Economic Analysis for Business - Example

ECONOMIC ANALYSIS FOR BUSINESS Name Class Instructor Institution City State Date Economic Analysis for Business Value-added The term value added is used to elaborate the following in business and economics: The estimate of the profit of an organization Return on investment upon subtraction of the costs The idea of the value of return on the capital In economics, the sum of the labor costs and depreciation cost as well as the profits gained is the value added. In other words, the difference between the cost of production and the sale of the product price is the unit value added. (Andrew, 2010, p.27). The estimates give the stipulated profits of an organization. Putting it in simple terms, the profit that is gained from the business less the cost of production that finances the business capital is the value added. Similarly, the value added is the advantage gained by operational sales after deduction of tax less the capital invested. (Nazroo, 2003, p.28) News items In the Financial review of January 11th, 2015, it highlights the growth of small and medium sized business ventures such as Kids' Moon Baby Products. The small startup was highlighted in the paper and shows a success story that came from scratch. The Baby products company had carefully calculated the risks involved and the cost of production per unit and the profits of the company. In the article, Most of the labor cost was calculated and put into consideration in the determination of value added and operational sales after the deduction of taxes. In another global story on the Global Economics Paper of 24th January, 2015, the news feed discusses the measurement of international trade in Value Added terms. It is evident that the services and goods come from different nations in the world. However, the flow of goods is not clearly shown and represented in measures of trade. (Caroline, 2015, p.12) It is true that the issue should be addressed by calculating and consideration of the value added in the production of the services and goods that are consumed globally. Marginal Analysis The term Marginal Analysis is employed to reveal the following key points in economics and business principles; The assistance to business people to make decisions that allocate the scarcest recourses to reap utmost benefits. Getting the most out of the invested resources The analysis of costs and benefits of the marginal unit of a service, goods or input. In business principles, the marginal analysis is a technique mostly utilized in decision-making capabilities whereby a complex system of manipulation is designed to control variables. In essence, when doing a marginal analysis, the variables that are involved include the quantity of the production, the number of the inputs and the amount of sales that are involved in the business venture. (Davis, 2011, p.367). These variables are collectively called the control variables. In the study of marginal analysis, the focus on decision-making platforms is on whether control variables are being increased or reduced. The identification of the control value denoted by (cv) and the determination of the value of increment or reduction of a control value. The marginal benefit is realized by the addition of the units. (Dheensa, 2012, p.267).To determine the marginal cost, the idea implemented is the elaboration of what one unit of a control value would do to the cost if it is increased. Subsequently, if the marginal benefit surpasses the marginal cost, the units should be increased. The marginal benefit is the increase in the total profits per unit of a control group or variable. News Item In the Financial Business paper of January 31st, 2015, it highlights the decision-making capability of the decision tasks using marginal analysis. The tools for marginal analysis are offered to provide efficient optimization of production aspects in the company. In the article, The assumptions that the production is constant and the cost per unit of sales is higher create the profits for organizations. A good decision impacts positively on the spending aspect and the innovation of a new product. The Circular Flow of Income In economics and business principles the term ‘circular flow of income’ is used to describe the following outlined points below; A model of economy of exchanges of funds, services and goods between brokers, sellers, and buyers. Injections and withdrawals of money The circulation of spending and income in an economy In economic principles, the circular flow of income is a model that is designed to depict the exchange of money and how it flows in an economy. In essence, the entire economy is shaped by firms and households. In this case, funds flow from employed workers in the form of salaries and flows back into the organization inform of the purchase of goods and services. In other words, the supply of goods and services creates a vacuum for the same demand in them. The circular flow of income illustrates the dependencies and relationships in various models of the economy. The way money travels across an economy is a complex system that economics has tried to research upon. (Williams, 2011, p.272). The ideas and methodologies involved in the circular flow of income have helped to unravel the complexity of the economies of today. The various forms of injections and withdrawals include investment and savings, the government taxes, and international exchange of goods and services. For instance, the money pumped into the government as taxes comes back to the community as healthcare, schools, the construction of roads and infrastructure as well as goods. The money gets to the people’s pockets economy as salaries and wages of government employees. The imports and exports offer injections to business men that engage in open international opportunity ventures with money that circulate the world. Foreign exchanges also pump a lot of revenue into the circular flow of income model. (Gray, 1999, p.373). News Items In the Monday Business Review of February 9th, 2015, it highlights the reflections of the circular flow of income in the National view. The article describes the researches that have been done in gaining new explanations of the primary flow. In understanding an economy, the circular flow of income is necessary to be recognized by the government financial institutions, such as banks, foreign exchange agents, and the governmental investment institutions. This will help to understand the consumption and injection of funds in the gross domestic product (GDP) of a country. (Bernard, 2015, p.37) In the article, There are logical puzzles in the circular flow of income such as the concerned constraints. They should be correct in the aspect of imports being negative. Furthermore, the exports should be positive to reflect a growth in the GDP. Entrepreneurial error and the classical theory of the cycle In this business model, it is the term ‘entrepreneurial failure, and the classical theory of the cycle' is used to define the following outlined points; The challenges that entrepreneurs find in running their businesses. The average rate of production over a specified period The upper limits and lower limits movement of the levels of GDP of a country. In economic principles, the classical theory of the cycle and entrepreneurship error is key measures that affect the rates of output from a business. (Fägerskiöld,2005, p.32). The relationship occurs whereby the failure of a business man in the business cycle causes him to suffer loss. On a wider scale, errors of business cycle strategies can cause the GDP of a country to reduce. The challenges that entrepreneurs find in their quest for the growth of the business can affect the gross domestic product of a nation. These include the credit limits and investment loans that have high interest. High-interest rates can affect the GDP of a nation by causing a downturn on investment and business opportunities. This classical theory will in turn limit the growth of infrastructure, schools, and healthcare services because the income taxes levied will be reduced. Consequently, the wages of public officers will decrease causing a stir because savings and investment will be diminished. International trade will also be reduced due to fewer entrepreneur ventures that limit the exchange of foreign money in the classical theory of the cycle. (McDonnell, 2004, p.548). News Item In the Economic Review of 5th January 2015, the main challenge of high-interest rates is discussed in the Entrepreneurship article. New Small Startups find it hard to thrive in an environment of high-interest rates. In the article, the central banks and government financial institutions should help the new businessmen to find easy credit as this helps to in the growth of the economy. Schools should limit and control the interest rates to enable the merchants to acquire new ventures that attract foreign exchange and trade. (Ahmed , 2015, p.54)A case study of a small Business in the hospitality industry, the Sunbeam Hotels has shown how credit from banks has attracted business in the tourism industry of Malaysia. The Role of Saving In business and macroeconomic principles, the role of savings can be summarized in the following outlined points; Household savings to cover for the future expected costs Determinants of saving the role of financial institutions in savings Government savings to avoid over expenditure and cover for tax revenues Company savings for payment of expansion opportunities and shareholder dividends In microeconomic and macroeconomic business principles, the role of savings cannot be over emphasized. A saving is an essential ingredient in the success of an individual, company or the nation. The household savings help to cover for school fees, medical expenses of buying an asset. (Gore, 2011, p.237). Similarly, an organization can save to ensure that the dividends of shareholders and production costs are included. In the same case, a government can keep gaining funds for building schools, hospitals and paying the parastatal staff wages. The growth potential of any entity is determined by the amount of saving that has been put aside for sufficient financial cover. (Nanthagopan, 2013, p.28). News Item In the Economic Paper of February 24th, 2015, Old Mutual highlights the role of savings in business and government. Most institutions should educate the individuals on the role of saving to improve their businesses and personal funding. The article highlights a case study of an insurance company that has enabled the growth of companies offering savings plans and individual growth plans in developing countries such as India and Africa. (Florence, 2015, p.14). Most of the capital funding for small and medium-sized companies has been researched, and findings reveal that savings have stimulated their growth. References Ahmed , H. (2015). The Economic Review 2015. The Economic Review Quarterly. Task set, 2. Bernard, S. (2015). The Business Focus: Economic Review - 2015. The Review Quarterly. Task set, 1. Caroline, B. 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The Approach in Business and Economics and Beyond. Business Digest, 53, 10-1. Nazroo, J.Y. (2003) The Art of Business and Entrepreneurship: The Impact of Economic variables and People. Sociology of Entrepreneurship 24: 1 20. McDonnell, B. (2004). 2004 The Study of Marginal Analysis: Key Statistics for Economics. North Park: Northward Council. Nanthagopan, K. (2013). The Influence Of Business Trends and the Circular Flow in A Survey of Businesses And Startups in the UK. Business Review, 17(09), 2094-2103. Read More