Financial and Economic Literacy for Managers: Amazon and UK

This report delves into the financial and economic literacy of managers, offering a comprehensive analysis of Amazon.com's business model and its performance within the global e-commerce market. It applies economic concepts like the structure-conduct-performance paradigm to understand Amazon's success, highlighting its organizational structure, global function-based groups, and consumer behavior. The report also examines the potato price index, exploring the economic factors behind its fluctuations, including supply and demand dynamics, and the impact of inflation. Furthermore, it investigates the economic policies adopted by the UK government to foster prosperity, including monetary and fiscal policies, devaluation strategies, and supply-side interventions. The analysis covers the effectiveness of these policies, such as interest rate cuts, fiscal expansion, and labor market reforms, in driving economic growth and stability.

Running head: FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Financial and Economic Literacy for Managers
Name of the Student
Name of the University
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1FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Table of Contents
Answer 1:.........................................................................................................................................2
Introduction..................................................................................................................................2
Economic overview of the Company..........................................................................................2
Answer 2:.........................................................................................................................................6
Introduction..................................................................................................................................6
Potato Price Index........................................................................................................................6
Answer 3:.........................................................................................................................................8
Introduction:................................................................................................................................8
Policies taken by UK for economic prosperity:...........................................................................8
Answer to question 4:....................................................................................................................12
Answer to 5:...................................................................................................................................13
Answer to question 6:....................................................................................................................14
Answer to 6A:................................................................................................................................14
Answer to 6B:................................................................................................................................17
Answer to question 6C:.................................................................................................................17
References:....................................................................................................................................18

2FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer 1:
Introduction
The Amazon.com, Inc., with headquarter in Seattle Washington, is one of the pioneers
and predominant players in the global e-commerce and cloud computing industry. The
enterprise, founded in 1994, is the largest online retailer in the global market and enjoys highest
market capitalization. With more than 341.400 employees all over the world, the company
enjoys mean revenue of $135.98 billion (as in year 2016) and shows a continually increasing
area of operations and consistent increasing trend in revenue generations, barring several discrete
fluctuations due to exogenous and endogenous reasons (Amazon.com, 2017). The report tries to
shed light on their overall performance using the relevant industrial economic and business
concepts.
Economic overview of the Company
The business model of the Amazon and its operational framework are examples of
immense success in the contemporary business world and are extensively studied and taken
inspiration from.
According to the structure-conduct-performance paradigm, one of the widely used
business economic concept, the performance of any commercial enterprise heavily depends on
the overall conduct and behavioral pattern of the demand and the supply side players. This in its
turn is determined by the structure of the industry under the domain of which the enterprise is
operating (DaSilva and Trkman 2014). Amazon operates in the global e-commerce market,
which is comparatively new in existence and has gained significant pace the recent years with
the innovations in technology and increase in the usage of internet among common people, all

3FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
over the world. A lot of the expansion of this industry can be attributed to the phenomenon of
Globalization, which has immense significance in easing global commerce and making the
trading practices of the countries more inclusive. The e-commerce market, had only a few
players until recent times and these players enjoyed significant market shares thereby creating an
oligopoly like structure in the market.
Amazon being one of the forerunners in this industry, has been the largest of all the e-
commerce giants and has continually expanded in terms of areas of operations, goods and
services offered and expansion of clientele (Ritala, Golnam and Wegmann 2014).
The organizational structure of the enterprise has several key features, which have
contributed significantly in the impressive performance trends of the Company. The most
significant feature among these is the global function-based group of the company. The company
has a dedicated team for each of its function, which has helped in the proper division of labour
and production augmenting specialization. Other implicative features include a global
hierarchical structure and geographic divisions of the operations of the firm, which have helped
in better management of its huge operational range across the world (Jell 2012).
The conducts or the behavioral trends of the consumers and the company itself,
determined by its structure, also have implications on the same. The company has invested in
building up the goodwill factor in the market as trust is an important yardstick in the industry in
which they operate. Due to the timely and trustworthy services of the company, the company has
been able to reach the op most global service providers’ list in terms of reputation:

4FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 1: Global leaders in the different dimensions of reputation
(Source: Klaus 2013)
As can be seen from the above figure, the company has excelled in terms of products and
services, which they offer, and also in emotional appeal, thereby indicating that they enjoy a
significant base of loyal clientele earned due to its customized and trustworthy updated services.
These in turn play an important role in the image building and future prospects expansion of the
enterprise.
These behavioral trends of the clientele and the company itself are reflected on the
performance of the company:

5FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 2: Revenue of Amazon over the years
(Source: Recode.net, 2017)
As is evident from the above figure, the company has experienced a continuous and
impressive increase in revenue generation in spite of the entry of many new players in the supply
side of the industry. Much of this can be attributed to the efficient business strategies of the
company and the loyalty enjoyed by the enterprise on part of the consumers over the years.

6FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer 2:
Introduction
The price index of a basket of commodity or a commodity is the weighted mean of the
relative prices of that basket of commodities or the commodity within a geographical region
within a specified interval of time. It is calculated by comparing the prices of the commodities in
the current year with that of a base year and then multiplying the same with 100. The price index
usually shows a change in the price levels of a basket over the years, which can be both due to
change in demand which affects the price or due to the change in the overall price level, which
cannot be clearly identified by the nominal price index (Eichhorn and Voeller 2012).
Potato Price Index
As can be seen from the concerned article, the price index for potato, which shows the
change in the overall level of value of potato, which can be due to the change in prices or the
changes in quantity demanded or both. As can be seen that the potato price index in March 2017
was 27% higher than that which was in March 2016. This increase in the price index can be
attributed to two probable reasons. On one hand, this may be due to the increase in the demand
which increase the price of potato or which may be due to the increase in the inflation in the
concerned economy.
However, it can be seen that the supply has been limited due to the grower confidence
and the index is seen to be increasing by 3.2% in 2017, which was 9.6% increase in the previous
year.
From the above empirical evidence, it can be seen that there has been a substantial
increase in the price index of potato whereas the supply of the commodity has not increased to

7FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
that extent to which the price index has increased. This can be attributed to several economic
causes and concepts which are elaborated as follows:
With the supply increasing not so substantially, the increase in the price index can be
attributed to the increase in the overall increase in the price level of the economy. If the economy
is experiencing high inflation, then the price of the commodity is expected to increase which can
be one of the probable causes of the increase in the price levels of potato as can be seen in the
recent years.
Potato has a less elastic demand as the commodity is one of the daily necessities in the
consumption of the majority of the population of a place. Potato is considered to be one of the
primary consumption commodity (Rios, McConnell and Brue 2013). Therefore, even if the
supply of the commodity remains low, then also the demand of potato does not decrease by that
amount which can be attributed to the relatively less elasticity of demand of the product:
P S1
P1 S0
P0
Demand
0 Q1 Q0 Q
Figure 3: Inelasticity in Demand

8FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
(Source: As created by the author)
As can be seen from the above figure due to the presence of inelastic demand,
the decrease in the supply will not decrease the demand substantially and it will be affected by
the increase in the price level of the commodity as can be seen in case of potato. This in turn can
explain the considerable increase of 27% in the price index of potato in 2017 than what the value
of the same was in the previous year (2016). This indicates towards a presence of inflation and a
subsequent increase in the cost of buying potato which is clubbed by limited supply increase.
Answer 3:
Introduction:
The economy of the United Kingdom, one of the prominent economies in the
global scenario, has experienced its share of economic fluctuations, booms and busts, to reach to
its current state. Much of these dynamics in the economy of the country over time can be
attributed to the aim of economic prosperity by the government of the country and the economic
strategies and actions taken by the same to achieve its goals.
Policies taken by UK for economic prosperity:
For economic prosperity a country can undertake either demand side policies
and supply side policies:
Demand side policies:

9FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
The demand side policies include both fiscal as well as monetary policies,
which are targeted to increase the aggregate demand in the economy as a whole, which in turn
increases the overall productivity of the economy.
Monetary Policies:
The government of UK, for expanding the aggregate demand in the economy,
had tried the most conventional monetary policy of reducing the interest rates, with the objective
of decreasing the cost of borrowing. This in its turn is expected to facilitate the increase in the
investment and spending of the consumers as spending or investing the money becomes more
lucrative for the consumers than saving the same in the banks (Afonso and Sousa 2012).
However, the government of the concerned country failed to take into account the possibility of a
liquidity trap. In such cases the cut in the rate of interest does not boost up spending, which
happened in case of the economy of the UK:

10FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 4: Base Rate and Real GDP growth in UK over time
(Source: Gov.uk, 2017)
As can be seen that a 0.5% cut in the interest rate of the UK in 2009, did not at all have positive
impact on the growth rate of the GDP, as the borrowing and investment did not increase much,
the main reason being the unwillingness of the banks to give loans.
Fiscal Policy:
With the failure of the monetary policy to increase the borrowing, investment
and consumption in the economy, the government of the UK resorted to the implementation of
the expansionary fiscal policy. To do the same the way outs are to decrease taxes and increase
the spending by the government to boost up disposable income and increase employment in the
economy (Afonso and Sousa 2012).

11FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 5: Changes in the net borrowing of UK due to implementation of expansionary
fiscal policy
(Source: Gov.uk, 2017)
As can be seen from the above figure that the implementation of the
expansionary fiscal policies by the government of the country actually proved to be beneficial for
the economy of the UK. This is because the net borrowing of the country, as a percentage of the
GDP, started increasing rapidly from the year of 2007-2008 and the increase continued till 2010-
2011 (McCombie and Thirlwall 2016).
Devaluation:
Another important mechanism, which has been followed by the country to
increase its economic prosperity, is the method of devaluation of the domestic currency. This