Various Economic and Non-Economic Measures - Essay Example

TOPIC: Business Economics XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX Part1. Macro economy Every nation in the world thrives in its own possible way to improve its economic performance. This has been made possible through various economic measures and non-economic measures. Amongst the economic measures, they include; Inflation, Unemployment, Economic growth (GDP), Balance of payments and Exchange rates. The non-economic measures include; Quality of life, Environment, Education and Health. All these measures are necessary in analyzing the performance of any economy. However, this paper focuses on the analysis of UK’s economic performance over the last 5 years. Inflation refers to the persistence increase in the general price levels within an economy over time (Gillepse, 2007, pg. 200). It can be broadly divided into two; anticipated inflation and unanticipated inflation. Anticipated inflation refers to inflation which occurs where individuals and groups factor in expected inflation in decision making. Unanticipated inflation occurs where inflation is not factored in decision making. One of the ways in which inflation occurs is through the demand pull where the aggregate demand increases faster compared to the aggregate supply (Anyodike & Morris, 2009, pg. 41). Another way is through the increase in cost of production of commodities or even increase in prices of imported raw materials. This is also known as the Cost-push inflation (Anderton, 2009, pg. 245). Inflation is measured by the changes of the Consumer Price Index (CPI). The CPI measures the prices of selected goods and services purchased by a consumer. The rate of change of this price index is the inflation rate (Gillepse, 2007, pg. 71). For example, if the CPI in January 2007 for the UK was 202.416 and in January 2008 was 211.080, then the annual percentage rate of inflation can be calculated as (211.080-202.416) / 202.416 ×100%= 4.28%.The CPI for that year was 4.28 % implying that the price levels for the consumers rose by 4.28 (Anderson, 2009, pg. 247). The bank of England controls inflation rates through an increase in interest rates so as to prevent the aggregate demand from growing at rapid rates. To improve on economic performance, the UK government may reduce the levels of expected inflation by allowing businesses to acquire confidence while setting prices. Unemployment is a situation where people who are able and willing to work at the existing wage rates, are not able to find jobs (I,E Consulting, 2008, pg. 33). There are several types of unemployment. They include; structural, cyclical, and frictional unemployment. Structural unemployment is caused by adoption of new technology within the industry. Unemployment occurs when workers lack the necessary skills to adapt the new technology. Cyclical unemployment is caused by changes in business cycles. If an economy is experiencing a depression, it will attract high unemployment rates whereas during the boom period there will be low unemployment rate (Martin & Rogers, 2009, pg. 340) Unemployment causes a decline in the tax revenue, social costs like crime, vandalism and loss of output due to idle labor. High unemployment rates imply that there are many resources that could be put into use but end up wasted. There are costs associated with unemployment that are particularly detrimental which makes the unemployed lose their job skills resulting to reduced output. This lowers the UK’s GDP (McGregor & Swales, 2010, pg. 481). Lower incomes indicate that there is a remarkably low purchasing power of consumers and high industrial waste for the unconsumed items. A recent observation in the UK is that there is a falling unemployment rate and a high employment rate. This explains the fact that the UK has the highest employment ratio in the EU. A falling unemployment rate and low inflation suggest there being a fair trade off between the two macroeconomic policies (National Endowment for Science, Technology and the Arts, 2010, pg. 22). Balance of payments account gives a record of transactions between the UK and the rest of the world. It involves the trade in goods and services, foreign aid, financial flows and income flows from investments from across the world. A surplus in the BOP means that the total value of goods and services that are produced in the UK and sold abroad exceeds the amount of goods produced oversees and sold in the UK (Gillepse, 2007, pg. 270). A deficit, on the other hand, means the total value of UK’s imports exceeds the total value of UK’s exports. Good balanced of payment implies economic prosperity of a country’s economy Economic growth (GDP) refers to the value of goods and services produced within the geographical boundaries of a country in one year. Nominal growth is defined as growth in output with exclusion in the adjustment of prices changes. Real growth is that growth which is adjusted taking considerable account of changes in prices. In recent years, stable economic growth has been witnessed in the UK through improved living standards across countries as a result of narrowing the gap between the rich and the poor. Improvements are also observed in terms of regional unemployment where the rates have fallen by a margin 2.7 (Anderson, 2008, pg. 260). Growth is further fostered by improvements in technology where transport and communication costs have been reduced making business operations operate smoothly. Increase in UK’s economy is attributed to the flexibility in its market. For example, the contribution of the service sector was 75% of GDP in 2006 (Anderson, 2008, pg. 280). This is an increase of 20% over the last decade and no other country in the G7 has managed to pass. The share of high technological manufacturing in the UK has also positively contributed to its rise in GDP. Openness in international trade is the key to success in any economy in that UK’s exports to India and china have grown at an average of 12 and 17% per year. Part2 Oligopoly refers to a market in which a few firms which are either large or small dominate a particular market characterized by limited competition (Francois & George, 2009, pg. 501). Oligopoly markets are largely occupied by leading commercial firms of a country. These firms require strategies to guarantee smooth market operations. Unique features of this market are; goods are branded, small number of firms selling analogous products, competition is on non-price criteria like advertising, warranties and gift certificates (Anderson, 2008, pg. 301). Collusion of oligopolists tends to create cartels when it comes to setting of prices and output to sell. On the other hand Perfect market is a market that is characterized by a large number of buyers and sellers (Francois & George, 2009, pg. 671). The products in these markets are similar and therefore have many substitutes. In this market, there are few barriers to entry and prices are determined by the interactive forces of demand and supply and therefore producers have no influence in the price of the product. The kinked demand curve is used to explain the equilibrium output in an oligopoly market. Kinked demand curves are downward sloping curves that are distinguished with a convex bend and have a kink (Francois & George, 2009, pg. 301). Profit is maximized where the marginal revenue equals the marginal costs. A change in the marginal revenue or marginal cost will bring about new prices and new output. This may likely fail to happen if there is a kink thus making the marginal costs change without a change in the prices or quantity. This therefore makes the industry produce at the kink level before the demand turns inelastic. This theory therefore explains why supermarkets do not start price wars and thus showing lack of competition. The fact there is a lot of rivalry in oligopoly keeps each business on top of the game. This explains the fact that there has to be a strategy in the oligopoly markets so as to make profits. This is a policy adopted by most supermarkets in the UK. Supermarkets in the UK prefer to use oligopoly as compared to perfect competition is mainly because of the variety in the products and services they offer. Supermarkets have a variety of goods including electrical that require guarantees. The oligopoly market competes through the non-price criteria that involve issuing out warranties for particular periods say one year. Before the year ends and the item become faulty, it can be replaced. This is only possible in the oligopoly market as it is a way of attracting and retaining customers (Wakelin, 2008, pg. 1084). In oligopoly markets there are technological barriers to entry of rival competitors because of the nature of the products produced. Supermarkets that have been established for a long time have come up with cartel prices certain commodities and therefore it would be seemingly difficult for new entries to catch up with already established prices. The provision of groceries in the UK has changed from multiple street stores to large stores for convenience to customers (Wakelin, 2008, pg. 1090). Oligopoly markets have this trait in that they are substantially large firms. References Anderson, David Ray, (2008), “Statistics for Business and Economics”, USA: Thomson Learning Inc, Print. Anderton, Alain, (2009), “Economics”, London: Dorling Kindersley, Print. Anyodike, Dones & Morris, Bonnor, (2009), “Mapping Firm Growth in the UK, The economic impact of High Growth Firms”, London: NESTA, Print. Francois, Jacques & George Norman, (2009), “Market Structure and Competition Policy- Game Theoretical Approach”, United Kingdom: Press Syndicate of the Univesity of Cambridge, Print. Gillepse, Andrew, (2007), “Foundation of Economics”, USA: Oxford University Press, Print. I,E Consulting, (2008),“The economic impact of private equity in the UK 2007”, Boston: The British Private Equity and Venture Capital Association, Print. Martin, Park, and Rogers, Cart, (2009), “Industrial location and public infrastructure”, Journal of International Economics, 39, pp 335-351, Print. McGregor, Parker, & Swales, Jew, (2010), “The economics of devolution / decentralisation in the UK: some questions and answers” Regional Studies, Vol 39, No 4, pp 477-494, Print. National Endowment for Science, Technology and the Arts (2010) “Shifting sands: The changing nature of the early stage venture capital market in the UK”, London: Dorling Kindersley, Print. Wakelin, Kart, (2008), “Productivity growth and R&D expenditure in UK manufacturing firms”, Research Policy, 30, pp 1079-1090, Print. Read More