BAM4021T3 Economics for Business Assignment sample

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Introduction to BAM4021T3 Economics for Business Assignment sample

Financial innovation implies for the process of developing new financial services, products and processes. It is critical aspect of the economy as it promotes utilization of financial product & services by making them accessible, simpler and affordable. Financial innovation includes integration of new technology, risk transfers, equity generation, banking technology and crowd-funding. Circular flow of money defines the manner in which money and other resources flow within the different sector of economy. It is the significant concept which illustrates balance between leakage and injection within the particular economy. Market Failure is the economic situation which occurs due to inefficient and inequitable distribution of product & services. Public goods, externalities, labour immobility, imperfect market information and unstable commodity market are the distinct type of market failure. On the basis of gross domestic product (GDP) and purchasing power parity the UK has 6^th largest and 10^Th largest economy in world. The country has measured 1.4% growths in GDP and has annual revenue of 1.098 trillion pound at the end of 2024 (UK economy, 2025). The current essay will include in-depth information related to impact of financial innovation on circular flow of money and market failure within UK. It will also consist of practical examples related to financial innovation and three sector economy within UK.

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MAIN BODY

Three-sector economy includes three crucial elements that are household, firm and government within which money and resources are exchanged. In this, Government play a two-part role as it act as both firm and consumers. There are three categories of financial innovation which includes institutional, product & process. Institutional innovation is related to the development of new types of firm such as investment and loan firms and credit card organization. Product innovation includes introduction of new derivatives such as Kraken and foreign currency mortgages (De La Cuesta-González and Morales-García, 2022). Moreover, process innovation is related to introduction of Fintech, telephone and online banking. All this innovation has created long lasting impact on overall income, saving and expenditure of Household, firm and government. Institutional innovation facilitates monetary transaction, investment, saving and promotes economic growth.

BAM4021T3 Economics for Business Assignment sample

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This firm has increased overall purchasing power of household and producers which ultimately aids in economic development. Loan & credit card organization assists household in fulfilling their financial needs which eventually boosts overall spending and investment. This institutional innovation contributes household in fulfilling their educational needs easily which result into offering adequate human resources to the firm (Challoumis, 2024). Moreover, this innovation also assists household in paying out their instalments quickly which is used by producers or firm. This Household’s savings are used by the firm for acquiring new technology, introducing new product & services which eventually promotes economic growth. Further, government has also established this loan firm in which funds are offered at lower interest rate which enhances household purchasing power and firm’s growth (MUTAI, 2023). Further, this institutional financial innovation enhances economic activity and boosts overall employment opportunity. Higher job opportunity results in paying back household funds in the form of wages and salaries which eventually promotes their growth and development.

Along with this, product innovation such as new derivatives, crypto currency and block chain technology has also sustained long lasting impact on the overall flow of income. This innovation offers a new investment opportunity for the household which eventually enhances their income and overall consumption expenditure. Further, crypto currency assists business in enhancing financial liquidity and raises new funds which promote overall growth & development (Chabowski et al, 2025). Further, Household and firm need to pay taxes on capital gains which eventually enhance the government revenue. This increase in government revenue is transferred to household through transfer and factors payments which eventually enhances their purchasing power and boosts overall demand. In addition to this, government aims at developing buffer stock at the time of higher revenue which ultimately boosts the firm’s income. Moreover, government also offers subsides that reduces firm’ expenses and boosts overall economic position.

In addition to this, process innovation such as development of new technology, online banking and Fintech has significant impact on overall circular flow of income. Online banking has eased the process of payments which eventually impacts the overall supply & demand. This technology assists households in easily participating within financial system by changing the overall spending, saving and investment mechanism (Inegbedion, 2021). Fintech mitigates income inequality by promoting economic and financial activities which improves the overall economic position. This technology contributes towards easily transferring asset and money across the international borders which broaden the market access and develops growth opportunity for household & businesses. This assists household to initiate investment in the diverse countries which eventually boosts overall return and financial position. Higher returns motivate households to save more which is eventually used for fulfilling monetary requirement of the firm.

Financial market channelized savings and borrowing within economy which facilitates growth & development of economy. Fintech has simplified the process of insurance, banking and investment which eventually improves the circular flow of income. In addition to this, Fintech has automated tax collection process for government which eventually boosts their overall revenue (Apalkova et al, 2021). Higher revenue has increased government expenditure towards infrastructure development which eventually injects money within the economy. Infrastructure development increases the job opportunities, improves productivity and fosters economic growth. In this line, government offers wages and salaries to people included in development process which enhance their income. This eventually results in higher saving which is mobilized through firm for producing the large number of goods & services (Onabowale, 2024). Moreover, infrastructure development boosts overall demand within economy which results into higher production of good & services. This enhances revenue of the firms and thereby offers higher wages & salary to the household. In this way, Fintech has managed an adequate balance between income and expenditure of three sectors and thereby promotes economic growth.

There are diverse types of market failure which eventually hampers overall working and growth of the business entity. This situation also develops issue in managing the market equilibrium and thereby hampers overall economic growth & development. Externalities is one of the most common type in which production & consumption of particular good & service negatively hampers the third party (Ramzan et al, 2023). Organization usually focuses on fulfilling the customer and market needs by producing innovative product & services but fails to consider environment and community welfare that leads to market failure. In the year of 2021, Southern Water has faced similar issue that negatively impacts the firm’s operation and goodwill. The company is involved towards discharging the large amount of untreated effluent and waste into UK’s south cost. It has discovered that over 746 million litres of waste water has been released within Southampton water within last 5 years which negatively hampers overall quality of natural resources (Southern Water Dumped raw Sewage into sea for years, 2024). This situation does not consider social welfare which eventually impact on economic growth and thereby results in market failure.

Market control is another critical type of market failure within UK in which one party controls overall price within the economy. This situation has disrupted overall demand and supply within economy and thereby causing market failure. In this, both sellers and buyers has power to control prices of good & services which develop obstacles in attaining market equilibrium (Abbas et al, 2024). In the situation of monopoly, seller usually set higher prices for the product & services which eventually reduces demand. For instance, The British Telecom (BT) is maintaining monopoly within communication market that hampers overall innovation and growth of country (Our Strategy - our company, 2024). This situation has reduced customer’s purchasing power that eventually hampers overall market equilibrium. Further, market failure also arise in the situation of monophony in which buyer control overall prices of goods. This situation occurs when all buyers are not willing to pay certain price which eventually lowers overall supply. Market control develops issue in equating supply and demand and thereby results in market failure.

In addition to this, public goods are another significant reason behind market failure within UK. Public good does not align with the basic principle of supply & demand within the free markets. These goods are non excludable as producer is unable to limit the benefit of public goods to one individual which eventually hampers overall demand and supply equilibrium. Moreover, this type of goods are non- rivalrous consumption which indicates that more than one individual could use similar goods at no cost (Tang et al, 2021). For example: Street lights could be used by the large number of people at similar time which reduces motivation of private sector to produce such goods & services Due to this reason, government needs to offer subsidy or produce public goods which eventually result in market failure. After 2020, public transport in UK is major type of market failure that hampers overall economic growth (Transport Economics and market failure, 2024). Private firm are unmotivated to offer public transport facilities as it reduces their overall profits. This reduces transportation facility for various low income class groups which in turn hampers their overall growth & development.

Moreover, imperfect information within market is another critical type of market failure that impacts the overall economy. This situation arises when buyers and sellers are not having adequate information related to the factors that influence overall prices (Mazzucato, 2024). This situation results into over or under charging for the particular good and services which ultimately impacts the overall supply & demand within the market. In this, lack of buyer’s information leads to paying lower or higher for the particular product that vain overall benefit of particular goods. Further, insufficient knowledge of seller leads to charging very high or low prices from the customers that eventually creates issue in managing the equilibrium.

Lastly, labour immobility is also a significant type of market failure within the UK. This includes two type of mobility that is occupational & geographical immobility that cause market failure. Occupational immobility implies for situation in which workers lacks skills and competencies to switch their jobs whereas geographical mobility refers to employee incapacity to move from one place to another. This situation develops issue in adequate allocation and utilization of human resources that ultimately result in market failure (Amankwah-Amoah, Khan and Wood, 2021). Due to this reason, human resources are not optimally utilized that develop issue in managing demand & supply of the country. For instances, UK has experienced geographical mobility after Covid which develop issue in easily carrying our production of diverse product & services.

CONCLUSION

By summing up the report, it has discovered that financial innovation sustain huge impact on overall money flow within three-sector economy. It has identified that institutional innovation, introduction of crypto currency and online banking has increased household’s investment, saving and overall purchasing power. This innovation has enhanced firm’s access to huge amount of capital which eventually promotes economic growth & development. In addition to this, crypto currency has increased government tax revenue and also reduces scope of defaults which eventually enhance expenditure towards countries; development. These offers higher job opportunity to individual and thereby reduce economic inequality. Moreover, externalities, public goods, lack of information, market control & labour mobility are five differential type of market failure within UK. The circular flow of money only depicts actual position of economy but does not provide any information related to impact of changes on overall flow. This model lack quantifiable information related to impact of change on particular variable which ultimately develop issue in taking accurate decision. In addition to this, circular flow of money indicates that household saving are used by firm but does not consider household borrowing which eventually hampers overall understanding related to economy. Further, this model oversimplifies economy as it does not consider central bank decision and monetary policy that impact on overall saving, investment & expenditure within country.

REFERENCES

Books and Journals

• Abbas, H., Fei, G., Abbas, S. and Hussain, F., 2024. Financial innovation and banking performance: The role of banking regulations in SAARC Region.African Journal of Science, Technology, Innovation and Development,16(2), pp.206-218.
• Amankwah-Amoah, J., Khan, Z. and Wood, G., 2021. COVID-19 and business failures: The paradoxes of experience, scale, and scope for theory and practice.European Management Journal,39(2), pp.179-184.
• Apalkova, V., Tsyganov, S., Chernytska, T., Meshko, N. and Tsyganova, N., 2021. Evaluating the economic and ecological effects of investment projects: a new model and its application to smartphone manufacturing in Europe.Investment Management & Financial Innovations,18(4), p.252.
• Chabowski, B.R., Gabrielsson, P., Hult, G.T.M. and Morgeson III, F.V., 2025. Sustainable international business model innovations for a globalizing circular economy: a review and synthesis, integrative framework, and opportunities for future research.Journal of International Business Studies,56(3), pp.383-402.
• Challoumis, C., 2024. Understanding The Money Cycle-How Regulation Policies Shape Financial Flow. InXIII International Scientific Conference(pp. 59-75).
• De La Cuesta-González, M. and Morales-García, M., 2022. Does finance as usual work for circular economy transition? A financiers and SMEs qualitative approach.Journal of Environmental Planning and Management,65(13), pp.2468-2489.
• Inegbedion, H., 2021. Impact of COVID-19 on economic growth in Nigeria: opinions and attitudes.Heliyon,7(5).
• Mazzucato, M., 2024. Governing the economics of the common good: from correcting market failures to shaping collective goals.Journal of Economic Policy Reform,27(1), pp.1-24.
• MUTAI, N.C., 2023.MODERATING EFFECT OF FINANCIAL INNOVATIONS ON THE RELATIONSHIP BETWEEN MACROECONOMIC FACTORS AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA(Doctoral dissertation, Kabarak University).
• Onabowale, O., 2024. Unveiling energy finance: Capital dynamics and market influence on financial achievement.International Research Journal of Modernization in Engineering Technology and Science,7, pp.2582-5208.
• Ramzan, M., Razi, U., Quddoos, M.U. and Adebayo, T.S., 2023. Do green innovation and financial globalization contribute to the ecological sustainability and energy transition in the United Kingdom? Policy insights from a bootstrap rolling window approach.Sustainable Development,31(1), pp.393-414.
• Tang, Y.M., Chau, K.Y., Hong, L., Ip, Y.K. and Yan, W., 2021. Financial innovation in digital payment with WeChat towards electronic business success.Journal of Theoretical and Applied Electronic Commerce Research,16(5), pp.1844-1861