allows Unilever to set its price as a price taker so that can have strong
sustainability in the perfect competition market. This price taking concept influences
customer's in market as because of valuable price which helps in the increase of
company's sale.
 The impact of perfect competition is highly positive or favourable for the economy of UK
where the buyers influences companies to offer some unique or innovated product to
them. This customer demand gives rise to the adoption of newer technology,
employment, and also enhances the living standards of country people.
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Unilever's revenue profit net flow

 The UK economy has experienced a lower growth rate in its GDP which was good in
year 2014 and 2015 but experienced a slow down in year 2016 and 2017 due to the effect
upon various factors of perfect competition market and on the sales of Unilever (UK
Parliament, 2021).
CONCLUSION
From the above report it can be concluded that economics in a business plays a very
important role to determine or identify the demand and supply concept. With the help of
economic concepts such as input costs, supply, etc. a business is able to analyse the production
decision and makes their strategy accordingly. The input costs has a direct impact upon the
production decision as an increase in cost price leads to the increase in final price of the product.
The prefect competition is a market where there are large number of suppliers available in
market. Under this a company faces tough competition in market and the customer's are having
an option of product selection as identical product is available in market. In prefect competition
market a company or an economy operates with short run and long run supply which differs in
prices of output as well as effects the company's supply of goods and services.
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REFERENCES
Books and Journals
Krugman and Wells. 2020. Essentials of Economics. New York: Worth Publishers.
Pages 355-451.
Young, M. 2021 Lecture 6: Supply curve, inputs, and costs. MOD3327 Economics
for Business. Anglia Ruskin University of London.
Young, M. 2021 Lecture 7: Perfect competition and market efficiency. MOD3327
Economics for Business. Anglia Ruskin University of London.
Online
UK economic growth, 2021 [Online] Available through <https://www.bbc.com/news/business-
59244988>
UK Office of National Statistics (ONS), 2021 [Online] Available through
<https://www.ons.gov.uk/>
UK Parliament, 2021 [Online] Available through <https://www.parliament.uk/>
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