Free market economy Free market economy is a market that barleyhas any government interventions. Prices of goods and services are determinedby the determinants of demand and supply and how the shift from one side toanother.Benefits for an entrepreneurof a market economy.Ø Freedom to innovate;entrepreneurs will be encouraged to innovate and have new ideas, bring up newproducts or modify a product or a concept due to them having the freedom ofsetting their own price as they please.
Ø No barriers of entry;as a new entrepreneur in the market entering a free market can be a hugebenefit. There are no barriers of entry meaning that after an idea has beenthought of and put together a product or a service can enter the market andsell with no restrictions. Ø Competition;in other markets the prices are determined and regardless the quality of theproduct the product still has a set price that it can be sold, however in thefree market entrepreneurs have the freedom to sell products at any price meaningthat the best quality goes for a high price.Drawbacks of free marketeconomyØ Market failure;entrepreneurs will not fear coming up with new concepts and financing them,however everyone else in the market has the ability to do the same thing. This wouldcause mass production and they’ll be a possibility of market failure.
Ø Increase in unemployment level;entrepreneurs will use a large chunk of their capital on producing products inthe form of machinery and many other ways of production. Eventually theentrepreneurs will only be able to take a limited number of employees. Ø Economic crisis;the rich will get even richer due to them being the price makers. This willmean that the government will have no funds to put in education, transport orhealth. Governmentintervention; demand economy Not all markets are freemarkets economy for developing countries the government determines most of thepolicies that are set which is known as government intervention. When there’sgovernment intervention this means that the government is attempting to ensurethat the economy has stability and gradually grows.Impacts of governmentinterventionEliminate failure; withgovernment intervention this means that prices of goods and services aredetermined by the government. Entrepreneurs wouldn’t have the freedom orconfidence to innovate every now and then which will reduce mass production andthe possible chances of market failure.
Reduce unemployment rate;with little production being done due to already determined prices. Companieswill now have the ability and the funds to expand on labour force. This willprovide the opportunity for the unemployed to have a job that pays well due tothe restriction of overproducing and overpricing products.Improve marketinfrastructure; the government will now have the ability to tax companies andaccumulate funds to improve the living conditions such as; build better roads,train teachers for better quality of education, water, communication, transportand many more. This will most certainly establish economic stability in acountry.Prevent economic swings;in the market there are business which are monopolies dominate a single marketconstantly selling product as each day passes.
And other business which aregoing through a period of recession where there’s barely any level of salesbeing made, with the government setting rules, regulations and policies the governmentcan prevent the economic swing.However not all impactscaused by government intervention can be beneficial to the business.Lack of marketdiscipline; not all decision made by the government are assured of reducingfailure or increasing growth. Governments get influenced by political factorswhich is why at times they prevent potential investors coming into the countrywhich can create job opportunities for the locals. This will prohibit theeconomy from growing over time due to the ignorance of the government. Tax and insurance VETERNINARYSURGEON; £25,00025,000-7475= 17,52520% of 17,525= 3,505 (annual tax)17,525-3,505= 14,02014,020+7,475= 21,495Nationalinsurance; 14,020/ 52= 259.6112/ 100 x1791.25= 214.
95 (insurance)1791.25-214.95= £1575.
30 A) MIDWIFE: £27,53427534-7475= 20,05920% of 20,059= 4,011.80 (Annual tax)20059- 4011.80= 16,047.2016047.20+ 7475= 23,522.
20National Insurance16,047.20/52= 308.6023,522.
20/12= 1,960.1812% of 1,960.18= 235.22 (Insurance)1,960.18- 235.
22= 1,724.96 A) CLINICALPSYCHOLOGIST: £30,46030,460- 7475= 22,98520% of 22,985= 4597 (Annual tax)22,985-4597= 18,38818,388+7475= 25,863National Insurance18,388/52= 353.6225,863/12= 2155.2512% of 2155.
25= 258.632155.25-258.63= 1896.
62Answer: £1,896.62POLICE OFFICER; £28,96428,964- 7475= 21,48920% of 21,489= 4,297.821,489- 4,297.8= 17,191.217,191.2+ 4,297.
8=24,666.2Insurance17,191.2/ 52= 330.624,666.2/ 12= 2,055.512% of 2,055.5= 246.
662,055.5- 246.66= £1,808.84 Fire fighter; £27,05127,051-7475= 19,57620% of 19,576= 3,915.219,576- 3,915.2= 15,660.
815,660.8+ 7475= 23,135.8National insurance15,660.8/52= 301.1723,135.
8/12= 1,927.9812% of 1,927.98= 231.361,927.98- 231.36=£1,696.62Gardener; £18,00018,000-7475= 10,52520% of10,525= 2,10510,525-2,105= 8,4208,420+7475= 15,895Insurance8,420/52=161.9215,895/ 12=1,324.
5812% of1,324.58= 1,324.58, 1,324.
58-158.95= £1,165.63 Uses of financial statementFinancial statements are used in business to keep records which contains;what the business owns, whom the business owes and the overall performance of abusiness over a given period of time. Credit decisions; for any financial institution before lendingout money you’ve got to make sure that the business or individual have thecapability of paying the institution back. The institution will look at thebusiness performance over time if the business has the capability of generatingand maximizing profit levels in order to pay the money back. Tax decisions; before the government sets the tax rate theperformance of the business will have to be reviewed. How the money is cominginto the business and how much comes in to the business over time.
Thegovernment will tax the business according to how the business performs whichwill be in their capability.Investmentdecisions; before an investordecides to invest their money in any business they must first look at thebusiness performance and if the business has the potential to regenerate thecapital which they’ve invested in.Employees; employees will be interested in the profitlevels of the business. a business which continues to make good levels ofprofit offers greater level of security. The employees or their trade unionmight use profit figures to support their claim for higher wages.Customers; they want to know that a business willcontinue to supply them with goods and services which meet their needs andwants.
Business may use some of their profit to invest in new technology whichimproves the quality of products and might even lower prices. trade payables; many goods and services supplied to abusiness are on a credit basis. The supplier will want to know the businessthat has sufficient cash to pay its debts when they become due. legal requirements that affect users of financialstatementsThe users of financial statements don’t only get affect by competitorsor customers however they get affected by the government.
The legal laws rulesand regulations have to be followed by users of financial statement. Taxes; the government priority is toimprove the economic condition and to ensure that there’s stability with in theeconomy. To raise funds for infrastructures such as building roads, schools andhospitals financial statement users such as business have to be taxed. The taxrate is determined by the income of the business and the performance in themarket. This policy will affect the business profit levels because money isbeing deducted according to how much the business makes per month. After thegovernment analyses the financial statement of the business and has theknowledge of what the business owns (assets) will determine the tax rate andhow much the business will be taxed. Interest rates; government policy caninfluence the interest rate which means that they’ll be an increase in the costof borrowing (bank loans) which will affect financial statements. An increasein the interest rates makes it difficult for business to raise any sort ofcapital which will affect financial statement such as balance sheet or incomestatements as the outcome will be different at the end of the year.
An increasein interest rates will trigger inflation meaning that the price levels of goodsand service will increase in order to have enough money to pay back financialinstitutions and the demand for goods and services will decrease which willaffect profit levels. Government regulations; differentregulations such as minimum wage will affect the users of financial statement.When the minimum wage increases this will affect the users of a financialstatement due to the expenses will exceed the total sales of the business.other policies such as government grants where the government takes money frombigger firms in the form of tax and provides support in the form of a grant tosmaller business to support as they start off their business.
before anybusiness kicks off regulations such as the payment for licences will affect theusers of financial statements as they’ll have to deduct such costs from theirstarting capital. How market competition affects entrepreneursMarket competition is the fierce competition thatgoes on between different firms in the market. Competing to have more customersthan one another and to generate more profits and eventually grow and expandover time.The following are different types of marketcompetition;Ø Perfect competition, this is when a number of smallfirms in the market compete against one another and there are no barriers ofentry. The firms that compete in a market where there’s perfect competition areusually similar they generate around the same amount of profit levels. Ø Monopoly; when there’s one business in the marketwhich is dominating all the other business in the market. In most cases amonopoly has more than 50% of the market (market share). This simply means mostof the customers in the market purchase goods and services from one business.
Ø Monopolistic competition; Monopolistic competitionalso refers to a market structure, where a large number of small firms competeagainst each other. However, unlike in perfect competition, the firms in monopolisticcompetition sell similar, but slightly differentiated products.Ø Oligopoly; An oligopolydescribes a market structure which is dominated by only a smallnumber firms. This results in a state of limited competition. The firmscan either compete against each other or collaborateHow market competition affectsentrepreneursIn a market where there’sperfect competition entrepreneurs hardly miss out on any information thatspreads around which is helpful to entrepreneurs when they want to plan their strategieson the most effective way in which the business can maximize profits. In amarket where there’s perfect competition the price is determined by thebusiness competing in the market. For any new business wanting to enter a newmarket the simplest market to entre is the one with perfect competition due tothe fact that there hardly any barriers of entry.
However, in a market withperfect competition it’s difficult for the businesses to develop due to thefact that any idea that an entrepreneur has can simply be replicated by anotherand all the business will be the same.Entrepreneurs get affected indifferent ways depending in the type of market that the business operates in.monopolies affect entrepreneurs in the sense that they can barely make anyprofits if they’re in the same market, monopolies dominate the markets thatthey’re in and in most case scenario they own at least 50% of the market share.Entrepreneurs with small business hardly have a sufficient customers base. Inmost cases the best solutions for the entrepreneurs is to sell their businessto the monopolies in order for the business to make sales and survive in themarket.
Business tend to take such action in order for them to make profits andsurvive in the market as they’re feeding of the monopolies, however themonopoly controls all operations that will occur even in the small business. Impacts of government intervention that affectconsumer demand.Governmentintervention does not only effect the entrepreneurs however also the consumers.Government policies such as tax which affect the price levels of goods andservices which will eventually cause inflation. Not only the will the increasein tax affect demand however so will the interest rates. When the interestrates increase this means that the cost to borrow or lend money from a bankwill increase. This will discourage the consumers from spending and encouragethem to save, eventually the demand for goods and services will fall.
Governmentintervention also interferes with entrepreneur operations, an increase in taxrates will mean that entrepreneurs will have to increase the prices which willcause inflation and profit levels will drop. The government controls and setsthe national minimum wage, to a firm if the minimum wages are increased theexpenses for the business will arise at the same time.However,government intervention is not always a downfall for an economy at timesgovernment intervention will bring stability to the economy and reduce waste.For firms government intervention helps to decrease market failure. Withoutintervention entrepreneurs usually take the risk and innovate and producefrequently.
With overproduction of goods the business has the risk of facingmarket failure and wastage of resources. The unemployment rate also decreaseswith governments taking funds from entrepreneurs and business in the form oftax the money is given as a grant to help and support other citizens as a formof creating jobs and job opportunity which will improve living conditions anddecrease the unemployment rate.Interms of customers benefiting from government intervention comes when thegovernment sets the price for goods and services. Businesses aren’t allowed togo above the set price they can only set the price lower or the same as the setprice. This will encourage the customers to spend and that will help improvethe economic condition of the country.Inconclusion, government intervention can be beneficial to both business andconsumers in different circumstances. In developing countries governmentintervention is the most advisable to help and improve the economic conditionof the country.
If the country is already developed, then it can be a freemarket economy