Economy and how it affects my business selling tables
The new equilibrium price is ? 300 The new equilibrium quantity is 640. Factors that may have caused and increase in the demand of tables are because the quantity was increased by 180 at the same price. This can activate an increase of sales of the tables because the demand is more as more tables are available at the same price, based on an improved quantity of 180 tables. As consumers’ income is higher, there is more demand at each price level. This may have happened if interest rates had fallen and more credit was available, so more income was available to consumers to buy tables.
Lower interest rates will encourage consumers to spend more and because of this there can be a surge in the demand of tables. Improved quality of the tables- This can arise from rapid advances in production technology, causing the cost of manufacturing to decrease which in- turn can decrease the cost of importing and exporting tables. The price of complimentary goods (for example- chairs) that come with the tables became cheaper and because of this the demand for the tables increased. If consumer confidence is good, the willingness of people to make spending commitments will increase.
Thus increasing the demand for tables. There are many factors that can lead to an increase in the supply of tables: 1. There could be a very high demand for tables due to high employment. Causing an increase in demand as more consumers have money to spend. 2. Changes in the technology can boost the efficiency to produce tables quicker and better, therefore an increase in supply is expected as well as lower prices for the consumers. 3. Due to low inflation the cost of manufacturing decreases therefore the tables can be sold at a cheaper price too.
Also the rate of supply might be high because maybe in the future the inflation can rise therefore the cost of manufacturing will be less cheap. 4. Low tax rates can increase the money you have for production, marketing, salaries and raw materials. 5. A fall in the production costs can lead to an increase in the supply of tables because lower costs mean that you can supply more at each price. 6. Government subsidies will increase supply because a guaranteed payment from the Government reduces a company’s costs allowing them to produce more at a given price.
The effects of an increase in supply on the equilibrium price of tables. There can be effects on the equilibrium price of tables due to an increase in supply, which are as follows: 1. Due to the increase of supply, the equilibrium price can decrease because of greater profits in selling tables. This can be in times where the tax on sales is low so lower equilibrium prices are not much of a problem. The equilibrium quantity will increase because the tables have become cheaper. 1. There can be an increase in the supply during times the tax on sales is high.
Therefore the equilibrium price must increase to keep up with profits and taxes. Q12. Here I will be explaining how government contractionary fiscal and monetary policies might affect my business. I will explain in detail the government fiscal and monetary policies and how and why it might affect my business then I will expand on this by giving examples to further this question. Contractionary monetary policies are the monetary policies that attempt to bring down the money supply to avert inflation.
This makes money and credit less available, so the ability to lend money decreases while interest rates increases for lending to businesses and individuals, making it difficult for businesses to progress and in worse circumstances, to close down. By decreasing the supply of money and credit it slows the economy’s growth. Loans become more expensive and consumers and businesses decrease their spending. This policy (contractionary monetary) is controlled by the Bank of England to ensure stableness and to protect the value of the British pound.
The Bank of England is responsible for ensuring monetary stability primarily by encouraging the price stability of goods and services. The Bank of England promotes a price stable environment by targeting an inflation rate of two percent year over year through various monetary policies, like the setting of interest rates. Fiscal policies are controlled by the government and this focuses on two main elements which are government spending and income taxation. These two elements are compared and this determines the fiscal policy.
The fiscal policy can be either contractionary or expansionary and both possess their own benefits as well as their disadvantages in their features and qualities. Important elements that play a vital role with the U. K’s fiscal policies are expenditures of the government budget, income, and how these expenditures affect the UK economy, especially the money on loan which increases national debt. Primarily fiscal policy involves the government changing the levels of taxation and government spending in order to influence aggregate demand and therefore the level of economic activity.
The purpose of this is to reduce the rate of inflation which they target at 2% and to stimulate economic growth in a period of recession. EFFECTS ON MY BUSINESS. Contractionary monetary policy will decrease down inflation and will also lower the demands and increase the prices of products, decreasing the spending power of consumers. Also because credit is hard to obtain and the money supply in circulation is decreased, there will be more consumers reluctant to buy my tables and keep my business going.
Inflation can affect the value of the currency and this will cause me to pay the same for less production and cost of raw materials, therefore to keep up with my demand I will have to pay more for the costs as I was paying previously, when inflation was stable. If the value of the currency was to become weaker I will have to pay more for less in my production costs. Furthermore I will sell more tables for less money if I was to export them because of the pound sterling being weaker against the Euro.
Also costs to export my tables could rise and because of this my business will be in loss. Due to the Contractionary policy interest rates on loans rise and this will have a negative impact on my sales as more consumers will want to save their money in this economic pressure. My sales of the tables will be down so I will have to reduce price for each quantity of tables in order to keep my business running. Higher tax will reduce my spending power and this will affect my ability to meet up with consumer demands.
Furthermore my staff will be less eager to work as they have to pay more tax from their wages and because of this the efficiency of productivity will begin to deteriorate. When credit is tight, interest rates are high; the cost of financing goes up. For my business I would prefer that costs are relatively low and that there is good profit so that I can enhance my business and therefore I don’t have to cover my losses with my profits. Without this there are very little incentives to improve and even manage my business smoothly.
Contractionary monetary policy can increase unemployment due to the decline in production and an increase in interest rates. This will make the growth of my business slow down as I have to hire less staff. I may have to take a loan to improve my business and if interest rates are high this could undermine my business goals and spoil my business strategy to improve and expand my business. On the other hand if interest rates were low and loans were easier to obtain this will have been effective for my business to thrive.
The reason being that people will have more money therefore consumer confidence will be high, which will increase my sales and boost my revenue. Also, due to the increase of the revenue I could employ more staff to keep up with the high demand of my tables. If the value of the currency was strong, this will allow me to purchase raw materials, products and complimentary goods relatively cheaper. Also I would pay less for what I purchase and this will assist me in making more profit because the total costs will decrease and my sales revenue will increase.
Low tax rates will boost my spending power and my ability to supply and keep up with demand because this will also increase as consumers have more money to spend. The reduction of tax rates will help spur the economy in the long term by improving the stimulation to work, produce and save and by reducing the hardship that is connected with higher tax rates. Furthermore lower tax rates will increase my chance to expand my business and productivity. High inflation will lead to a fall in economic growth and employment and my workers may want more wages to meet up with their standard of living as prices rise.
The prices of the tables will also have to rise to meet up with the costs to maintain my business, but due to the high prices the demand will decrease, which will make it difficult for my business to make good profit or any profit at all. Q13. Inflation and employment are strongly linked with each other because whenever inflation is high the unemployment rate is high and whenever inflation is low, the unemployment rate will be low. Inflation needs to be stable in order to maintain good employment rate.
This is closely related with the economy and the prices of goods and services, as both high and low inflation can increase the costs of goods and services. The only thing that causes inflation is the changes in the money supply. So when the money supply rises the prices go up and because of the increase in price levels this causes inflation. People that employed want a good wage for their occupation and in order to meet this, the company needs to increase its prices in order to cover the increase in costs and also wages.
When inflation rises there is a decline in the purchasing power of money and therefore you have to pay for less. If unemployment in the UK continues to increase lots of businesses will suffer in the loss of the level of profit. This will affect my sales in the UK and abroad because my prices will be up and consumers in the UK and also abroad will decrease in buying my tables. This will happen because high unemployment will enable consumers to have less income to spend, people will be less willing to buy, which will result in less sales and lead to a decrease in profits.
But there is a difference- more sales will be achieved abroad than in the UK, because circumstances such as unemployment will not be much of a problem abroad and people will have more consumer confidence than the consumers in the UK. Furthermore if I exported my tables abroad then there will be a better chance for my business to do well for example, if I did this in India, it will be beneficial because India is growing every day and is doing very well economically.
This means that people are more likely to purchase my tables in a growing country as people will have more money to spend; therefore the overall profit of my business is likely to increase. Moreover, the UK isn’t doing very well at the moment because unemployment is increasing day by day which means more people have less money to spend. This means that if I sold my tables in the UK, my sales will decrease because people are more likely not to buy because they won’t have disposable income available to them to spend. So this means that exporting my tables abroad to a growing country is more advisable because there is a better chance of success.
This will then have an ripple effect on the government because if businesses are going abroad, the government will receive less tax which means they will have less money to spend on benefits and public sector such as health, education etc. Likewise if inflation increases in the UK, then prices will increase and demand falls which means the price of my tables will increase and this will then discourage customers to buy the table. Also during the time of high inflation there is less money flowing within the economy which can cause unemployment to rise because businesses will not be doing well.
Therefore people will be looking for alternatives for example exporting their goods or services abroad where there is a better chance of success. Q14. Exchange rates allow you to determine how much of one currency you can exchange for another. For example the Pound’s exchange rate can tell you how much it is worth in foreign currency such as the Euro and vice versa. Currently for every 1 pound you can get 1. 22 Euros. Most exchange rates are determined by the foreign exchange market.
For this reason, exchange rates vary on a moment-by-moment basis, depending on what traders think the currency is worth. This depends on a lot of factors, including central bank interest rates, the country’s debt levels, and the strength of its economy. If the Euro was to be stronger than the pound, say for example for every 1 pound you could get 0. 69 Euros. This would mean that for every pound you could get less Euros. So you would have to pay more for every Euro. This would mean the costs of the raw materials from EU countries would be more as I will be getting less for my money.
This will have a negative effect on my business as my costs to make tables will increase (raw materials will be costly) and I will have to increase the price of my tables to make up for the increased costs, but because of this less consumers will be willing to buy my tables as my prices have increased. This is potentially bad for my business as very little income through sales will eventually diminish my spending power to export raw materials from abroad. If the pound and euro were equal (1 pound is 1 euro), this would not bring much benefit to my business as I normally benefit when the pound is stronger the euro.
Here as the pound is equal to the euro I will have to pay more for less of raw materials, therefore my costs will be more and I will be losing out on the extra money I gained because of the pound being stronger than the euro. Due to this increase in costs I will have to put my prices up a bit to make up for the short losses I gained through the cost of raw materials. My sales will still be good but due to a short increase in my prices I may lose some consumers.
If the pound was stronger than the euro, for example for every 1 pound I could get 1. 22 Euros, this would mean I would be able to pay less for my raw materials as they would be cheaper for me to buy them from an EU country. Due to the lower costs I will not have to put my table prices up. So ultimately this will not affect my sales in a negative way because I will not be losing out and my business costs will not be more than my sales revenues. This will benefit my business because the cost of raw materials will be cheaper for me and due to this I will have the ability to profit more and therefore run my business more effectively and progressively.