Scenario 1 (Airbus)

How far does airbus announcement prove text books wrong?

How market structures determine the pricing and output decisions of
businesses
The type of market structure a firm faces has some impact on its pricing. However, firms
are never simply free to set their own prices if they want to make the maximum possible
profit.
In perfect competition, firms have no choice but to charge the market price. They are
price takers in this market structure and must charge the same as everyone else.
In all other market structures, firms have some control over their pricing. In oligopolies,
they must pay attention to the pricing decisions of competitors, but they do not really
need to do this in monopoly or monopolistic competition. However, in all of these cases,
firms must (to maximize profit or minimize loss) produce the quantity were their
marginal revenues equal their marginal costs. They must then charge a market clearing
price--the price that will clear exactly that quantity of their product.
Market structure does affect firms' pricing decisions, but firms are never simply free to
set their own prices if they want to maximize profits.

You should utilize your local resources, such as the Chamber of Commerce or
other trade organizations. If your community has a pricing standard for your type
of business, these resources would let you know about it.
Obtain feedback from your customers. The only way to truly find out how your
customers feel about your pricing structure is to ask them. You can do this by
handing out surveys or by talking to them directly.
In addition, you should evaluate the supply and demand of your products or
services. If you are selling a low-supply, high-demand product, chances are, you
could charge a higher price than if you were selling a high-supply, low demand
product.

Conduct market research. The more you find out about your target market, the
better you will be at providing their needs. If you conduct market research, you
will know if you should broaden or narrow your focus.
Lastly, calculate your own costs. Before you can decide on a price for your
offerings, you must consider business costs such as materials, labor, and
transportation. Once these costs are covered, you need to make sure that you are
also making a profit.

"Competition refers to the process of active rivalry between the firms operating in a
market as they seek to win and retain buyer demand for their brands". (Pass & Lowes
1994)
If there is no market then the product or service isn't going to do very well. Its all about
supply and demand. If the demand is high then the price goes up. If the supply is higher
then the demand then prices drop. If there is no market for the product or service then the
business flops.

Evaluate how the changing preferences and needs along with

social and cultural changes have changed the behavior of this
organization?
Culture at the level of an organization is referred to as organizational culture, and culture
at the level of a society is referred to as national culture.
Organizational culture refers to an organizations own values, beliefs and learned ways of
doing business. This is reflected in its structure and in the people who work in this Airbus
organization. The culture of this organization is derived from its aims and purpose, its
past, its present and its current ways of managing its people and resources. Because every
organization is unique in terms of these features, each will have a culture that is unique.
Analysis of culture is important within this organization because, as we will see in this
org. This taken-for-granted ness is what frequently makes culture problematic in
organizations. People assume that everyone views things in the same way.
The wider business environment may be analyzed into six segments using the PESTEL
framework.

Political

Economic

Socio-cultural

Technological

Environmental protection
2

Legal

Political environment
Government is responsible for providing a stable framework for economic activity and, in
particular, for maintain and improving the physical, social and market infrastructure.
Currently only political risk Airbus org might face toward
The economic environment
The economic activity affects firms at both national and international level, both in the
general level of economic activity and in particular variables.
The socio-cultural environment
The social and cultural environment features long
Term social trends and peoples beliefs.
These can bring changes in Airbus org patterns of demand, location of demand and
recruitment policies.
The technological environment
The type service that is provided in the Airbus, the way in which comfortability and
reliable measures are made, the way in which service are provided, the way in which
markets are identified, the way in which the firms are managed, and the means and extent
of communication with clients all depends on the technological environment. Only reason
service provider like Airbus org exist is because of the technological development in
wireless sector.
Environmental protection
The physical environment is important as a source of resources and because of increasing
regulation. As a service provider Airbus org does not enforce much environmental
resources, still they do use resources like which is pollution free in the sky and landing
grounds.
The legal environment
Laws come from common law, parliamentary legislation and government regulations
derived from it. Especially the tax law and competition law effects companies like Airbus
org directly.

Conclusion
The organization has had to become much more proactive, dealing with new ideas to
create more services and customer focus. In the past, change was rare and slow, the
company tended to follow the market trend. The structure of the organization has been
realigned to meet the needs of the new way of operating.
Organizational structures define important relationships within the business and create a
mechanism for meeting business objectives. At the same time, it has been important to
create a new business culture within Airbus org. A culture exists within the minds and
hearts of the people of an organization and contributes to the way they make decisions
and develop business strategies. As an organization changes from a product-focused
organization towards becoming a service-orientated culture, this requires more
involvement of its people, with greater empowerment and rapid decision-taking.
The corporate identity is the sum of the culture and its expression in behavior and
physical terms. Airbus org has defined the identity that it needs to encourage, building on
its past reputation and achievements for continuing success. As these changes take place,
the organization is also realigning its financial reporting framework and corporate
governance. This will change how the whole business shapes its purposes and priorities.

Scenario 2 (London energy 2005)

Analyze how price and output might change as a market
structure becomes more competitive?
Market forces shape organizational responses through a very basic economic
principle: Supply and demand.
A company or organization will always try and predict demand for its product or service,
and ensure that demand is met by implementing a cost effective strategy.

Market forces, by definition, can have an effect on that demand - and as such, will have
an affect on the supply chain and strategy used by an organization.
We could make a never ending list of market "eventualities" and examine how they
impact supply and demand, but actually it's safer to just stick to the wellestablished concept of Porter's Five Forces:
Likelihood of new entry,
Powers of customers,
Power of suppliers,
Degree of rivalry
Substitute threat
Major Market Forces
Governments
Governments hold much sway over the free markets. Fiscal and monetary policy have a
profound effect on the financial marketplace. By increasing and decreasing interest
rates the government and Federal Reserve can effectively slow or attempt to speed up
growth within the country. This is called monetary policy.
If government spending increases or contracts, this is known as fiscal policy, and can be
used to help ease unemployment and/or stabilize prices. By altering interest rates and the
amount of dollars available on the open market, governments can change how much
investment flows into and out of the country.
Speculation and Expectation
Speculation and expectation are integral parts of the financial system. Where consumers,
investors and politicians believe the economy will go in the future impacts how we act
today. Expectation of future action is dependent on current acts and shapes both current
and future trends. Sentiment indicators are commonly used to gauge how certain groups
are feeling about the current economy. Analysis of these indicators as well as other forms
of fundamental and technical analysis can create a bias or expectation of future price rates
and trend direction
Supply and Demand
Supply and demand for products, currencies and other investments creates a push-pull
dynamic in prices. Prices and rates change as supply or demand changes. If something is
in demand and supply begins to shrink, prices will rise. If supply increases beyond
current demand, prices will fall. If supply is relatively stable, prices can fluctuate higher
and lower as demand increases or decreases.

What are the internal and external factors that would lead to
an improvement in UKs GDP?
International trade is the exchange of capital, products and services across borders.
Advantages of international trade include greater utilization of resources, importing
products that can not be produced locally, and increasing the variety of choice to
consumers. However, international trade may be associated with disadvantages as well
such as loss of local jobs and high level of dependency on foreign markets.
Significance of international trade to UK business organizations can be explained by
referring to the concept of comparative advantage. According to the concept trade
between two countries can be made in a mutually beneficial manner, if each country has
comparative advantage to manufacture products to be traded.
One of the leading English economists of the 19th century David Ricardo uses the cases
of England and Portugal producing cloth and wine as it is presented in Table 2.
For Example:
According to Table 2, England possesses relative advantage in producing cloth as it less
labor hours is required. Portugal, on the other hand, has relative advantage in wine
production, because only 80 hours are required to produce wine as compared to 90 hours
to produce cloth.
Cloth

Wine

Ratio of price of wine to the price Ratio of price of cloth to the pric
of cloth
of wine

England

100

120

1.20

0.83

Portugal

90

80

0.88

1.12

Illustration of the concept of comparative advantage

Source: Hunt and Lautzenheizer (2011)
In other words, England can produce each unit of cloth for lower prices compared to
wine, while for Portugal it is cheaper to produce each unit of wine than producing each
unit of cloth.
Impact of international trade to UK businesses can be illustrated by using the case studies
of Martin Lishman and Aquaco. Martin Lishman UK based manufacturer and
distributor of specialist equipment for the agricultural, environmental and building
industries generates substantial parts of its revenues from international sales exporting its
products to more than 20 countries globally.
International trade is an essential feature of the UK economy, it is vital for the UK so that
it can sustain its economics strengths and progress in an increasingly competitive global
economy.
In this essay I shall examine the significance of international trade. First I shall identify
how the UK economy operates on an international level. Second, I shall consider the

costs and benefits of international trade, and how the UK economy has been influenced
by international trade and the consequences of an increasingly globalize economy.
As we shall see, international trade has been vital for the UK economy to develop
throughout the colonial period, and the post war period. The issue of globalization has
created clear economic uncertainty and the evident understanding that the UK economy is
susceptible to effects that are clearly outside its realm of influence.
International Trade
International Trade can be phrased as "the exchange of goods and services across
international borders. In most countries, it represents a significant share of GDP.
Some important benefits of International Trade to UK business organizations

Enhances the domestic competitiveness

Takes advantage of international trade technology
Increase sales and profits
Extend sales potential of the existing products
Maintain cost competitiveness in your domestic market
Enhance potential for expansion of your business
Gains a global market share
Reduce dependence on existing markets

How far do you think these external factors have influenced

UKs GDP?
Politics, economy, society, and technology are the 4 key global factors that influence UK
businesses.
The impact of global factors on the UK economy and UK business can actually be
explored by breaking down the various strategies businesses in the United Kingdom
employ, and then looking at the factors that influence and affect those strategies.
To start, we can look at the following UK business strategies that have a reliance on
international and global markets:
- Export to foreign markets
- Association with trade blocs
- Partnering with strong international markets
- Establishing overseas competitiveness
The following are seen as factors that can influence the success rate of the
aforementioned strategies:
Politics
Society and culture
Economic stability
Technology

These are known by the acronym PEST, and are a well established group of factors that
can impact not only UK business organizations, but also the economy of any sovereign
state that takes part in international trade or the free market.

Discuss whether trade agreements such as EU encourage or

discourage businesses in UK?
Our national government as well as the European Union plays a big part in influencing
business activity:
through taxation and spending
through laws, directives and regulations
through encouraging business activity through subsidies and support
By providing advice and support for business.
Here are some examples of the way in which government and EU influences business
activity today:
1. Employment policy:
Governments play a major part in trying to stimulate employment. For example, the
present government is keen to encourage business efficiency so that UK businesses are
competitive in international markets and therefore create jobs. For those who have
difficulty finding work, the government has created what is termed 'The New Deal',
offering people the opportunity of developing training and experience on government
funded and sponsored employment programs.
2. Regional policy:
At European Union level, funds are made available to support regions of high
unemployment and social deprivation such as large areas of Southern Italy and rural
France, as well as the Highlands and Islands of Scotland. Regional policy sets out to
compensate for the fact that with the development of the more prosperous parts of the
European Union, jobs have been lost in other areas.
3. Inflation policy:
The government seeks to make sure that there are no sudden general rises in prices. They
do this through the Monetary Policy Committee (MPC) of the Bank of England which
sets interest rates. Interest rates are put up if there is a danger of people borrowing and
spending too much, thus pushing prices up. Raising interest rates makes it more
expensive for businesses to borrow money. It also makes it more expensive for
consumers to borrow money. They then have less to spend, which helps to force down
prices.
4. Education and training policy:
Education and training is seen in the UK as having a valuable contribution to make to
business life. The government plays an important part in forcing through education and
training changes, for example by creating more Vocational Subjects in the school
curriculum.
5. Taxation policy:
Businesses can make a valuable contribution to the community by the taxes they pay. In
return, the government can help businesses by spending money on projects like airports,

roads, aid to developing countries and many other items.

6. International policy:
The government can promote trade, encourage sales of British goods abroad (exports), or
discourage goods coming in from other countries (imports).
7. Establishing the 'rules of the game'.
Many of the laws of this country have been in existence for a long time. Others are much
newer. New legislation can be made at a European Union, national or local level. These
laws set out how people can and should behave towards one another, and particularly,
how business should be conducted. They are very important in setting 'the rules of the
game'.
European Union:
The European law making it compulsory for coach passengers to wear seatbelts was
costly for bus companies because it forced them to fit safety belts - but it also makes
passengers a lot safer.
European Union regulations are directly binding on all Member States without the need
for national legislation to put them in place.
European Union directives bind Member States to the objectives to be achieved within a
certain time-limit, but leave national authorities to decide on how to implement them.
Directives have to be implemented in national legislation.

Conclusion:
In an opinion dated 6 September 2013, the legal service of the Council of the European
Union, assessing the European Commission's proposal, stated that it would tax activities
that "are not liable to contribute to systemic risk and which are indispensable for the
activities of non-financial business entities" and concluded that it was illegal because it
"exceeds member states' jurisdiction for taxation under the norms of international
customary law" and is not compatible with the EU treaty "as it infringes upon the taxing
competences of non participating member states". The opinion further stated that the tax
would be in violation of the EU Treaty because it would be an obstacle to the free
movement of capital and services and it would be "discriminatory and likely to lead to
distortion of competition to the detriment of non participating member states"

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References:
http://www.smallbusinessnewz.com/6-tips-for-determining-your-pricing-structure-201004
http://www.enotes.com/homework-help/expalin-how-market-structures-determinepricing-290148

Author (Pass & Lowes 1994)

http://www.open.edu/openlearn/money-management/management/business
studies/business-organisations-and-their-environments-culture/content-section-0
http://www.scribd.com/doc/117140973/Behaviour-of-Organisations-in-Their-MarketEnvironment-and-the-Significance-of-the-Global-Factors-That-Shape-National-BusinessActivities

"Porter" five forces

http://business-finance.blurtit.com/3931330/illustrate-the-way-in-which-market-forcesshape-organisational-responses-using-a-range-of
http://www.investopedia.com/articles/trading/09/what-factors-create-trends.asp

Hunt, E.K. & Lautzenheiser, M. (2011) History of Economic Thought: A Critical

Perspective M.E. Sharpe

Author Martin Lishman and Aquaco case study

http://research-methodology.net/significance-of-international-trade-to-uk-businessorganisations/
http://businesscasestudies.co.uk/business-theory/external-environment/government-andeu-influences-on-business-activity.html#axzz2spzGWsEx

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