Economics for Business

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 Table of Contents
Task 1.........................................................................................................................................3

“Explain how resource scarcity and opportunity cost impact microeconomic decision making
for households and individuals in the UK.”...............................................................................3

“Explain these economic concepts using real examples from within the UK economy and
social environments within the past three years (2019-2021).”.................................................4

“Analyse and explain what you perceive to be the biggest challenge for some households
with respect to resource scarcity and opportunity costs.”..........................................................5

Task 2.........................................................................................................................................6

“Explain how cost-benefit analysis and incentives impact microeconomic decision making
for households and individuals in the UK.”...............................................................................6

“Explain these economic concepts using real examples from within the UK economy and
social environments within the past three years (2019-2021).”.................................................7

“Analyse and explain how the market economy uses consumer habits of cost-benefits
analysis and desire for incentives to drive their business profits.”............................................8

References................................................................................................................................10

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Task 1

“Explain how resource scarcity and opportunity cost impact

microeconomic decision making for households and individuals in the UK.”
In the face of such scarcity, we must figure out how to distribute our limited resources in an
acceptable manner. When it comes to economics, the study of the way society makes choices
is investigated in depth. The choices made by individuals, families, and businesses are at the
centre of microeconomics when it comes to making financial decisions. The issue is a lack of
resources.

Concept of Scarcity

In the field of economics, there is always a scarcity of resources to suit our requirements.
Comparatively speaking, resources are few compared to human desires. In general, this is
true for a wide range of economic systems, including both rich and impoverished ones (De
Bruijn and Antonides, 2021). When the number of resources available to fulfil human wants
is less than the number of resources necessary to satisfy human aspirations, scarcity is said to
have occurred. Sufficiency is used to describe a situation in which there is not enough of
something.

Scarcity causes economic problems

The idea of scarcity is subjective and depends on the individual. A dearth of financial
resources or a desire for infinite commodities are often identified as the root causes of this
problem. Indeed, the number of accessible resources is diminishing. When it comes to
resources being in short supply, there are certain exceptions to the general norm. Price rises
are caused by a lack of available items. When something is rare, it is worth more money than
when it is widespread.

Concept of choice

The term “shortage scenario” refers to more than merely a situation in which resources are in
short supply in comparison to human requirements. It is also owing to the fact that resources

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are used in a variety of ways (Acuff et al., 2020). Because resources are finite and may be put
to a variety of purposes, it is essential that we address the question of choice.

In order to understand the notion of opportunity cost, we must first understand the concept of
scarcity. When you make a decision, you must be willing to give up something in order to get
something else. This is referred to as the “value of the next best opportunity” in another
context. It is undeniable that scarcity and opportunity cost are inextricably bound together.
When it comes to determining how to spend their money and time, people are confronted
with a plethora of possibilities. It is typical for businesses to be forced to choose between a
limited supply of resources and a high opportunity cost in order to survive (Khan, 2021).
Companies must choose how and when to utilise resources since they are not always
accessible in endless quantities, thus they must make decisions about how and when to use
them in order to get the most bang for their buck. When you choose one resource over
another, you’re making a trade-off in terms of efficiency. An inferior-quality but more readily
accessible resource may be swapped for a superior-quality resource throughout the
manufacturing process for example. In the realm of business, making decisions is something
that happens all of the time. All participants in an economy must make decisions about which
resources to utilise in order to meet their personal needs. In the event that available resources
are depleted, individuals may be forced to make difficult decisions.

The notion of “choosing the next best choice” is based on the concept of “opportunity cost.”
Due to a corporation’s incapacity to produce specific commodities for a lengthy period of
time, scarcity and opportunity cost are typically the most important considerations when
deciding the best choice to pursue (Khan, 2021). It is necessary for the customer to make an
economic choice and suffer an opportunity cost in order for them to identify the next best
option. The second computer, despite the fact that it is perfectly functional, is not the
customer’s first choice. Because of the law of scarcity and the concept of opportunity cost,
individuals and businesses will always choose the next best economic alternative available to
them.

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“Explain these economic concepts using real examples from within the UK
economy and social environments within the past three years (2019-2021).”
These factors all play an important role in the property market’s success or failure. Inventory
levels, rather than market-side characteristics, may be a determining factor in house pricing.
There will be a rise in home prices and rental rates when there is an increase in demand and a
shortage of supply. Housing market circumstances are heavily influenced by the economy,
interest rates, actual revenue, and demographic shifts. Pricing should take these demand-side
factors into account. Building the best homes is easy in Calicut since there are a broad variety
of skilled home builders there. With a shortage of properties, rents and the probability of
homelessness grow when demand exceeds supply (Bontempi and Coccia, 2021). The desire
for a place to live is driven by a person’s income. People’s ability to purchase a property
improves as their incomes rise, which in turn fuels demand and drives up prices. A rise in
family income might be expected as a consequence of an increase in the demand for homes.
Consumers often put off purchases during tough economic times, and those who lose their
jobs may find themselves in danger of losing their homes to foreclosure. When analysing
how economic difficulties impact the housing market, it is important to take economic growth
into account. Few people would be able to afford to purchase a house because of the growing
number of people out of work (Nundy et al., 2021). A potential layoff might dissuade
purchasers from entering the market, though. Interest rate fluctuations have an impact on
monthly mortgage payments. During an era of high interest rates, mortgage costs would
climb, reducing the desire to buy a property. Renting rather than owning a home is becoming
more attractive due to the high mortgage rates. Higher interest rates on adjustable mortgages
have a bigger effect on homeowners than lower interest rates.

All property appraisals are based on predicting the value of a piece of land in the future. The
value of land is now rising on a daily basis. The value of a property you buy now will rise in
the future. There are four elements that have a direct impact on a property’s value.
Temperature and pollution are two examples of environmental changes that may be attributed
to physical components (Nundy et al., 2021). Financial challenges may have an impact on the
job market in a certain location. Concerns were raised about the baby boomer generation’s
impending retirement. A house’s value may be impacted by any or all of the above, as well as
several other variables.

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“Analyse and explain what you perceive to be the biggest challenge for
some households with respect to resource scarcity and opportunity costs.”
The issue is a lack of resources. As a result of the shortage of resources, we must decide how
to effectively distribute our limited resources. The study of economics is concerned with the
process through which individuals in a society arrive at these judgments. In microeconomics,
one of the primary goals is to understand how people, families, and businesses make these
types of choices (Hamilton et al., 2019). We won’t have to be concerned about how resources
are divided as long as there are adequate resources. To be clear, economics is basically
concerned with the scarcity of resources in a society. In economics, negative analysis, which
is the description of events and facts, is a popular topic of discussion. It is quite easy to slip
into the trap of describing things in terms of what they “should” be rather than what they
really are if you are not cautious. A model simplifies a difficult concept or practise by
removing all but the most essential components of the concept or practise. With the use of a
map, you can determine where the routes separate. Except for the fact that it is entertaining,
information such as the location of a noteworthy mural or the world’s finest taco stand is not
required in order to find the firm in question.

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Task 2

“Explain how cost-benefit analysis and incentives impact microeconomic

decision making for households and individuals in the UK.”
Microeconomics is the study of how people, families, and businesses make use of limited
resources in marketplaces where goods and services are purchased and sold, as opposed to
macroeconomics. Decision-making has an impact on the supply and demand for services and
commodities, which in turn affects the costs, which in turn impacts the provision and demand
for various goods and services. Scarcity refers to a situation in which human desires and
needs outstrip the resources that are readily accessible (Puzzolo et al., 2019). When it comes
to making social choices, cost-benefit analysis (CBA) is a financial instrument that is most
typically used by the government and the private sector to determine the most cost-effective
course of action.

According to modern economic theory, when a key decision is taken, there is a large
opportunity cost, which indicates that there is scarcity. Since it is impossible to attain all of
society’s objectives simultaneously in the face of scarcity, trade-offs must be made in order
to achieve them all (Rowthorn and Maciejowski, 2020). Those who believe that human wants
are never-ending, on the other hand, believe that this specific idea of scarcity is mistaken.
People may be convinced to want more by social pressure, advertising in the media or on
billboards, or even the need to impress others, despite the fact that these illogical urges may
be more a function of society than of human nature. Overindulgence may provide relief from
feelings of self-loathing. There seems to be less concern about scarcity when it comes to the
most basic necessities such as food, water, housing, clothes, and health care, according to the
latest data. In order to determine the relative efficiency of a disruption, the cost-benefit
analysis is performed. Initial and continuing expenditures are evaluated in relation to
anticipated revenues as part of the process. Production managers may look at manufacturing
and marketing costs when estimating the potential sales of a new product in order to
determine the product’s predicted sales. When doing cost-benefit evaluations, the time value
of money is employed by converting future expenses and profits to their present value using
the present value of money formula.

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The problems that the CBA has had in determining which expenses to include in an
evaluation is an example of this problem (Tišma et al., 2021). While competition between
organisations has the potential to lower costs and drive innovation, competition inside
organisations nearly always has the opposite effect. In the face of overwhelming incentives,
the workplace might devolve into a place where office politics take precedence over the real
work of the organisation.

“Explain these economic concepts using real examples from within the UK
economy and social environments within the past three years (2019-2021).”
With regard to the COVID-19 financial crisis, the “social economy” has played a critical role
in addressing and alleviating the short- and long-term economic and social consequences of
the crisis. The social economy has provided new ideas to assist the rehabilitation of the
economy in addition to government attempts to help the economy recover. It is via their long-
term effect on the post-crisis economy that social economy organisations are able to promote
inclusive and sustainable economic growth. There are a number of ways in which firms in the
market economy might benefit from the social economy’s decades of experience, distinctive
qualities, and underlying principles (Aveline-Dubach, 2022). As a result of the COVID-19
situation, it is vital to rethink the way economic and social activities are organised. When
confronted with a crisis of this magnitude, it is critical that unity, teamwork, and
responsibility be maintained. Businesses established on social economy ideas have the ability
to fundamentally alter the economic and social landscape of the post-crisis era. It is the
purpose of this research to examine the role played by the social economy during the
COVID-19 financial crisis. This section emphasises the need of policy tools and proposals to
assist in “repairing” or “transforming society” efforts, as well as the limits of the social
economy in this regard.

Assemble a diverse collection of tools, including: Social economy organisations may

mobilise a broad variety of resources including sales earnings, government subsidies,
contributions, and volunteer labour to achieve their objectives. They will be able to assure
their long-term survival with the assistance of a diverse group of people. There are a variety
of financial and non-financial resources that may be mobilised to serve the dual aims of the
social economy (economic and social). The implementation of sustainable operational
methods is essential for a social economy organisation that prioritises human needs and

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natural ecosystems above everything else in the context of environmental sustainability
(Geels et al., 2022). As a result, organisations in the social economy must adopt a governance
model that is both inclusive and democratic in nature. It is easier to make informed judgments
on economic and social consequences when such governance models are in place, and as a
result, the degree of democracy in a community is increased. They cling to the earth in the
following ways: In order to swiftly adapt to local issues, social economy organisations often
function on a local level, where they have a deep awareness of what works and what doesn’t
in their region.

“Analyse and explain how the market economy uses consumer habits of
cost-benefits analysis and desire for incentives to drive their business
profits.”
Even if people are unaware of it, everyone has suffered the impact of a food shortage at some
point in their lives. We have an insatiable need because there are only a certain quantity of
resources available on our planet, which explains why we appear to have an insatiable
appetite. Therefore, individuals must use their limited resources to the greatest extent possible
in order to attain as many of their most essential goals as they possibly can. In a market
economy, the forces of supply and demand are the driving factors behind it (Bhattacharya et
al., 2021). For example, if a large number of individuals express an interest in purchasing
beer, the demand is deemed strong. Due to the increased cost of wheat as a component, you
may charge a higher price for your beer and earn more money in the process. It is impossible
to separate the idea of costs and benefits from the economic theory of rational choice.
People’s attempts to make choices that are as cost-benefit-balanced as feasible are referred to
as “rational behaviour” by economists. The notion of costs and benefits may be used to a
variety of choices that are not purely financial in nature. A college student’s everyday life is
spent weighing the costs and advantages of a variety of courses in order to determine which
ones are the most significant to their future success.

In a great many judgments, we make as humans, emotions take precedence over rationality,
and economic theory argues that this is the case. Advertising, for example, makes advantage
of people’s intrinsic propensity to behave in an irrational manner (Jakhar et al., 2019). Of
order to make us exaggerate the advantages of a product, commercials appeal to our
emotional centres in our brains. Economics-based incentives, which explain how consumers
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save resources while producers give such things, drive commodity demand upward. As
consumer demand for a product develops, the market price of that product rises, motivating
producers to produce more of it so that they may sell it at a greater price. When the price of
raw materials or inputs to manufacture a particular product rises, consumers have an
incentive to keep and utilise the things only for the purposes for which they were originally
intended.

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References
Acuff, S.F., Tucker, J.A. and Murphy, J.G., 2020. Behavioral economics of substance use:
Understanding and reducing harmful use during the COVID-19 pandemic. Experimental and
clinical psychopharmacology.

Aveline-Dubach, N., 2022. Financializing nursing homes? The uneven development of health
care REITs in France, the United Kingdom and Japan. Environment and Planning A:
Economy and Space, p.0308518X211072865.

Bhattacharya, A., Morgan, N.A. and Rego, L.L., 2021. Customer satisfaction and firm profits
in monopolies: a study of utilities. Journal of Marketing Research, 58(1), pp.202-222.

Bontempi, E. and Coccia, M., 2021. International trade as critical parameter of COVID-19
spread that outclasses demographic, economic, environmental, and pollution
factors. Environmental Research, 201, p.111514.

De Bruijn, E.J. and Antonides, G., 2021. Poverty and economic decision making: a review of
scarcity theory. Theory and Decision, pp.1-33.

Geels, F.W., Pereira, G.I. and Pinkse, J., 2022. Moving beyond opportunity narratives in
COVID-19 green recoveries: A comparative analysis of public investment plans in France,
Germany, and the United Kingdom. Energy Research & Social Science, 84, p.102368.

Hamilton, R., Thompson, D., Bone, S., Chaplin, L.N., Griskevicius, V., Goldsmith, K., Hill,
R., John, D.R., Mittal, C., O’Guinn, T. and Piff, P., 2019. The effects of scarcity on consumer
decision journeys. Journal of the Academy of Marketing Science, 47(3), pp.532-550.

Jakhar, S.K., Mangla, S.K., Luthra, S. and Kusi-Sarpong, S., 2019. When stakeholder
pressure drives the circular economy: Measuring the mediating role of innovation
capabilities. Management Decision.

Khan, H.A., 2021. An Exploratory Study of Millennial Investors and Psychological Biases
Coalesced around Decision Making Behaviour. BUSINESS RESEARCH AND INNOVATION,
p.340.

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Nundy, S., Ghosh, A., Mesloub, A., Albaqawy, G.A. and Alnaim, M.M., 2021. Impact of
COVID-19 pandemic on socio-economic, energy-environment and transport sector globally
and sustainable development goal (SDG). Journal of Cleaner Production, 312, p.127705.

Puzzolo, E., Zerriffi, H., Carter, E., Clemens, H., Stokes, H., Jagger, P., Rosenthal, J. and
Petach, H., 2019. Supply considerations for scaling up clean cooking fuels for household
energy in low‐and middle‐income countries. GeoHealth, 3(12), pp.370-390.

Rowthorn, R. and Maciejowski, J., 2020. A cost–benefit analysis of the COVID-19

disease. Oxford Review of Economic Policy, 36(Supplement_1), pp.S38-S55.

Tišma, S., Mileusnić Škrtić, M., Maleković, S. and Jelinčić, D.A., 2021. Cost–Benefit
Analysis in the Evaluation of Cultural Heritage Project Funding. Journal of Risk and
Financial Management, 14(10), p.466.

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