Economics for Business: Supply-Demand Dynamics and Perfect Competition

This report explores the principles of economics related to supply and demand, focusing on how inputs, costs, and production decisions impact the supply of goods and services within the context of the UK economy. It explains the law of supply and the factors of production (land, labor, capital, and entrepreneurship), detailing how each influences production decisions. The report further examines the concept of perfect competition, defining its characteristics and analyzing its impact on supply, particularly within the UK's manufacturing industry, using examples such as IKEA to illustrate pricing and market dynamics. It covers both short-run and long-run production decisions, highlighting the importance of cost management and trend identification for maintaining competitiveness and economic stability.

Economics for
Business

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
Why inputs and costs impact the supply of goods and services in terms of production
decisions......................................................................................................................................3
Explain the perfect competition market and how it impact the supply of goods and services by
applying in any UK based industry.............................................................................................6
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Economics is the science which helps in making decisions in the presence of scarce
resources. These resources are used to produce an item or service for achievement of the goals.
Supply is the measure of the goods or service which are produced and sent in the market for the
consumers. The sender of the commodities have to be updated about the services needed in the
market and about the trends also (Basri 2020). In this report, The costs and inputs which are
essential for the supply of the mechanise is explained by taking the consideration of the UK
economy. The impact of the production decision on the supply of the service and goods also
defined by taking the example of the economic condition of UK. The role of the perfect
competition in the long and short run market is being defined and the factors which can effect the
supply of of good and services in the manufacturing industry is discussed.
TASK
Why inputs and costs impact the supply of goods and services in terms of production decisions.
Supply: It the amount of good or services that are available to to customers. The supply
will depend on the demand of the products in the market and are then sold in an competitive
market place. It is a basic concept of the demand and supply that if the price of goods increase,
the supply will also increase and if the price of the products decrease, supply will also decrease.
It shows a positive relationship between the supply and the price of the good and services (Elia,
Gnoni and Tornese, 2020). The cost of the goods and the price of the inputs such as raw
materials, labour etc., contributes to the increase in the price of the goods sold. The supply means
how much the of the items a businessman can supply to its purchaser and at what cost.
Law of supply states that the price and quantity of good are directly related to each other,
consisting all other factor of production constant. It shows that the behaviour of the producer
changes with the change in the price of items or services with the change in time. It could be
shown as

The above graph is sh\owing the direct relationship between quantity supplied and the price as
explained above. The graph is showing the upward sloping when the price of good was at P3,
providers were supplying the goods at Q3. As the price starting increasing, the quantity of goods
supplied also accelerated.
Inputs: Inputs are the factor of products which are divided into the four categories such as land,
labour, capital and entrepreneurship. These are helpful in creating good or services which are
measured by the Gross Domestic product of UK economy (Foerstl, Franke and Cataldo, 2021).
 Land: It is a natural resource which can be found on the earth in which the crops or the
office building comes. But when talking about the economy of the country, it has a wider
prospective. So besides the above it includes the coal, oil, sea, oceans , rivers, solar
energy etc. in terms of renewable and non- renewable resources.
 Labour: It includes the mental and physical capacity which is utilised in producing the
good and services. These are supplied on the basis of the population, age attitude and
leaving of work. It is measured on the basis of the output the person is producing during
his time of work.
 Capital: It is the amount of money or resources used to produce the good and services. It
can include, the factory cost, machinery, equipment and commercial buildings, etc..

 Entrepreneurship: It refers to the ability to bear the uncertain risk which can occur
while supplying the items or services.
Costs: The expenditure which is made by the businessman to the service provider of the goods.
It includes the labour charges, raw materials, manufacturing expenses and overheads (Garcia-
Parpet, 2020).
Production Decisions: It is the decisions which are taken by the owner of the company for the
benefit of the firm as well as the customer demand.
Impact on the production Decisions:
1. Labour charges: If the decisions regarding the inputs which are used in supplying the
goods or services are taken on time then it will increase the efficiency of the labour and
will ultimately help in gaining the Gross Domestic Product of the UK economy. Because
it represents the total production of the item in an economy. It the also improve the
standard of living by raising the wages and lowering the costs of the products or services.
For example, if the price of products in the manufacturing industry increases then it will
impact the GDP of the country. It has impacted the UK economy in 2010 when
recessions came and there was shortage of the products.
2. Capital: The supply of capital inclines with the passage of time. So every time, the
decisions which are taken regarding the supply of the goods should be appropriate. The
infrastructure needed for the development of the country is in the hands of the
government. The authorities will issue the budget and provide the resources when
needed. The mismanagement from the superiorities and delay in the decisions can have
the negative influence in the UK economy.
3. Raw materials: The material which have to be allocated has to be on time, no delay in
the resources can be handled. It will make suffer the whole economy and can decrease the
national income of the country (Handfield, Sun, and Rothenberg, 2020). For example,
UK has suffered the worst slum in the economy after a long time in 2020. It has effected
a lot to the country which has made the country suffered and the absence of raw materials
has bring down the exports of the country which has make the country go through the
losses.
4. Entrepreneurship: It is based on the two factors which are, opportunity and the
willingness to hold the executive position in the country and to run the organisation. In

UK it has led down in 2019 when the change in the government happened. There was a
sort of distortion in the country and the alliances were formed against the government. It
turned down to the decrease in the economic condition of the country. Because the
decision related to the production were taken but the people of the country were not
satisfied and the trade unions were formed, which also influenced the supply of the goods
or services.
5. Quantity of production: When the labour is inappropriate in fulfilling the quantity
which is to be supplied, it has a direct impact on the production decisions. If the quantity
of the produced units is not fully manufactured then how it could be supplied. It results in
taking the decision regarding the supply of the goods or services incorrectly (Le and
Sasso, 2020). For example, in the UK economy, the demand of the item has increased but
the production of the units is still the same, it will affect the market condition and will
result in the shortage of the product in the market and decrease in the supply. Hence, it
will have an impact in the economy of UK.
6. Identifying trends: It is a dynamic leadership process to identify the trends rather than
waiting for the changes in the market. It will increase the decision – making power and
would be able to supply the good and services at the correct time. It will also improve the
opportunities for the country and will help in enhancing the economic conditions of UK.
Explain the perfect competition market and how it impact the supply of goods and services by
applying in any UK based industry.
Perfect competition is defined as the formative structure of marketplace which shows
leading portfolio to the Pareto cost-efficient arrangement of the economical sources. It is the
serving partner as a natural standardization in against with the comparison of market structuring.
It is the description of formal assessment where competitors are their highest possibility level
(Li, 2020). In this, the valuation is based upon the homogeneous effects from the consumer
existence. Generally, it can be known as hypothetical conditioning in which seller is setting their
products & services prices on the basis of market-rate.
According to the Prof. Marshall that the extreme perfection in the external place is only
stronger when inclination of having similar amount paid for the same thing at particular period in
overall scenario.

Supply curve in the Perfect Competition:
A perfectly competitive organization's supply curve is the portioning of the marginal cost graph
that lying above the minimum of the mean changeable pricing. It has inclusion of the total and
marginal revenues & costs indication which is being used to finding maximization of incomes
(Liu and et. al., 2021). The key terminologies are the profit-maximise condition of any
organization which is Marginal and Total Revenue. It has two concepts for presenting the major
beneficial area:
 Short-run Manufacturing Decision-making:
It is the time duration where at least one factor of producing is fixed in nature while other's
having variability. In this, three major factors affect the short-way decisions such as variable
costing, revenues and shutdown procedure of the system. The short-run supplying curves in the
highly competitive marketplace is the marginal costing curve-line at or above the shutdown
point. It is showing the economic level of the manufacturing industry.
This graph presents the short-term supply curving analysis within the perfect competitors. As
seen in the above diagram, the line stays at or above the shutting dot, so it is giving profitable
situation (Yang and et. al., 2021). If the firm is having graph-line below the particular point, so it
is not relevant because they are not supposed to produced in that range.
 Long-run Production Decision-making: It refers to a period where all factors of
manufacturing & costing department are variable in nature. This category of calculating

supply is the addition of a series of existing market's short-run curve-shape. It has
connection with the points of invariant return in the market of short period. It has three
periods of productivity cycling which are:
1. Increasing return to scale.
2. Constant scaling-return.
3. Decreasing returns to scaling.
The above demonstrates the manufacturing company affected parts due to short-term profit
making firms having supernormal benefits. That's the condition of having least proficiency in the
long - run production.
Manufacturing industry of UK:
The commercial enterprise which produce the good and services in the market of UK is very
diverse. It comprises of the wider range of products of different type of sectors such as Fast
moving consumer good (FMCG), technological, furniture etc., (Liu and et. al., 2021). it has a
very much of the economic value in the country. It reflect the factors of production and value

them so it can enable to generate in income for the country. The manufacturing sector of the UK
economy is the third largest sector, after the retail and the service industry.
Impact of the perfect competition market in supply:
1. Prices: In this type of the market, the price of the products is the main constraint.
Because here no one has the ability to affect the price of the particular goods. So the
manufacturing industry has to ascertain the expenses on this basis only, thinking of its
profit as well as the revenues (Ramezanzade and et. al., 2020). For example, there is a
company in UK called IKEA which manufactures the ready – to – assemble furnitures.
So this will effect the sender of the product who will sell the it until the price of the
goods increases or the cost exceeds the price of the item. In this, the buyers will also keep
on purchasing the products as long as the satisfaction level of consumers reaches at the
top. Until the supplier has come to the point of market clearing price, which means, when
the demand for the items is equal to the number of products produced at the same price.
2. Number of sellers: There are various type of product which are sold in the market,
which means that the same item are being manufactures. It states that there are infinite
number of manufacturers and in the perfect competition market there is no barrier of
entry and exit which make in difficult to determine for the producer to idealise the
quantity which has to supplied in the market. In UK, it is a constraint which will effect
the economy of the country.
3. Competition: The number of manufacturer in the market is very huge that the rivalry
within the country has increased. The level of the competition is influenced by the
number of the buyers and the sellers. The prices of the products supplied to the retailers
by the producing business will be low in cost and high in the quality, this will effect the
supply of the goods and service in the market. The other competitor will also happen to
decrease the cost of their items with a better customer experience (Sharma, 2020). This
will influence the economic condition of the UK because, the number of purchaser and
the sellers are in the long – run market.
4. Maximize profit: The main objective of the competitive markets is to maximise their
profitability by supplying the maximum amount of the goods in the marketplace by
valuing its resources at the lowest cost and by considering the supply curves of the
manufacturing industry.

CONCLUSION
It can be concluded from the report that the supply of good and services is an important
term for utilising the resources in the best possible manner. The factors which influence the
economy of the UK is the labour, entrepreneurship, capital and land. These inputs are the essence
of any economy because without these factors, put a direct impact on the production of the items.
If these goods are not manufactured and supplied at the right time, it will effect the economy of
the UK and will also impact of the gross domestic products and the national income. It could also
lead to the invasion of taxes. So, the production decisions can effect the supply in terms of the
delay in the sending the raw materials and the costs which are used in the manufacturing of the
products. The perfect competition market which is mainly used to set a benchmark for the
existing market structure like monopoly. This existing rivalry differentiates the firm and their
products in the manufacturing industry which happens to increase in the prices to market more
profit compared to the rival firm. In this market, the businesses has the capabilities of controlling
the pricing structure in the industry.

REFERENCES
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