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

This report delves into the realms of finance and economic literacy, commencing with an analysis of Amazon.com Inc.'s business operations and its structure-conduct-performance paradigm within the e-commerce industry. The report then transitions to an examination of the potato price index, exploring the factors contributing to price fluctuations and the impact of supply and demand dynamics. Furthermore, it investigates the economic policies employed by the United Kingdom government, differentiating between demand-side and supply-side approaches, and evaluating their effectiveness. The report also touches upon financial planning and control, highlighting their importance in management, and the role of financial intermediaries and instruments. The analysis spans capital budgeting, risk assessment, and the interplay of various economic factors to provide a comprehensive understanding of financial 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 1..........................................................................................................................................2
Company overview......................................................................................................................2
Answer 2..........................................................................................................................................4
Price Index of Potato...................................................................................................................4
Answer 3..........................................................................................................................................7
Economic Policies in United Kingdom.......................................................................................7
Demand side policies...............................................................................................................7
Supply side policies...............................................................................................................11
Answer 4:.......................................................................................................................................11
Answer 5:.......................................................................................................................................12
Answer 6:.......................................................................................................................................12
Answer to 6A:................................................................................................................................12
Answer to 6B:................................................................................................................................14
Answer to question 6C:.................................................................................................................15
References......................................................................................................................................16

2FINANCE AND ECONOMIC LITERACY
Answer 1
In the e-commerce industry, Amazon.com Inc is one important name. The location of
Amazon headquarter is in Washington. Amazon is an important player in cloud industry as well.
The foundation year of the industry is in 1994. Starting business in 1994, the company become a
global leader in the online retail market with capturing a lion share in the market. The average
revenue of the company is $135.98 as accounted in 2016 and provide employment to nearly
341400 people all over the world (www.reuters.com 2017). The company shows continuous
progress in increasing its operation in different areas and contributes to maintain an upward
growing trend in the revenue for the enterprise. The report evaluatesperformance of the company
incorporating both business and economic theories.
Company overview
The success of any business is subjected to the operational framework and business
model of the concerned organization. The report makes extensive studies on business framework
of the company. One widely discussed theory of business paradigm is structure conduct
performance.As per the theory, commercial performance depends on the business conduct as a
whole. The supply and demand side players are also crucial for business performance. These
factors in turn depend on the specialized area of business operation (Ralston et al. 2015).
Amazon is operating in a global platform of e-commerce market. The concerned organization
has made considerable progress with its innovative technology. In modern world, with rapid
spread of internet people become increasingly familiar with online shopping. Globalization is
another factor that contribute to an integrated world business. There are few large players
dominating the e-commerce business and each enjoys a significant market share.

3FINANCE AND ECONOMIC LITERACY
The online retailer Amazon is one of the largest retailers that make business expansion
with increasing shipment of available goods, The business structure has some key feature that are
important for constituting impressive performance. One important aspect here is the global
function based group of Amazon. There is a dedicate team that looks after labor division and
specialization. The company maintains a hierarchical structure globally and the operation of the
firms is geographically divided. This specialization helps in better management of business
operation.
The successful operation of the business largely depends on the goodwill factor that is a
by-product of trust gained from its customers. Customers’ trust helps to the company to be
placed in one of the top position (Ritala, Golnam and Wegmann 2014). Amazon provides
customer friendly services and deliver their services on time.
The company makes excellent performance in offering a wide range of product and
delivering these products.The enterprise enjoys loyal customer base reflecting future growth
prospect. The trends of revenue and sales indicate the performance of the company.

4FINANCE AND ECONOMIC LITERACY
Figure 1: Annual Revenues of Amazon
(Source: www.businessinsider.in 2017)
Since its emergence, Amazon enjoys an increasing trend in its revenue and sales. This
shows the impressive growth of the enterprise. Despite presence of existing competitors and new
entrants, Amazon still retains its market share and make steady revenue generation. The position
of the company is largely attributed from business strategy and operation. The online shoppers
and customers are also driving factor for company’s success.
Answer 2
For a single commodity or a group of commodities, price index shows weighted average
of the relative prices in a specific geographical location. The relative weightage are determined
from importance of the good in the daily life and the index is computed at specified time interval.
The relative price shows the ratio of current price relative to the price in the base year and the
current year prices are expressed as a percentage of chosen base year price. Therefore, the price
index actually shows the change in the selected basket overtime and present the cost of maintain
same living standard in two different periods (Aizcorbe 2014). The nominal price level fails to
capture the changes in the relative price level, which the price index can.
Price Index of Potato
As like price index for a commodity potato price index measures the overall change in
the potato values. The change in the potato values can be attributed for a price or quantity change
or sometime changes in both. From the article a 27% rise in the potato price index is recorded in
March 2017 as compared to that in the previous year. There are two possible factors for the price
hike of potato. Firstly, an increase in demand for potato is observed which inflates the potato

5FINANCE AND ECONOMIC LITERACY
prices. In line with the demand the supply of potato has not increased. There is lack of
confidence among the growers. This makes the price index as 3.2 percent in 2017. This implies a
9.6 percent increase with respect to the previous year.
The empirical evidences given in the mentioned article shows the supply of potatoes
could not match with the magnitude of increase in the price index. The increase in price index
outweighs that of the increase in supply.
The increase in demand leads to an increase in prices of potatoes. The constrained supply
even when demand expands largely then there is an overall increase in the price index. In the
phase of increasing inflation, the price of any commodity is expected to rise continuously. This
attributes to the recently observed rising price trend of potatoes.
Potato is considered as one of the necessary commodities in the daily life. It is a common
item in the diet. It is one of primary items consumed regularly by the common people. With
inelastic demand people cannot change their demand much even when price changes largely
(Bahel et al. 2013). This is what happens to potato. The combination of a low supply and high
demand raises the demand even higher. The situation is described in the following figure

6FINANCE AND ECONOMIC LITERACY
Figure 2: Market scenario with inelastic demand
(Source: as created by the author)
The figure is drawn with an inelastic demand curve. The reduced supply of potato shifts
the supply curve to the left from SS to S1S1. This increases the prices. However, because of the
inelastic nature of demand, demand cannot be reduced to that extent and hence price remains
high as it is. This gives explanation for a 27% increase in potato price index in 2017. There is
clear indication of inflation in potato prices and hence an increase in the cost for purchasing
potatoes. The situation further aggravated by a supply constrain.

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Answer 3
The economy of United Kingdom has undergone through different phases of business
cycle and fluctuations in the economy. The government of United Kingdom always intends to
bring economic stability and fosters growth in the economy. Different policies are undertaken by
the government to achieve the goals of stability and prosperity.
Economic Policies in United Kingdom
Government uses either demand or supply side policies or often a combination of both to
achieve economic policy goals (Gopinath, Helpman and Rogoff 2014).
Demand side policies
The objective of demand side policy is to speed up economic growth through increasing
aggregate demand of the nation. The increase in aggregate demand enhances both productivity
and economic growth.
Fiscal Policy
Fiscal policy is implemented using the tools of government expenditure and taxation. In
UK, in order to boost consumption and investment spending government employs expansionary
types of fiscal policy. This is done by a combination of a decrease in direct and indirect taxes and
increase government expenditure in different areas (Fan and Arghyrou 2013). This is expected to
raise spendable income and crates employment opportunity through productivity enhancement.

8FINANCE AND ECONOMIC LITERACY
Figure 3: Government spending in UK
(Source: tradingeconomics.com 2017)
As shown from the above figure government spending in UK has increased overtime. In
the second quarter of 2017 total government spending was 912890 million GBP. In the next
quarter it raises to become 92127 million GBP. The government spending from 1955 to 2017 is
averaged as 57953.
Figure 4: Sector wise spending of government in UK

9FINANCE AND ECONOMIC LITERACY
(Source: news.bbc.co.uk 2017)
The figure above shows different components of expenditure of UK government. A
major share of spending goes to pension and welfare benefits followed by spending on health,
education, personal social services, defense, transport and others.
The implementation of expansionary fiscal policy raise net borrowing expressed as a
percentage of GDP.
Monetary policy
UK government undertakes stimulatory monetary policy through lowering interest rate.
There are two channels with which interest rate raises aggregate demand. The lower interest rate
increases investment by making borrowing cheaper by the investors. On the other hand, a low
interest rate means a lower return from saving and hence, household tend to spend a greater share
of their income than to save it. However, the policy is not so successful in UK because of the
resulted liquidity trap in the economy (Nguyen 2017).

10FINANCE AND ECONOMIC LITERACY
Figure 6: Economic growth and interest rate in UK
(Source: www.bbc.com 2017)
As seen from the figure despite a recorded low interest rate, the growth rate in UK still
remains negative showing inability of the interest rate to increase economic growth.

11FINANCE AND ECONOMIC LITERACY
Devaluation
As the direct tool of monetary policy fails to achieve expected rate of economic growth
UK government uses the strategy of devaluation (Needham 2014). A devalues currency raises
aggregate demand by increasing export of the nation.
Supply side policies
In addition to the demand side policies government often sorts to adapt supply side
policies. Supply side policies in UK include an increase in unemployment benefits, reduction in
trade union’s bargaining power, bringing greater flexibility in the labor market and reduction in
the marginal tax rate that is low tax on high income earners (Georghiou et al. 2014).
Answer 4:
Forming as the tool of management, financial planning and control provides better
efficiency to the companies since all the departments included in it. Every organization
effectiveness and efficiency is largely reliant on the several factors that helps in clarifying the
purpose of the management planning, control and making investment in the assets (Pratt 2016).
The prime accountability of the financial managers is to implement allocation, acquisition and
administration of the resources. Financial planning and control is regarded as the vital source of
increasing the efficiency of company for both the long run and short run purpose.
Capital budgeting is another tool that managers uses as the decision making tool that is
needed for making investment in opportunities with the sources that are mobilized by the
company. Managers apply the tool of capital budgeting so that it can analyze the difficulties
surrounding the company so that the managers can consider the necessary needs of making an

12FINANCE AND ECONOMIC LITERACY
investment. The managers are assigned the responsibilities increasing the cost of capital, risk
minimization and maximization of returns.
Answer 5:
Financial intermediary is referred as the financial institutions such as bank or insurance
company that offers individual to save and lend money. A person with risky investment would
look to insure to avoid the risk of default. Rather than looking to insure the holder can approach
the company to offer insurance with the help of allocating the risk of default. Financial
instrument is referred as monetary contracts among the parties since they can be effortlessly
created traded, modified and settled (Needles, Powers and Crosson 2013). They are usually cash,
currency evidence or shares of contractual rights. Companies implement the theory of risk with
indecision of referring to the variability of returns associated with the asset. For example,
investing in common stock a sum of $1000 may earn a return of $0 to $200 which also holds
risk. An organization looking to diversify their risk must understand the unevenness of the return
by appropriately measuring the risk.
Answer 6:
Answer to 6A:
Tesco reported a current ratio of 0.73 and 0.60 for 2015 and 2015 respectively whereas;
Morrison reported a current ratio of 0.50 for the same period. The EPS of Tesco and Morrison
for the year ended 2015 stood -2.12 and -1.63 respectively. The Fixed asset turnover stood for
Tesco stood 2.60 and 3.05 respectively for 2014 and 2015. Morrison reported Fixed asset
turnover of 2.05 and 2.32 for the same period. The net profit margin for both Tesco and Morrison
stood -9.32 and -4.32 for the year ended 2014 and 2015.

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Ratio:
Tesco Plc
2014 2015
Liquidity Ratios Current Ratios
Current Assets 15,572 11,958
Current Liabilities 21,399 19,810
0.73 0.60
Market Value Ratios Earnings Per Share 2014 2015
0.36 -2.12
Asset Management Ratio Fixed Asset Turnover 2014 2015
Net Sales 63,557 62,284
Fixed Assets 36585 36791
Less: Accumulated Depreciation 12095 16351
Total Fixed Assets 24490 20440
2.60 3.05
Debt Management Ratio Debt Ratio 2014 2015
Total Liabilities 35,449 37,143
Total Assets 50,164 44,214
0.71 0.84
2014 2015
Profitability Ratio Net Profit Margin
Net Profit 974 -5,741
Total Revenue 63,557 62,284
1.53 -9.22
Morrison Supermarkets PLC
2014 2015
Liquidity Ratios Current Ratios
Current Assets 1,430 1,144
Current Liabilities 2,873 2,273

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0.50 0.50
Market Value Ratios Earnings Per Share 2014 2015
-0.51 -1.63
Asset Management Ratio Fixed Asset Turnover 2014 2015
Net Sales 17,680 16,816
Fixed Assets 12350 10675
Less: Accumulated Depreciation 3725 3423
Total Fixed Assets 8625 7252
2.05 2.32
Debt Management Ratio Debt Ratio 2014 2015
Total Liabilities 6,037 5,577
Total Assets 10,729 9,171
0.56 0.61
2014 2015
Profitability Ratio Net Profit Margin
Net Profit -238 -761
Total Revenue 17,680 16,816
-1.35 -4.53
Answer to 6B:
Initial Investment
Amount -50,000
Required
rate of
Return
10.25
Total Number of Years 5 NPV
Project A NPV Years Project B
Number of Years
Annual Cash
Flow 0
Year 0 -50,000
-£
50,000.00
Year 1
£
25,000.00
-£
25,000.00 1 £ -
Year 2
£
15,625.00
-£
9,375.00 2 £ -
Year 3
£
5,000.00
-£
4,375.00 3 £ -

15FINANCE AND ECONOMIC LITERACY
Year 4
£
12,000.00
£
7,625.00 4 £ -
Year 5
£
32,000.00
£
39,625.00 5
£
99,500.00
Npv
£
17,028.84
£
11,084.37
Answer to question 6C:
Interest Rate 5.5%
Year
Opening
Balance Deposit Interest
Closing
Balance
1 0
£
400.00
£
22.00
£
422.00
2
£
422.00
£
300.00
£
39.71
£
761.71
3
£
761.71
£
250.00
£
55.64
-£
1,336.91

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References
Aizcorbe, A.M., 2014. A practical guide to price index and hedonic techniques. Practical
Econometrics.
Bahel, E., Marrouch, W. and Gaudet, G., 2013. The economics of oil, biofuel and food
commodities. Resource and Energy Economics, 35(4), pp.599-617.
BBC News. (2017). Inside the mind of the Bank of England. [online] Available at:
http://www.bbc.com/news/business-41815712 [Accessed 26 Nov. 2017].
Business Insider. (2017). LIVE: Amazon's Q4 Earnings!. [online] Available at:
https://www.businessinsider.in/LIVE-Amazons-Q4-Earnings/articleshow/46060581.cms
[Accessed 26 Nov. 2017].
Editorial, R. (2017). ${Instrument_CompanyName} ${Instrument_Ric} Company Profile |
Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks/company-
profile/AMZN.O [Accessed 26 Nov. 2017].
Fan, J. and Arghyrou, M.G., 2013. UK fiscal policy sustainability, 1955–2006. The Manchester
School, 81(6), pp.961-991.
Georghiou, L., Edler, J., Uyarra, E. and Yeow, J., 2014. Policy instruments for public
procurement of innovation: Choice, design and assessment. Technological Forecasting and
Social Change, 86, pp.1-12.
Gopinath, G., Helpman, E. and Rogoff, K. eds., 2014. Handbook of international
economics (Vol. 4). Elsevier.

17FINANCE AND ECONOMIC LITERACY
Needham, D., 2014. UK Monetary Policy from Devaluation to Thatcher, 1967-82. Springer.
Needles, B., Powers, M. and Crosson, S., 2013. Financial and managerial accounting. Nelson
Education.
News.bbc.co.uk. (2017). BBC NEWS | Business | What does the spending review have in store?.
[online] Available at: http://news.bbc.co.uk/2/hi/business/7027606.stm [Accessed 26 Nov.
2017].
Nguyen, A.D.M., 2017. UK Monetary Policy under Inflation Targeting (No. 41). Bank of
Lithuania.
Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.
Ralston, P.M., Blackhurst, J., Cantor, D.E. and Crum, M.R., 2015. A structure–conduct–
performance perspective of how strategic supply chain integration affects firm
performance. Journal of Supply Chain Management, 51(2), pp.47-64.
Ritala, P., Golnam, A. and Wegmann, A., 2014. Coopetition-based business models: The case of
Amazon. com. Industrial Marketing Management, 43(2), pp.236-249.
Tradingeconomics.com. (2017). United Kingdom Government Spending | 1955-2017 | Data |
Chart | Calendar. [online] Available at:
https://tradingeconomics.com/united-kingdom/government-spending [Accessed 26 Nov. 2017].