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As per Dunning, (2002) the United Kingdom (UK) is the fifth largest national economy according to the nominal GDP and ninth largest in the world measured by purchasing power party. However, the economy of UK includes economies of England, Scotland, Wales and North Ireland. According to research, it has been found that in the year 2013, the UK was the fourth largest exporter worldwide and the fourth largest importer as well. The UK is one of the world's most globalized economies. The service sector reins the UK economy by contributing around 78% of GDP.
The United Kingdom is unusual among western European countries, the small proportion of its population is involved in agricultural field. Within the commercial increment of yields and a high level of mechanization, supported at the start by national policy and subsequently by the Common Agricultural Policy (CAP) of the European Union. According to Audretsch and Thurik, (2001) government has made number of various efforts to create alternative employment opportunities in the rural area as well in the remote locations. However, the lands utilized for agricultural practices have also got declined and the arable shares have fallen in favor of grazing land.
Lusardi and Mitchelli, (2007) has stated in context of UK's economic structure, 28.88% of the UK is considered to be cultivable or productive land, where huge plots of agricultural land have remained uncultivated. In this regard, numbers of critics have damned subsidies provided by the European Union Common Agricultural Policy and price distortions created by the Metropolitan Green Belt as well, due to lack of agricultural activities on these uncultivated lands.
According to Audretsch and Feldman, (2004) scarcity refers to the basic economic problem that arises because consumers have unlimited desires and resources available in the economy are very limited. Due to scarcity, various economic decisions are very crucial to make in order to allocate scarce resources in appropriate manner. Most of the people have perceptions that scarcity of resources means lack of riches but actually it means limited resources in an economy. However, decisions regarding scarce resources are made by giving up one want to satisfy another one.
Nonetheless, scarcity of resources has become one of the major economic problems in the UK. As per view of Gustafsson, Johnson and Roos, (2005), all the societies face the economic problem as regulatory authorities faces the problem of how to make the best use of scarce or limited resource. The main reason behind this issue is, needs and wants of people are endless, and on the other hand, resources available to society’s needs and wants are limited as well. Consistent changes in needs and requirements of people in different economies have been a major issue in the modern era. Customers are very dynamic today who can be influenced easily through others. This acts as a challenge for the economy.
In order to cope up with the present problem of scarce resources, economy of UK has to undertake choice and opportunity cost. Carpenter and Petersen, (2002) has stated that, these are two key concepts in the economics which can assist the nation in overcoming the problem of scarcity. It is given that, resources are limited in the economy, procedures and consumers have to make choices between competing alternative choices. However, all economic decisions involve making choices as it is not possible for any economy to produce all kinds of products or commodities according to the needs and requirements of the consumers. According to Huber,(2011) individuals in the economic field must have to choose the best in order to use their skill and effort, while in context of business; firms must pick out the best way to use their workers and machines. From the point of view of government, officials of regulatory authorities must chose how to best to utilize money earned in the form of tax.
Not only in the UK but in any economy, devising an economic choice create a sacrifice as alternatives choices should be given up. As per view of Anderson, D. and et. al., (2013) such an economic decision results in the loss of benefit that the alternative would have provided. For example, uncultivated land in the UK which has been idle present could have been used for agricultural purpose. In this context, the loss occurred in the second best option of agricultural usage is referred to opportunity cost. With the help of above stated example, it can be said that keeping the land uncultivated is the loss of agricultural production which could have been done easily to develop the economy.
According to Headd, (2003)various economists, in order to solve scarcity problem of the UK economy, three questions must be answered in a well manner.
What to produce? : - In this context, societies will have to decide the best combination of goods and services to be produced.
How to produce? : - Here, societies have to determine the best combination of factors in order to create soughed output of goods and services.
For who to produce? : - Finally, all the societies will have to decide who will get the end product from nation's economic activity.
As per view of Carree, M. and et. al., (2002) in market economies, there exist numerous marketing systems which depend upon the industry and the companies within the same industry. However, it is very important thing for every business firm in UK in determining the type of market system they are operating at the time of making decisions related to pricing and production of goods and services. There are five different types of market systems which exist in the economy, such as:
Perfect competition: - As per view of Van Praag, (2003) it is a type of competition wherein, market system is characterized by many buyers as well as sellers. On the basis of classical theory, perfect competition can be stated that, where there is large number of buyers and sellers exists in the market. Due to this, it is not possible for any single firm to change its price.
Monopoly: - According to Arenius and Minniti, (2005) such a marketing system is just opposite of perfect marketing system because in a pure monopolistic market, there is only a single manufacturer or seller of commodities and generally and there is no reasonable substitute.
Oligopoly: - Oligopoly is almost similar in nature to a monopolistic market system. However, the main difference is that instead of having a single producer of commodity, there is handful of producers in oligopoly market who dominates majority of the production in the whole market system.
Market economic system: - It is very similar to free market as the regulatory authorities does not control vital resources, valuable goods and other major segment of the economy.
Van Stel, Carree and Thurik, (2005) has stated that, the opportunity cost of a choice is the value of the best alternative forgone, in a condition where decision is needed to be made between different alternative given limited resources. Such costs increase on the far side of just monetary costs of a decision but it also includes all actual costs of making one choice over another which includes loss of time, loss of energy and a derived pleasure as well. According to Sternberg and Wennekers, (2005) opportunity cost is neither advantageous nor disadvantageous because if it provides something of choice, it also takes away other necessities and requirements. However, it is necessary to acknowledge that opportunity cost which relates to the loss of the next best alternatives and not just any alternative.
Van Stel, Storey and Thurik, (2007) has stated that, business organizations consider the elasticity of demand, when they take decisions regarding pricing of goods and services produced in the firm. It is because change in prices of the products and services will definitely bring changes in quantity demanded depending upon the coefficient of the elasticity. In context of the UK, any change in price of products will definitely affect total expenditures of the customers.
If the demand of product is elastic, increase in price will lead to decrease in the revenue, ultimately, firm will have to suffer loss. On the other hand, if the demand of the product is inelastic, any action regarding price rise will definitely benefit the firm in terms of increased marginal revenues. In context of international trade, in order to set prices of goods that are to be exported, it is very crucial of the firm to have deep knowledge about the elasticity of the demand. According to Hastings, (2015), elasticity of demand for a firm can be advantageous in one country but the same can disadvantageous in the other. The main reason behind that is, if demand of product in exporting country is inelastic, higher prices of the products can be beneficial while on the other hand, if demand of same product is elastic in the importing country, the exporter will have to reduce prices of its products. It can be concluded that business organization have to conduct thorough understanding of elasticity of demand in different regions wherever the firm sells its products and services. Moreover, it is also very crucial for the firm to focus on its pricing strategies in different regions considering the living income of customers. Fluctuating prices is not a simple task to perform therefore, it is to be carefully done by the firm to change prices of products and services according to the elasticity of demand.
In the current scenario, Tesco Plc is the chosen retail firm in the UK. It is one of Britain’s leading food retailers, with 519 stores throughout England, Scotland, and Wales. However, the main aim of this retail firm is to provide customers the best value for money and at the most competitive prices. As per view of Granger, (2014) marketing managers of the cited firm are intended to fix lower prices at the initial stages in order to attract customers. Simultaneously, it aims at helping people by offering the best qualitative products and services at least possible prices in order to create value in the eyes of the customers.
Bosma, N. and et. al., (2004) has stated that, Tesco Plc's pricing policies and corporate objectives are closely linked with each other because, on the basis of prices charged by the firm, the objectives also get influenced. Maintaining quality of products and consistently achieving customer's satisfaction are some objectives of Tesco Plc. Working closely with suppliers in order to build long term relationships so that they are based on strict quality and prices criteria of the firm.
There exists variety of marketing systems in the economy. However, for the retailing firm Tesco Plc, pricing structures would be different in all forms of markets. Such marketing structures have been described below: -
Perfect competition: - As per view of Ricketts, (2002) in a perfect competition, the cited firm cannot alter its prices because there are number of buyers and sellers in this type of market. Prices of all commodities are fixed in all firms and in case if, any of the firm tries to make changes by lowering prices, actions can be taken by regulatory authorities in the form of compensation.
Monopolistic competition: - In a monopolistic competition, there are number of producers with differentiated goods and services, in such type of market, prices can be charged according to the specialty or features of the product. Tesco, in this context can alter its products prices in order to remain competitive over long-run.
Monopoly competition: - In this market structure, there is only a single manufacturer or seller of products. Firm can charge any range of price because of its dominating nature. According to Wong, Ho and Autio, (2005) Tesco Plc is a food retailing firm, there exists number of competitors, so chances of monopoly market are low.
Oligopolistic competition: - It is a market structure where numbers of sellers exist. In this market structure, customers have to pay higher prices for products they purchase because of lower competition.
According to the current scenario, Tesco Plc is the retail firm which exists in perfect competitive market structure where there are large number of buyers and sellers. The company cannot reduce or increase its prices in order to gain any undue advantage over market. However, pricing policy the firm depends upon marketing environment.
Moreover, apart from all these competition policies, prices can also be set on the basis of culture and behavior of customers. In other words, pricing policies are determined through needs, demands, expectations, tradition, buying habits and requirements of customers. The firm will have to set prices of products and services in such a way that fits the needs and requirements as well. Though considering various competition policies is well but considering social values is also a very important aspect of because while setting the price of products.
According to Gemma, (2014) there are various regulation acts imposed by government of UK regarding pricing policies in retail sector. Some relevant UK regulations have been explained below:
he competition Act 1998: - According to this Act, number of activities are required to get prohibited from the cited firm such as:
Enterprise Act 2002: - This particular Act revised the Competition Act and simultaneously strengthened the dominance of regulators.
In the past century, UK have gained numerous changes in its economy. Things have been turned around in the time period of 100 years. Some of major changes that have been occurred are as follows:
However, there are certain causes of changes in structure of economy of UK such as low wage competition, crowding out, Labor productivity, manufacturing productivity. And some of the consequences of changes in structure of UK’s Economy are, Deindustrialization, rising unemployment, inflation, service sector, monetary policies and fiscal policies as well.
Before understanding the tools available for meeting objectives of the economy, it is crucial to have knowledge about various aims of the economy.
Objectives are the goals of the government:
Instruments are the means through the help of which these aims can be achieved: - There are various tools or measures through which objectives of UK government can be achieved in desired manner. Such as:
UK government has got a huge success after implicating all such tools. Business organizations after paying proper taxes, has helped the economy in distributing equal per capita income.
Apart from all these objectives, some additional objectives of regulatory authorities of UK regarding the monetary policy are price stability, not an end in itself but to help government in its objectives which involves growth as well as employment, constraint discretion, credibility, changes in rate of interest. The monetary policy of UK states that inflation is a monetary phenomenon which can be controlled directly by changes in the rates of interest.
As per view of Granger, (2014) competitive advantages is the business concept that describe attributes that allows a business organization to outer-perform its competitors. However, this attributes includes access to natural resources for example, high grade ores or inexpensive power, high skilled personnel, geographic location, high entry barriers etc. In simple terms, main aim of this theory is to encourage a business organization for looking forward to competing its rivals by performing and innovating something new after equal intervals of time. New technologies, such as robotics and information technology can also help business organisations of UK to retain its position in competitive market. According to Audretsch and Feldman, (2004) competitive advantage look for addressing some of the criticism of comparative advantage. In the words, competitive advantage refers to the ability gained by any firm through its attributes and resources in order to perform at a higher level than other business entities in the same industry.
Advantages and disadvantages of free trade in terms of UK
The term BRIC refers to Brazil, Russia, India and China which are seen as the four major economies in the developed world. Most especially, China seems to be the most economic powerhouse likely to reign upcoming years. Van Stel, Storey and Thurik, (2007) has stated that, though these emerging economies are viewed in negative manner but the help which these countries are providing not only assist their own countries but the global economy as a whole. Therefore, some of the impacts of these economies are explained below: -
With the help of above stated report, it has been concluded that Business Economic plays crucial role in providing assistance to business organisations. This report has been prepared wherein deep focus has been given on economic scales of UK business organisations. Several policies and regulations regarding pricing policies and free trade have been discussed.
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