How Economic Systems Attempt To Allocate Resources Effectively Economics Essay

The price mechanism plays a vital role in determining what things to produce as well as for whom to create. It indicates to suppliers the goods that consumers are willing to pay higher for and essentially, those will be the goods that are produced and for those who are prepared to be the equilibrium price.

How to produce would depend on typically the most popular goods in the economy where all resources divert automatically as that good is more profitable to create for suppliers.

Mixed economies

Comprises of both the state and private entities.

The prices are dependant on both market forces of demand and supply as well as by the federal government therefore, ultimately, both consumers and the government influence what things to produce.

How to produce will depend on the most profitable goods and services on the market however, governments may intervene to ascertain where to divert resources.

The impact of fiscal and monetary policy on business organizations & their activities

The economy of UK faced a period recession in 2008 which caused its Gross Domestic Product (GDP) to fall and the British economy shrank by 7. 1%. The economy experienced high negative budget deficits, UK's debt situation was critical and high inflation took over. The economy then arrived of recession however, due to the heavy snowfall experienced this year 2010, the economy slowed down once again in the beginning of 2011. The fiscal policy that was set to reduce the fiscal deficits was as follows (Oxlade, 2011):

Fiscal Policy:

Value Added Tax (VAT) increased

Income tax for richer middle classes rose

The following monetary policy also arrived to play (Monaghan, 2011):

Monetary Policy:

Quantitative easing that is, increasing money supply

Lowering interest rates

The national and local businesses could be more or less similarly afflicted by the fiscal and monetary policies:

Impact of the fiscal policy on:

The People's supermarket and Sainsbury's

The upsurge in VAT and income tax would ultimately decrease the demand of consumers, especially of goods that are a want rather than need. Thus, the supermarkets will consequentially order less of those goods from its suppliers. This might also lead them to lose out on profits.


On the other hand, Tesco will not be afflicted by the upsurge in taxes by the same extent. Although their earnings from the UK based supermarkets may reduce for the same reason as does The People's supermarket and Sainsbury's, it will still be able to focus on the demands of other countries' consumers therefore, won't reduce its orders from suppliers by much and will maintain steadily its profit level.

They may also make an effort to cover because of its losses of UK from other countries.

Impact of the monetary policy on:

The People's supermarket and Sainsbury's

Reduction in rates of interest will allow these to do more borrowing at lower costs thus; increase their spending on its activities.

The increase in money supply main cause inflation, in the end reducing its demand and therefore, the amount of supply ordered from suppliers may fall and may lead to low profits.

Tesco operating

The decrease in interest rates might not affect the global business so because may be obtaining loans from the other subsidiaries even though interest rates were higher, thus its shelling out for its activities might not increase as much relatively.

If inflation due to money supply causes demand to fall, Tesco's order of supply to its suppliers will not change as much as well, as they have customers to provide to in other countries as well therefore, unlike the neighborhood and national business, it might be able to maintain steadily its profits also.

The impact of competition policy and other regulatory mechanisms on the activities of an selected organization

The impact of UK's competition policy on Sainsbury's, for example, would be to restrict it from monopoly formation; make managers better and effective; give consumers improved quality at low costs; increase consumer choice, in a nutshell, augment the consumer and shareholders' interests (Fernando, 2011). Your competition policy in the united kingdom economy happens to be based on your competition Act 1998, Enterprise Bill 2002, Office of Fair Trading (OFT) and your competition Commission (CC) as well as other regulatory mechanisms like the Companies Act 2006, the regional policy, commercial policy, enterprise strategy, training and skills policy and so on (Sloman and Stucliffe, 2003).

Task 3: The behaviour of organisations in their market environment

How market structures determine the pricing and output decisions of businesses

The market structures and the pricing and output decisions are illustrated in the diagram below (Sloman and Stucliffe 2003):

Graph 2: Pricing and output decisions in various market structures

The way in which market forces form organizational responses

Majority of the decision making of organizations will depend on the market forces including:

Demand and Supply of the product: The key point that answers the questions of what, how and then for whom to create depends upon the demand and offer in the market; contributes to allocation of scare resources in a profitable manner (Lowson, 2002). For example, if Cadbury has to decide which type of chocolate to produce, it will look for the merchandise where demand is high and divert majority resources in producing that particular chocolate.

Elasticity of demand and supply: Pricing and output decisions are also afflicted by the responsiveness of the number of demand of the product to changes in price, known as the elasticity of demand and the responsiveness of the supply as well (Lowson, 2002). For example, an organisation providing bus travel services might tend to charge higher prices at the peak time of the demand for buses, as people will consume the service to get to their destinations, whatever the purchase price is. In case of supply, if the cost of oil increases which in turn causes their total cost of one unit to go up, they could reduce their production.

Economies of scale: A phenomenon where increase in output lowers costs therefore, giving companies the incentive to produce more as it could consequently lead to higher profits (Sloman and Stucliffe, 2003).

Consumer expectations and actions: Promptness in foreseeing and reacting to consumer demands will always be a significant factor of competitive advantage for businesses and cannot be ignored when coming up with major decisions (Chang, 2005). For example, the Apple Company might determine the expectations of its consumers and innovate something accordingly.

The short run and long run phenomenon: The short run period is where at least one factor of production is fixed; whereas over time all may differ, thus affects the decision making or response of firms, for example what machinery to work with. (Sloman and Stucliffe, 2003).

Employee skills/technology/processes: As globalisation has taken, it is imperative that each firm takes advantage of it to achieve competitive advantage on the market and attain its strategic goals. For instance, businesses can do that by providing employees with the latest skills and knowledge that could allow them to perform their job effectively and efficiently as well as streamline all the processes/activities of the organisation by using improved technology and methods (Dessler, 2007).

How the business enterprise and cultural environments shape the behaviour associated with an organization

A business operates within an environment where both are inter-reliant and constantly interact with one another. The factors determining the business enterprise environment are shown below (Fernando, 2011):

Graph 3: Factors forming the business environment

For example, if a new economic policy is defined, the firm must modify the functioning of these organization accordingly; if new technology replaces the prevailing one, the firm must consider streamlining their processes to be able to benefit the organization; in case a legal policy makes existence, the firm must analyze how to adhere to the new policy; or using processes, activities or technology that are green as required by the federal government, in order to aid in the controlling of global warming and being socially responsible. Therefore, it is thought to be the duty of businesses to amend its behavior based on the environment in order to run successfully (Fernando, 2011).

The cultural environment on the other hand identifies the influence on the behavior of the business by the cultural factors of the surroundings it operates in, which are beyond the control of the business. The way culture may impact a business is asserted below (Trehan and Trehan, 2010):

What type of product to create, its price, packaging, promotion and place

Consumers preferences, beliefs, attitudes, values would affect the merchandise development for example, McDonalds does not serve beef in India.

The attitude towards work or the inner culture of the organisation for example, the attitude of employees towards a diverse organisational environment.

The labour workforce division at the organisation, for example whether men and women should be used or should most men be working and other decisions related to recruitment.

The ethical guidelines to follow in every procedure for the business enterprise.

The factor of communication and dialect so there works well communication of the organisation within, as well as beyond your organisation with customers, suppliers and so on.

Task 4: The significance of the global factors that condition national business activities

The significance of international trade to UK business organizations

The UK is put as the fourth most open economy on the globe. The importance of international trade to businesses operating in UK including The People's Supermarket, Sainsbury's, Tesco, Lloyds Banking group and Hard Rock Cafe are as following (Secretary of State for Business, Innovation and Skills, 2011):

Technological improvements lowering communication and transportation costs; innovation of business products and services.

Helps these businesses to make larger networks in terms of customers, suppliers, shareholders, employees and other stakeholders.

Transfer of capital at low costs therefore consequently resulting in growth opportunities, better and streamlined processes and activities

Transfer of intellectual assets; ideas; skills; tacit knowledge

Employment creation; improved training processes; better and improved skills, knowledge and behaviour of employees

Increase in investment enticement; growth of investment; greater shareholders

Increases competition, rendering it products better and more consistent with your competition; offer better value and selection of products

The impact of global factors on UK business organizations

The global factors impacting UK businesses and the way they'll impact them is explained below (Secretary of State for Business, Innovation and Skills, 2011):

The economies of Brazil, Russia, India and China (BRIC) are being seen to grow rapidly. This may be regarded as a threat to the firms operating in UK as competition on their behalf would get tough or it could be observed in positive light as being viewed by the UK government currently, where it intends on building strong ties with these countries.

Globalization and global growth will provide these lenders with better market opportunities to develop and expand and building on export markets as well.

US regulatory environment and litigation risks however, may cause businesses to be afflicted negatively.

Potential synergies may develop between UK businesses and businesses of other countries.

Can take benefit of the opportunities provided by the globe trade Organisation (WTO).

The UK government is also functioning to persuade the EU to implement a more tactical, organized and continuous move towards lobbying on market access and business issues, particularly through the High Level Economic and Trade Dialogue established in 2008.

Much scope to develop by exporting to Commonwealth countries.

Capitalize on opportunities within developing economies.

The impact of policies of the European Union on UK business organizations

The various policies undertaken by europe (EU) and their effect on UK companies are the following (Sloman and Stucliffe, 2003):

The Climate Change Act which includes set target for the united kingdom of reducing carbon emissions. To greatly help meet this target, the EU introduced various policies. This would impact the business organisations in terms of the productivity or in conditions of the type of machines they use. Moreover, non compliance with these policies may also impact the businesses in a negative way such as building with an unfavourable image of the business enterprise.

Regional Policy of the EU which endows with grants to companies in destitute regions thus, helping such businesses to improve in conditions of sales, profits, activities etc.

Monopoly and restrictive practice policy putting restrictions on those businesses that are operating in several state for example Tesco.

Adjustment of tax rates causing considerable variations in VAT taxes among member states. Thus, for example, Sainsbury's will have to charge different VAT rates in various states.

Social Policy requiring businesses to implement specific health insurance and safety, employment, equal opportunity policies in their organisations and non compliance could cause the business to suffer.

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