I am going to describe the influence that contrasting economic environments have on the activities that a business carries out. I will explain the different types of economy, economic indicators, what the government can do to change the economy Including the Fiscal and Monetary Policy. I will explain what these terms mean and give examples. I will compare the difference between the economies of China with the economy of Britain. I will explain the economic cycle, state of demand, level of inflation, CPI of the countries, the GDP and the changes in condition of supply. I will then compare the information and the operations. Finally I will explain what the most important factor is when operating.

1. Unit 1 P5
Lewis Appleton 1 Miss Johnston
Introduction
I am goingto describe the influencethatcontrastingeconomicenvironmentshave onthe activities
that a businesscarriesout.Iwill explainthe differenttypesof economy,economicindicators,what
the governmentcando to change the economyIncludingthe Fiscal andMonetaryPolicy.Iwill
explainwhatthese termsmeanandgive examples.Iwill compare the difference betweenthe
economiesof Chinawiththe economyof Britain.Iwill explainthe economiccycle,state of demand,
level of inflation,CPIof the countries,the GDPand the changesinconditionof supply.Iwill then
compare the informationandthe operations.FinallyIwillexplainwhatthe mostimportantfactoris
whenoperating.
The types ofeconomy
The economicsystemiswhatdescribesthe organisationof acountrieseconomy.The scarcityneeds
to be takenintoaccount because itisa problemandthe countryneedstodistribute the resourcesin
amountsthat will allowthe businessestooperate andwouldnotleave the countrywithaverylow
amountof resources.Inaneconomicsystemthree thingshave tobe decided;whattoproduce,how
to produce,andfor whomto produce.
Traditional economy
A traditional economyiswherethe decisionsare made basedonthe customs,beliefsandreligious
viewsof the community.Inthistype of economythe people thatwork have todo the same jobsthat
theirparentsdidandwill workusingthe same basisof operationsto achieve whattheirparentswill
have wantedthemto.In a traditional economythe community doesnotuse moneybutuse
barteringtoexchange goodsandservicesforothergoodsand services.The people are expectedto
make what theirancestorsmade tofollow the customs;theyalsohave tomake these inthe same
way.The goodsthat theyproduce are exchangedforothergoodswiththe localsinthe village.
Traditional economiesare commoninplacessuchas small villageswithinAfrica,tribes,andplacesin
Indiathat use the caste system.
Command economy
In a commandeconomyall of the decisionsare made bythe government,theydecidethe allocations
of whatresourcestheywill give tofactoriessuchasraw goods andworkers.The governmentalso
ownsmostof the propertyinthiseconomy.There are governmentplanninggroupsthatdecide on
the prices that the producedgoodsand servicesbeingprovidedare goingtocost and theyalso
decide the wagesthatpeople receive.There isn’tacountrythat purelyusesacommandsystembut
placessuchas Cuba and Chinaare relativelyclose. Manycountrieshave alsofoundthatthissystem
isnot verysuccessful andhave therefore abandoneditorare startingto abandonit.The goods
producedare onlysoldto those that the governmentdecidestogive themto.Thistype of
communityhasa communistgovernment.CountriessuchasGermanyand Russiahada command
economybackin 1991 buttheyhave now movedtoa mixedeconomy.
Market economy

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Lewis Appleton 2 Miss Johnston
A marketeconomyiswhere the pricesof the productsand servicesproducedare decidedby
evaluatingthe supplyanddemandof them. The productionrate of the productsandthe distribution
amountsare alsodecidedbythe pricesandprofits.Mostof the resourcesthatare usedto make the
productsare ownedbyprivate citizens.The decisionsof the economyare made onthe basisof a
free enterprisewhichisthe competitionbetweenthe companies.Insteadof the government
answeringthe questionsaboutthe economytheyare usuallyansweredbyindividualcitizens.The
governmentdoesalsonotsaywhatpricesa businessneedstosetitsgoodsat.The businesses
themselvesdecide howtoproduce the goodsandtheyare producedforconsumers. Aswell asthe
commandeconomythere isnocountry that usesa pure marketeconomybutAmericaisrelatively
close.If there wasa pure marketeconomythenthe governmentwouldnotbe involvedwithany
businessesandtheiroperations,aswell asthisthere wouldalsobe nolegislationthatprotectsthe
workersfromunreliablebossesandthere wouldbe norulesthatwouldenforce the protectionof
creditcards. Thistype of economycan be criticisedbecause of the selfishnessbetweenthe richand
the poor people. The marketeconomyisalsoknownasa free economy.
Mixed economy
Many countriesuse a mixedeconomybecauseitissuggestedthatitallowscitizens tohave the same
fairamountof freedomthatbusinessesdo. The mixedeconomyisacombinationof boththe
marketeconomyandthe command economy.Itissaidthat all economiesshow characteristicsof
the othertypesof economies.Inthistype of economy mostof the resourcesare ownedbythe
businessesandthe businessesthemselvesdecide whatandhow theyare goingto produce.The
governmentalsolaysdownsome regulationsoncertaincompanies.The goodsandservicesare
producedforthe consumers.The UK is an example of amixed economyalthoughitisrelativelyclose
to a marketeconomy.
Economy in Britain
The type of economythatBritainhas isthe mixedeconomy.In2008 Britainenteredarecessionand
it endedinlate 2009. The economyinBritainis the sixthlargestnational economyinthe world,this
ismeasuredbythe GDP and it isthe seventhlargestmeasuredbypurchasingpowerparity(PPP).
Accordingto a reportby the Global Financial Centres,London,aswell asNew Yorkisthe largest
financial centre.Thisreportwascarriedouton 21st
April 2010. Thiswas alsoverifiedbyareportin
2008 by MasterCardWorldwide Centersof Commerce Index™.There wasanewsarticle onthe
Guardiansayingthat the economyneedsapush. NickClegginsistedthat he will make sure thatthe
difficultdecisionswill be met“asfairlyaspossible”topreventdebt.George Osborne,the chancellor,
statedthat plansto eliminate the structural deficitinthe economyby2015-2016. The autumn
statementstatesthatthere are three crucial thingstheyneedtoprovide the countrywith;stability,
fairnessandmeasurestoboostgrowth.Itwas alsorevealedthatthe GDP of the UK will shrinkuntil
the secondquarterof 2012 whichwouldmeanthatthe UK will have officiallyenteredarecession.A
recessionistwoconsecutive negative quartersof growth.By2013 the unemploymentrate is
expectedtohave risento9.1%.

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Lewis Appleton 3 Miss Johnston

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Lewis Appleton 4 Miss Johnston
These charts describe whatthe topfinancial centresare.
Economy in China
Chinahas beenreportedasone of the biggesteconomies inthe world,onthe 14th
February2011
there wasa newsarticle sayingthat ChinahadovertakenJapanandbecame the world’s second
biggesteconomy.The reasonforthisisbecause of the increase inmanufacturingproductsin China.
Chinahas become one of the maintradingcountriesforJapan.IMF didsome estimatesandfound
that Chinaisranked93 for the highestGDPper headof populationwithindifferentcountries.The

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Lewis Appleton 5 Miss Johnston
IMF is the International MonetaryFund. Itispredictedthat by2035 Chinaisgoingto overtake
Americaas the largesteconomy. Chinaisalsothe world’s largestmarketforthe salesof cars andit
usesthe largestamountof energy.InJanuary2011 the trade surplusdroppedin Chinadue tohigh
importdemand.Despite Chinabeingalarge economythe average personinthe countryis
significantlypoorerthanthose inJapanandtheyhave lesspurchasingpower.
Economic indicators
In an economythere are manyeconomicindicatorsthathave animpact onthe marketwithinthe
economy.
Consumer Price Index (CPI)
The CPI iswhat measuresthe increase inthe inflationrate fordifferenteconomies;itisbasedona
selectedbasketof productswithinthatarea.The producesinthisbasketwill be thingsthatare
purchasedregularlyandare a necessitysuchasbreadand milk.The CPIalsoincludesthe costsof
livinginahouse but itdoesnot include the house prices.The strengthsof the CPIare that from ita
predictioncanbe made about the future rate changes,thiscan easilybe analysed,and it’sgoodfor
investorresearch.
Gross Domestic Product (GDP)
The GDP measuresthe price of all of the goodsand servicesthatare soldbythe economyduringa
specifiedperiod.Thisincludesthe personalconsumption,governmentpurchases,private
inventories,constructioncosts,andthe trade balance.The GDP reportsare detailedandcanbe
difficulttounderstand.The GDPcanbe analysedtofindthe healthof the economyandthisgoodbe
a potential forinvestors.The strengthsof the GDPare that it isone of the broadestindicatorsforthe
economy’soutputanditsgrowth;it takesinflationintoaccountsoitcan be usedfor comparisons.

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What the government can do to affect the economy’s performance
The governmentisable todo thingsthataffectthe performance of the economy.Firstof all
dependingonthe taxationthatthe governmenthassetitcan decrease orincrease the GDP.The
more moneythat hasto be sentto the government,the lessthatactuallyexistsinthe economyand
the productionrate will decrease,if all of people’smoneywenttothe governmentthentheywould
have a bare minimumrate of production,whereasif there wasnotaxesthenpeople wouldspend
more moneyinthe economyandthe GDP will rise.If the governmentwere toincrease the interest
ratesthen consumerspendingwilldecrease,thereforethere islessdemandforthe goodsand
servicesthatorganisationsoffer.If the governmentspendsmore moneytoimprove the economy
such as betterroads,housingandinterestratesthenthe economyisable tospendmore moneybut
it mayrequire a slightlyhigherrate of tax to coverthe costs.
Fiscal policy
A fiscal policyiswhere the governmentdecidestoincrease ordecrease the rate thattheyspendthe
taxpayer’smoneyandincrease ordecrease the taxation. Thisisdone totry and influence aggregate
demand.Fiscal policieshave apurpose whichistofirstof all reduce the inflationrate,forexamplein
the UK the governmentisaimingtoreacha 2% inflationrate.A fiscal policycanalsobe usedafter
twoconsecutive quartersof negative growth,knownasarecession,thiswaytheycantry to
stimulate growthof the economy.If the governmentistryingtoincrease the aggregate demand
thentheyare tryingto expandthe economy,andtherefore the governmentwill increase the
amountthat theyspendandcut the tax amountsto be paid.By doingthisconsumersare able to
spendmore moneytoincrease the GDP,the governmentalsoworsensitsbudgetdeficit.If the
governmentistryingtodecrease the aggregate demand thentheyare tryingtodeflate the
economy. Todo thistheywill decrease the governmentspendingandatthe same time increase the
taxesthat needtobe paid.Thishas itsdisadvantagesbecause itpreventspeople frombeingable to
put more moneyintothe economy
because itreducesconsumer
spending.
Thisarticle explainsthat Chinaisgoingtocontinue expandingtheirfiscal policybecause sofarithas
beensuccessful atincreasingitseconomic state;itiscurrentlythe secondbiggesteconomyinthe
worldjustbehindAmerica.

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Lewis Appleton 7 Miss Johnston
Monetary policy
The governmentcanuse a monetarypolicytotryand influence anincrease inthe quantityof money
available inthe economy.The governmentcando thisbyproducingmore moneyintothe economy
and changingthe interestrates.Thispolicyisoftencarriedoutbythe mainbank,in Englandthe
monetarypolicyissetbythe Bank of England. One of the aimsof thispolicyisto influence achange
inthe inflationrate.
Thisnewsarticle explainsthata countryistryingto increase theirratesusingthe monetarypolicy.
Economy differences
EconomicIndicator Britain China
GDP $2.480 trillion $6.983 trillion
Inflation 5.0% 4.9%
GDP by sector agriculture:0.9%;industry:
22.1%; services:77.1%
industry(46.8%),services
(43.6%),agriculture (9.6%)
Unemployment 8.1% 4.2%
Population 260,000 1.34 billionpeople
Economic cycle stage
Britain
The UK enteredarecessioninQ2of 2008, accordingto the UK Office of National Statistics(ONS)and
exiteditinQ4 of 2009. The revisedONSfiguresof November2009 showedthatthe UK hadsuffered
six consecutive quartersof negative growth. CurrentlyBritainisinthe stage of recovery.

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Lewis Appleton 8 Miss Johnston
China
Currently Chinaisinthe stage of growth.
State of demand for business
Competition
It islikelythatthe competitioninChinamaybe more difficulttohandle becausethere are nolawsin
place that wouldstopothersellersfromsellingfake replicasoractingas they are anotherstore.
Tescotherefore mayfinditmore difficultinChinathaninthe UK because of the lackof laws.They
alsohave some familiarcompetitorsthattheyhave inothercountriessuchas Wal-Mart,one of the
leadingstoreswhich create ahighlevel of competition. The factthat there’sonlyabout1 car per 50
people inChinameansthatTesconeedstomake the store more remote because people donot

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Lewis Appleton 9 Miss Johnston
have the transport to use.Tescohas the problemof people creatingfakessuchaseggswhichare
made usingcheapchemicals.
Tescois well recognisedinthe UKas one of the largestretail storesthere is;ithasmany competitors
as there isa large amountof otherretail storesinthe UK. The biggestof Tesco’scompetitorsare
Asdaand Sainsbury’s.Bothof these have theirownunique thingsthathelpthemcompete;Asda
offerdifferentservicessuchassmartprice and theirownrange of clothing,theyare alsoa subsidiary
of Wal-Mart.Sainsbury’sfocusonthingssuchas healthyandorganicfood,theyalsohave
advertisementswithJamie Oliverwhichpeople aspire toandtheytherefore purchasethe products.
Tescohas to promote itsproductsand show that theyare of a betterstandardto compete with
these stores.
Affordability of products
In Chinathe price appearsto be 1,001.38197 Britishpounds whenconvertedwhichisalarge amount
more than the price of similarproductsinthe UK. Inthe UK a televisionthatissimilarcostsonly
£399 but thisismost likelybecause there isahigheramountof disposableincome inChinaand
therefore more people canaffordtopay the extramoney.The average disposable incomeinChinais
actually about£4,000 a year.
Level of GDP
Britain:GDP growth 0.5%
The level of GDPin the UK has beenrisingandfalling.The UKenteredarecessionin2008 and exited
in2010. In the firstquarterof 2011 the GDP was 0.5%.
China:GDP growth 11.40%
The level of GDPin Chinaisrisingrapidlyinthe pastthere was a large drop in2007 by 5% but China
has recoveredfromthisandis currentlythe secondlargesteconomy.
Needs and aspirations

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Lewis Appleton 10 Miss Johnston
Tescohas launcheda service inChinacalled membercard.What thisdoesisitallowsthe customers
to be recognisedbytheirlanguage spokeninplaceswhere theymightnotbe understood.Thisisto
helpmake sure that the customer’s needof language ismet.TosatisfycustomersTescohasa
differentrange of productssuchas coffee flavouredteaanddonutscoveredinporkfloss.Tosatisfy
the customersTescoalsotriesto replicate thingssuchaswarm meatto show that the animal has
recentlybeenslaughteredandthereforethe meatisfresh.
In the UK Tesco have manydifferentmethodstheyuse tosatisfytheircustomersandmeettheir
needs,one of the biggestthingstheyhave isthe TescoClubcard whichallowscustomerstoreceive
thingssuchas vouchersand couponsas well asoffers.There are over13 millioncustomersonthe
Clubcard scheme andit allowsthe customerstogenerallysave moneyinTescostores.Tescoalso
have differentsizedstoresthatsell differentproductsaccordingtothe local customers,thiskeeps
the customerssatisfiedandinterestedinthe products.
Region Member
GDP
(nominal)
$Million
USD
GDP
(PPP)
$Million
USD
GDP per
capita
(nominal)
$USD
GDP per
capita
(PPP)
$USD
HDI Population
EastAsia China 5,878,257 10,106,884 4,382 7,544 0.687 1,339,724,852
Europe
United
Kingdom
2,247,455 2,172,768 36,298 35,053 0.863 62,041,708
UK
In the UK a large amountof goods are obtainedfromimports,these costslightlymore moneyand
include ahigherrate of paybeingmade frombusinessestoobtainraw materials,howeverthere is
the advantage that the UK can trade more complex productsatslightlycheaperratesbecause they
are part of the Eurozone.Inthe UK there are copyrightlawstopreventfakesbeingproducedand
soldby competitors,thisisimportantbecausetheydonotexistwithinChina.ComparedtoChinathe
UK has a slowerrate of growthwhichisonlyat 0.5%, thiscontinuestofluctuate makingitharderfor
businessestopredicttheirprofits.Businessesinthe UKproduce and sell designerproductstomeet
specificneedsfromtheircustomers.
China
In Chinathere isa cheaperrate of labour,more resourcesavailableinafastsupply,andraw
materialsbeingproducedwithinthe countryitself.Thisgenerallymakesitcheaperforpeople to
affordgoodsas theyare producedcheaperandtherefore soldcheaper.The probleminChinais that
there are no copyrightlawsand manyhighvalueditemscanbe reproducedandsoldat the same
price as cheapfakes.The rate of growthin Chinaisveryhighcomparedto the UK at 9.5%.

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Lewis Appleton 11 Miss Johnston
Current level ofinflation
UK inflation rate
Thisgraph shows the previouslevelsof inflationinthe UK.It showsthatduringthe war the inflation
rate wasas highas 25% and justafterthe First WorldWar the inflationrate crashedto -15%,during
the SecondWorldWar the inflationrate rocketedonce again.Thisispossiblydue tothe needof
itemsandmoneyduringdifficulttimes,since thenthe inflationrate hascontinuedtospike alongthe
graph and isnowat a smallerrate of spikesgoingintothe year2000. The risingdemandsmade the
inflationrate higher.
The current inflationrate inthe UK is5.0%.
China inflation rate

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Lewis Appleton 12 Miss Johnston
Thisgraph showsthat Chinatooka large dip intheirinflationrate awhile backbutsince thenthey
have made a steady,butsecuredrecoveryintheireconomyandtheirinflationrate isat4%.
CPI (Consumer Price Index)
UK
(CPI) 5.0%
The CPI inthe UK has beenrisingfora while andisnotwhatthe Bankof Englandisaimingto
achieve,the CPIrecentlyfell from5.2%though.The UK governmentisaimingtomake the inflation
rate inthe UK to be 2%.
China
(CPI) 4.9%
Recoveringfromadipa while back, Chinaisrecoveringslowlybut securelyfromtheirdipand is
slowly makingtheirinflationrate rise.Theireconomyisexpandingandmore moneyisbeing
producedinthe economy.
Government policy in relationto business
UK
The UK isaimingto reduce theirinflationrate to2% but they are havingno successtherefore itisa
difficultyforsmall businessestooperate inthe currenteconomybecause theyare payingmore for
materials.Astheyare small theyare makinglittle ornoprofitto coverthe costs of the materials.The
inflation rate isalsoaffectinglargerbusinessesastheyhave topay more moneyto theiremployees
so that theyare able to affordthe basicsupplies.
China

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Lewis Appleton 13 Miss Johnston
Chinahas a lowercorporationtax thanthat in the UK and thismakesiteasierforbusinessestohelp
holdof theirprofits;theypaylesstothe government.There isalsoalowerVATrate whichmakesit
easierforbusinessestogettheirrawmaterialsthattheyrequire astheyare cheaper.
GDP
UK
The GDP inthe UK wascontinuouslyrisingfora longtime butit recentlytookadrop.This maybe
fromwhenthe UK economywasslightlygoingintoarecession.
China
The GDP in Chinahas beenrisingata veryhighspeedfora while,the moneystartedoff beingslow
but thenthe economyrocketeduptonearly10x the value ina veryshortamountof time.

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Lewis Appleton 14 Miss Johnston
Changes in conditions ofsupply
UK
Thisshowsthe changesin conditionsof supplyforthe UK.Thisshowsthat mostof the supplybeing
exportedis goodsata rate of 13.2%.
China
Agriculture:38.1%

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Lewis Appleton 15 Miss Johnston
Industry:27.8%
Services:34.1%
These resultsshowthatthe economyin Chinaisfocusedonthe agriculture andservices.Thismeans
that the goodsbeingproducedare fromthose sectorsmore,ratherthan the industrysector.
Effect on my business
EconomicIndicator Britain China
GDP $2.480 trillion $6.983 trillion
Inflation 5.0% 4.9%
GDP by sector agriculture:0.9%;industry:
22.1%; services:77.1%
industry(46.8%),services
(43.6%),agriculture (9.6%)
Unemployment 8.1% 4.2%
Population 260,000 1.34 billion people
Tescoin the UK is able to operate muchbetter,notbecause of the economybutbecause of the
brand awarenesstheyhave.Iwill compare how the economyaffectsthem.
Fiscal Policy
The corporationtax beingdecreasedto28% in the UK makesit easier forthe Tescoto make a
substantial profitaslessmoneyistakenawayfromtheirprofits.Despite thisChinastill hasalower
rate at 25% whichwouldsave evenmore money,3% mayseemto be a small difference butitmakes
a big difference.Forexample if £100,000 wasmade inprofits,3% wouldbe £3,000 whichisenough
for a lease onnewmachinery.The VATisalsohigherinthe UK and has recentlyrisento20% this
meansthat Tescowill make asmallerprofitfromthe productstheysell andpaymore for the
suppliestheybuy.The rate of VATisonly17% inChinawhichmakesiteasierforbusinessestopay
lessandreceive more.
Monetary Policy
In the UK Tesco has a chance to make a largerprofitthanoperatinginChina,thisisbecause whereas
the interestrate is6.5% in China,inthe UK it isonly0.5% whichencouragesthe use of loansand
more spending.Thismeanscustomersare persuadedtobuymore itemswhile shopping.The
inflationrate inthe UK ishigherthanChinameaningthatmore moneyhas tobe paidto employees
to keepthemsatisfied,thisdrivesdownprofitsandcanhave a bad effectonTesco’sprofits.
GDP
The market value of the economyinBritainisfar lessthaninChina.Thismeansthat itwill be more
beneficial forTescotooperate inChinabecause there isa possibilitythattheycanmake a higher
rate of profit.There isalsothe factor that there maybe more competitorsaswell whichcanmake it
harderfor Tescoto operate.
Inflation

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The inflationinthe UKis justabove the inflationinChinabutthe difference isunlikelytohave little,
if any effectonhowTescowill operate.
Unemployment rate
The unemploymentrate inChinaishalf of what itis inthe UK. This meansthatmore people inChina
are goingto have more moneytospend because theywill have asecure income todispose.The
unemploymentrate,aswell asthe populationhasalarge effectonthe profitsthatTesco are able to
make.
Population
ComparedtoChinathe economyinBritainisverysmall,therefore if Tescowere to operate inChina,
especiallyinahighlypopulatedareatheyhave averyhighpotential tomake alarge amount of
profit.
Conclusion
We can see the contrastingeconomiesandhow differentbusinessesare able tooperate inthem.
Tescocan have one type of control withinthe economyinthe UK and a completelydifferent
economytype within China.