Financial and Economic Literacy for Managers: Detailed Analysis

This assignment provides a comprehensive analysis of financial and economic literacy for managers, covering a range of topics. It begins with an examination of the structure-conduct-performance paradigm, using Amazon.com as a case study to illustrate market dynamics, globalization, and the influence of economic factors on business performance. The assignment then delves into the analysis of the UK potato market, exploring price fluctuations, supply and demand, and the impact of inflation and elasticity. Furthermore, the assignment also investigates competition policy within the UK, discussing government strategies to prevent the misuse of monopoly power, collusive behavior, and market power abuse, providing insights into relevant regulations and bodies such as the OFT and Competition Commission. The solution provides detailed answers to specific questions, offering a thorough understanding of the key concepts covered.

Running head: FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Financial and Economic Literacy for Managers
University Name
Student Name
Authors’ Note

2FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Table of Contents
Solution to Question 1:...............................................................................................................2
Answer to Question 2:................................................................................................................6
Answer to Question 3:................................................................................................................9
Answer to Question 4:..............................................................................................................11
Answer to Question 5:..............................................................................................................12
Answer to Question 6 (a):........................................................................................................14
Answer to Question 6 (b):........................................................................................................15
Answer to Question 6 (c):........................................................................................................16
References................................................................................................................................17

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Solution to Assignment Question 1:
Structure-conduct performance paradigm for amazon.com
As rightly indicated by Disney and Gathergood (2013), the structure-conduct-performance
paradigm was first introduced by economist Edward Chamberlin as well as Joan Robinson
during the year 1993 and was designed by Joe S. Bain as a model in Industrial Organization
Economics. This delivers a causal theoretical explanation for performance of firm by means
of economic conduct on unfinished markets. As per the structure-conduct-performance
paradigm, the setting of the market essentially has a direct as well as short term influence on
market framework. In particular, the market framework has a direct impact on corporation’s
economic conduct that in turn affects the performance of the market. Essentially, in that
feedback effects take place (Disney and Gathergood 2013). As such market performance
might influence conduct and framework and conduct might perhaps affect the overall
structure of the market. Furthermore, external facets namely legal or else political
interventions have an effect on market structure and by extension, the framework, conduct as
well as market performance.
Analysis of the elements of the paradigm:
Structure: Refers to an entire set of variables that are considerably stable and can affect
behaviour of both purchasers as well as sellers.
Conduct: Indicates towards the way in which purchasers as well as sellers behave both among
themselves as well as amongst one another (Bay et al. 2014)
Performance: Enumerated by relative comparison of results of corporation along the industry
in terms of efficacy. Fundamentally, diverse ratio can be utilized for assessment of levels of
profitability.

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The structure-conduct-performance paradigm indicates towards examination of setting of the
market. Analysis of operations of Amazon.com Company reflects the fact that Amazon is a
leading online retailer of the world that has global footprint. In essence, Amazon has the
ability to leverage numerous opportunities in diverse emerging markets. The management can
also make certain that supply chain of diverse networked warehouses can deliver
considerable value both for itself as well as for its stakeholders (Bay et al. 2014). However,
Amazon’s economic performance also relies to a huge extent on circumstances of the
economies in which it runs its online retail business. For example, the economic stability of
majority of developed markets can be considered as an opportunity that the company enjoys
for increasing the propensity of success for the company (Drexler et al. 2014).
Fundamentally, in this type of market conditions can minimize diverse economic issues in
various remote or else macro-environment thereby might perhaps minimize the overall risks
to the online business expansion of the company Amazon. Again, increase in disposable
earnings in different developing nations can also be considered as an opportunity for the
corporation. For instance, the augmentation of the disposable earning in different developing

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markets can improve the overall financial condition of the Amazon. Nevertheless, the
economic recession in China also threatens the overall business performance of the firm
Amazon. Potential economic recession in particularly China can act as a threat to the business
operations of Amazon. Essentially, the Chinese markets can be considered one of the biggest
markets of the world that the company intends to penetrate and establish a wide business
base. Thus, the effect of economic recession in this region is also said to exert immense
impact on the business and subsequently the overall performance of the corporation (Hastings
et al. 2013).
Furthermore, the political factors are also said to have an impact on the businesses of
Amazon. As such, there are several transnational policies that act as an obstacle in the path of
growth of Amazon. Primarily, expansion of business operations of Amazon in different
nations is difficult owing to non-alignment of online business strategies with political
directives. Essentially, Amazon is said to derive advantage from political stability (Hastings
et al. 2013). This political condition generates an opportunity for the business concern to
expand its base or else diversify the business in different developed nations. Such as, Amazon
could expand base of brick and mortar operations in the United States in order to complement
firm’s e-commerce operation. Fundamentally, governmental support for essentially e-
commerce can be regarded as an opportunity. However, exploitation of the available
opportunities leads to overall enhancement of performance of the firm (Drexler et al. 2014).
Business concern and globalization
As rightly put forward by Bay et al. (2014), globalization can be regarded as a important
notion that has become an important facet in business particularly during the past few
decades. In essence, this specific phenomenon exerts impact on the economy, life of business
and majority of corporations are affected by these alterations brought about by globalization.

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Particularly, these alterations are mostly associated to enhancing competition and the rapid
alterations to technology along with information transfer. Basically, globalization makes way
for enhanced competition. As correctly, this competition can be associated to costs and
pricing of products as well as services, base of target market, adaptation of technology, swift
response as well as production by diverse business concerns (Disney and Gathergood 2013).
However, at the time when a corporation manufactures with lower cost and sells at cheaper
price, it can enhance the overall market share. Bay et al. (2014) assert that globalization leads
to greater scale and reach of e-commerce use and enhanced performance enumerated as
efficiency, market influence as well as coordination. Globalization would affect diverse
economic transactions carried out via electronic media, contractual agreements regarding the
pricing as well as delivery of products and services, and payment systems. Fundamentally,
globalization as well as e-commerce affected economic structure of economies. The new
framework is essentially indicated as the knowledge economy and new economy or else e-
economy. International trade driven by globalization policies directed towards utilization of
technologies, enhancement of sales transactions mediated by the internet else wise through
different computer networks. This way, it reduced coordination cost and lessening of working
costs with diverse foreign subsidiaries owing to nature of regulation (Klapper et al. 2015).
Answer to Question 2:
The potato prices have increased by 27% owing to a decrease in production in UK since the
overall output of potato particularly in UK for the year 2016 and 2017. For example, yields
particularly in the year 2016 and 2017 are approximated to be nearly 44.9 tonnes per hectare,
down as compared to previous year owing to unpleasant weather witnessed throughout the
entire emergent season (Gillespie 2013). Essentially, the decrease in production observed that
UK potato stocks decreased to the lower level since the period 2012 and 2013.

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For the purpose of the present study, the notion of both demand and supply, related elasticity
and categories of good can explain alterations in market phenomenon (Gillespie 2013).
However, in a bid to comprehend the overall economic state of affairs, macroeconomic
indicators have the need to be analysed. Particularly, in this current report, the overall price
index movement of particularly potato in mainly UK can be illustrated utilizing important
notions of demand, supply, inflation as well as elasticity.
Essentially, market refers to a certain transaction place for different goods as well as services
for diverse purchasers along with sellers. Again, the overall equilibrium level of price along
with quantity can be necessarily determined by means of interaction between demand as well
as supply (Bernanke et al. 2015). In this case, it can be hereby mentioned that overall fall in
supply can also lead to lower quantity as well as higher level of price. The diagram below
can help in explaining the situation, initial supply (S) declined and moved leftward to (S2),
consequently quantity demanded declined to from Q1 to Q2.

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Elasticity refers to a notion that takes into account assessment of overall responsiveness of
demand or else supply, to an alteration in another variable namely the price of the goods else
wise income of individuals (Kontoghiorghes et al. 2013). In this case, the percentage change
in overall demand of the good (potato) in response to change in its price can assist in
understanding price elasticity of demand of potato. In essence, potato is said to have inelastic
supply that implies that increase in overall price leads to smaller percentage change in supply.
Basically, this indicates towards the fact that different firms encounter difficulty in enhancing
supply especially in response to increase in its price. Additionally, it can be hereby mentioned
that in case if the prices of diverse potatoes increase, farmers might fail to augment supply as
this relies on the way farming is carried out in different period.
The given case mentions about rise in the potato price index during the period March 2017.
This price index can be regarded as an official technique for enumerating inflation
particularly in the UK. Particularly, this can be regarded as a measure/dimension of cost of
living and replicates alterations in the overall general level of price. Sowell (2014) asserts
that inflation refers to gradual increase in overall increase in level of price. As such, the
inflation rate can be enumerated by the overall enhancement in percentage in price index.
Particularly, for the purpose of potatoes, price index is observed to be gradually increasing.
As per the case study, the price index is necessarily 27% higher mainly during the year 2017.
Again, the rate of augmentation in price can be considered to be lower in the year 2017 as
compared to the year 2016. Fundamentally, the current report analyses the overall movement
in potato price index specifically in UK. Again, the inadequate supply of particularly grower
also restricts the overall yields and increase prices. Nevertheless, the increase in price can be
measured to be relatively slower during the financial year 2017 reflecting the function of
elasticity in exerting influence on price. In essence, the persistent increase in price replicates
a specific situation.

9FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer to Question 3:
As rightly put forward by Keohane and Olmstead (2016), competition policy can necessarily
be described as strategies of the government to avert and at the same time minimise the
maltreatment of the monopoly power. Essentially, this is mainly because this kind of abuse
can lead to market failure owing to inadequate public awareness. Keohane and Olmstead
(2016) assert that the “Competition Act 1988” seeks to get UK in line with the competition
policy of specifically the EU. In essence, the OFT is also liable to assess the alleged abuses of
monopoly power together with the engagement in restricted exercises. Again, it can be
hereby stated that there are various governing bodies that necessarily examines two kinds of
behaviour that mainly takes in collusive behaviour and misuse of market power. Palley
(2016) asserts that collusive behaviour also occur at the time when corporations agree to put
right prices along with output for acquiring higher amounts of profits primarily at the expends
of the customers. However, this behaviour can be considered to be unlawful in UK and the
OFT is said to have the authority to inspect on any such cases. Nonetheless, in case if a
corporation essentially have more than 40% of the overall share of the marker, it is
considered to have greater market power. For itself, the misuse of market power might
perhaps contain selling below the specific cost for the purpose of forcing a rival to move out
of business, establishing higher price levels, disbursing lower level of priced to diverse
suppliers and fix specific sales.
Again, the OFT might also suggest execution of mergers, that again can be referred to
particularly the Competition Commission. This can be done for the purpose of determining
whether merger is executed in the public interest. In essence, several instances of competition
policy particularly in UK that contains assessment of grocery market that deals with mainly
big supermarkets of diverse unscrupulous exercises (Bernanke et al. 2015). Essentially, this
merger between Heinz as well as HP Foods assumed as a part of Competition Commission

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can be regarded as another instance of competition policy especially in UK. This is aimed at
promoting and boosting the overall economic prosperity of the entire nation.
Fiscal Strategy of the government of UK
Elliott and Timmermann (2016) asserts that fiscal strategy considers governing bodies
amending the levels of taxation along with government spending for influencing the
aggregate demand along with the level of economic activity. Essentially, this assists in
stimulation of the overall economic growth of the country during recessionary period and
helps in maintaining the inflation rate at a low level.
Figure 1: Deficit in Budget in UK during the FY 2002 to FY 2015
(Source: Hill et al. 2013)
The government of UK has assumed expansionary fiscal policy during the year 2009.
Particularly, owing to worldwide recession during the period 2009, the government has
lessened VAT with the aim of enhancing overall consumer spending. Subsequently, it can
direct the way towards augmented government borrowings. Again, another cause behind this
increase is mainly low tax revenue. However, after the process of relinquishing power to the

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new alliance government during the year 2010, a specific argument was raised regarding the
high deficit, that in turn has forced the government to declare plans for minimizing
borrowings of the government and this essentially contained restrictions of spending
(Gillespie 2013). As such, this kind of dimensions of austerity can be regarded as an
important facet of low economic spending during the financial year 2011 and 2012.
Supply Side strategies of the government of UK
The government of UK has utilized specific policy particularly for minimising the rate of
unemployment in the country and the major strategies primarily are hereby mentioned below:
-Flexible labour markets for eliminating maximum work hours
-Decreased power of trade union with partial assistance from reforms of Thatcher
-Amalgamation of training and enhanced information for the jobless (Elliott and
Timmermann 2016)
-Enhanced flexibility of particularly labour markets have led to temporary along with short
term employment in the nation
Answer to Question 4:
Managers of a particular corporation remain involved in the activities of monitoring different
stuffs such as flow of cash, issues related to payroll along with capital expends by utilizing
financial pronouncements. Additionally, the constant evaluation of financial declarations can
encourage liability of staff making contributions. Therefore, it can also help in averting
misappropriation else wise staff misuse (Sowell 2014). Such as, if the financial
pronouncements of a corporation represent sectional overlap for the purpose of diminishing

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the bottom line of the corporation, then it might perhaps take into account lay off of different
workers else wise consolidating diverse departments.
Keohane and Olmstead (2016) asserts that financial planning as well as control can be
utilized by managers for the purpose of making certain availability of adequate finances.
Furthermore, it assists in upholding effectual balance between both inflow as well as outflow
of funds for maintenance of constancy. Again, financial planning also guarantees that the
suppliers of funds invest in corporations seamlessly. Furthermore, financial control also aids
managers in attainment of growth and execution of diversification programs that can make
certain long term success of the corporation. Therefore, uncertainties get diminished in
association to altering trends extant in the market and this can be properly encountered by
utilizing sufficient funds (Keohane and Olmstead 2016).
The capital budgeting decisions have the need of huge amount of initial outlay and this in
turn calls for the need of correcting and thoughtful decisions. This is because a wrong
decision can lead to losses. Furthermore, capital budgeting also aids prospective managers in
undertaking a project and approximating future flows of cash. Essentially, this aids in
ascertainment of feasibility and acceptance of a specific project. For example, at the time
when a specific project is selected and investment is carried out in the structure of fixed
assets and it can again be reversed. However, if management of a corporation intends to
dispose this type of assets, it might direct towards monetary losses for the business concern
(Sowell 2014).
Answer to Question 5:
As rightly indicated by Bernanke et al. (2015), financial intermediaries can be considered to
be a dynamic motion in which institutional division shells out liabilities on their own account
for the point of acquirement of diverse financial assets by way of getting engaged in financial

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transactions. However, with the help of the financial intermediation, the overall cost of search
can be lowered. In this corporations do not have the requirement to locate right lenders since
an expert is appointed for undertaking the activity. However, a specific bank can become
efficient in the process of amassing deposits and lending by way of enabling diverse
economies of scale. This in turn can lead to decrease in cost of borrowing. For instance, in
case if a corporation intends to borrow £10,000 then it can be considered to be very intricate
to discover someone willing to provide the same amount. Nevertheless, there can be around
1000 customers who are putting down £10 each. Thus, the business can also lend the same
amount to the business concern as against any assurance (Kontoghiorghes et al. 2013).
Particularly, financial instruments are referred to as legally detected documents that have
monetary value. Bonds, cheques, equities as well as debentures are examples of financial
instruments. Essentially, these types of instruments can assist in the process of developing
greater relations with the extant partners. Elliott and Timmermann (2016) mention that the
partners might probably acquire access to supplementary financial resources and these can
augment the overall potency of existing transactions together with newer opportunities for the
business concern. Furthermore, financial instruments also aid in augmenting revenue by
means of specific partnerships that in turn can make certain diversification as well as growth.
In addition to this, both risk as well as return also reflects the impending financial loss else
wise gain that can be experienced by means of investment in securities. However, once
finance is obtained, a specific corporation can analyse the overall risk related to the project by
means of sufficient market research (Palley 2016). Thereafter, flows of cash of business
concerns can be approximated to assess the overall investment returns. Thus, business
concern can determine the feasibility of the recommended investment based on the risk-return
analysis and this can have direct influence on company’s profitability.

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Answer to Question 6 (a):
Table 1: Table representing key financial ration for the corporation Tesco Plc for the FY
2014-2015
(Source: Gillespie 2013)
As mentioned in the above table, it can be hereby stated that the retail firm Tesco Plc has
witnessed augmentation in quick ratio particularly during the FY 2015 owing to enhancement
in investments in the short term along with increase in inventories. Nevertheless, there is
decrease in overall price-earning (P/E) ratio that necessarily indicates towards future
development of the corporation in not stable and the financiers might fail to acquire adequate
returns or else incur losses in the upcoming period (Hill et al. 2013). Furthermore, there is
decrease in asset turnover ratio that essentially reflects that the corporation Tesco plc has
failed to create adequate revenues from firm’s available assets for the purpose of clearing the

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overall debt burden with the former. In addition to this, the equity ratio of the business
concern Tesco Plc has also decreased owing to financial scam of financial overstatements
during the year 2014. This has led to loss of trust for the financiers. As such, owing to this,
there has been decrease in net revenue that in turn directed the way towards decrease in net
margin (Fernandes et al. 2014).
Answer to Question 6 (b):

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Answer to Question 6 (c):

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References
Bay, C., Catasús, B. and Johed, G., 2014. Situating financial literacy. Critical Perspectives on
Accounting, 25(1), pp.36-45.
Bernanke, B., Antonovics, K. and Frank, R., 2015. Principles of macroeconomics. McGraw-
Hill Higher Education.
Disney, R. and Gathergood, J., 2013. Financial literacy and consumer credit
portfolios. Journal of Banking & Finance, 37(7), pp.2246-2254.
Drexler, A., Fischer, G. and Schoar, A., 2014. Keeping it simple: Financial literacy and rules
of thumb. American Economic Journal: Applied Economics, 6(2), pp.1-31.
Elliott, G. and Timmermann, A., 2016. Forecasting in economics and finance. Annual Review
of Economics, 8, pp.81-110.
Fernandes, D., Lynch Jr, J.G. and Netemeyer, R.G., 2014. Financial literacy, financial
education, and downstream financial behaviors. Management Science, 60(8), pp.1861-1883.
Gillespie, A., 2013. Business economics. Oxford University Press.
Hastings, J.S., Madrian, B.C. and Skimmyhorn, W.L., 2013. Financial literacy, financial
education, and economic outcomes.
Hill, C.W., Cronk, T. and Wickramasekera, R., 2013. Global business today. McGraw-Hill
Education (Australia).
Keohane, N.O. and Olmstead, S.M., 2016. Introduction. In Markets and the Environment (pp.
1-10). Island Press/Center for Resource Economics.

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Klapper, L., Lusardi, A. and Van Oudheusden, P., 2015. Financial Literacy Around the
World. Standard & Poor’s Ratings Services Global Financial Literacy Survey., Access mode:
http://media. mhfi. com/documents/2015-Finlit_paper_17_ F3_SINGLES. pdf.
Kontoghiorghes, E.J., Rustem, B. and Siokos, S. eds., 2013. Computational methods in
decision-making, economics and finance (Vol. 74). Springer Science & Business Media.
Palley, T., 2016. Financialization: the economics of finance capital domination. Springer.
Sowell, T., 2014. Basic economics. Hachette UK.

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