Shikha Neupane
ID: 32330

Business economics

Economics is a branch of social science which deals with study of how fright merchandises and properties are assigned to please apparently infinite requirements and needs. The fundamental theory in economics is that shortage involves that selections be made. Similarly business economics is the branch of applied economics that deals with the idea of relevance to the contemporary business, in order to improve a complete understanding of the supply distribution matters opposite the business organisation and the environment that it functions in. It uses various economic theory and other quantitative methods to scrutinise a business organisation and the issues that influences the enterprise with the labour and its market.

Question 1
Business Economics is a useful toolbox for understanding the business environment and making better decisions. Consider you are the managing director of a manufacturing company based in UK; describe the different aspects of the business that you should be looking at from an economics perspective in order to run the company efficiently. Consider both the microeconomics and macroeconomics perspectives.

The entire business organisations around the globe have one similar goal and that is to increase the profit. By scrutinising the demand of the clients, supplying good quality and suitable supply, the profit can be maximised. Conversely there are various microeconomic and macroeconomic factors that affect this process. These factors significantly affect the sales and production level of a business organisation1. The following are few of the economic factors that affect the efficiency of a business organisation. All these factors are interconnected to each other. * Demand and supply:
Two of the main factors that affect the efficiency of an organisation are demand and supply. The demand is the determination and capacity of consumer to buy a product whereas the supply is the capacity of the business organisation to provide as per the consumer’s demand. * Income and employment:
Employment rate and the rate of income are other two factors that affect the efficiency. The per capita income and the rate of employment control the rate of demand and the buying command of an individual. * Economic growth and development:
Economic growth indicates the quantity of capitals that the world at huge is grossing and development specifies the size of cash that is being capitalized into networks of long-standing upgrade. Development is the most important factor as an organisation has to supply to the needs of an economically vigorous community. * Inflation:
Inflation takes place when there is way too much investment in the economy which is not reinforced by the result and outputs of materials and services.
There are other economic factors too that affects the business. For example: * Marginal and Total Utility * Money and Banking * Trade Cycles * Exchange rates * Rate of Interest

Question 2
Focus on one microeconomics aspect and a macroeconomic one from those you have described in Question 1 and explain using economics theory how you would improve the running of your company.

Traditionally there are two types of economics: 1. Macroeconomics 2. Microeconomics

1. Macroeconomics:
Macroeconomics is the branch of economics which deals with the matters that affect the whole economy, for example unemployment, inflation, fiscal policies and economic growth. It considers the enactment of the economy as a whole. A comparison of a country’s trade performance with other countries, for example the balance of payments also falls under this category2. The following are few of the examples of major macroeconomics factor: * Economic growth * Inflation * Interest rates * Balance of payments * Exchange rates * Unemployment * International trade
Economic growth:
It occurs when a community plenty products and services as compared to earlier period. Economic growth is normally measured as the percentage conversion in Gross Domestic Product (GDP). The basic advantage of economic growth is that the increase in product or output might allow communities need to be satisfied.
Economic growth calculates the alteration in a country’s average of living by calculating the rate at which the country’s output alters. As the people are paid on the basis of their productivity, the worth of a country’s output is also equivalent to the country’s overall income. The basic way to calculate economic growth is by scrutinising alters in the GDP. The total estimate of all final services and goods generated in a country during a certain time is the GDP of that particular period.

Microeconomic has two types of policies; * Demand side policy: * Fiscal Policy * Monetary policy * Supply side policy: * Market oriented policy * Interventionist policy
Fiscal policy is demanding and outlay of the administration. It can be used as a policy to manage the economy3. The three main stances of fiscal policies are: * Expansionary fiscal policy * Neutral fiscal policy * Contractionary fiscal policy
Expansionary fiscal policy is used to tackle the unemployment as it promotes the economic growth by creating investment in capital increasing the overall productivity. Whereas the contractionary fiscal policy slows the whole economy by reducing the overall expenditure on freshly produced products and services which eventually help to tackle the inflation.

2. Microeconomics:
Microeconomics is the branch of economy which deals with the matters that affect individual organisation and markets. The basic theory that deals with these matters is market structure, consumer demand theory and demand supply and equilibrium. One of the main goals of microeconomic is to investigate and analyse the market and establish relative prices within all products and services. It also analyses the market failure in the cases where the market is unsuccessful to create efficient results. Some of the categories under microeconomics are as follow: * Demand, supply and equilibrium * Theory of production * Consumer demand theory * Market structure

Supply and demand is a theory in economic which deals with the financial model of price determination in a market. It determines that in any reasonable market, the individual price of any product will continue to differ until it is fixed at a point where the amount of product demanded at the market is equivalent to the amount of products supplied by the organisations. This results in an economic equilibrium for the price and amount. There are four laws of demand, supply and equilibrium. * With an increase in demand and no change in the supply a shortage is occurred. This leads to a high equilibrium price. * With a decrease in demand and no change in supply a surplus occurs. This will lead to a low equilibrium price. * If there is an increase in supply and no change in demand a surplus occurs which creates low equilibrium price.
If there is a decrease in supply and no change in demand, a shortage takes place leading to a high equilibrium price.

Question 3
Let’s consider that your company is looking at expanding internationally by opening a new manufacturing facility in a non-EU country. Choose the country where you would be locating the new branch justifying your answer based on a macroeconomic analysis.

As a managing director of my company, I have decided to open a new manufacturing facility in India as it has the 10th largest economy in the world. India is one of the G-20 major economies and is also a member of BRICS. Like all other BRICS member countries India is developing and has very fast growing economy. It has an immense effect on the affairs all around the world. It is the 19th largest exporter and is ranked 10th largest importer in the entire world. Although there has been a slight decrease in the growth of the economy going down to 5.0% for the 2012-2013 fiscal year from 6.2 in the 2011-2012 fiscal year4. There has been a prediction on the increase in the coming year. Since 1991 India is among the top 10% in the world in reference to economic growth.
The basic challenge for India is to withstand this growth as it expands its uses widely. This will require a constant determination as global knowledge has demonstrated that development will decelerate if the improvements are not pushed through while the growth is at high. The major challenges that the India’s growth faces are: * Shortages in the infrastructure * Huge Fiscal shortage * Deterred Labour Rules * Unreformed economic sectors
Reformed financial sector have contributed to a thriving stock market which has helped many firms to invest in their development. But the medium and small organisations have not been capable to use the finance to thrive their business as they are claimed to be too small to be of any interest of equity markets. It is due to the publicly owned banks not being able to provide loans to the new companies.
The stance for the Indian economy is said to be upgraded over the last period of time with carefully optimistic commercial sentimentalities, enhanced customer assurance, prospects of a modest retrieval in development and deterioration in upsurge prospects. The challenge for preserving disinflationary drive over the average time, however, remains. Gross Domestic Product increase at 4.7% in third quarter of 2013-14, was marginally developed than that in the equivalent quarter of the preceding year, but it has not remained sufficient to propose that the progressive approximations of 4.9% during 2013-14 could be comprehended. The economy will now have to record a 5.5% growth in fourth quarter5 to comprehend that development.
Current economic situation of India
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As we can see in the graph above that the Gross domestic Product has declined over the last three years. The growth slowdown is said to be conspicuous and broad based. The decline has contributed to a huge negative output gap. Even the service sectors have been slowed down due to the decline.
The macroeconomic outlook of India shows that an increase in economic growth has been expected over the year. It is said to be recovered in the coming years. The upside risks for this prediction are increase in exports, hints of survival in the core industries and influence of growth supportive amount6. Whereas the downside risks like continue in slow investment, decline in savings and organisational blockage are also involved.

Similarly the macroeconomic outlook regarding the inflation shows that it will stay balanced. The upside risks for this prediction are repressed rise approaching open, importunity of food inflation, likely fiscal slippages and protected permit of rupee reduction. Whereas the downside risks like good monsoon, stable currency, continue in the undesirable gap and feeble international commodity prices are also involved.
Fiscal policy in India is designed to achieve the following objectives7. * Growth by operative deployment of capital: This is the main objective of fiscal policy is to assure a fast economic development. It can be achieved by the deployment of capitals. It can be deployed on the following sectors: 1. Taxation 2. Public savings 3. Private savings * Effective distribution of Monetary Capital: The central and state governments ensured to create effective distribution of fiscal capitals. These capitals are owed for progress accomplishments that contain spending on railways and infrastructure. Likewise, non-development accomplishments contain spending on defence and interest payments. Normally the fiscal policy must confirm that the capitals are distributed for merchandises and facilities which are socially needed. Thus, India's fiscal policy is intended in such a way so as to inspire manufacture of wanted merchandises and deject those merchandises which are socially objectionable8. * Rate constancy and control of increase: One of the many objectives of fiscal policy is to resist the inflation and to consistent the rate. Hence, the government has always aimed to control the inflation by decreasing the fiscal shortage, introduced new tax saving plans and had always maintained the productive use of the fiscal resources. * Employment generation: The Indian government has always tried to make every determination to increase the employment rate in the country through various fiscal measures. For example, investing in infrastructure has direct and indirect affect in the employment rate.

Looking at the previous years and the outlook on the future economic growth I have decided to open this manufacturing company in India.

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