Assignment Cover Sheet

Qualification Module Number and Title

Higher Diploma in Business Management BHNC4201: Business Economics

Student Name & No. Assessor
M H M ADHIL

KD/HDBM/59/23
Hand out date Submission Date

Assessment type Duration/Length of Weighting of Assessment

Assessment Type

Learner declaration

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 I, ……M H M ADHIL…KD/HDBM/59/23……. <name of the student and
registration number>, 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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Contents
ACKNOWLEDGEMENT.....................................................................................................4

ABSTRACT..........................................................................................................................5

TASK 1..................................................................................................................................6

a) PPC CURVE..............................................................................................................6

b) ................................................................................................................................7

TASK 2..................................................................................................................................8

TASK 3..................................................................................................................................9

TASK 4................................................................................................................................11

TASK 5................................................................................................................................13

TASK 6................................................................................................................................15

References...........................................................................................................................18

Figure 1 PPC curve for USA.................................................................................................6

Figure 2 PPC curve for CHINA............................................................................................7
Figure 3 TASK-2 ATC, AVC, AFC AND MC.....................................................................8
Figure 4 inflation level in Sri Lanka (Aaron , 2020).............................................................9
Figure 5 Causes of Inflation................................................................................................10
Figure 6 Four market structures..........................................................................................11

Table 1 opportunity cost of computer and rice in USA........................................................6

Table 2 opportunity cost of computer and rice in CHINA....................................................7
Table 3 TASK-2 ATC, AVC, AFC AND MC......................................................................8
Table 4 basic market models characteristics......................................................................11

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 ACKNOWLEDGEMENT

In performing my assignment, it is a success I had to take help and guidance from some respected
persons. First, I’m grateful to my lord. Who gives me sound mind and sound health to accomplish
my assignment? And my special thanks to Ms. Chathurika, the lecture of “Business Economics” of
international college of business and technology for making the subject interesting and giving a
great support to make this report successfully.

Also, I would like to thank my parents for gave me the valuable opportunity of building up my
future.

Further thanks to my colleagues who have been sharing knowledge and helping each other
to clear any doubts.

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 ABSTRACT

This individual report is based on business economics, which consists of financial,

organizational, market-related, and environmental issues faced by corporations. This
report will also assess Business economics encompasses subjects such as the concept of
scarcity, product factors, distribution, and consumption... This report derives from an in-
depth study, personal knowledge and some research has been done in order to explore
more details.

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 TASK 1

a) PPC CURVE

USA
1600

1400

1200
prodcution of rice

1000

800

600

400

200

0
0 100 200 300 400 500 600
production of Computers

Figure 1 PPC curve for USA

points Rice (Y) Computers (X) Opportunity Opportunity

cost of cost of rice
computer
1 0 500 - -
2 300 400 3 0.3
3 600 300 3 0.3
4 900 200 3 0.3
5 1200 100 3 0.3
6 1500 0 3 0.3

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Table 1 opportunity cost of computer and rice in USA

 CHINA
3500

3000

2500
production of rice

2000

1500

1000

500

0
0 100 200 300 400 500 600 700
production of computers

Figure 2 PPC curve for CHINA

points Rice (Y) Computers (X) Opportunity Opportunity

cost of cost of rice
computer
1 0 600 - -
2 600 480 5 0.2
3 1200 360 5 0.2
4 1800 240 5 0.2
5 2400 120 5 0.2
6 3000 0 5 0.2

b) .

 According to the PPC china has the comparative advantage in producing rice.

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Table 2 opportunity cost of computer and rice in CHINA

 TASK 2

Output Fixed Total cost ATC AVC AFC MC

Cost (TC/output) (VC/output) (FC/output)
0 12 24
1 12 33 33 21 12 9
2 12 41 20.5 14.5 6 8
3 12 48 16 12 4 7
4 12 54 13.5 10.5 3 6
5 12 61 12.2 9.8 2.4 7
Table 3 TASK-2 ATC, AVC, AFC AND MC

35

30
avarage total cost
25 avarage variable cost
avarage fixed cost
20 marginal cost
Axis Title

15

10

0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5
Axis Title

Figure 3 TASK-2 ATC, AVC, AFC AND MC

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 TASK 3

Inflation can be defined as a general rise in the price level of an economy over a period of
time. Inflation may occur due to increase in demand or price rise due to increase in
production cost,

Inflation, the steady rise of prices

for goods and services over a
period, has many effects, good and
bad. (David , 2021) . Inflation
causes decrease in the purchasing
power of currency due to the rising
prices in the economy. For example
a loaf of bread was around 2 or 3
cents thirty years ago and now the same bread costs 100 rupees. This is how inflation
works.

25.00% F
i
g
20.00% u
r
e
4
15.00%
inflation rate

10.00%

5.00%

0.00%
1985198719891991199319951997199920012003200520072009201120132015201720192021
year

inflation level in Sri Lanka (Aaron , 2020)

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Inflation however will encourage spending and investing, a predictable response to
declining purchasing power is to buy. Unfortunately, the urge to spend and invest in the
face of inflation tends to boost inflation, since people and businesses spend more quickly.
Inflation will also raise the cost of borrowing, which means high interest for loans. Due to
high price levels business expenses will increase, so will the wage rate of employees,
businesses might fire employees in order to reduce unwanted expenses, and as a result
unemployment will increase.

There are two main causes of inflation, demand-pull inflation and cost-push inflation.
Demand-pull inflation refers to situations where there are not enough products or services
being produced to keep up with demand, causing their prices to increase. According to
(James , 2021) Demand-pull inflation is the upward pressure on prices that leads to a
shortage in supply. When demand exceeds supply it results in higher prices causing
demand pull inflation

Cost-push inflation occurs when overall prices increase due to increases in the cost of
wages and raw materials. Higher costs of production can decrease the aggregate supply
(the amount of total production) in the economy. Since the demand for goods hasn't
changed, the price increases from production are passed onto consumers creating cost-
push inflation.

Figure 5 Causes of Inflation

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 TASK 4

A modern economy has many different types of industries. However, an economic

analysis of the different firms or industries within an economy is simplified by first
segregating them into different models based on the amount of competition within the
industry. There are 4 basic market models: pure competition, monopolistic competition,
oligopoly, and pure monopoly. Following are some characteristics of the four markets;

Market
Structure

pure monopolistic pure

oligopoly
competition competition monopoly
Figure 6 Four market structures

Pure Monopolistic Pure

Oligopoly
Competition Competition Monopoly

No. of Sellers Numerous Large no. of Few sellers One seller

sellers sellers

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 Product Type Homogeneous Differentiated Standardized or Unique
differentiated

Barriers To None Slight High Very high

Entry

Pricing power Price taker Price makers Price maker Price maker
Table 4 basic market models characteristics

1. Pure Competition;

A marketing situation in which there are a large number of sellers of a product which
cannot be differentiated and, thus, no one firm has a significant influence on price. They
are price takers, most of the firms are perfectly elastic. The best examples of a purely
competitive market are agricultural products, such as corn, soybeans, and wheat. There are
many suppliers and the barriers to entry are low.

2. Monopolistic Competition;

Monopolistic competition is an industry in which many firms offer products or services

that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic
competitive industry are low, and the decisions of any one firm do not directly affect those
of its competitors. Non price competition is important. Examples of monopolistic
competition are restaurants, saloons, and hotels and pubs.

3. Oligopoly;

An oligopoly is a market characterized by a small number of firms who realize they are
interdependent in their pricing and output policies. The number of firms is small enough to
give each firm some market power. It is a market form wherein a market or industry is
dominated by a small group of large sellers. Examples of oligopoly includes the auto
industry, cable television, soft drinks such as Pepsi and coca cola and cigarettes.

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 4. Monopoly;

A market structure characterized by a single seller, selling a unique product in the market.
In a monopoly market, the seller faces no competition, as he is the sole seller of goods
with no close substitute. The entrance is difficult, they are the price makers, price
discrimination takes place. For example, Public utilities such as gas, electric, water, cable
TV, and local telephone service companies are pure monopolies.

TASK 5

The factors of production are resources that are the building blocks of the economy; they
are what people use to produce goods and services. Economists divide the factors of
production into four categories: land, labor, capital, and entrepreneurship.

 The first factor of production is land, but this includes any natural resource used to
produce goods and services. This includes not just land, but anything that comes
from the land. Some common land or natural resources are water, oil, copper,

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 natural gas, coal, and forests. Land resources are the raw materials in the
production process. The income that resource owners earn in return for land
resources is called rent.

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  The second factor of production is labor. Labor is the effort that people contribute
to the production of goods and services. Labor resources include the work done by
the waiter who brings your food at a local restaurant as well as the engineer who
designed the bus that transports you to school. It includes an artist's creation of a
painting as well as the work of the pilot flying the airplane overhead. If you have
ever been paid for a job, you have contributed labor resources to the production of
goods or services. The income earned by labor resources is called wages and is the
largest source of income for most people.

 The third factor of production is capital. Capital such as the machinery, tools and
buildings humans use to produce goods and services. Some common examples of
capital include hammers, forklifts, conveyer belts, computers, and delivery vans.
Capital differs based on the worker and the type of work being done. For example,
Teachers may use textbooks, desks, and a whiteboard to produce education
services. The income earned by owners of capital resources is interest.

 The fourth factor of production is entrepreneurship. An entrepreneur is a person

who combines the other factors of production - land, labor, and capital - to earn a
profit. The most successful entrepreneurs are innovators who find new ways
produce goods and services or who develop new goods and services to bring to
market. Without the entrepreneur combining land, labor, and capital in new ways,
many of the innovations we see around us would not exist. Entrepreneurships such
as Henry Ford or Bill Gates. Entrepreneurs are a vital engine of economic growth
helping to build some of the largest firms in the world as well as some of the small
businesses. The payment to entrepreneurship is profit.

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 TASK 6

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 References
Aaron , O. n., 2020. statista. [Online]
Available at: https://www.statista.com/statistics/728516/inflation-rate-in-sri-lanka/

David , F., 2021. investopedia. [Online]

Available at: https://www.investopedia.com/articles/insights/122016/9-common-effects-
inflation.asp

James , C., 2021. investopedia. [Online]

Available at: https://www.investopedia.com/terms/d/demandpullinflation.asp
[Accessed 12 02 2021].

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