BUSINESS ENVIRONMENT

The environment of the business

[Instructor name]

Introduction

Business environment involves applying the economic concepts to real-world case studies. In this way, the economy theory given in the textbooks can be easily applied to the cases at hand to know as to how exactly the economic concepts relate to us in our everyday daily lives.

The environment of the business

Answer no. 1

It is true that what is happening in the market for eggs will have strong implications for what is going to happen in the market for biscuits (Doward, 2012). It is obvious that there is an acute shortage of eggs in the UK market. Consequently, the users and consumers of eggs are turning to imports to meet their need for eggs. However, also many producers of eggs have now stopped their operations. This has dire implications for the biscuit market. The biscuit market has eggs as the most vital ingredient for making biscuits. If the cost of one of the factors of production (such as raw materials) goes up, then naturally the cost of production will go up on average, marginal, as well as in total cost. Consequently, the supply will be curtailed, by some amount, to bid up the price of biscuits (which are complementary good to eggs).

This diagram clearly shows that due to the decrease in the supply of eggs the cost of production of biscuits goes up. Consequently, the biscuit manufacturers reduce their supply for each level of quantity demanded. This results in a shift in the supply curve from S1 to S2. Resultantly, the price of biscuits goes up from P1 to P2.

The economic theory given in the book would agree with the statement that it is no longer about price; rather it is about supply now. This is because the price of eggs depends on the forces of demand and supply. However, the demand and supply is no longer on the average level. There has been a shortage in the market, due to a sharp slump in the supply of eggs. This shortage needs to be dealt with rather than worrying about the price. Any such shortages result in the bidding up of price, as is seen. However, the price will go up, but that would only matter less. The reason is that eggs are essential commodities. They have to be consumed under all conditions. The price of eggs matter less. People have made the demand for eggs inelastic. That is its price elasticity is less than unity. People want the shortage to be removed by whatever means, regardless of the price that they will have to pay ultimately (Wessels, 2006).

Answer no. 2

Part a

The concepts of scarcity and opportunity cost are very important for governments in the mixed economy. Government is responsible for the proper functioning of the economy of the country. If there is a shortage of any good, then the government is responsible to provide that good in the market by any means, as long as the good is a necessity and needs to be ...