The Impact of Fiscal and Monetary Policy on an Organisation - Essay Example

The Impact of Fiscal and Monetary Policy on an Organisation Fiscal and monetary policies are drafted by governments to encourage or discourage money-spending by citizens. For example, the government can increase money available to citizens by instructing Central Bank to reduce the interest rates it charges to lend money to commercial banks. Commercial banks will then reduce their rate, which will encourage people to borrow money to invest in their businesses (Lewis 8). In another way, the government can discourage spending by increasing tax on luxury goods to encourage people to spend money in activities that develop the economy. In other cases, reduction of tax on consumer goods encourages growth of primary industries and increases consumer purchasing power. This gives supermarkets and other retail shops a chance to sell more products and increase their profits. These profits can then be reinvested back to the economy. Low taxes are also meant to encourage the growth of fresh firms. This is because young businesses are battling with competition and thus low taxes help them retain most of their profits. Likewise, spending by the government assists fresh firms. The government is able to give out revenue by redistributing it to those new organizations through subsidized loan, grants, or other forms of spending which are driven towards expanding businesses. For instance, a Supermarket research organization may be awarded federal or state loans and grants in order to start up new stores of supermarket (Frascona 18). Fiscal and monetary policies have a disadvantage because they take a lot of time for the anticipated economic effects to apply. Despite this, the policies are helpful to the economy because they help increase aggregate demand where it is lacking and also reduce it (Fishman 11). The Impact of Competition Policy and Regulatory Mechanisms on an Organisation Competition policy and regulatory mechanisms have various impacts on business organisations such as companies and partnerships. These policies affect various types of businesses differently. For example, a supermarket such as Traders Joe is a large business that was affected differently by competition from other forms of businesses. The supermarket’s sales, in 2008 were affected by unhealthy competition from other retail chains. Consumer freedom to choose what to consume from this supermarket was limited by an advertisement that portrayed it as selling inferior goods. This made customers not buy goods from it. This is an example of how advertisements can limit consumer freedom (Lewis 10). Other activities that can lead to unfair competition may come from supermarkets that have large presence in an area. These supermarkets may raise and lower prices as they wish in order to meet their profit targets. Such supermarkets may also be in a position to buy products from manufacturers at very low prices. This means they will pass the same product to final customers at low price compared to other supermarkets (Frascona 18). A supermarket may be also having a strong brand name which makes it to be considered as one of the most successful retailers. According to Lewis, the government should control such supermarkets by taxing them more money than other supermarkets (9). This will ensure healthy competition that increases efficiency and efficient use of resources. The government may also come up with regulatory mechanism on certain products. For example, the government completely making it illegal for supermarkets to sell manufactured or processed foods to ensure that its citizens are healthy. The government may also have a zero tax on infant’s foods and clothing to encourage population growth in advance countries of the world that shows decreasing population trends (Frascona 18). Effects of market structures on the pricing and output decisions of a business The forces of demand and supply are at times not the only determinants of market price. Market structures such as oligopoly and monopoly disrupt the normal forces of demand and supply. These structures have an impact on pricing and the type of business decisions that are made. The Oligopoly market structure consists of the few suppliers of a product such that one supplier's actions can have a significant impact on prices. This disrupts healthy competition which is the driver of innovation, growth and productivity. Healthy competition leads to creation of wealth and reduction of poverty. However, it may sometimes prove to be good or wrong, depending on several variables and based on the fact that it is healthy (Lewis 11). Competition among companies may as well benefit or hurt the society because if it is not healthy, it leads to high unaffordable prices. Competition is brought when firm are able to reduce their operating costs, and at the same time increase their profits. This behavior is common with monopolies because they supply a smaller amount of goods at a high price. This is not what other businesses do because demand and price always match. Monopolies, therefore, do not maximize consumer surplus. They reduce consumer surplus and increase producer surplus. Other firms must, therefore, work hard to convince customers to buy from them at higher prices (Lewis 9). Competition is also affected by the characteristics of oligopoly market structure. One of the common characteristic of the oligopolistic market structure is how the firms involved inter-depend on each other. Unlike in a monopolistic market structure, a change in the price or output of one of the firms will directly have an impact on the sales as well as profits in other firms that are deemed to be its competitors. That is why in most instances, oligopolistic firms tend to widely consult its competitors before arriving at its output decisions (Fishman 19). Relationship between the Market Forces of Supply and Demand and Organisational Responses There exists a relationship between market forces of supply and demand and the actions that a business takes in order to survive in an industry. A business takes actions to increase profitability because slower demand growths and lack of product differentiation have depressed the profitability of most mature industries. As a consequence of this, the firms have segmented their target markets as well as introducing a niche strategy for growing and being efficient. Profitability can also be increased by management of customer relationship, and analyzing the attributes and preference of the customers. (Lewis 11). Businesses respond to high level of competition is high in various ways. Majority of businesses will cut the profits they get to retain customers. When the market prices are reduced, consumers will gain the purchasing power and hence be in a position to afford several items at lower rates. The economy will in return be improved as a result in lower prices of products and an increased purchasing power (Fishman 19). PEST Analysis of Safeway Inc The abbreviation PEST stands for political, social, economic and technological environment of a business. The analysis of these four factors that affect a business is important in its success. This is because its analysis is applied when describing the actions that are quite necessary so as to understand both the negative or positive effects of particular elements to a business. For example Safeway Inc. supermarket has social, political, economic and technological implications to the Americans (Lewis 15). In Politics, the supermarket has been subjected to several lawsuits involving non-tax compliance. Economically, Safeway Inc. is likely to be affected when U.S government increases tax on imported goods to promote the growth of American industries. Socially, most consumers feel comfortable to shop at Safeway Inc. since it is a one-stop service. Due to social influence, Safeway Inc. is taken as their first choice. Technologically, Safeway Inc. applies technology in its operations, especially in marketing. It relies on the social media and internet for selling and advertising its products. These factors have made the supermarket to attain a sustainable competitive edge for a long period of time (Lewis 17). The supermarket is also famous for investing heavily in solar power plants, providing products that are environment friendly across its stores as well as promoting the recycling processes of its various products. Importance of International Trade to UK Supermarket Organisations International trade is important to business organisations because domestic trade is no sufficient to meet consumer needs. This fact is well known by UK business organisations because they demand a variety of goods and services. These UK organisations are very aggressive in international trade because it has many benefits to a country. International trade are business activities between countries and often involve business activities of export and import. The businesses also involve use of major currencies of the world such as the Euro and the Pound (Fishman 17). Most of UK businesses depend on exports and import from other parts of the world where labour, and raw materials are cheap. Therefore, international trade ensure cheap products are available in UK. Impact of Global Factors on UK Supermarket Organisations UK supermarket organisations depend on products from manufacturers that are located in different parts of the world. This implies that they are depending on import from other regions of the world where raw materials are cheap such as China. International markets of import and export are faced by many challenges. These challenges include a large chain of supply, constant change in prices and increased competition. Therefore, a price change in China will also see the prices in UK supermarkets change. In another case, these organisations are heavily affected by global economic recession. For example, in 2008 during the global economic recession, products prices in UK supermarkets were reported to be among the highest in the world (Lewis 15). Impact of Policies of the European Union on UK Business Organisations When European Union was formed, its main aim was to bring down all barriers and to simplify existing laws. This would enable people in the Euro Zone, which are consumers, individuals and businesses to maximize market opportunities. The motivation behind creating European Union was that the zone has 28 countries with a total population of 503 million people. The union signed a business treaty is anchored on 3 types of freedom that are important in any form of competition. These 3 factors are free movement of capital, people, services and goods. These factors affect the success of businesses in UK because they affect distribution, consumption and production of goods and services. In addition, the treaty was also created to increase competition among industries leading to lower prices to consumers. The treaty also stipulated simple rules that made the business start-up process simple and cheap. Currently, the market is governed by one business law that regulates all forms of business entities including supermarkets, multinational businesses and partnerships (Frascona 18). In conclusion, business environment is important for the success of any business. An entrepreneur should evaluate the business environment so as to have a competitive advantage over other businesses. A competitive business earns good returns to the entrepreneur. Successful entrepreneurship is the pillars that drive a country to prosperity. Work cited Fishman, Charles. The Wal-Mart Effect: How the World's Most Powerful Company Really Works—and How It's Transforming the American Economy. St Martin's Press: New York, 2006. Print. Lewis, Wright. The Power of Productivity. University of Chicago Press, 2004. Print. Frascona, Joseph L. Principles of Business Law and the Legal Environment. Boston: Allyn and Bacon, 1988. Print. Read More