T2.1

When the Economy wanted to satisfy all human wants and needs, then questions becomes

What to produce How to produce For who to produce

Economics revolves the below methods and possibilities of solving this fundamental economic problems.

The free market economy

The free market economy is a system where all economic decisions are made by individuals and companies. Under this system the forces of supply and demand are used to solve the problems on what to produce, how to produce etc. this system ensures effective resource allocation.

Command Economy

The Command economy or centrally planned economy is where all economic decisions are made by the government. The government owns all factors of production and decides that is what to produce, how to produce and for whom to produce. Firms are not very efficient as they do not earn profits.

Command Economy

The mixed-economy is basically and combination of the above two. its where markets are used to solve the economic problem to an extent and then the government intervenes when the market does not produce the desired results. Most countries follow this economy system.

UK Economy

The United Kingdom comprises four countries: England, Scotland, Wales and Northern Ireland. The UK is one of the world's great trading powers and financial centers, and its essentially capitalistic economy ranks among the four largest in Western Europe. The UK has large coal, natural gas, and oil reserves, primary energy production accounts, one of the highest shares of any industrial nation. UK is Fifth largest economy in the world in terms of market exchange rates, the sixth largest by purchasing power parity (PPP) and the second largest economy in Europe after Germany.

Private and public investments available in UK

a. Established Industries Food and drink Aerospace Pharmaceuticals Electronics Automotive

b. New Industries Low carbon Industrial biotechnology Nanotechnology Digital and advanced materials such as Composites – Fiber and resins, woven and pre-preg

materials

UK’s Population and Labour Force

The population for the UK in 2012 was 63.244 million. Out of this population, 17.3 percent are aged below fifteen, 65.4 percent are between the ages of fifteen and sixty four, while 17.3 percent are aged sixty-five and above. The age groups are not evenly distributed around the country, with some areas having many young adults and children and some areas having large numbers of older people.

The UK has the 20th largest labour force in the world, with 31.9 million workers. However, unemployment remains high in the UK at 8.02 percent, and is likely to remain so in the wake of the UK’s austerity plans. The UK government has warned that nearly half a million jobs could be lost in the public sector alone as the government continues its cut on public spending.

Currently, 1.4 percent of the labour forces are employed in agriculture, 18.2 percent in industries and 80.4 percent in services. However, agriculture may soon face a labour crisis due to an aging labour force and a general lack of interest for agricultural jobs.

UK’s Labour Force by Occupation

Main problems faced by the UK Economy

UK’s Economy Growth

The latest graph for economic growth shows the UK in a double dip recession. There are signs that the UK may recover soon, but since 2008 growth has been way below the long run trend rate of growth, leading to a significant loss in potential output.

Unemployment

Unemployment is close to double figures (8.5%) – 2.5 million. The official figures also hide some disguised unemployment, (such as enforced part-time work / early retirement) but, unemployment is still a significant problem.

Government Debt

In the short term, government debt is less pressing than the government has claimed. Since 2010, they have given indication that reducing debt levels are the most pressing economic problem. Because of debt, the government has pursued austerity leading to lower growth. I feel the government unnecessarily panicked over debt. Nevertheless, long term spending commitments and long-term debt forecasts are a problem. With an ageing population and perhaps lower growth rates, it could be difficult to finance long-term spending commitments from current tax levels. Debt is a long-term problem rather than short-term.

Inflation

Inflation is currently a relatively minor problem because it has fallen to be within the government’s target. However, with rising energy prices, it could resume its upward trend in the coming months. This cost-push inflation is a problem because with low nominal wage growth, many could see a fall in living standards (causing an increase in fuel poverty). Also, savers may be adversely affected because interest rates are low.

Current Account Deficit

The deterioration in the UK current account is a cause for some concern because it is occurring in a recession. Usually a recession leads to lower imports and an improvement in the current account. This deterioration in the current account suggests the UK could have declining international competitiveness, though it may also be a temporary situation related to Eurozone crisis.

Lack of Infrastructure Investment

The recession has seen a fall in public sector investment. This threatens long-term productivity issues, such as transport bottlenecks. As well as infrastructure problems, there are also concerns over other supply side problems, such as inflexible labour markets and lack of vocational skills.

Poor Labour Productivity growth

Some of this poor labour productivity growth can be attributed to the recession. But, if this trend of low productivity growth continues, it will harm the capacity for long-term economic growth.

T 2.2

Government uses policies to regulate economy. UK using Fiscal and Monetary policies to regulate the economy.

Fiscal policy

Fiscal policy is the use of government spending and revenue collections to influence the economy. Monetary policy is the process by which the government, central bank, or monetary authority of a country controls supply and availability of money. The two main tools of fiscal policy are taxes and spending.

Types of fiscal policy

There are two types of fiscal policy, discretionary and automatic.

Discretionary policy refers to policies which are decided, and implemented, by one-off policy changes.

Automatic stabilization, where the economy can be stabilized by processes called

Impacts of Fiscal Policy in a business organization.

Can have an important impact on the economy. Can discriminate which differentiate the regions & consumption hibits to grow the economy. It makes the distribution of income through taxes & benefits. Can have effects on other areas which are not originally planned. Lot of time waste on fiscal policy. Some policies specially high taxes discourage to work.

Monetary Policy

Monetary Policy is basically the government's way of controlling the economy by using INTEREST RATES and the MONEY SUPPLY

The impact of monetary policy on a business organization

It has a price stability. Encourage to the economic development in a short time period. Promote the external economic development. Need to limit during the deflation. Sometimes Lags will affect the policy. Velocity of money will change.

How economy can be regulated through these policies?

By following the policy When they give more importance to the policy. By following the ethics By following the rules & regulations.

How organizations can be affected when government changes these policies

The demand of the organization will become down. The planned decesions has to re-decide again. The schedule of the organization will affect. Must follow the policies. No freedom to prevent this.

T 2.3

UK Competition Policy

Government policies to prevent and reduce the abuse of monopoly power. Abuse of monopoly power can lead to market failure and be against the public interest. Therefore Governments are concerned to intervene and protect the interests of the consumers. 1998 Competition Act sought to bring the UK into line with EU competition policy