Finance and Economic Literacy: Amazon, Potato, and UK Economy Analysis

This economics assignment analyzes various aspects of finance and economic literacy. It begins with an in-depth examination of Amazon.com, Inc., exploring its business model, market position, and financial performance using industrial, economic, and business theories. The analysis includes a discussion of Amazon's organizational structure, consumer behavior, and revenue trends. The assignment then delves into the concept of price indexes, specifically focusing on the price index of potatoes, explaining factors influencing price fluctuations and demand elasticity. Finally, it examines the economic policies of the United Kingdom, differentiating between demand-side and supply-side policies, including monetary and fiscal policies, devaluation, and their impact on the UK's economic development. The assignment provides figures and graphical representations to support the analysis and draws conclusions based on the presented data and economic principles.

Running head: FINANCE AND ECONOMIC LITERACY
Finance and Economic Literacy
Name of the Student
Name of the University
Authors Note
Course ID

1FINANCE AND ECONOMIC LITERACY
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
Answer to question 3:.................................................................................................................8
Answer to question 4:...............................................................................................................11
Answer to question 5:...............................................................................................................12
Answer to question 6:...............................................................................................................13
Answer to 6A:..........................................................................................................................13
Answer to 6B:..........................................................................................................................15
Answer to question 6C:............................................................................................................15
Conclusion:..............................................................................................................................16
Reference List:.........................................................................................................................17

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Answer to question 1:
Introduction:
The Amazon.com, Inc., having headquarter in Seattle Washington is considered as
one of the pioneers and major company in the international e-commerce industry with cloud
computing industry. The company was founded in the year 1994 is regarded as the biggest
online retailer in the international market and has the highest market capitalization
(Amazon.com 2017). Having an employee strength of more than 341,400 across the world
and Amazon enjoys a mean revenue of approximately $135.98 billion and demonstrates a
continuous increase in the areas of operations. Amazon has been consistently reporting a
rising trend in the generation of sales, excluding numerous variations due to the exogenous
and endogenous purpose. The study offers an insight into the performance of the firm by
making use of the applicable industrial, economic and business theories.
Economic outline of Amazon:
The framework of operations and model of business is an instance of enormous
success for Amazon in the current world of business and are widely considered as a medium
of inspiration. As stated under the paradigm of structure-conduct-performance, the most
widely used business concept derives that the performance of the business for any firm
largely relies on the overall conduct and pattern of behaviour of the demand and supply side
players (Taussig 2013). This is ultimately determined with reference to the arrangement of
the industry under the domain where an enterprise functions. Amazon executes is business
functions in the international e-commerce market which is relatively new and has risen
significantly in the recent years with improved technological innovations and rise in the use
of internet among the people across the world. Expansion of e-commerce can be widely
attributed to the rise of globalization, which has made business practices across the countries

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more comprehensive. The market of e-commerce contained few big firms until recently these
firms started experiencing growth in the market share which ultimate lead to the creation of
oligopoly market structure.
Amazon is considered to be the forerunners in the e-commerce industry and is largest
among all the e-commerce firms operating in this industry. Amazon has been constantly
experiencing growth in respect of the geographical boundaries of functions, services and
goods offered and expansion of consumer base.
The organizational structure of Amazon contains numerous key features that have
backed considerably in the remarkable performance trends of the organization. One of the
significant aspects of Amazon is the globally functioned base of groups of the organization.
Amazon has dedicated set of team for its business functions that has assisted in appropriate
division of labour and increase in product specialization (Frank, Bernanke and Lui 2015).
Another business character of Amazon comprises of the international hierarchical structure
and geographic division of the operations of the firm that have assisted in efficient
management of the operational range across several countries.
The business conducts or the consumer behaviour trend is ascertained by the structure
of the company. Amazon has made investment in the creation of goodwill factor in the
market forming a significant component of the e-commerce industry. As amazon offers in
time and reliable service, the organization has been successful in attaining heights.

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Figure 1: Figure representing Six Dimension of Amazon
(Source: Bernanke, Antonovics and Frank 2015)
As evident from the above stated figure, it can be stated that Amazon has attained
success in the products and services offered by the company. The company has been
successful in attaining large base of customers because of the customized and reliable product
service. This ultimately assist in creation of company’s reputation and probable future
expansion of Amazon in new areas.
The behaviour trend of Amazon customers and the growth of the organization has
been stated in the below stated graphical representation;

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Figure 2: Figure representing Revenue of Amazon over the years
(Source: Amazon.com 2017)
The above stated graphical representation can be depicted by stating that Amazon has
been constantly reporting rise in its revenue despite the emergence of several new firms in the
supply side of the e-commerce industry (Frank 2014). A large part of the rise in revenue can
be attributed to the business strategies adopted by Amazon and the consumer devotion adored
by the company over the years.
Answer to question 2:
The price index of the basket of the commodity is the weighted mean of the relative
price of the basket of commodities. The price index of the basket of commodity is computed
by drawing a comparative study of prices of commodities in the present year with the base

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year and it is multiplied by 100 (Laibson and List 2015). The price index commonly
demonstrates the change in the price level of the basket over the years that can be either
because of the change in the demand effecting the price or because of the change in the
overall level of price that could not be clearly recognised by the nominal price index.
Price index of potato:
As evident from the above stated discussion, the price index for potato represents the
overall change in the value of potato because of the change in the prices or because of the
quantity demanded. As evident from the price index of potato during March 2017 was
relatively higher from March 2017. The rise in price can be due to two likely situations.
Primarily, the rise in price can be because of the increase in the demand that increases the
potato price or because of the rise in the inflation of the particular economy (Stiglitz et al.
2013). Though, it is observed that the supply has been restricted because of the rising
confidence and the index has been found to be rising by 3.2 in the year 2017 which was 9.6%
in the earlier year.
As understood from the above stated discussion, it is found that there has been a
significant rise in the price index of the potato while the supply of the commodity has not
risen to that extent in respect to which the price index has increased. Such increase is
primarily due to the numerous economic reasons and concepts that is stated below;
As supply is not increasing considerably, rise in the price index is because of the rise
in the overall price level in the economy (Case, Fair and Oster 2014). On the event of the
economy experiencing higher inflation, then the price level of the product is anticipated to
rise. This is because of the one likely reason of the rise in price level of potato is witnessed in
the recent years.

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For a product like potato, it experience a less elastic demand since it is the necessary
item of consumption among the majority of the population. Potato is regarded as the primary
item of consumption (Pradhan, Nishigaki and Hall 2017). Even though the supply of the
product continuous to be low, the demand of the potato would not fall in that ratio and this
can be credited to the relatively lower elasticity of demand of the commodity.
Figure 3: Figure representing Elasticity of Demand
(Source: Azevedo and Leshno 2016)
As evident from the above stated figure, it can be stated that because of the existence
of inelastic demand, the fall in supply would ultimately not result in decline in demand
considerably and it would be impacted by the rise in the price level of the product as
understood in the case of potato. As a result of this it can be useful in explaining the rise of
price index of potato by 27% in the year 2017 than the value of potato in the earlier year
(Azevedo and Leshno 2016). This provides an indication towards the existence of inflation

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and a subsequently increase in the cost of purchasing potato that is clubbed by restricted
increase in supply.
Answer to question 3:
Introduction:
The United Kingdom economy is regarded as one of the most prominent economies in
the world. The economy of United Kingdom has suffered the economic fluctuations along
with the rise and fall in the present state (Panayotou 2016). A large number of the dynamics
in the economy of United Kingdom can be credited to the objective of the economic success
by the government of the country and the economic strategies together with the actions taken
to attain its goals.
Policies undertaken by UK for economic development:
For economic development of a nation an economy can adopt either demand side of
the policies or the supply side of the policies;
Demand sided policies: Taking into the consideration the demand side of the policies both
fiscal and the monetary policies that is targeted by the nation to increase the aggregate
demand entirely. This will help in increasing the output of the economy.
Monetary Policies:
The United Kingdom government in order to increase the aggregate demand in the
country has made its effort in reducing the interest rate through the help of conventional
monetary policy so that UK can decrease the cost lending (McCombie and Thirlwall 2016).
This will ultimately lead to an increase in the investment and consumer spending since rise in
consumer expenditure and investment turns out to be more rewarding for consumer than
saving it in the bank. Nevertheless, the government of UK has been unsuccessful in

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considering the probability of the liquidity setup. In such a scenario reduction in the interest
rate would not improve the spending.
Figure 4: Figure representing Base rate and Real GDP growth in UK
(Source: Law and Singh 2014)
As evident from the above stated figure, reduction of interest rate for UK in the year
2009 failed to create a positive impact on the growth rate of GDP. This is due to the fact that
the borrowing and investment does not arise considerably and this was primarily because of
the unwillingness of the bank to offer loans.
Fiscal Policy:
Failure on the part of the UK government in the monetary policy to increase the
borrowing, investment and consumption of consumer in the economy, the UK government
has come up with the idea of imposing the expansionary fiscal policy (Eichhorn and Voeller
2012). In order to implement the expansionary monetary policy it would be ideal for the

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government to lower down the taxes and increase the spending of government as a measure
of raising the disposable income and increase work in the economy.
Figure 5: Figure representing borrowing of UK following the implementation of
expansionary fiscal policy
(Source: Eichhorn and Voeller 2012)
As evident from the above stated figure the imposition of the expansionary fiscal
policies by the government of UK in the country turned out to be beneficial for the country.
This is due to the fact that the net borrowing of UK in the proportion of GDP began rising at
a faster rate from the year 2007-2008 and kept on rising till the year 2010-2011.
Devaluation:
Devaluation is another form of tool that is used to increase the economic prosperity by
devaluation of the domestic currency. The was primarily done to make the economy of UK
more competent in the international market with cheaper exports that is anticipate to increase

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the total output of the nation (Otley 2016). Post exchange rate mechanism in the year 1992 it
was noticed that the export of UK has increased considerably.
Supply sided policies:
UK has also implemented the supply side policy following the implementation
demand side policies. During the year 1970, UK labour market has been experiencing high
fluctuations due to the labour unrest. By lowering the powers of trade union and creating a
more inclusive labour strategy the labour productivity can be increased and was reflecting in
the economic growth of the country.
Answer to question 4:
Under the competitive business surroundings important elements such as cost, sales
turnover, profit projections and control offers every manager for improved appreciation of the
fiscal results (Dashtbayaz et al. 2014). Considering the instrument of administration, fiscal
forecasting and regulations could assist in improving the efficiency of the organization since
all the departments are included in it. The efficiency and the competence of the business in
mainly reliant on the several factors which may be classified to elucidate the purpose of
organizational planning, control and investing in the asset. The financial managers are
accountable for the acquisition, distribution and administration of the resources. Financial
forecasting and control by the managers is regarded as the noteworthy source of raising the
efficiency of management. It is related to planning of allocation of resources, witnessing the
use of resources to achieve competency in both long and short run objective of the
organization.
Managers simultaneously impose the tools of capital budgeting decision as the
relevant decision of the managers so that they can deal with the importance of money that is
needed for investment in the opportunities together with the sources through which they can