Project BE

Assignment Cover Sheet
Qualification Module Number and Title

Higher National Diploma in Business Management BFIN5201 - Business Economics
Student Name & No. Assessor

M. B. Deeresha Chandrasekera Ms. Chameera Wijayatunga
(CL/HNDBSM/86/08)
Hand out date Submission Date
17/04/2020 15/05/2020
Assessment type Duration/Length of Weighting of Assessment
Report Assessment Type 100%
1 month / 6000 words
Learner declaration
I, M. B. Deeresha Chandrasekera (CL/HNDBSM/86/08), 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
Business Economics | 1
FEEDBACK FORM
INTERNATIONAL COLLEGE OF BUSINESS & TECHNOLOGY
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Assessor:
Assignment:
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Acknowledgement
“All money is a matter of belief.” – Adam Smith (Father of

Economics)
There have been many people who have walked alongside me during the past couple of
months, they have guided me, placed opportunities in front of me and showed me the doors
that might be useful to open. The writer takes this opportunity to thank them for their
encouragement and dedicate this report with heartfelt gratitude.
This report is dedicated to Miss Chameera, the lecture of the module ‘Business Economics’,
whose passion for teaching set a new standard for anyone involved in education, training and
development, or any other endeavor which one human being seeks to support the growth and
development of another.
Executive Summary
The mission of this report is to advance, transmit and sustain

knowledge and understanding through the content included about Business Economics.
This report has an outline of 10 main tasks in which the writer has to look deeply into each
task and assure the completeness of them. The work that has to be done under each task is as
follows: Task
1. To explain scarcity, opportunity cost and the production possibility curve (PPC)
which are the basic economic concepts with an example each.
2. To explain law of demand and law of supply, demand curve and supply curve along
with the determinants that shift the supply and demand curve with examples for each
determinant.
3. To write about the types of organizations that belong to the private sector and public
sector (three each) with two advantages and disadvantages for each organization.
4. To explain who are stakeholders and categorize the stakeholders into the three types
with examples. Then to select an organization that belongs to the automobile industry
and identify its stakeholders with their responsibilities.
5. To explain what is GDP and the methods of calculation GDP with examples.
6. To explain business cycle and its importance to an economy, to explain

unemployment and its importance to an economy and to explain inflation and its
importance to an economy.
7. To write about fiscal and monetary policy and its tools and how those tools will help
to stabilize the economy.
8. To explain the 3 types of economic systems and how they manage their resources
effectively.
9. To explain the 4 market structures, to select a product of the writer’s own choice and
to identify to which structure that product belongs to.
10. To explain the importance of international trade with its advantages and
disadvantages.
The writer has started with a brief introduction of the module “Business Economics” then
gradually moved on in account to the tasks followed by the conclusion and the list of
references used to complete the assignment.
Contents
Acknowledgement......................................................................................................................3
Executive Summary...................................................................................................................4
List of Figures............................................................................................................................6
Introduction................................................................................................................................7
Task 1 – Economic Concepts.....................................................................................................8
1.1 Scarcity.............................................................................................................................9
1.2 Opportunity Cost..............................................................................................................9
1.3 Production Possibility Curve (PPC).................................................................................9
Task 2 – Demand and Supply..................................................................................................11
Demand................................................................................................................................11
Supply..................................................................................................................................14
Task 3 – Types of Organizations.............................................................................................19
Private Sector Organizations................................................................................................19
Sole Proprietorship...........................................................................................................19
Partnership Organizations................................................................................................19
Private Limited Companies..............................................................................................19
Public Sector Organizations.................................................................................................20
Government Departments................................................................................................20
Government Corporations................................................................................................20
Government Companies...................................................................................................20
Task 4 – Stakeholders in an Organization................................................................................22
Stakeholders.........................................................................................................................22
Categorization of Stakeholders of the Toyota Industries Group..........................................23
Task 5 – Gross Domestic Product (GDP)................................................................................25
Gross Domestic Product (GDP)...........................................................................................25
Methods of Calculating GDP...............................................................................................25
Task 6 – Economic Growth and Stability................................................................................27
Business Cycle.....................................................................................................................27
Unemployment.....................................................................................................................28
Inflation................................................................................................................................28
Importance of business cycles to an economy.....................................................................29
Importance of unemployment to an economy......................................................................29
Importance of inflation to an economy................................................................................29
Task 7 – Fiscal and Monetary Policy.......................................................................................30
Fiscal Policy.........................................................................................................................30
Monetary Policy................................................................................................30
Task 8 – Economic Systems..................................................................................32
Command Economy System................................................................................................32
Free Market Economic System............................................................................................32
Mixed Economic System.....................................................................................................33
Task 9 – Market Structures......................................................................................................34
Pure Competition.................................................................................................................34
Monopoly.............................................................................................................................34
Monopolistic........................................................................................................................35
Oligopoly..............................................................................................................................35
Task 10 – International Trade..................................................................................................36
Conclusion................................................................................................................................38
References................................................................................................................................39
List of Figures
Figure 1: PPC curve of product A and B.................................................................................10

Figure 2: Demand Curve..........................................................................................................11
Figure 3: Demand Curve (ex.1)...............................................................................................13
Figure 9: Supply Curve............................................................................................................16
Figure 10: Supply Curve (ex.1)................................................................................................17
Figure 14: Supply Curve (ex. 5)...............................................................................................19
Figure 15: Stakeholders of an Organization.............................................................................23
Figure 16: Stakeholders of Toyota Industries Group...............................................................24
Figure 17: Business Cycle........................................................................................................28
Figure 18: Economic Systems..................................................................................................34
Figure 19: Market Structures...................................................................................................36
Introduction
Economics is a study of the usage of resources under specific

limitations, all bound with a bold hope that the subject under scrutiny is a rational entity
which seeks to improve its overall well-being.
Two branches within the subject: microeconomics, which deals with entities and the
interaction between those entities while macroeconomics which deals with the economy as a
whole.
The aim of studying economics is to understand the decision process behind allocating the
currently available resources, the need are always unlimited but the resources are limited. A
countries economy consists of three major economic agents: consumers, firms and
government. By learning economics, an individual will learn how the decisions made by
economic agents are represented in the market and supply of commodities and equilibriums
in the market which is when the quantity demanded is equal to the quantity supplied.
Task 1 – Economic Concepts
1.1 Scarcity
Human beings have unlimited desires, but the means of production being finite and limited
(land, labor, capital), various trade-offs have to be made to allocate the resources in the most
efficient way possible. In other words, the unlimited wants that exceed the limited resources
available to satisfy them is called Scarcity.
Markets are places where producers and consumers exchange goods and services. In free
market economies, the prices set by the interaction of supply and demand allocates scarce
resources. Whenever resources are scarce, demand exceeds supply and prices are driven up.
The effect of higher prices is to discourage demand and conserve resources. The greater the
scarcity, the higher the price and the more the resources will be conserved.
For example, as oil slowly runs out and its price increases, the demand will be discouraged
leading to more oil being conserved than at lower prices.
1.2 Opportunity Cost

Opportunity cost is the value of the next-highest-valued substitute use of a particular
resource. Simply, sacrificing one good or service to produce another is called Opportunity
Cost. Every entity has a different point of view regarding the opportunity cost as the needs
and resources of entities keep shifting with time.
For instance, a person may forego going to the physics class for a session of LAN gaming,
but the risk of not understanding subsequent lectures and flunking the semester is the
opportunity cost that the person should be aware of.
1.3 Production Possibility Curve (PPC)

The Production Possibility Curve is a model used to show the trade-offs associated with
allocating resources between the production of two goods. It can be used to illustrate the
concepts of scarcity, opportunity cost, efficiency, inefficiency and economic growth. Points
on the interior of the PPC attainable but inefficient, points on the PPC curve are efficient and
points beyond the PPC curve are unattainable.
Figure 1: PPC curve of product A and B
60
50 attainable
quantity of product A
40
unattain-
30 able
20 attainable
but ineffi-
10 cient
0
0 10 20 30 40 50 60 70 80
quantity of product B
 Unattainable
- Here, the consumer demand is at a very high level where the producers
cannot produce either product due to limited resources.
 Attainable but inefficient

- This means that the products A and B are both being produced but the
producers have not taken maximum use of the resources. There are more
resources that can be used to produce more of products A and B. a reason
for this may be recession or even depression of producers due to the low
level of demand for either products
 Attainable
- Any point on the curve represents that the producer has efficiently met the
consumer demands for both products A and B.
Task 2 – Demand and Supply
Demand
Consumer’s desire and ability to purchase a good or a service is called demand. It is the
underlying force that drives economic growth and expansion.
Law of Demand
 At a given time, when other factors except price remains constant, there is a negative
or inverse relationship between quantity of demand and its price.
 Consumer will buy more of a product when its price declines and buy less when its
price increases.
Demand Curve
When the two variables are changing in opposite direction, the demand curve is formed. The
downward slope illustrates the demand of a certain product.
Figure 2: Demand Curve
25
20
15
price
10
0
0 20 40 60 80 100 120
demand
 If the demand for a certain product decreases, the demand curve will shift to the left,
which means less of the goods are demanded at every price. That happens during a
recession when buyers’ incomes drop. They will buy less of everything, even though
the price is the same.
 If the demand for a certain product increases, the demand curve will shift to the right,
which means more of the goods are demanded at every price. When the economy is
booming, buyers’ income will rise. They will buy more of everything, even though
the price hasn’t changed.
Determinants that change the Demand Curve
1. Change in price of substitute goods

 If the price of pork rises, people will buy more chicken even though its
price hasn’t changed. The increase in the price of a substitute, pork,
shifts the demand curve to the right for chicken.
Figure 3: Demand Curve (ex.1)
30
25
20
price
15
10
0
0 20 40 60 80 100 120 140
demand
2. Changes in season
 During Christmas season, the demand for Christmas trees increases
which means the demand curve is shifted to the right and vice versa.
Except for the month of December, during all other months the
demand for Christmas trees is very low, in fact 0%, therefore the
demand curve shifts to the left.
25
20
15
price
10
0
0 20 40 60 80 100 120
demand
3. Changes in tastes and trends

 During the Mad Cow Disease Scare, consumers preferred chicken over
beef. Even though the price of beef hadn’t changed the quantity
demanded was lower at every price. That shifted the demand curve to
the left.
25
20
15
price
10
0
0 20 40 60 80 100 120
demand
4. Changes in income of consumer

 If people get an increased income, they’re more likely to buy more of
both steak and chicken, even if their prices don’t change. That shifts
the demand curve to the right.
30
25
20
price
15
10
0
0 20 40 60 80 100 120 140
demand
5. Expectation of change in price in the future

 When people expect prices to rise in the future, they will stock up now,
even though the price hasn’t changed. That shifts the demand curve to
the right.
30
25
6. Number of
20
potential
buyers
price
15

10
0
0 20 40 60 80 100 120 140
demand
When there’s a flood of new consumers in the market, they will naturally
buy more product at the same price. That shifts the demand curve to
the right.
30
25
20
price
15
10
0
0 20 40 60 80 100 120 140
demand
Supply
It is the amount of goods that the producers are willing and able to sell at various given
prices.
Law of Supply
 It is the positive relationship between price of the goods concerned and the quantity
supply of that good at a given period of time when other factors remain constant.
 Producer will supply more of a product when
its price increase and less when its price
decrease.
Supply Curve
When the two variables are changing in same direction, the supply curve is formed. The
upwards slope illustrates the supply of a certain product.
Figure 9: Supply Curve
25
20
15
price
10
0
0 20 40 60 80 100 120
supply
 If the supply for a certain product decreases, the supply curve will shift to the left.
 If the supply for a certain product increases, the supply curve will shift to the right.
Determinants that change the Supply Curve
1. Price of other goods

 If a similar good is at a higher price and it makes more profit, the
supply of the original good would fall which shifts the supply curve to
the left.
Figure 10: Supply Curve (ex.1)
25
20
15
price
10
0
0 20 40 60 80 100 120
supply
2. Number of sellers
 When more people are making a good, the supply increases which
therefore shifts the supply curve to the right.
25
20
15
price
10
0
0 20 40 60 80 100 120 140
supply
3. Level of technology
 When technology makes production of a
good cheaper and easier, more of that
product can be produced, which results in an increase of sales. This
shifts the supply curve to the right.
25
20
15
price
10
0
0 20 40 60 80 100 120 140
supply
4. Cost of raw materials

 When goods require less inputs, they are cheaper to make which means
the supply increases, therefore the supply curve shifts to the right.
25
20
15
price
10
0
0 20 40 60 80 100 120 140
supply
5. Government regulations and taxes

 When the government imposes more and more taxes and regulations in
the production of a certain good, the supply gradually decreases which
results in a left shift of the supply curve.
Figure 14: Supply Curve (ex. 5)
25
20
15
price
10
0
0 20 40 60 80 100 120
supply
Task 3 – Types of Organizations
Private Sector Organizations
Sole Proprietorship
- Sole proprietorships are business organizations carried out through the capital
invested by a single person. Therefore, these type of businesses have only one owner.
- These organizations have the ability to act independently where registration of the
business is not compulsory.
- The assets and liabilities of the firm are the owner’s assets and liabilities without
limit.
- The sole trader is often responsible for the day to day management of the business
where their existence and progress depends on the personal skills and commitment.
Advantages of Sole Proprietorship

 Ability to take single handed decisions
 All profits can be enjoyed by owner
Disadvantages of Sole Proprietorship

 Owner has to bear all losses alone while facing all challenges and risks
 Unlimited liability
Partnership Organizations
- Partnerships are businesses established with a profit motive by a number of persons
not less than two and not exceeding twenty.
- The law regulating the activities of these organizations is the Partnership Ordinance of
1890.
- Under the Business Names Ordinance No. 6 of 1918, these enterprises should be
registered.
- These organizations are carried out according to an agreement.
Advantages of Partnership Organizations
 Ability to get more capital
 Ability to get the services of persons with different skills
Disadvantages of Partnership Organizations

 Conflicts may occur when taking decisions
 No sole profit
Private Limited Companies

- Private Limited Companies are basically small to medium sized businesses that are
often run by a family or a small group of owners.
- The general public cannot subscribe shares in Private Limited Companies through the
stock exchange.
- Private Limited Companies are restricted by law and by the company’s rules.
Advantages of Private Limited Companies

 Limited liability
 Additional capital can be easily raised by selling shares
Disadvantages of Private Limited Companies

 More expensive and time consuming business
 Professional help is needed to set up Private Limited Companies
Public Sector Organizations
Government Departments
- These departments has no separate existence than the government. It functions under
the overall control of one ministry.
- The revenue of the government departments are deposited in the treasury of the
government.
- They are financed from the annual budgets of the government.
Advantages of Government Departments

 Presence of public accountability
 Performance of these departments can be discussed in parliament
Disadvantages of Government Departments

 No individual freedom
 No stronger social unity
Government Corporations
- A government corporation is a body formed by a special act of the state legislature
and also fully financed by the government.
- The powers, objectives and limitations of government corporations are also decided
by the act of the state legislature.
- Government corporations are separate entities
where it gets incorporated automatically when
the act is passed in the parliament and also all operations
take place under the control of the central government.
Advantaged of Government Corporations

 Able to manage its affairs independently
 As the activities are discussed in parliament, protection of public interest is ensured
Disadvantaged of Government Corporations

 More government interference
 Considerable autonomy and initiative
Government Companies
- The government companies get incorporated under the Companies Act, 1956. All the
provisions of Companies Act are applicable to the Government Companies.
- The government companies are wholly or partly owned by the government in the
name of the president.
- Those companies are managed by the board of directors who are nominated by the
government and other shareholders. The government has the authority to appoint a
majority of the directors.
Advantages of Government Companies

 Quickness of action in running the enterprise
 Freedom of operation
Disadvantages of Government Companies

 Lack of autonomy and delay in decisions due to that
 Wastage of resources
Task 4 – Stakeholders in an Organization
Stakeholders
Stakeholders are groups of people, any individual or a party that possess an interest in
business organizations. There are 3 types of stakeholders namely:
 Internal stakeholders
 Connected stakeholders
 External stakeholders
Internal Stakeholders
They are the people who are working in the organization and gets affected by organizational
decisions.
Connected Stakeholders
They are the people who are outside the organization but gets affected by the organizational
decisions.
External Stakeholders
They are the people who are outside the business and doesn’t get affected by the
organizational decisions.
Figure 15: Stakeholders of an Organization
owners
Internal directors
Stakeholders managers
employees
customers
Stakeholders
suppliers
Connected shareholders
Stakeholders advisers
consultants
competitors
government
local
External community
Stakeholders pressure
groups
media
Categorization of Stakeholders of the Toyota Industries Group
Figure 16: Stakeholders of Toyota Industries Group
owner
board of
directors
Internal
Stakeholders
management
committee
employees
customers
shareholders
Stakeholders of
Connected
Toyota Industry
Stakeholders
Group
suppliers
competitors
local
communities
media
External
Stakeholders
government
auditors
Responsibilities of Stakeholders
Owner
- Enhancing long-term stability of corporate value and maintaining society’s
confidence in the company through practicing its corporate philosophy and promoting
social responsibility
- Building good relationships with stakeholders ranging from shareholders and
customers to business partners, local communities and employees
- Maintaining and enhancing management efficiency, fairness and transparency of
company activities by strengthening corporate governance
Board of Directors
- Making decisions on important management matters and monitor business operations
- Participating in monthly meetings and sharing business operation reports
Management Committee
- Discussing important matters such as corporate vision, management policies,
medium-term business strategies and major investments
- Enabling the president to oversee the business operations periodically through the
general managers of each division
Employees
- Ensure a workplace where each employee can work safely
and enthusiastically
- Facilitate human resource development and create a motivating working climate
- Support other employees in balancing their family and work commitments
Customers
- Improve quality throughout the quality chain
- Reflect need in product development proactively
- Disclose product information honestly and properly
Shareholders
- Promote investor relations
- Improve evaluations made by outside organizations
- Disclose information that is complete, accurate and in a timely manner
Suppliers
- Procure supplies through open and fair processes
- Comply with laws and regulations to facilitate fair trade
- Take care and support the business
Competitors
- Use aggressive marketing strategies to increase their market shares
- Innovate rapid technology to increase competition
Local communities
- Promote and support youth development
- Promote and support international exchanges
- Promote and support traffic safety
Media
- Provide after-sales service to enable customers to continue to use their products
- Ensure safety throughout the production stage and to pursue QCD (quality, cost,
delivery)
Government
- Impose taxes and charge interests
- Set emission standards
Corporate Board of Auditors

- Bringing an outsider’s viewpoint and an auditing perspective combined with
professional experiences and careers to the internal monitoring function
- Discussing and making decisions on important matters such as auditing policy and
reporting
Task 5 – Gross Domestic Product (GDP)
Gross Domestic Product (GDP)
The monetary value of all final goods and services
produced in an economy in a certain period of time is called GDP.
Methods of Calculating GDP
1. Production Method/ Value Added Method

 Under this approach a value is added to all the processing stages and
summed up
 Suppose there are N goods, with quantities Q1, Q2, . . . , QN and
unit prices P1, P2, . . . , PN respectively.
 Then GDP is calculated as GDP = P1Q1 + P2Q2 + · · · + PNQN
 E.g. a tropical island economy produces three goods: coconut,
banana, and orange, with the following quantities and prices:
Product Quantity Price
Coconut 40 $3
Banana 38 $9
Orange 29 $7
 Then the GDP of this economy would be:
($3 × 40) + ($9 × 38) + ($7 × 29) = $665
2. Income Method
 The sum of income generated by the production of goods/ services
 The following items are calculated under this approach:
- Rent
- Interest
- Proprietor’s income
- Corporate profit
- Wages
3. Expenditure Method
 The sum of expenditures is calculated under this approach
 Most countries use expenditure method to calculate their GDP
 The equation use to calculate GDP under this approach is as follows:
GDP = C + I + G + (x – m)
C – Consumption
I – investment
G – Government spending
x – Exports
m – Imports
The following example shows how GDP is calculated
under both income and expenditure approaches:
Consumption $7,000
Investment $1,000
Government purchase $10,000
Exports $3,000
Imports $6,000
Welfare payments $2,000
Cash gift $1,500
Rent (I) $2,000
Interest (I) $1,000
Proprietors income (I) $6,000
Dividends (I) $2,000
Undistributed profit (I) $4,000
Selling of old car $20,000
Income Approach
GDP = rent + interest + proprietors income + dividends + undistributed profit
= $2,000 + $1,000 + $6,000 + $2,000 + $4,000
= $15,000
Expenditure Approach
GDP = consumption + investment + government spending + (exports – imports)
= $7,000 + $1,000 + $10,000 + ($3,000 - $6,000)
= $18,000 - $3,000
= $15,000
Task 6 – Economic Growth and Stability
Business Cycle
Figure 17: Business Cycle
peak
level of real output
growth recession
ery
ov
rec
0 2 4 6 8 10 12
trough
time
 Growth
- In the growth stage, there is an increase in certain economic factors such as
production, employment, demand and supply of products, sales and also
profits.
- In this stage, debtors are in good financial condition to repay debts therefore
creditors lend money at higher interest rates, which leads to an increase in the
flow of money.
 Peak
- The peak stage is reached when a business has reached its maximum limit of
growth.
- In this stage, the aforesaid economic factors do not do not increase further,
instead there is a gradual decrease in demand due to increase in the prices of
raw materials.
 Recession
- When there is a rapid decline in the demand of products the recession stage
arises, where all economic factors start decreasing.
- Continuation of the production of goods and services occur due to the
unawareness of the decrease in demand by the producers which result the
supply of products to exceed the demand.
 Trough
- In this stage the economic activities of a country decline below the normal
level and the growth rate of the country becomes negative which as a result
will reduce all income and expenditure.
- Due to this situation, debtors are financially unstable and are unable to pay off
the debts due. As a result, rate of interest decreases and banks do not prefer to
lend money.
- Economic output becomes low and unemployment becomes high. Investors do
not invest in the stock market and many weak organizations leave the industry.
 Recovery
- Organizations start developing positive
attitudes towards various economic
factors and a reversal process starts again.
- At this stage, organizations start hiring a limited number of individuals and the
wages provided is less compared to the skills and abilities of individuals.
Unemployment
Unemployment is defined as, people who do not have a job but have actively looked for work
and are currently available for work. People who are temporarily laid off and are waiting to
be called back are also included in unemployment.
There are four types of unemployment namely:

1. Frictional unemployment
2. Seasonal unemployment
3. Structural unemployment
4. Cyclical unemployment
Frictional unemployment
- Frictional unemployment occurs when people are between jobs or looking for jobs for
the first time. This mainly occurs when economy is trying to match people with the
jobs that they are suitable for.
- If an individual gets fried from a job due to poor work or may be quit from the job
due to the dislike of working there or even looking for a job for the first time, it is said
that they are frictionally unemployed.
Structural unemployment
- This occurs when a given set of skills is no longer needed in an organization or in a
given economy.
- Therefore those individuals who possessed such skills will be unemployed and they
belong to structural unemployment.
Cyclical unemployment
- This sort of unemployment occurs due to recession. Individuals are out of work
because the economy has slowed down and there is no demand for the products.
 The unemployment rate can be measured from the equation given below:
Unemployment = number of unemployed workers x 100%

rate labor force
Aforesaid labor force is defined as the people who are willing to work, able to work and
seeking for work and who are elder than 18 years but still haven’t got a job.
Inflation
Inflation is a quantitative measure of the rate at which prices of goods and services increase
in a given period of time. It is basically the rise of the general level of prices where a unit of
currency will efficiently and effectively buy less than it did prior.
There are two types of inflation namely:

1. Demand pull inflation
2. Cost push inflation
Demand Pull Inflation

- This occurs when the economy demands more goods and services than that are
available.
- If demand exceeds supply or the overall amount of goods and services remains the
same, demand pulls the price for things up.
Cost push inflation

- This happens when demand for foods increase because production costs rise to the
point where fewer goods can be produced.
- As demand remains the same, but the cost of supply increases, the price is pushed
upward by supply costs.
 The inflation rate can be measured from the equation given below:
Inflation = CPI of year (n) – CPI of year (n-1) x 100%

rate CPI of year (n-1)
CPI – Consumer Price Index
Importance of business cycles to an economy

- A business cycle will affect all sectors of an economy an also all sectors of an
organization as well. As every aspect depends on the business cycle, the firm must
identify correctly in which phase they are currently in. this will help to frame
appropriate business and trade policies.
- The business cycle also has a huge impact on business decisions as managers and
other entrepreneurs take decisions based on the phase that the firm is currently in.
- Industries like fashion, electronics, food and beverages are more likely to decline if
they are not in touch with the business cycles as they must capitalize when economy
is in its climax.
- Prices, sales policies and promotions of a new product too depend on the business
cycle as it is hard to launch a new product in an economy which is moving towards
depression.
Importance of unemployment to an economy

- Unemployment is important as a tool of joblessness. For this reason, it is also a tool
for the economy’s growth rate.
- Also high unemployment indicates the economy is operating below full capacity and
is inefficient, which leads to lower outputs and income. The unemployed are also
unable to purchase as many goods so will contribute to lower spending and lower
output. This causes a negative multiplier effect.
Importance of inflation to an economy

- Inflation essentially works as a stabilizing tool for the economy. If the rate of inflation
gets too high, a currency can become virtually worthless.
- Consumer feelings about economy can also affect demand for products. It refers to
how optimistic the customers are about their economy, so if it is a good impression
people tend to spend more and vice versa.
Task 7 – Fiscal and Monetary Policy
Fiscal Policy
Fiscal policy involves the government changing tax rates and levels of government spending
to influence demand in an economy. This is controlled by the government where it is used to
pursue policies of higher economic growth or controlling inflation. To increase demand and
economic growth, the government will cut tax and increase spending which leads to a higher
budget deficit whereas to decrease demand and reduce inflation, the government can increase
tax rates and cut spending which leads to a smaller budget deficit.
The two tools of Fiscal Policy are:

1. Taxation
2. Government spending
Taxation
Changes in tax affect the average consumer’s income and the changes in consumption
therefore will lead to changes in GDP. So buy adjusting taxes, the government can economic
output as follows:
 Increase of taxes leads to less money supply
 Decrease of taxes leads to more money supply
Government Spending
Government spending includes the purchasing of goods and services. It has the power to
lower or raise the GDP. By adjusting government spending, the government can influence
economic output as follows:
 More government spending leads to less money supply
 Less government spending leads to more money supply
Monetary Policy
Monetary policy involves changing the interest rates and influencing the money supply. This
is controlled by the central bank where it is also used pursue policies of higher economic
growth or controlling inflation. Monetary policy increases its liquidity to create economic
growth while it reduces liquidity to prevent inflation. Another objective of the central bank to
establish monetary policy is to lower the unemployment rate and avoid recession.
The three tools of Monetary Policy are:

1. Open market operation
2. Reserve ratio
3. Discount rate
Open Market Operation

It is the buying and selling of government bonds and other securities from member banks.
This action changes the reserve amount that the bank has on hand. When there is a very high
money supply the central bank releases government bonds to the public where the
government buys those bonds and other securities by paying cash. After, people pay to the
central bank and the economy decreases. On the other hand, when there is a very low money
supply, the central bank will buy government securities and release to the public and then
after pay cash to the government, where then the economy increases.
Reserve Ratio
The central bank tells the members how much money they have to reserve without lending
all. As everyone doesn’t need all their money every day, it is safe for the banks to lend most
of it and keep some so they have enough cash on hand to meet most demands for redemption.
When there is a low money supply in an economy, the central bank decreases the reserve
ratio, which gives banks more money to lend. Also when there is a high supply of money, the
central bank raises liquidity by increasing the reserve ration in order to maintain the money
supply.
Discount Rate
Discount rate is how much the central bank charges or in other words the interest rate they
charge on the loans they granted to other commercial banks. The central bank raises its
discount rate when there is a high money supply in an economy, to discourage other
commercial banks from burrowing and the central bank decreases its discount rate when there
is a low money supply in the economy which encourages other member banks to borrow
money which boosts the economic growth.
Task 8 – Economic Systems
Economic systems are means which are organized by societies or

the government to distribute available resources, goods and services across a region or a
country. They regulate factors of production: land labor, capital and entrepreneurships. The
three main types of economic systems are:
1. Command economy system
2. Free market economy system
3. Mixed economy system
Each of these economic systems answer the three basic questions, what to produce, how to
produce and for whom to produce.
Figure 18: Economic Systems
Economic
Systems
Command Free Market Mixed

Economy Economy Economy
Command Economy System

The centralized authority of these type of economic systems are the government. They have
the sole authority to make decisions. Decisions are made by government based on macro-
economic goals of maximizing the countries income and ensuring economic growth. There
theories lead to determination of which goods and services the country should produce and
how much should be produces. If an economy enjoys access to many resources, chances are
that it may lead to a command economic structure therefore the government comes into
action and take control over the resources. Command economies react slowly to change
because the power is centralized which may result in economic crises or emergencies as they
cannot quickly adjust to changed conditions.
Free Market Economic System

In here, there is only a very little government interference as individuals/organizations also
have the right to make decisions. This in turn makes the businesses able to produce goods and
services. It is this economic system that sets price and availability of everything from food
items to electronics and even homes. Government does not interfere with important segments
instead, regulations come from the individuals and the relationship between supply and
demand. The economic growth is highest under a market economic system. The disadvantage
of this type of system is that it allows private organizations mainly those who own resources
of great value to gather a lot of economic power. The distribution of resources is far by unfair
because those who succeed economically control most of them.
Mixed Economic System
These type of economic systems are a combination of command
and free market economic systems. The sole authority of decision making of these type of
economic systems is done by private individuals. It is common for market forces to continue
mixed economy while government influences the economy from behind the scenes. The
government’s influence in such cases is often in the wielding of money spent for the people’s
benefit, and even in the types and amounts of welfare provided. Assisting resources of low-
income people stimulates buying, which in turn drives more production and creation of jobs.
Ideally this would lead to fewer low-income people which is an advantage of mixed
economic systems.
Task 9 – Market Structures
A market is a set of buyers and sellers who determine the price of a good through interaction
between each other. The characteristics of a market that influence the behavior of the firms
working in the market is therefore called a market structure. The main aspects that determine
the market structures are: the number of sellers in the market, negotiation strength, ability to
take control over prices, and the ease or not of entering and exiting the market.
Figure 19: Market Structures
Market
Structures
Pure
Monopoly Monopolictic Oligopoly
Competition
Pure Competition
The most efficient market where goods are produced using the most efficient techniques and
the least amount of factors. This type of market structure, assumes that the environment
cooperates with the setting up of this structure. The forces of supply and demand determine
the amount of goods and services produces and the prices are set by the market. Each
producer is operating at the lowest possible cost to achieve the greatest possible outcome.
The characteristics of this type of market model are as follows along with an example:
 The buyers and sellers are referred to as price takers in this instance
 There is a free entry and exit in this type of market structure
 Also there are a large number of seller
 The products within the market are homogeneous
Eg. FMCG products
Monopoly
In monopoly markets there is only just one supplier for a product where there are no close
substitutes. The full power of setting prices for a product therefore can be done by the seller
as there is only one seller as a result there is no price competition. The characteristics of this
type of market model are as follows along with an example:
 Sole seller market structure
 Blocked entry to the market
 The sole seller is the price maker
 Cannot find homogeneous products
Eg. Railway department
Monopolistic
This market is formed by a high number of firms which produce a similar good that can be
seen as unique due to differentiation that allow prices to be held up higher than marginal
costs. The slight difference between the products also create imperfect information regarding
quality and price. This type of market does not assume lowest possible cost production. The
characteristics of this type of market model are as follows along with an example:
 Relatively large number of sellers but not as in the pure competition market
 Easy entry and exit, when profits are attractive the producers tend to freely enter
the market
 Monopolistic market producers are price maximizers which means they can
decide on the product prices by also has to think about the market price too
 Products tend to have slightly different physical characteristics
Eg. Beauty salons
Oligopoly
In this type of market, the products are offered by a series of firms. Oligopolies have
companies that work together to limit competition and dominate a market or an industry. The
companies in these market structure can be large and they possess patents, finance, physical
resources and also control over raw materials that create barriers for the new entrants. The
producers are able to set prices but the market price is sensitive. So if the prices are too high,
the buyers will shift to other product substitutes. The characteristics of this type of market
model are as follows along with an example:
 A few large number of producers can be seen
 The producers are referred to as price makers
 Entry to this type of market is not that easy
 The products can be either homogeneous or heterogeneous
Eg. Mobile brand services
 “Dove” shampoo is the product chosen by the writer in order to complete task number 09
in full.
 The above mentioned “Dove” shampoo is an FMCG product which belongs to the Pure
Competition Market Structure.
 The selected product belongs to the Pure Competition Market Model due to the following
reasons:
- Shampoos are fast moving consumer goods
- There are many sellers island wide and worldwide who sells the “Dove” shampoo
- Not only “Dove” but there are many other brands which produce shampoos which
interprets that the products are homogeneous
- There is no price competition instead the sellers have to agree with the market
price
- Any individual can enter the market as a grocer to sell the product and also can
exit the market at any time as there are no significant prohibitions
Task 10 – International Trade
International trade refers to the exchange of goods and services

between countries. It simply means the import and export of goods and services. Exports
means selling goods and services out of the country while import means the flow of goods
and services into the country.
International trade is done due to the lack of resources or capacity to meet consumer demands
within the country. So by importing the needed goods, a country can use their domestic
resources to produce what they are good at and can export the surplus in the international
market. The following reasons show why a nation does international trade:
 If foreign companies can produce or offer goods and services more cheaply, then it
may be beneficial to seek international trade.
 If foreign companies can offer goods and services of superior quality, then it may also
be beneficial to seek international trade.
 If it is impossible to produce a product domestically.
 If the demand for a product is more in a country than what it can domestically
produce, then it goes for import.
Advantages if international trade

1. Specialization
- It allows the countries to specialize in producing only those goods that they
are good at.
2. Economies of scale
- If a country wants to sell its goods to the international market, it will have to
produce more than what is needed to meet the domestic demand. Therefore
producing higher volume leads to the reduction of the cost of producing each
item
3. Transfer of technology
- International trade leads to the transfer of technology from a developed
country to developing country.
4. Understanding and corporation between countries
5. Establishment of new industries
6. Job opportunities
7. Availability of a wide variety of goods
8. Optimal use of natural resources
Disadvantaged of international trade

1. Overdependence
- Countries involved in foreign trade are more vulnerable to global events. An
unfavorable event may impact the demand of the product and could lead to job
losses
2. Threat to national security
- If a country is over dependent on the imports for strategic industries, then
exporters may force it to take decisions that may not be in favor to the country.
3. Pressure on natural resources
- A country has limited natural resources.
International trading leads to draining
of those resources much quicker.
4. Misuse of natural resources
- Eg. Due to pumping of sand, resources are harmed – Port City Colombo, Sri
Lanka
5. Threat to home industries
- Eg. Soft drinks
6. Economic dependence
- Eg. Countries depending more on China because goods are cheaper
7. Political dependence
- Eg. Depending more on USA/Russia
8. Danger to global peace
- Eg. War
Conclusion
“Consumption is the sole end and purpose of production; and the interest of the producer
ought to be attended to, only so far as it may be necessary for promoting that of the
consumer” – Adam Smith
Economics is a deep subject which affects the three agents: consumers, firms and the
government. Economic growth in a country refers to the rise of GDP which is beneficial in all
hands. Rise in national income, national output and total expenditure are results of a healthy
economy. As per the findings of the writer, economic growth should enable rise in living
standards and greater consumption of goods and services.
There are positive effects as well as adverse effects of economic growth. As the writer sees
the positive outcomes of economic growth are:
- Reduction in poverty
- Reduced unemployment
- Improved public services
The negative outcomes are:
- Inequality and distribution
- Negative externalities
- The growth might conflict with the environment
- The growth might be unsustainable
References
 Bamford, C., 2014. Cambridge International As And A

Level Economics Coursebook With Cd-rom (cambridge International Examinations).
Cambridge University Press.
 Borrington, K., 2018. Cambridge Igcse And O Level Business Studies 5th Edition.
Hodder Education.
 Dransfield, D., 2018. Essential Economics For Cambridge Igcse (r) & O Level.
Oxford University Press.
 Economics Discussion. 2020. 5 Phases of a Business Cycle (With Diagram).

[ONLINE] Available at: http://www.economicsdiscussion.net/business-cycles/5-
phases-of-a-business-cycle-with-diagram/4121. [Accessed 17 April 2020].
 Panmore Institute. 2020. Toyota External Analysis: Opportunities & Threats -

Panmore Institute. [ONLINE] Available at: http://panmore.com/toyota-external-
analysis-opportunities-threats. [Accessed 17 April 2020].
 Stimpson, P., 2015. Cambridge International As And A Level Business Coursebook

With Cd-rom (cambridge International Examinations). Cambridge University Press.
 The Balance. 2020. Shift in Demand Curve: Definition, Causes, Examples.

[ONLINE] Available at: https://www.thebalance.com/shift-in-demand-curve-when-
price-doesn-t-matter-3305720. [Accessed 16 April 2020].
 Toppr-guides. 2020. Types of Companies: Private Sector and Public Sector

Organizations, Q&A. [ONLINE] Available
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enterprises/types-of-companies-and-forms-of-organising-public-sector/. [Accessed 16
April 2020].

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Assignment Cover Sheet

Qualification Module Number and Title

Student Name & No. Assessor

Signature of the assessor Date

Strong features of your work:

Areas for improvement:

“All money is a matter of belief.” – Adam Smith (Father of

The mission of this report is to advance, transmit and sustain

6. To explain business cycle and its importance to an economy, to explain

Figure 1: PPC curve of product A and B.................................................................................10

Economics is a study of the usage of resources under specific

1.2 Opportunity Cost

1.3 Production Possibility Curve (PPC)

Figure 1: PPC curve of product A and B

 Attainable but inefficient

Figure 2: Demand Curve

Determinants that change the Demand Curve

1. Change in price of substitute goods

Figure 4: Demand Curve (ex.2)

3. Changes in tastes and trends

4. Changes in income of consumer

Figure 6: Demand Curve (ex.4)

5. Expectation of change in price in the future

Figure 8: Demand Curve (ex.6)

Figure 9: Supply Curve

Determinants that change the Supply Curve

1. Price of other goods

Figure 11: Supply Curve (ex.2)

Figure 12: Supply Curve (ex.3)

4. Cost of raw materials

Figure 13: Supply Curve (ex.4)

5. Government regulations and taxes

Figure 14: Supply Curve (ex. 5)

Private Sector Organizations

Advantages of Sole Proprietorship

Disadvantages of Sole Proprietorship

Disadvantages of Partnership Organizations

Private Limited Companies

Advantages of Private Limited Companies

Disadvantages of Private Limited Companies

Public Sector Organizations

Advantages of Government Departments

Disadvantages of Government Departments

Advantaged of Government Corporations

Disadvantaged of Government Corporations

Advantages of Government Companies

Disadvantages of Government Companies

Categorization of Stakeholders of the Toyota Industries Group

Figure 16: Stakeholders of Toyota Industries Group

Corporate Board of Auditors

Task 5 – Gross Domestic Product (GDP)

Methods of Calculating GDP

1. Production Method/ Value Added Method

Task 6 – Economic Growth and Stability

There are four types of unemployment namely:

Unemployment = number of unemployed workers x 100%

There are two types of inflation namely:

Demand Pull Inflation

Cost push inflation

Inflation = CPI of year (n) – CPI of year (n-1) x 100%

CPI – Consumer Price Index

Importance of business cycles to an economy

Importance of unemployment to an economy

Importance of inflation to an economy