Financial and Economic Literacy Report: Market Structure and Policies

This report provides a detailed analysis of financial and economic literacy, focusing on the application of these concepts within the context of a business, using Tesco as a case study. The report begins with an introduction to financial and economic literacy, emphasizing its importance for managers in making informed decisions regarding financial resources. It then explores key business and economic concepts in the international context, such as consumer sovereignty, barriers to entry, break-even selling price, elasticity of demand, and economies of scale, illustrating how Tesco utilizes these principles. The report further examines market structure, demand, and supply dynamics, classifying Tesco's market structure as an oligopoly and analyzing the company's demand and supply strategies. It also provides a comparison of profit and wealth maximization, arguing for the superiority of wealth maximization. Finally, the report discusses various business economic concepts of environmental, fiscal, and supply-side policies and their impact on business operations. This report aims to give a comprehensive overview of financial and economic literacy within a business context. The report is contributed by a student to be published on the website Desklib, which provides all the necessary AI-based study tools for students.

Financial and Economic
Literacy for Managers

INTRODUCTION
Financial and economy literacy is combination of all skills and knowledge which are
necessary for the managers to use efficient use of available financial resources(Barkham, R.,
Gudgin and Hart, 2012). In addition, it is an ability to make decisions about the economic and
financial concepts. This is very important for the managers to well known about the financial and
economic concepts, theories and rules for earning, sharing and investing the money. This project
contains detailed information about the economic and financial business model, impact of
external environment on the business. Herein, the Tesco company is selected that is British
company which deals in groceries products. Additionally in this project report, different ratios
and rate of return of different project is also calculated.
1. Principle of business and economic concepts in the international context.
Consumer sovereignty is the power of the customers that influence a company to produce
products according to their needs and demands(De Mooij, 2012). Eventually, consumers play a
crucial role for the companies in determining what type of product is needed to be produce.
Apart from this consumer sovereignty has a power to effect the profitability of companies. This
is why because if companies produce the products according to the customers need then it will
help in getting increased sell and good revenue. On the other hand if production is not according
to the demand then it will be difficult to sell the products. For this purpose companies are needed
to analyse various kind of factors which impact the customer's demand. The Tesco company use
the concept of consumer sovereignty for producing the products and it help them in earning good
revenue with high level of their customer satisfaction. They produce the products by analysing
different factors that help in determining customers like dislike and demand etc.
Business and economic concepts are the principles and strategies which are needed for
the effective use of economic and financial resources(Fiordelisi and Ricci, 2014). Basically,
business economic concepts are important in solving the issues regarding to the finance and
economy. These economic concepts are widely used by the companies to sustain in the
international market. The selected company Tesco is an international company that deals all
around the world. Some business and economic models are mentioned below:

 Barrier to entry and exist- In the context of international market, it is important
principle that there should be barrier to enter new firms as well as prevent to
existing firm of the market(Goedhuys and Veugelers, 2012). This why because in
the absence of this, in the international market there can be cut throat
competition. Same as if firms exists the market then it can impact to the
customers due to lack of option to buy as well as it effect to the other firms
because it will open the way for other new firms to enter in the market.
 Break even selling price- Break even selling price means determining a level of
price where business gets no loss and no profit. It is a kind of principle which is
adopted by the firms to get good market share as well removal of other firms from
the international market. The Tesco company apply this principle in those
countries wherein competition is high.
 Elasticity of demand- Elasticity of demand refers to the change in the quantity of
demand of products due to change in the price. It is a kind of principle that helps
in determining the impact of price on the demand of the products. Tesco use this
principle for analysing the change in the demand of products due to change in
price. This is an important principle at the international market where firm can
check the variation in the demand of the products.
 Economies of scale- This principle is based on the effective use of available
resources to reduce the cost(Hall, 2012). It spreads the fixed cost on production of
various products rather then focusing on a particular product. In the context of
international market it is very important to implement this concept to sustain in
the competition. Tesco company use this for reducing the cost of products, they
spread the fixed cost on the production of two or more products. It helps them in
getting lower cost products.
These mentioned principles are aligned with the organisational success if these are
implemented effectively. The theory of economic principle contains all the applications and
functions that help in the sustain in the international market.

2 Report that examines the market structure, demand and supply.
The market structure is very important to evaluate the efficiency of the organisations. As
well as it is necessary to match the demand and supply of the products by the
company(Kitzmueller and Shimshack, 2012). Herein, the Tesco company is a kind of
organisation which has large number of products as well as has large international market area.
Market structure- Market structure may be defined as the nature of competition in the
market in the terms of products and services. Basically, Tesco company has a wide market
structure all around the world. This is why because they have different kind of products like
groceries and others. Company has the market structure of Oligopoly.
Oligopoly- It is a kind of market structure in which a few firms have the control. In this
type of market structure, there is barrier of entry of new industries, this is why because existing
firms do not wants to lose their profitability as well as they do not need competition in their
market. Tesco company exists in this market structure and they gain good revenue. Due to lack
of competition, company can assign their own price of products and services. This market
structure provides opportunity to the companies to maintain their goodwill and market value so
that they can attract more and more customers. The tesco company has about 30% market of UK
in the field of retail supermarket. The basic concept behind this market structure is the entry
barrier of new firms.
Demand- Demand may be defined as the volume of goods which a customer wants to
buy in a particular time period. It is a crucial factor that impacts the profitability of the
companies( Laing, Sato, Grubb and Comberti, 2013). If demand is high then, company can gain
good revenue by appropriate supply. As well as demand helps in determining the production
level. Price is linked up with the demand, if price is high then demand can be low and price is
low then demand can be high. Herein, tesco company is most popular company whose products
are demanded mostly by the customers. It shows that company's goodwill is high. Though above
company's all products are not demanded. Some product's demand is decreased. For example,
their fruits demand is increasing continuously, their pineapples demand increased by 15% in
compare to year 2017. On the other hand some groceries products demand is decreased in some
countries. This is so, because of different country's perception.
Supply- Supply means quantity of good which a company offers or produce in the
market to satisfy the demand of customers. Eventually, supply and demand are interrelated with

each other. If demand is high then supply will also increase and demand is low then supply will
low. Tesco company supplies products as per the demand of customers. As above mentioned,
that their pineapples demand was high then it was important for them to increase the supply of
needed product.
So supply, demand both are related with each other. In addition, these are based on the
business concept and theories. It's empirical
evidences can be understand by the four P' s of marketing which are adopted by the Tesco:
 Product- Tesco company has variety of products which satisfy the need and
demand of different customers. They have products like groceries, food products
and beverage etc.
 Price- They use various pricing strategies like cost leadership. In which they
keeps the price of products high in compare to others.
 Place- As above mentioned that company has covered almost 30% area of UK
market. In addition, they have their multi-stores in different countries.
 Promotion- Promotion is related to advertising the products and services. The
tesco company use different method for the promotion like television, hoardings,
events and programs etc.
3. (a) Compare and contrast of profit maximisation and wealth maximisation.
Profit and wealth maximisation are the key objectives of the firms. This objective or goal
can be fulfil only with the coordination of the manager( Wynarczyk and 2016). In the absence of
manager's role it is difficult for the organisation to achieve the goals. Herein, the manager of
tesco limited manage the various financial activities to earn profit. Though, it is important to
understand difference between profit and wealth maximisation, that is mentioned below:
Basis Profit maximisation Wealth maximisation
Aim Main aim of the manager in the profit
maximisation to earn maximum profit.
Manager of tesco not so involve in this
because they thinks big.
On the other hand, in the wealth
maximisation, manager wants to
increase the market value of the
shares. Tesco's manager focus to

increase the market value of the
company.
Nature of
objectives
This is related to achieve the short term
objectives.
Wealth maximisation is related to the
long term objectives and a manager
has to be proactive in this matter.
Risk and
uncertainty
Profit maximisation ignores the risk and
uncertainty because it is not related to
the long time period.
It considers risk and uncertainty in
the aspect of future growth of the
organisation.
Time value of
money
It ignores the time value of money
because this does not focus on the
market value of the money.
While this considers the time value
of the money.
(b) Wealth maximisation is superior to the profit maximisation.
Wealth and profit maximisation both are different from each other. Though both are
considered as an objective of the firms but wealth maximisation is quite better in comparison to
the profit maximisation. This is why because wealth maximisation is related to the long term
goal of the organisation and it focus on the increasing the market value of the firms. On the other
hand, profit maximisation is a limited goal that can not impact to the future growth of the
company. If companies relies on the goal of profit maximisation then it would be difficult for
them to increase the market value and growth.
Apart from this, profit maximisation is not helpful for the external parties like
stakeholders, shareholders etc. and because of this there would be lack of possibility of
investment in the company from the outsiders. While wealth maximisation is very useful for the
external parties. This is why because if market value is good of the company then shareholders
and stakeholders will show their interest in the company and they will invest more in the
company which will be the source of fund for the company. Herein, the company Tesco their
manager's completely focus in on the wealth maximisation and because of this they are success
in all around the world. Due to this they attract more and more investors which alternatively help
the company. So this shows that profit maximisation is also important but in compare wealth
maximisation is more crucial for the companies. Profit maximisation can help internally to a

company but wealth maximisation impacts both way to the external and internal users of the
companies.
4. The business economics concepts of environmental
policy, fiscal policy, supply side policies.
In the context of business environment there are many kind of policies which are related
to the government. Main objective of these policies is to maintain the pricing level by various
organisations. In addition, it is very necessary for all kind of organisations to adopt these policies
which are determined by the government of different countries. Herein, some policies which are
of UK government:
Competitive Policy- Competitive policy is related to increase in the competition among the
industries(Yang, 2012). The objective of this is to provide better services to the consumers
because more competition means better services to the customers. Due to this policy, UK's
market is in full of competition. The tesco company follow this policy to give tough competition
to the other firms.
Objective of competitive policy-
 It will increase the better innovation in the technology and techniques in the
market and due to this customers will get quality services.
 This policy forces to the companies to determine the pricing of products at
sufficient level.
 Due to this policy customers will have more alternatives to buy the products.
Fiscal policy- Fiscal policy is a policy by which government of any country determines
the level of expenditure and taxes for development of the country. The major objective of this
type of policy is to development of nation by creating the situation of full employment, stability
in pricing etc. This policy contains government modifications in relation to expenses and income
for development of the economy. It impact to the companies in following way:
 Investment decision- Fiscal policy determines the level of investment for the
companies and they can not cross the level of investment that is determined by the
government. In Tesco company, their finance department invests the money as
per the fiscal policy of UK.
 Cost of doing business- This policy impacts to the cost of doing business. This is
why because if fiscal policy result in higher interest then retailer will pay more on

the credit. Same as in the Tesco company they make their decision as per the
fiscal policy of the UK government.
 Consumer demand- Due to fiscal policy, customer's demand also change. This is
why because if fiscal policy changes the taxation system then it will directly
impact to the purchasing power of the customers. Additionally, if consumer's
purchasing power is weak then they will demand low and it will effect to the
business.
Instruments of fiscal policy-
 Budgets- Budget is very important in analysing the performance of a nation
because it has certain level of performance management. Like UK government
makes annual budget each year.
 Taxation- It is very crucial instrument of the fiscal policy that impact the change
in income, investment etc.
 Public expenses- This instrument of the fiscal policy is related to the public
spendings between the fiscal policy tools.
Supply side policy- Supply side policies are those policies which are related to the
increasing the supply of an economy. This policy impacts the productive capabilities of
companies because it try to enhance more supply in the market. Additionally, it states that lower
rate of work will minimise the work rate of employees. Eventually, supply side policy is very
hard to apply for a nation because it takes too much time. Supply side policy is regulated in UK
which impacts to the Tesco. Herein, the basis of this policy are named below:
 Monetary policy
 Tax policy
 Regulatory policy.
5. Calculation
(a)
 Current ratio- Current assets/ current liabilities
For year 2017: 3277/2833 = 1.15
For year 2018: 2460/2097= 1.17

 Quick ratio- (Current assets- stock)/ current liabilities
For year 2017: (3277-250)/ 2833= 1.06
For year 2018: (2460-208)/2097= 1.07
 Debtors payment period ratio- Debtors/ sales * 365 days
For year 2017: 2168/7653*365 days= 103 days
For year 2018: 1945/6876*365 days= 103 days
 Stock turnover ratio- Cost of good sold/ average inventory
For year 2017: 5778/229= 25 times
For year 2018: 5342/229= 23 times.
Working notes*= Calculation of cost of good sold=
2017= ( Sales- profit: 7653-1875= 5778)
2018 = (6876-1534= 5342)
Calculation of average inventory=
(Opening+closing stock)/2
(250+208/2= 229)
5(b) Present value annuity = PMT x ((1 - (1 / (1 + r) ^ n)) / r)
105*[(1-(1/(1+2.75) ^ 3/2.75)]
105*(1-0.019/2.75)
105*(1-0.06)
£ 98.7
So Adam has to deposit £ 98.7.
5(c)
Project A.
Year Project A PV @ 5.875 DCF
1 175000 0.9445100354 165289.256198347
2 175000 0.892099207 156117.361226302
3 175000 0.8425966536 147454.414381395

4 175000 0.7958409951 139272.174150078
5 175000 0.7516798065 131543.966139389
739677.17209551
175000
NPV 564677.17209551
Project B.
Year Project B PV @ 5.875 DCF
1 60000 0.9445100354 56670.6021251476
2 30000 0.892099207 26762.9762102232
3 25000 0.8425966536 21064.9163401993
4 20000 0.7958409951 15916.819902866
5 40500 0.7516798065 30443.0321636871
150858.346742123
175000
NPV -24141.6532578769
So project A should be chosen because project A' s NPV is more then project B.
CONCLUSION
From above project report it has been concluded that financial and economic literacy is
very important for the managers. This is why because it is needed in managing the financial
resources. Additionally, it states the impact of the external factors like macro and micro on the

business. Apart from this, various policies also effect the business because these are determined
by the government of different countries.
REFRENCES
Books and journals:
Barkham, R., Gudgin, G. and Hart, M., 2012. The Determinants of Small Firm Growth: an inter-
regional study in the United Kingdom 1986-90. Routledge.
De Mooij, R. A., 2012. Tax biases to debt finance: Assessing the problem, finding
solutions.Fiscal Studies. 33(4). pp.489-512.
Fiordelisi, F. and Ricci, O., 2014. Corporate culture and CEO turnover. Journal of Corporate
Finance. 28. pp.66-82.
Goedhuys, M. and Veugelers, R., 2012. Innovation strategies, process and product innovations
and growth: Firm-level evidence from Brazil. Structural change and economic
dynamics. 23(4). pp.516-529.
Hall, S., 2012. Geographies of money and finance II: Financialization and financial subjects.
Progress in Human Geography. 36(3). pp.403-411.
Kitzmueller, M. and Shimshack, J., 2012. Economic perspectives on corporate social
responsibility. Journal of Economic Literature. 50(1). pp.51-84.
Laing, T., Sato, M., Grubb, M. and Comberti, C., 2013. Assessing the effectiveness of the EU
Emissions Trading System (Vol. 126). London, UK: Grantham Research Institute on
Climate Change and the Environment.
Wynarczyk, P., and et.al., 2016. Managerial labour markets in small and medium-sized
enterprises. Routledge.
Yang, H. I., 2012. Capital market consequences of managers' voluntary disclosure styles. Journal
of Accounting and Economics. 53(1-2). pp.167-184.
Online
About Tesco. 2019. [Online]. Available through: <https://www.agmrc.org/business-
development/getting-prepared/business-and-economic-concepts-and-principles,>.