FELM4026: Financial and Economic Literacy for Managers Report 2019

This report provides an overview of financial and economic literacy for managers, covering key concepts such as consumer sovereignty, market structures, demand and supply, and wealth and profit maximization. It examines the influence of consumer behavior on production decisions, analyzes different market structures and their impact on demand and supply, and compares and contrasts wealth and profit maximization strategies. The report also discusses the role of environmental policy, fiscal policy, and supply-side policies in the UK government's economic objectives. It concludes with a discussion of financial prediction and its importance in business decision-making. Desklib provides comprehensive study resources, including past papers and solved assignments, to support students in their academic journey.

Financial and Economic Literacy for
Managers
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Table of Contents
INTRODUCTION 3
1. Consumer sovereignty’ and its influence on the production decisions 4
2. Critically examines the market structure, demand and supply 5
3. Compare and contrast wealth maximisation and profit maximisation 6
4. Business economics concepts of environmental policy, fiscal policy, supply side policies to the desire
of the UK government 8
5. Financial prediction 9
CONCLUSION 11
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INTRODUCTION
Financial and business economies are two major concepts, which is necessary to enhance growth and
suitability of business at the higher and optimized stage. In addition to this, for future benefits, it has
become necessary to hold and stay shareholders, who are recognized as major wealth for enhancing
business operation. Also, demand and supply are also required to know consumer behavior in a higher
context. This has become necessary to evaluate demand and supply of customer purchase to lead high
sales in a given period of time. Also, wealth and profit maximization are both two empowering
concepts, which needs a comparison to know its benefits to the business. This report will be cover on
the comparison and contrasting of both wealth and profit maximization for understanding suitability
and relevance to business entities.
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1. Consumer sovereignty’ and its influence on the production decisions
Consumer sovereignty is an effective economic concept, which is basically referred to as the power of
the consumer to control any kind of product formation and deals with the final output produced in an
economy. In today's business influence, buyers are majorly one entity whose impact has become
bigger and impact on business performance (Taft, 2013). Buyer's demand is increased over a period of
time, which has a straight influence on the production of goods and services in a higher context. As, it
was discussed that consumer sovereignty means control of consumer on the production of final goods
to be sold, in that case, profit maximization is a major tension. This is why, because consumer are
highly looking for their own level of satisfaction and also their matter of interest is heavily impactful
for production to pursue. This is all concepts are a major part of economics and finance, which is
necessary to understand for analyzing consumer behavior to maintain profit existence at the greater
side. Into the current business scenario, it was noticed that consumer are more becoming inclined
towards their own needs and wants at the one point of time and also led the business firm to change
their production capacity, which is a major impact on profitability at a higher context.
In that situation, demand has its own major influential which is necessary to have an
understanding and along with discussion over theories of it to know whether it has been controlled on
higher context or not. Consumer influence has been raised over a period of time and also it has led
business production firm to change their strategies at a higher context (Lusardi, 2012). This matter
covers under the concept of business and financial economics to make understand production
fluctuation either has any impact or know whether they are impacting profit generation of the business
firm. A company whose major process of business linked to its production, they need to have an
outlook on profit regulation along with maintaining consumer attention at a bigger and regulative stage
to enhance business functioning at a future stage. To understand consumer behavior, it is necessary to
understand demand theory to know consumer sovereignty to measure how profit consistency can be
maintained in the business functioning.
Deriving demand curve: This is based on neoclassical consumer theory, as it states that, any
change in price factor may affect consumer budget and its ability to spend on the given product. Also,
product consistency is one of the major matter to be get solved, as if the product found faulty, it will
simply impact customer consistency to buy and production will come down. This theory has been taken
to understand and realize the utility generation of consumer and measuring it with a price which
consumer is ready to pay for a given time duration (Lusardi and Mitchell, 2014). This means that if the
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customer is not in a position to pay for the given product, it would impossible for a business to generate
profit and also it may go against firm’s capability to generate production at a higher and long period of
time.
Brief summary: Profit maximization needs to enhanced to control consumer power to
influence the business and take certain action such as regulation of pricing and develop a policy for a
consumer buying decision.
2. Critically examines the market structure, demand, and supply
In the current market scenario, consumers are becoming diverse and innovate, while deciding from
which market, they need to buy the product and also what consumer are mainly looking for. It can be
anything such as food, airline, retail, etc., in which these industries have their own market structure and
separate demand and supply to enhance business competency to sustain into operation for long stage.
The different industry has its own structure whether big or small, for example, British Airways have
long market structure, with customers in a different location (Sucuahi, 2013). The choice of what they
used to buy or experience is also different. Consumers have different kind of perceptions about the
business product and it also may also vary in demand and supply at a bigger and optimized level. If any
customer is looking for obtaining goods from companies such as Tesco, Waitrose, McDonald's, etc.,
demands and supply of the product whether food, flight, clothing, and retail completely depend on
price decided by the company. Also, in response, the price is majorly decided by market structure of an
industry which is a huge deal.
Perfect competition is a major structure of the market, which comprises of a large number of
buyers and seller of one kind of product. For instance, the airline for the UK, there are different types
of entities such as British Airways, Virgin Atlantic, Thomas Cook, etc., who are working towards
customer focus. But, customer's influence is a major concern and also their demand & taste and
preferences are changing over product differentiation. In perfect competition, demand is highly
changing with an increase in a number of substitute firms such as for McDonald's, the substitution
could be Burger King, for British Airways, substitution can be Virgin Atlantic, etc. This can be
influence demand of any given product at the higher stage (Knoll and Houts, 2012). In this market
structure, the firm always looks for a long duration of business, but it cannot be possible, because of
fluctuation in demand and supply which can be the reason for price fluctuation.
Such fluctuation in price is not healthy for the consumer to spend on a daily basis. If having a
talk on the basis of financial concept, demand and supply have been fluctuated by cost such as fixed
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and variable cost which depends on the production of an output generated into business. For this
assessment, discussion over cost will be undertaken which comprises of two types: fixed cost, which
remains constant with no change in the level of production output, while on another hand, variable cost
is cost, that changes in the level of output. If cost varies, definitely, it will be a huge influence on an
organisation such as McDonald's, British Airways, TESCO to keep their profit generation and enhance
revenue for the longer stage. There are some formula and related concepts which reveal how cost and
revenue are both linked to each other and also how it may impact consumer behavior. When a customer
buys any product, there is a profit matter, which comes from the difference between total revenue and
total cost after the solely buying.
For example:
Total revenue = Price* Quantity.
Average Revenue = Total revenue/Quantity.
Marginal Revenue = Changes in the total revenue/ Change in the total Quantity.
Demand curve in a perfect competition: The demand curve is a curve which predicts the generation
of demand in accordance with the flow of price into the market. In this curve, demand is used to predict
on the equilibrium pricing of the market. In addition to this, equilibrium is a point, where demand is
equaled to supply. This is a kind of situation, in which the demand curve is sloping in nature due to the
increase in the pricing of ordinary goods. Also, in this situation, the firm generally acts as a price taker,
as the market is used to be determined by market demand and market supply.
Source: Cost mapping, 2018
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Brief summary: From the above assessment, it is summarized that market structure is majorly
dependent on specific industry and its competition level among business entities. This seems that
market condition is very healthy and suitable for the customer to pursue purchasing of the goods or
services.
3. Compare and contrast wealth maximization and profit maximization
Wealth and profit maximization are two interrelated concepts, as both deals with increasing a kind of
funds, either for business operation or an individual for a longer duration. On one hand, wealth
maximization means a concept of increasing the value of a business in order to increase the value of the
shares and earning to generate or grow business at a higher context. The most direct evidence of the
wealth maximization is a major change in the price of company shares (Wise, 2013). On the other
hand, profit maximization means an increase in the company's profits, after paying all undue and
recurring expenses. These both terms very much look like similar, but not. While looking for profit
maximization, the firm always looks for the best products, irrespective of pricing. This is used to be
undertaken to raise business turnover. This has been noticed that firm which uses profit maximization,
they in reality influenced by their increasing sales, control over cost, managing supplier and
stakeholders interest at an initial stage of business operations. It was noticed that the company for short
term prefers for profit maximization, but for the long run, their priority is always wealth maximization
to run business operation and sustainability.
Apart from this, the concept of wealth maximization has come from increase wealth of the
shareholder to maintain their common interest in business functioning as well as sustain the net present
value of the firm. The major fundamental principle of wealth maximization is to increase the
capabilities of the shareholders of a company. From this point of view, it is understandable that wealth
and profit maximization are two interlinked for company’s perspective as well as establish a brand
reputation. To have a better conclusion on this, it is beneficial to say that wealth maximization is long
term objective and profit maximization is enabling daily basis profit for business organization, as it is
important to run business for a longer duration.
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Why wealth maximization is superior to than profit maximization
This type of discussion is very pro-active in relation to enhancing business suitability and survival of
business operations. It is true that the major wealth of companies are its shareholder, whose matter of
interest and common purpose is valuable for a business firm to remain in competition for a longer
duration (Fonseca, 2012). As, it was seen that business like TESCO, British Airways, McDonald's, etc.,
have wealth as their customer who buys their fast food products on a frequent basis, for TESCO major
wealth are their suppliers and customers and for British Airways, wealth are their assets which they
need to be maintained.
Also, for business, internal cash flow is a major concern that profit because profit is calculated
after expenses incurred, but daily cash inflow is necessary to boost up company able to perform their
day to day activities on a higher scale. The business manager is required to understand needs and
matter of interest for a shareholder in order to the led the organization to enhance their wealth on a
higher and optimized basis. It was observed that wealth maximization is like grown vision and mission
to be opportunistic for a business firm to generate operations at a higher and optimized stage. Wealth
maximization and goal orientation need to be done in the preliminary stage of business operation to
generate resource allocation and economic growth in a given period of time.
4. Business economics concepts of environmental policy, fiscal policy, supply-side policies to the
desire of the UK government
Implementation of various policies such as environmental, fiscal and monetary is necessary to make the
country run with major outcomes for its own citizen’s benefits or trust. On one hand, where
environmental policy is generally enacted to make environment pollution free, where on the same side,
fiscal policy is used to maintain inflation rate in an economy (Behrman and Bravo, 2012). These
policies generally are undertaken after previous government regulation along with a future prediction
for the country. This is evident from past actions taken by the UK government on pollution such as
“Disposed of waste material”.
 In the context of fiscal policy, UK government comes up with minimum pay and minimum charge
policy to prevent the rise of expenses and generate revenue for the economy by increasing exports
and imports by establishing FDI and investment suitability for an economy.
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 UK government has decided to impose tax named as carbon on the social use of pollution, so as to
stop pollution into the air and generated guidelines for stop usage of plastic emission in order to
stop harmful gaseous in the air.
Fiscal policy: This policy is considered to implemented by the government of UK to use and control
spending of taxes to promotes instant growth and development of the country financial strength on the
larger basis or a greater role for implementing human and social welfare (Behrman and Bravo, 2012).
From last few years, the UK economy has faced a certain burden of net borrowings which has shown
given graph:
Source: UK net borrowings till now (in %)
Impact of this policy on the UK: Monetary policy has made the economy of the UK out of big financial
crisis and also led funds to flow into the banking system. Also, policies related to fiscal deficit has
balanced out expenses generation and flow of revenue for the government of the UK for enabling more
and more development program for people of the UK (GAUDECKER, 2015). Policies and regulation
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in the context of economic reform have built rate of interest more adaptive to build business suitability
for development of failed business to reboot themselves again and again.
5. Financial prediction
a. Analysis of ratio
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b. Present Value
Note: As, it is mentioned that the rate of 2.75 percent annually has been ascertained, so in that
situation, Adam is required to pay £ 97.22 to accomplish its target in coming next 3 years.
c. Net Present Value
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CONCLUSION
From the above project, it has to say that fiscal policy has become a regulative tool for every economy
to manage their expenses and spending to run the economy effectively and efficiently. Role of demand
and supply has been increased and also led an initiative to enhance consumer behavior at an optimized
stage of business operation. Hence, this has been proved necessary for business to raise its suitability
and business entities to sell more to the customer.
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