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2. Introduction
For business economics, there are several definitions given by the professionals in
the field of economics. Most definitions can be broadly divided into the following
four categories:
1. Knowledge of wealth
2. Knowledge of material well-being
3. Knowledge of choice making process, and
4. Knowledge of development and dynamic progression
Business economics include the part of economics knowledge which assists the
business managers to make appropriate business decisions (Perman and Scouller,
1999). Such business economics theory assists the managers to assess the practical
issues that are faced by the commercial organizations. The theory of business
theory is in fact a combination of economic theories with the practice of business
processes. The aim of business economics is to provide a readily available
economic theory that can be brought to use by managers into their business
practices. It handles the task of integrating the concepts of economics and
economic decision making process in a business origination. The term business
economics is sometimes coined with the other name of managerial economics in
the business industries and both terms represent the same category of economics
and can be used interchangeably. Many organizational trends show that the term
managerial economics is getting more prominent in the industries today. The
concepts of business economics are applied into the business models by managers
to provide assistance in business decision making process for which reason, the
business economics is also called as applied economics.
A simple definition of the term business economics can be given as “business
economics is a discipline which assists the business managerial teams to make
business related decisions in order to achieve the business goals and results.” In
other words, the theories of business economics deal with the applications of
economics concepts into the business industry management. A more precise
definition was given by Spencer and Siegelman in their attempt to define business
economics, “the integration of economic theory with business practice for the
purpose of facilitating decision-making and forward planning by management.”
Task 1
P1.1 explain the economic problem of scarcity and resource allocation

3. In any business organization, the concept of scarcity represents the knowledge of
fact that the resources available to the organization are limited.
Due to the concept of scarcity, business managers need to decide the resources it
wants to use and the various processes it wants to allocate the resources to (Baye,
2000). This is the business economic concept of having a choice.
The fundamental root of the scarcity problem lies in the practice of choice and
scarcity. The business economics looks at the problem in the following manner:
 What products or services the organization need to produce
 What process needs to be followed in order to produce these services
 For whom the desired services or physical products should be developed
 Out of the needed products and services, which products and services
should be developed
As the resources available to the organization are limited in the amount, it is
ultimately a choice to the organization about what services or products they want
to produce. Along with the above problems in the scarcity and choice problem of
business, following are some other common issues:
 What procedure should be followed to produce the physical products and
services
 What is the best method to produce the product or service desired
 Which method of production would be more beneficial- labour allocation or
capital intensive process
 For whom, the physical products and services needed to be developed
 Should the allocation of the products and services follow equal allocation
concept to everyone
 Is this beneficial to allocate more products or services to some of the parties
 Should the allocation method of products and service include the concept of
peoples’ ability to pay for such products and services?
P1.2 explain how equilibrium in a market is achieved
Consumers of the products or services, and the producers of the services both react
in a different manner on the changes in the price of products. Increment in prices
tends to reduce the demand for the product but increase the motivation behind
higher supply of the product by producers, and reduced prices of the products
increase the demands of the products while discouraging the companies from
producing more supply (Stackelberg et al., 2011).

4. The conceptual theory of business economics suggests that, in any free market
scenario, there must be a price tag for a product that would ensure a balance
between the supply of the products and the demand for it. This price is defined as
the equilibrium price. Both the producers and the customers need the scarce
resource which is in possession of the other party hence there is a neutral balance
point in this exchange scenario.
The equilibrium price for any product is also called the price of market cleaning
for that particular product as this is the price at which the total number of products
the producer has for sale will be bought by the customers with nothing left to sell.
This is the most efficient method of market equilibrium as neither some amount of
the product remained unsold, nor a shortage of the product occurred in the market.
At equilibrium price, the stock of the product in the market clears effectively and
in an efficient manner. This is the basic feature of the business price mechanism
and has extremely significant advantages.
P1.3 evaluate the importance of differing market systems
A market system is a systematic process that enables a different number of market
players to bid for different products and ask the demand to be fulfilled. The aim of
any market system is to assist the seller and buyer into making negotiation and
then finally forming a deal of some kind. The different market systems not only
cover the price negotiation process but also include the process of regulating the
deals, having credentials, reputation and achieving clearance of the products. The
market system eventually works quite similar to a social arrangement (Siegel,
1990).
Having different kinds of market systems is essential to the total business
economics as it allows the traders ability to sell their product in the approach they
seem fit and the same opportunity is available to the customers as well.
P1.4 evaluate the role of opportunity costs in determining how economies
make decisions
In the business economics, the basic reality is the scarcity of any available resource
and the fact that it is fairly limited in nature. Hence, it is extremely essential to
make proper allocation of the various resources in order to achieve optimal use of
the resources. With the implication of scarcity in place, business organizations are
forced to make choices based on the facts to perform resource allocation. If a
resource is used on a product then the same resource would not be available for the
next product (Silvia, 2011). For example- every resource the business organization

5. spends on the marketing of its product, is the resource they cannot spend on
development phase of the product now.
The opportunity costs represent the resourced cost spent in sudden opportunities.
The concept is followed by most organization and a fair amount of resources are
kept safe for any opportunity that may arise in front of the organization structure.
This provides high flexibility to the company economics. For example- a company
is developing two products simultaneously, and both of these are making use of
same resources. The organization has already allocated all of its resources to both
the products in equal share. In such a situation, the company won’t be able to cash
in the success of any one product if the other product fails in the market as all the
resources have already been used and no opportunity cost was preserved.
P1.5 assess the importance of elasticity in market interactions
In the theory of business economics, the elasticity factor is the measurement of
how responsive of influenced a variable in the economy is from change in some
other linked economy variable. The elasticity concept of economy provides
answers to the following questions regarding business decisions:
“If the price of a particular product is lowered, then how much more sells would
be achieved?”
“If the price of one product from one manufacturer is increased, then will it and
how will it have impact of sales of other products from the same company?”
“If the price of a product or service in the market is lowered, how much it will
influence the supply amount of the product in the market offered by
organizations?”
An elastic variable of a product (having its value of elasticity greater than 1) is a
variable which is influenced in a higher proportionality to the change in other
economic variables. In contrast, any economic variable having its value of
elasticity less than one is called an inelastic variable and it is influenced in less
than proportional manner to the change in other variables of economics (Haque,
2005). The elasticity of a particular variable can be different at different points of
start.
The concept of elasticity in the business organization is one of the most important
factors in the neo-traditional business economics concepts. It is highly assisting in

6. developing an understanding of the concepts like practice of indirect taxation,
effect of distribution of wealth and marginal concepts of economy.
Task 2
P2.1 explain the implications of pricing and objectives on a business firm’s
operations
Any commercial business organization runs on the objective of making financial
benefit by sales of its products and services. In order to achieve the financial
success, the organization rely on concepts of business economics and implement
such theories in the business decision making process at the organization. The
business operations of any organization are heavily influenced by the objectives of
the organization and the pricing of the product offered by the company (Vives,
1999).
A business organization decides the pricing of its products based on the objectives
set by the company. For example- a company having a fixed financial benefit as its
main objective would calculated the amount of products it can produce based on
the resources it has available and then the company will price the products at price
that is appropriate to gain required revenue to achieve the objective set by the
organization. This way the pricing of the product and the organizational objectives
set by the company influence the various operations of a company such as resource
allocation, decision making process, and opportunity control process.
P2.2 compare how prices are set in different market structures
The different market structures are usually defined in four categories- pure
monopoly, monopolistic competition, and oligopoly. The market structure highly
influence the pricing of the products set by different organizations.

7. Monopolistic Completion: it is a market structure in which the competition to the
producers is imperfect, such as different organization sell the products that are in
same category but have different characteristic from each other (for example-
clothes of different branding), and due to this reason one organization does not
provide complete substitute for the products produced by other organizations. In
such a market structure, one organization decides its prices based on the prices
given by other organizations and neglects the influence of own pricing on the
pricing decision making on other organizations (Scherer, 1970).
Oligopoly structure: in this kind of market structure, a small group of
organizations group together and form a majority in the market. This allows the
majority group to have the right to fix prices for products.
Monopsony: In this kind of market structure, there is only one buyer of a
particular kind of product in the market. The pricing process is highly influenced
by the consumer in this market structure.
Oligopsony: in such kind of market structure, there are various sellers of a
particular product with just a small group of buyers. Buyers have good influence in
this kind of market.
Monopoly market: In this kind of market structure, there is only one specific
provider of the said product. In this market structure, the sole producer is the price
deciding entity (Kamien and Schwartz, 1982).
Perfect competition: Perfect competition is a theoretical market structure and
consist of no barrier to enter the market for organization. It features infinite
number of buyers and sellers and thus the pricing of the product follow the demand
curve in every way.
P2.3 how a firm’s behaviour is affected by their market structure and
operations
The decision making process in an organization is highly influenced and affected
by the factors like market structure and various operations performed by the
organization (Mehallis, 1981). Market structure is the most crucial factor in
impacting the behaviour of a firm. For example- In a scenario where the
organization producing a particular product is in pure monopoly, the company can
allocated its resources based on the knowledge that the pricing can be set by the
company along its wishes and the consumers do not have a potential substitute for
its services and products.

8. P.2 4 identify some UK regulations and evaluate the impact of those
regulations on BT’s market power
The government enforced regulation on telecom industry in UK are managed by
the Office of Communications. The Office of Communications is the sole authority
on the communications related regulations in UK. The regulations include the
competition and market structure protocols as defined by the Enterprise Act and
Competition Act 1998 for the telecom sector. The act disables the BT Company
from making agreements that are non-competitive and provides clear guidelines for
undertaking of other companies in the same industry (Btplc.com, 2005). Such
regulations have deep impact on the operations of BT Plc. and provide a restriction
framework on the market power of BT. Due to the fairness in competition clause of
UK regulations, BT cannot create a monopoly market structure in the market and
must remain completive.
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Task 3
P3.1 analyse how the structure of UK economy has changed in the 21st
Century giving the arguments for the following factors of change

9. In recent several decades, the economy and market structure of UK has changed
significantly due to the increased trend of privatization, organizations moving from
industrialized to service sector and now technology based organizations. Most
industries in UK have now turned into private firms. The advancement in
technology and internet has drastically changed the market structure and has
allowed the small firms to compete with large organizations by having presence in
the online market. Digital economy advancement is changing the way the
organizations used to function and now the structure of UK is largely shaped by
the firms functioning using the online presence. Based on this trend, the market is
moving towards the state of perfect competition but is still far from it.
P3.2 evaluate the tools available to meet macro-economic policy challenges
The objectives of macro-economic policy employed by UK government are the
goals of UK economic policies to achieve in the market structure. There are
various tools and instruments by use of which, the aims are to be achieved. For
example- the UK government may wish to have an objective of reaching lowered
price inflation rate. The primary tools available to the government to overcome the
macro-economic policy challenges are:
Monetary policy: By means of monetary policies, the government can meet the
macro-economic policy objectives. Such tools include interest rate changes,
altering the supply of money, and altering the exchange rates.
Supply policies: Many supply side policies are developed to ensure the higher
efficiency of market.
Fiscal policy: This policy includes changing the trends of government expenses
and money borrowing, and altering the taxation.
P3.3 evaluate the success of UK government’s policies in achieving
macroeconomic objectives
The various policies enforced by the UK government to achieve the macro-
economic goals have been mostly successful. At present, the UK market structure
is considered the most competitive and fruitful for the new organizations as well.
The higher competition ensures the benefits awarded to the customers in terms of
extra choice in products and services, competitive pricing and higher quality of
products and services. The UK competition laws also protect the business
organizations from unfair business tactics by rivals or big organizations. Due to

10. these reasons, the UK government’s policies have successfully achieved majority
of its macro-economic objectives.
P3.4 evaluate the economic performance of the UK economy in the global
market
The UK economy has been growing efficiently and effectively even in aspects of
technologically influenced business industries. The strength of UK economy
comes from the fair trade policies of EU (European Union) and the additional UK
regulation that control the macro-economic policies as well as industry trends and
customer well-being. The balance in UK economy comes from the policy changes
controlled by the UK government by means of macro-economic policies. The
additional strength in the UK market is derived from the competitive advantages
provided to the organizations active in UK.
Task 4
P4.1 demonstrate the theory of comparative advantage using relevant
illustrations from emerging economies such as BRIC or MIST
The BRIC economy refers to the collective economy strengths of Brazil, Russia,
Indian and China. All of these countries are currently going through the similar
advancement in terms of economy on a global scale. All of these countries have
gained significant influence in their contribution on the world economy at about
same level, while all having different economic policies and organizational
models. The UK economy has significant advantage over the economies part of
BRIC group due to the additional strength it gains from the collective economic
structure of all EU countries. UK functions like a base centre for the EU economy,
which is the largest economy in the world.
P4.2 justify the advantages and disadvantages of free trade for development
using example from EU
Free trade is the process of having no artificial of regulating barriers enforced by
the government to have restriction on the transfer of good between countries.
The advantages of free trade are:
 Increment in production
 Higher efficiency is achieved in the production line

11.  In case of domestic economy, customer gain benefit as they have access to
more services
 A country that is selling its services to other country gains real money thus
gaining in foreign exchange
 In some companies that can provide more production, the employment rate
increases due to free trade.
Disadvantages of free trade:
 With the free trade in place, it is possible to notice structural employment
present for short term.
 Economies become highly dependent on the global trends of economy. This
increases the instability factors.
 International market does not offer equal completion as some countries can
provide cheaper products due to factors like cheap labour (Edge, 2010).
 It is difficult for new industry to establish itself in the already high
competitive market.
P4.3 analyse the impact of emerging economies on the developed economies
In the era of organizational internationalization, the emerging economies have
influenced the international market trends. Such countries include Brazil, Russia,
India, and China. The emerging economies are reducing the market dominance of
existing developed economies. While this change in international markets and
economy is bringing more stability to the world economy, it may also cause some
short-term issues as the already developed economies are making policy changes to
retain their market dominance (Marinov and Marinova, 2012). Some of the policy
changes are taken in a hurry and may cause more issues than solutions.
P4.4 evaluate the impact of recent domestic and global economic shocks to the
UK economy
The big recession of 2008-2013 had its impact on the developed economy of UK
as well. Along with the increased cost-cutting methods in UK industries,
downsizing became apparent, which in turns increase unemployment. Many of the
UK based companies were struggling to keep them afloat in the economic
recession generated credit crisis. In the third quarter of year 2007, the occurrence
of profit warning grew thick and rapid (Hopkins, 2008). The increase dependency
on the international trades and economy bring a certain amount of volatility to the
UK economy which ensures that the UK economy is deeply affected by the global
recessions.

12. Conclusion
The concepts of business economics are largely implemented in the business
organization today. Such concepts affect the various operations in business
organizations such as setting price of the products and services, understanding the
market structure present, following the supply and demand curve, enhancing the
decision making process, and developing the knowledge of elasticity in the
economic market. Having understanding of such business economic concepts is
essential for the business managers in optimizing the business operations of the
company as well as in implementing a more accurate decision making process that
influences the pricing of the products produced by the company as well as deciding
what products need to be produced. Such concepts also enable managers to make a
sound strategy to develop resource allocation plans.
References
Baye, M. (2000). Managerial economics & business strategy. Boston:
Irwin/McGraw-Hill.
Btplc.com, (2005). Regulation in the UK. [Online] Available at:
http://www.btplc.com/Thegroup/RegulatoryandPublicaffairs/RegulationsintheUK/i
ndex.htm [Accessed 4 May 2015].
Edge, K. (2010). Free trade and protection: advantages and disadvantages of free
trade. [Online] Hsc.csu.edu.au. Available at:
http://www.hsc.csu.edu.au/economics/global_economy/tut7/Tutorial7.html
[Accessed 4 May 2015].
Haque, M. (2005). Income elasticity and economic development. Dordrecht:
Springer.
Hopkins, K. (2008). Signs of recession: the impact on Britain's real economy. The
Guardian. [Online] Available at:
http://www.theguardian.com/business/2008/oct/13/economics-creditcrunch
[Accessed 4 May 2015]