Business Economics

Assignment Cover Sheet

Qualification Module Number and Title

Higher Diploma in Business Management BM4158- Business Economics

Student Name & No. Assessor

BM 90 /Harini Wickramarathne-40 Ms Chameera Wijayatunga
Hand out date Submission Date

10/05/2021
Assessment type Duration/Length of Weighting of Assessment
Report Assessment Type 100%
1 month / 4500 words

Learner declaration

I, K.P.D Harini Mayuri Wickramarathne – 40, certify that the work submitted for this
assignment is my own and research sources are fully acknowledged.

Marks Awarded
First assessor

IV marks

Agreed grade

Signature of the assessor Date

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FEEDBACK FORM
INTERNATIONAL COLLEGE OF BUSINESS & TECHNOLOGY

Module: Business Economics

Student: K.P.D Harini Mayuri Wickramarathne

Assessor: Ms. Chameera Wijayatunga

Assignment: Individual report

Strong features of your work:

Areas for improvement:

Marks Awarded:

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 Business Economics

Business Economics
International College of Business and Technology
Faculty of Business Management
Second semester
Coursework – Individual report
Done by,
K.P.D. Harini Mayuri Wickramarathne
Student number – 40
HD/BM batch 90

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Acknowledgement

The author would like to thank modestly to each and every individual who facilitated me for
build up this individual assignment with the greatest gratitude and appreciation. First of all,
the author would thank her business economics lecturer, Ms. Chameera Wijayatunga who
educated us without any limitations. She gave her fullest effort to teach us the best within a
period of pandemic via online. Next, the author would like to thank her parents and her sister
for giving all the facilities and the needful.

Finally, the author would like to thank ICBT for providing all the learning facilities in this
kind of a pandemic situation to continue with the higher studies without any interruptions and
blockades.

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Executive summary

This individual report is accomplished to explore about how the marketers have used the
economic concepts and how those economic concepts can be used to fulfil the needs of the
society. Directors, managers and other shareholders who controls the business need to
understand above factors very carefully because to make their decisions to conduct the day to
day and long-term activities successfully.

This individual report begins with describing some vital economic terms. And also, the
author has discussed how the supply and demand goes in a refrigerate market. Next, the
author has discussed the different types of organizations in an economy and the feature of
them as well as about the stakeholder responsibilities. In addition, a brief discussion about the
GDP of a country. The functions of the business cycle, and inflation also have been discussed
as well as the fiscal and the monetary policy.

Moreover, the author has considered about the types of economic systems and market
structures. Finally, importance of international trade has been conversed by the author.

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Table of Contents

Acknowledgement..................................................................................................................................4
Executive summary................................................................................................................................5
Introduction............................................................................................................................................8
Task 01: Economic concepts.................................................................................................................9
1.1 Ceteris Paribus..................................................................................................................9
1.2 Opportunity cost..........................................................................................................................9
1.3 Production Possibility Curve (PPC)...........................................................................................9
Task 02: Analyzing the demand and the supply in a refrigerator market.....................................10
Task 03: Different types of organizations..........................................................................................11
 3.1 Sole proprietorships traders....................................................................................12
 3.2 Partnership businesses.............................................................................................12
 3.3 Limited Liability companies....................................................................................13
 3.4 Joint ventures............................................................................................................14
Task 04: Stakeholder behavior in an organization...........................................................................15
4.1 Stakeholder analysis of Dilmah tea..........................................................................................15
 4.1.1 Internal stakeholders of Dilmah tea company.........................................................16
 4.1.2 Connected stakeholders of Dilmah tea company.....................................................16
 4.1.3 External stakeholders of Dilmah tea company........................................................16
Task 05: Methods of calculating Gross Domestic Price (GDP).......................................................17
5.1 Production approach.................................................................................................................17
5.2 Income approach........................................................................................................................18
5.3 Expenditure approach...............................................................................................................18
Task 06: Importance of Business Cycle, Unemployment, and Inflation.........................................19
6.1 Business Cycle............................................................................................................................19
6.2 Unemployment...........................................................................................................................19
 6.2.1 Cyclical unemployment...........................................................................................20
 6.2.2 Frictional unemployment.........................................................................................20
 6.2.3 Structural unemployment.........................................................................................20
6.3 Inflation.......................................................................................................................................20
 6.3.1 Demand-pull inflation..............................................................................................20
 6.3.2 Cost-pull inflation....................................................................................................20
Task 07: Fiscal policy and monetary policy......................................................................................21
7.1 Fiscal policy................................................................................................................................21
7.2 Monetary Policy.........................................................................................................................22

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Task 08: Types of economic systems..................................................................................................23

8.1 A command economy.................................................................................................................23
8.2 A market economy.....................................................................................................................24
8.3 A mixed economy.......................................................................................................................24
Task 09: Market structures................................................................................................................25
9.1 Pure competition market structure..........................................................................................25
9.2 Pure monopoly market structure.............................................................................................25
9.3 Monopolistic competition market.............................................................................................26
9.4 Oligopoly market.......................................................................................................................26
Task 10: International Trade..............................................................................................................27
10.1: Advantages of International Trade.......................................................................................27
10.2: Disadvantages of International Trade..................................................................................28
Conclusion............................................................................................................................................29
References.............................................................................................................................................30

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Introduction

Business economy has taken a significant part in the world of business. Collins dictionary
defines economy as “the study of the way in which money, industry, and trade are organized
in society”. It primarily studies about the financial needs and issues, organizational, internal
and external market related issues that can be generated from the market. Studying economics
provides information and future predictions to inform decisions with government and
organizations in the country’s economy.

To identify the influence of costs on the size and structure of the organization, firms need to
have a good understanding about the economic of the market. In-addition it benefits to clarify
the sources of market failures and the policies available to deal with the industry. Studying
economy can aid to develop a range of transferable skills such as problem solving,
communication, time management, currency management. The two main branches of
economy are, microeconomy and macroeconomy. Economists mostly take the decisions in
accordance to the microeconomic factors and macroeconomics factors.

Financial functions also take a vital part in an economy. Studying the country’s economy can
explicate the roles of various financial assets, financial markets, and financial institutions in
supporting organizations to manage their liquidity position and to provide an economic return
to providers of liquidity. And also, clarifies role of commercial banks in the process of credit
creation and in determining the structure of interest rates and the roles of the “central bank”
in ensuring liquidity (Kaplan , 2018, p. 76)

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Task 01: Economic concepts

1.1 Ceteris Paribus

Ceteris Paribus means “holding other things constant” or “all else being equal”. This concept
is about there so many variables constantly changing. This concept “Ceteris Paribus” is the
law of economics. It states if the demand drops, then the price of the good or service falls
until it meets the demand.

Example: If the price of bread increases, people will purchase less bread and go with
substitute goods such as rice, noodles, spaghetti.

1.2 Opportunity cost

Scarcity is the main reason for creating opportunity cost. According to CIMA, opportunity
cost I “the value of the benefit sacrificed when one course of action is chosen in preference to
an alternative (Kaplan , 2018). It signifies the forgone potential benefit from the best rejected
course of action. Opportunity costs includes implicit cost which means the costs that requires
a money payment. and explicit cost which means the costs that do not require a money
payment. (Mankiw, 2000, pp. 3-6) Example: assume that you have $30 and you are planning
to go for a dinner with a friend from it. Your opportunity cost will be cost of buying an
encyclopedia or going for a picnic with the friends.

1.3 Production Possibility Curve (PPC)

Production Possibility Curve is a graphical model that represents all of the different
combinations of two products that can be produced.
 A – Inefficient – not all resources fully
utilized.
 B, D, C – Efficient output
 X – Scarcity – not attainable
Basically, opportunity cost can be exemplified
by the production possibility curve. It shows
the possible combinations of two goods or
services and the alternative ways that can use
its resources. Mainly there are two main
assumptions that primarily focus on when
drawing a PPC curve. One is fixed resources
Figure 1 Production Possibility Curve and other one is maximum efficiency.

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Task 02: Analyzing the demand and the supply in a refrigerator market.
Price $

320

256

233.3
Equilibrium price 192

128

64

80 160 240 320 400 480 560 640 720 Quantity

Equilibrium Quantity (Millions per year)

b). Quantity demand when the price was $128 = 480

Quantity supply when the price was $128 = 240
Excess demand = 240
When the price was $128 there would be an excess demand of 240 million per year.
Because for the price of $128 buyers would be demanding 480 million and the suppliers
would be supplying 240 million. Therefore, there would be an excess demand.

c). Quantity supply when the price was $320 = 720

Quantity demand when the price was $320 = 240
Excess supply = 480
When the price was $320 there would be an excess supply of 480 million per year. Because
for the price of $320 suppliers would be supplying 720 million and the buyers would be
demanding only 240 million. Therefore, there would be an excess supply.

d). Equilibrium price is $192.

Equilibrium quantity is 400 million per year.
If the demand of the consumers and the supply of the sellers correspond, then the market
supposed to be in equilibrium.
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e). The new equilibrium price will be $233.3. Because the demand curve shift to right.

Task 03: Different types of organizations

According to Buchanan and Huczynski organizations are social arrangements for the
controlled performance of collective goals. The key aspects of an organization can be mainly
classifying as,

 Collective goals – Goals are the primarily belongings in an organization.

 Social arrangements – Each organization has specific organizational structures to
enable people to work to achieve the goals of the organization.
 Controlled performances – To verify the achievements, an organization need to
have reviews such as performance reviews (Kaplan , 2018)

We need organizations to share skills and knowledge, specialization and pool resources as
employees. As the organization expands it will get more and more goals and control
procedures to ensure the purposes are accomplished. Organizations can be classified as
below,

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Government
departments
Not-for-profit
Schools
seeking

Charities and clubs

sole traders
Profit orientation
businesses

Partnerships
Organizations

Incorporated
Profit-seeking
companies

Joint ventures

Limited companies

Government
departments
Public
Government
Cooperations
Ownership Sole traders
business

Private Partnership

Limited companies

Figure 2: Types of Organizations

Now let’s discuss about some types of organizations that we can found in the world of
business.

 Sole traders
 Partnerships

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 Joint ventures
 Limited companies
 Co-operatives
 Clubs and societies Figure 3: Different types of organizations
3.1 Sole proprietorships traders

Sole proprietorships traders are the ones who owns and run his or her solitary from their own
investment. He or she will have to be responsible for the debts of the business lonely and
also, he or she will be able to enjoy the whole profit solely. This kind of business
organizations are very common in the market because of the ease of starting and also these
kinds of organizations do not need much space or equipment.

Advantages of sole proprietorships Disadvantages of sole proprietorships

Owners are allowed to take their own Liability is unlimited. The owner must be
decisions. Therefore, they can take responsible for all the liabilities such as
independence decisions without any external loans, debts, and other liabilities.
forces.

Registration is not compulsory. Therefore, the No perpetual succession. If the owner dies,
tax payments and auditing are not mandatory. the business will come to the end because
he is the only one who owns the business.

3.2 Partnership businesses

Partnerships businesses are owned by group of individuals that formed by two or more people
(2-50) for a purpose (McQuaid, 2000). It is based on a written agreement or an oral
agreement or an implication. According to Professor Kant, “Partnership is a contract of two
or more competent persons to place their money, efforts, labor and skills, or some or all of
them in lawful commerce or business and to divide the profit and bear the loss in certain
proportions”.

Advantages of partnerships Disadvantages of partnerships

Able to invest a large capital at a time. Delay in decision making. For the reason
Because according to the number of the that, arguments and conflicts will lead to

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partners, they will be able to collect more interrupt the decision-making process.
capital.
Can make successful decisions. Since, there Lack of trust. The relationship between
are large number of people with different partners must be transparent and honest.
kinds of knowledge and skills, decisions Otherwise the decisions will result in an
would be better. unsuccessful partnership.

3.3 Limited Liability companies

Limited liability companies (LLC’s)can be defined as a type of a business entity that
combines ideas from partnerships and corporate law. Limited liability companies can be
owned and controlled by one person or more people and businesses and companies. They are
known as the members of the LLC. Unlike corporations, limited liability companies do not
have shareholders and do not issue shares.

Advantages of Limited Liability Disadvantages of Limited Liability

Companies Companies
Member or the members are shielded from Limited life. Because they are mainly
personal liability from the debts and the formed for a single project or a purpose.
actions of the company. Therefore, the operating can be limited for a
particular date or a year.
The income of the business passes to all the Limited capital. Limited Liability
members according to their allocated profit Companies don’t issue shares. Therefore,
ratios. they will have a very limited money to
invest.

3.4 Joint ventures

Joint ventures start up to achieve a specific task within a short period. It can be defined as a
type of cooperative which made of two or more parties in which enterprises join an alliance
to pool their resources and expertise. A minor number of participations which might not
involve equity participation for the business operations. Relatively joint ventures have a high
percentage to fail.

Advantages of Joint ventures Disadvantages of Joint ventures

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Growing the business in number of Clash of cultures. If the joint venture formed
countries. by a combination of two different countries,
then the cultures will be conflicting since
the beliefs, tastes are different.
Exchange controls. It will prevent the Problems occurs in management structures.
organization from exporting capital. One companies structure can be completely
different from the others. therefore, the
percentage that can happen conflicts are in a
high rate.

Task 04: Stakeholder behavior in an organization

According to CIMA, stakeholders are “those persons and organization that have an interest in
the strategy of an organization”. Simply, stakeholders are the main parties that have an
attention about the business. Managers, directors, employees, shareholders, customers, and
government are some of the examples for stakeholders. Managers and directors must be
aware about how to keep those stakeholders contented to take the maximum output from

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them because they have the will power to influence

its day to day activities. An interest or concern that a
stakeholder has towards the company can be named
as stakeholder interest and the level of involvement
to the business activities can be named as
stakeholder influence (Kaplan , 2018, p. 13). Mainly,
we can divide stakeholders into three main parts.
They are,

 Internal stakeholders – internal

stakeholders are confidentially connected to the organization. They are a strong
influence towards the company. E.g. – Managers, directors, employees.
 External stakeholders – external stakeholders are the external environmental
parties that can influence the business indirectly. E.g.- Local community,
government, trade unions.
 Connected stakeholders – these stakeholders have a contractual relationship
between them and the business. E.g. – shareholders, customers, suppliers.

4.1 Stakeholder analysis of Dilmah tea

Dilmah tea is a well-known Ceylon tea company in the tea industry which was founded by
Mr. Merril J. Fernando in 1988. Dilmah team has been contributory in enhancing in the brand
value of Ceylon tea (Dilmah Annual report, 2020). “A cup of kindness” is their motto. Within
that also they have included the value that they have given to the customers of them. Now,
let’s see who are the stakeholders of Dilmah and what are the responsibilities of them.
According to the annual report 2020, Dilmah has engaged with many governmental, national
and international organizations.

4.1.1 Internal stakeholders of Dilmah tea company

Directors Employees
Making decisions for the future expansion Providing their fullest effort to achieve
of the company. companies’ goals and aims.
Allowing Sri Lanka to keep earnings that
enriched international traders while our tea
producers were abused.

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4.1.2 Connected stakeholders of Dilmah tea company

Suppliers Shareholders
Supplying quality raw materials such as Participating annual general meetings.
fresh tea leaves, good machineries.
Getting quality standards such as SLS, ISO Pay the dividends.

4.1.3 External stakeholders of Dilmah tea company

Government Environmental pressure groups
Giving relevant fertilizers for tea estates to Check the factories whether they are
keep the cultivating process smoothly. following the environmental policies
properly.
Searching about customer health and safety.

(Dilmah tea company, 2018-19)

Figure 5: Source (Dilmah, 2018-19)

Task 05: Methods of calculating Gross Domestic Price (GDP)

Calculating Gross Domestic Price (GDP) is a vital thing to a country’s economy because it
calculates the total of all the final goods and services during a certain time period within a
country. It calculates all the outputs generated within the borders of the respectable country
(Tim Callen,2008). GDP is mainly composed of products and services manufactured for
market sale as well as some nonmarket production, such private transfer payments, public
transfer payments, stock market transitions and second-hand sales. Theoretically, there are
three main approaches to calculate GDP. They are,

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a. Production approach
GDP = Production approach + Income approach +
b. Income approach Expenditure approach
c. Expenditure approach

5.1 Production approach

Production approach calculates the sum of the “value added” at each stage of production.
E.g.- In a bakery,Cost of the ingredients (Flour, yeast, sugar, salt, oil, butter) and every stage
of production. “Value added” is the sum of total sales minus the value of intermediate into
the production process. As an example, flour would be an intermediate input and cake is the
final product.

Production approach = Gross value of output – value of intermediate consumption

Let’s solve this using a biscuit factory.

Stage of production Sales value of materials of Value added

product

Section 01: Mixing $100 $100

Section 02: Forming $45 $55
Section 03: Baking $220 $175
Section 04: Cooling $75 $145
Section 05: Packaging $150 $75
Total sales value $
Value added (Total sum)

5.2 Income approach

Income approach computes the sum of the incomes generated by the production. In other way
it adds up the value of purchases made by the final consumers. As an example, investments
on buildings and equipment by the organizations.

 Wages and salaries – Wages of the pastry chefs, supervisors, deliver men.
 Profits and interests – Profits from the bakery items, interest income
 Rent and other property incomes

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5.3 Expenditure approach

Expenditure approach evaluates sum of the incomes generated by the production or sum of
purchases made by the final users.

In expenditure approach GDP calculates using the below formular.

GDP = Consumptions + Investment + Government expenditure + (Exports – Imports)

GDP = C + I + G + (X-M)

Fig
ure 6: Source (Central Bank of Sri Lanka, 2021)

Task 06: Importance of Business Cycle, Unemployment, and Inflation

Mainly, there are four main arears that macroeconomic focusing on. They are, policy goals,
models and frameworks, policy options, achieving policy goals. Macroeconomic activities
control the aggregate demand for goods and services, the national output of goods and
services, national income, national expenditure and government policies.

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6.1 Business Cycle

The alternative rise and decline in different level of economic activities. Basically, there are
four main stages in a business cycle named recession, trough, expansion and peak. It’s
essential to understand the business cycle of your company appropriately because it decides
the succession of the business.

Output
Peak

Expansion
Recession

Trough

Time
According to Mises, artificially low interest rates contribute to credit expansion, which leads
to brisk activity, because the policy of cheap money makes certain unfavorable infrastructure
projects appear appealing to entrepreneurs. The study of Great depression argues the credit
expansion created an artificial boom in 1920(Murray Rothbard,2000)

6.2 Unemployment
Unemployment is a common problem that will have to face each and every economy because
people often change their jobs and lost their jobs. Unemployment has been a major problem
to a government for the reasons of government will have to pay the paybacks to the
unemployed individuals. Unemployment can be led to rise underprivileged individuals,
crimes, health issues and break in relationships of families. This can result in restrict the
economic growth for an economy (Kaplan , 2018, p. 117). There are three main categories of
unemployment.
Approximate numbers of years required to = 70
double GDP Annual percentage of rate growth

6.2.1 Cyclical unemployment

This happens when no demand in the market because the economy doesn’t need employees.
This is caused because of the aggregate demand in the economy is too small to create careers
for those willing to work. Deflationary gap would be generated and economists would pursue
to remove it by increasing aggregate demand.

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6.2.2 Frictional unemployment

This happens when an employee moves on from to another. The transaction period between
that is called frictional unemployment.

6.2.3 Structural unemployment

This occurs when the economy is unable to provide enough jobs in the job market. As an
example, if skills or the location change as requirements naturally there will be a structural
unemployment. Assume that you are an employee in a toothpaste company, who fix the lids
to the toothpastes. The company introduced a new machine to fix lids robotically and faster.
Therefore, automatically your job will be lost.

Unemployed rate = Unemployed X 100

Labor force

6.3 Inflation
Inflation is increasing the general price of goods and services in an economy. Main groupings
of inflation are demand-pull inflation and cost-push inflation.

6.3.1 Demand-pull inflation

This arises, when the demand is increasing faster than the ability to supply goods and services
in the economy. Therefore, prices will increase of goods and services.

6.3.2 Cost-pull inflation

If the cost of the factors which needs to the process of production increases such as factor
prices, indirect taxes, the prices of the outputs all will increase since companies try to uphold
the profit margins. Regardless of the level of the aggregate demand. Therefore, naturally it
creates a cost-pull inflation.

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Task 07: Fiscal policy and monetary policy

We can name policy options as

one of the main purposes of
macroeconomics functions.
Basically, there are two main
policies that have been following
by the government. One is Fiscal
policy and the other is monetary
policy.

7.1 Fiscal policy

According to CIMA, Fiscal
policy refers to government’s
Figure 7: Fiscal policy tools
taxation and spending plans are the main policy tools. Fiscal policy calculates the proportion
of government spending and the rate of taxation. When the government make the annual
budget, they will get the help of this policy to achieve a balanced budget. Simply, fiscal
policy computes, the inflows and outflows within the country.

If the government expenditure is more than the income, it will lead to a budget deficit.
Borrowings are the main reason of a deficit. Because of this, government will function the
expansionary policy by injecting more into the economy than the withdrawals and increases
aggregate demand and reduce unemployment. Budget deficit is used to reduce unemployment
by closing the deflationary gap.

At the same way, if the government income is more than the government expenditure, then
there will be a budget surplus. If the income and expenditure is equal, it will be a balanced
budget. Fiscal policy can be used to control inflation. As the same as mentioned above, the
government will function the contractionary policy by withdrawing money from the economy
in a productive way. And also, the aggregate demand will be increasing. For the reason that,
an inflationary gap will be creating(Kaplan , 2018).

 Government cut the taxes to expand the economy.

 Transfer payments are paid by the government to households as social security
payments.

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7.2 Monetary Policy

As to CIMA, monetary policy refers “to the management of the supply of the money in the
economy and is usually understood within the context of monetarism”. According to the
monetarist economists, monetary policy is more resourceful than the fiscal policy to control
the economy. Fluctuating interest rates, open market operations, fixing reserve requirements
for banks are the main functions of the monetary policy. As same as the fiscal policy,
monetary policy also has policies such as expansionary and contractionary. Expansionary
policy increases the total money supply by combatting unemployment by decreasing interest
rates while the contractionary policy decreases the money supply by increasing interest rates
to control inflation. Main monitory policy tools are,

 Reserve requirements
 Open market operations
 Interest rates

Reserve requirements

Banks controls this tool by keeping a certain percentage from their deposits as retained cash.
That proportion is called as the asset ratio or liquidity ration (Kaplan , 2018, p. 143). Sri
Lanka’s reserve ratio is 30% (Central bank of Sri Lanka, 2017).

Open market operations

This includes buying and selling bonds by the government to control the money supply. By
buying bonds it will release more cash into the economy. Contrariwise, when sells bonds
government will receive cash in return to weaken the money circulation.

Interest rates

Interest rates are manipulated as

a key controller over the
inflation. (FEDERAL
RESERVE BANK OF SAN
FRANCISC, 2004). If
government increases the
interest rates the borrowers will
repel and the investors will
Figure 8: Monetary policy tools
attract.

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Task 08: Types of economic systems

According to Loucks “economic system is that it consists of those institutions which a given
people or group of nation has chosen or accepted as the means through which resources are
utilized for the satisfaction of human wants”. Basically, economic systems are made to
produce, distribute, and consume the goods and services in an effective and efficient manner
because given resources are limited, is it not possible to make everything that the society
needs. Therefore, allocating the available resources in a efficient way is very important in a
economy of a country. An economic system needs to answer three main questions that will
pop up from the society. In short form it can be called as 2Ws and 1H.

a. What to produce? (What kind of goods and services need to produce)

b. Whom to produce? (To whom/target market of the market)
c. How to produce? (What are sources that will need to production)

There are three main economic system to solve these three main complications. They are,

 A command economy
 A market economy
 A mixed economy

8.1 A command economy

To solve the three economic questions

the government creates the central
economic plan. “Central plan” is the
main source of decision-making
process. The resource allocation
happens in accordance to it. Central
plan prioritizes not only profitable
goods and services but also all the production of goods and services. Land and capital owns
my the government.The
Figure government
9: Nature of Command owns monopoly businesses such as railway, water.
economy
Therefore, the price can be decided in accordance to central plan. Cuba, Iran, North Korea,
are some of the countries that have a command economy( (Kaplan , 2018).

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8.2 A market economy

The private sector controls what to, how to, whom to,
produce in the economy for the purpose of gaining
profits. The needs of individual customers are the
main criteria when comes to the production and
decision-making process. The private property
ownership, free market price competition, and
consumer price are some characteristics of this. The
government involvement is very limited. Ex:Hong-
kong,Swithzerland,UK

Figure 10: Nature of market economy

8.3 A mixed economy

Mixed economy is a combination of the
market economy and the command
economy. Both government and the private
sector involves in the decision-making
process. The resource allocation happens in
accordance to the central plan and the
private sector. Sri Lanka has a mixed
economy system. By the influence for
supply and demand through regulations Figure 11: Nature of mixed economy
government can safeguard the people and markets. Mostly government supply transportation
and military deference.

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Task 09: Market structures

“Market structure refers to the nature and degree of competition in the market for goods and
services. The structures of market both for goods market and service(factor)market are
determined by the nature of the competition prevailing in a particular market” (Smriti
Chand). Market structures are important to an economy because naturally it creates
competition, monopoly, price controls to make an economy more stable and competitive.
Mainly there are four main types of market structures in an economy. We can name them as,

 Pure competition market structure

 Pure monopoly market structure
 Monopolistic competition market structure
 Oligopoly market structure

9.1 Pure competition market structure

Pure or perfect competition is a market structure which there is a bulky number of buyers and
sellers in the market. Venders sell homogeneous and standardized products which do not
create advertisement campaigns majorly. In this kind of a market structure, buyers and sellers
are independent because there are major number of consumers and vendors. Therefore, they
buyers will be able to buy products without any control of the sellers. Perfect competition
firms are price takers because they are selling the products according to government
regulations producers’ prices. And also, sellers also will be able to sell their products without
any barriers because the prices are in same rate. Grocery retailers, vegetable farmers are some
examples for this market category.

9.2 Pure monopoly market structure

Pure monopoly creates when a single company is the sole producer/seller of a unique product
or a service which doesn’t have close substitutes. This kind of markets act like price makers
because they have the power of governing the price decisions by controlling the supply.
There are huge blockages to enter the industry. The demand curve of pure monopoly will be a
down sloping curve because they are price makers.

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9.3 Monopolistic competition market

Monopolistic competition is a market structure where there are many numbers of firms in the
market but still there is a slightly different in the products. There are substitutes but not
perfect. In relation to pure monopoly there are large number of sellers with differentiated
products and services. The entry and exit are easy in this structure. Restaurants, consumer
services, hotel and pubs are some examples for monopolistic competition.

9.4 Oligopoly market

Oligopoly market is a place that have a small number of large firms in the market.
Competitive strategy is the main strategy. The products can be differentiated or may not be
differentiated. There are barriers to enter the market. Automobile companies, aluminum, steel
is some of the examples for oligopoly market structure.

Market structure of a beauty salon

As an example, the author would take a beauty salon which provides beauty products and
services which help to enhance their outer appearance. It goes under the monopolistic
competition because of the below characteristic.

 There are many service providers.

 Entry and exit are easy.
 Firms have little control over the price especially to professionals such as Ramani
Fernando.
 Services are slightly differentiated from each and every salon.

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Task 10: International Trade

Fundamentally, International trade is purchasing and vending or importing and exporting

goods and services beyond the national borders. International trade is best explicated by the
fact that opportunity costs vary from one country to another country. In another, perhaps
because worker
time is more
expensive and
natural resources
needed are not so
abundant the
country’s
resources are
better utilized Figure 12: International Trade
elsewhere. The growth of international trade has been stimulated partly by the steady decline
of trade barriers since the great depression of 1929 to 1933(International Economics: Theory
and Policy-Steve Suranovic,2012). Because of globalization the world has opened up many
opportunities for international trade. The revolution of electronic media and social medial
have given a huge opening for the concept of international trade. Selling and purchasing have
been a fingertip distance because of social media. There are numerous of advantages and
disadvantages by doing international trade for a country.

10.1: Advantages of International Trade

1. Specialization.
When a country starts to produce a particular product or a service, then that country
will start to specialize about that product. Consequently, they will find new ways to
produce that product more efficiently and effectively.

2. Competition.
A domestic market controlled by a monopoly may be exposed to competition from a
foreign market.

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3. Increase in efficiency.
For the reason of specialization, the efficiency will be increased because the factors of
production can be placed to the maximum use. It will result in large scale production
and introduction in new machinery will result higher amount of output. To produce
better products for lower prices can lead to economies of scale to enhancement in
general living standards.

4. Availability and cheapness of the products.

By international trade localities will be able to consume foreign products to a cheaper

price because generally foreign goods imports to a country for the reason of
cheapness in comparison with the domestic costs and the prices.

10.2: Disadvantages of International Trade

1. Can be a threat for the national defend.

When a country highly depends on another country it will lead to a risk for that particular
country because of the high dependency. As an example, during a war it will result in a
dangerous state of affairs for a country.

2. Domestic industries will affect harmfully.

Especially in Sri Lanka, this disadvantage has been highlighted majorly. This has been very
unfair specifically to the Sri Lankan farmers because most of the crops that can be grow up in
Sri Lanka have been importing.

3. Cultural differences.

This can be named as the main disadvantage when comes to international trade. When a
country imports goods from another country that goods can be made according to that
country’s cultural factors. As an example, Chinese people consume animal flesh such as
snakes, insects and worms. Asian countries have a completely different food habits in
comparison to other western countries.

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Conclusion

This report is mainly focused on identifying the microeconomics and macroeconomics

factors of an economy. By this report, the author has explained how these economic factors
effect to a country’s economy by mismanaging them. It is very important to keep all the
economic activities stable to govern a country without any major consequences. Not only
inside the country but also the importance of the international trade has been deliberated by
the author.

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References

 Annual report, D., 2021. [online] Dilmahtea.com. Available at:

<https://www.dilmahtea.com/sustainability/pdf/dilmah-ceylon-tea-company-plc-
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