Economics DQ

Question 1

The process of decision making in the business world is what greatly determines the difference between success and failure of the business. A sound economic judgment critically relies on managers’ decisions and information which support those decisions. Therefore, for economically prudent decisions, managers need to understand the surrounding circumstances in the external and internal business environment. This is based on the rationale that unless a business adapt to the rapidly changing business environment, it will be virtually impossible for it to succeed in the same environment. Thus, it is crucial for the decision makers to understand the prevailing complexities in the market in as far as product production processes, the rapid technological advancements in the production, sales and marketing techniques aspects are concerned.

Question 2

Information is a crucial aspect of a business, which if used correctly can be an asset that enables the growth of that business. The impact of information can only be assessed based on how it is captured and analyzed, compiled, made accessible and even shared. There are various ways of organizing and analyzing information in a business. The two most common are the use of a mainstream storage system and the use of the internet. The mainstreams were thought to be long obsolete but have resurrected to find their places in the storage rooms of prominent companies. While internet, on the other hand, is the new mode of information gathering, analyzing this information relies on web-based systems of information management. It has largely grown with the advent of globalization. When determining the most correct information, internet is the most difficult to use, as it is difficult verify the sources and the authenticity of the information.

Question 3

There are several characteristics that make transactions in an economic market possible. A transaction can be defined as a basic unit of economic activities and occurs when there is an exchange of goods or services across a separate technological interface. Thus, for a transaction to occur, there must be an exchange of goods or services. This is the whole essence of an economic transaction that goods or services must exchange between the parties in the transaction. This enables the satisfaction of human needs and wants. Secondly, there must exist two or more parties to the transaction. The existence of two or more parties allows for the exchange of goods or services, which is the essence of a transaction. Thirdly, there must be an economic aspect to every transaction; this enables the economic market to be able to sustain itself through the economic profits accrued in the transactions.

Question 4

A financial institution is a set up with the sole purpose of enabling and facilitating economic transactions and allowing for the growth and development of a society. Thus, economic institutions provide the incentive structure of an economy, which helps the productivity of that economy. The role played by institutions in transactions is therefore, one that leads to successful economic growth through human capital investment, physical capital and savings. Institutions therefore, facilitate financial transaction, which lead to a sustainable development. The absence of such institutions will lead to an economic collapse and failure in the market.

Question 5

The working of economic markets is a rather complex affair; however, it can be based on the aspect of opportunity cost. This is simply described as the based alternative foregone, where we cannot get everything that we desire. Thus, markets work in a manner where, agents in the market economy are without central direction or control, and are able to participate in an enormously productive system, taking advantage of specialization and division of labor. Thus, market is based on the response to consumer preferences, resource endowment and known technological possibilities. Therefore, the aspect of price controls helps in stabilizing the market prices where they are correctly interpreted and applied in the market. Price controls distort the working of the market and lead to over supply or shortage. However, they are helpful especially in cases of volatile price commodities like those of agricultural products and even gas and oil products.

Question 6

The US government has actively participated in the regulation of prices and control of market in the country. While this may have all the positive intentions, the level of regulation may also affect the rate of market growth of some commodities, and investment in the commodities that are closely controlled by the government. The government therefore, needs to come up with comprehensible and clear policies that will allow regulation of the market in the interest of protecting consumers, while at the same time not scaring potential investors away.

Question 7

There are a number of steps that a clothing line company can take in order to remain competitive in the market. Firstly, the company can adopt a low-cost strategy in the prices of its clothing line as compared to its rivals. This will allow the company to offer competitive prices in the market, and thus, remain competitive. Secondly, the company can adopt a differentiation policy; by employing the use of technological advancements. This will enable it to offer different products to its consumers. Thirdly, the company can adopt the specialization in a market niche; where it focuses on the production of clothes for a specific market group for instance, the youth.

Question 8

A perfectly competitive firm produces the profit-maximizing quantity of output that equates marginal revenue and marginal cost. Thus, a perfect competition is a market structure which is characterized by a large number of small firms, producing identical products with perfect resource mobility and perfect knowledge. Therefore, for the maximization of profit, a perfectly competitive firm produces enough quantity within a short time. This quantity equals the marginal revenue with marginal cost. Thus at this level of production, a firm cannot increase profit by changing the level of production since the price is equal to marginal revenue. Thus, a perfectly competitive firm produces a quantity of output that maximizes economic profit, which translate to the difference between total revenue and total cost.

Question 9

A monopolistic market is a situation where there is only one supplier of goods, and there is no close substitute. In determining prices of monopolized products, demand of the products will dictate prices. A monopolistic product is sold at a price that maximizes profit by setting its price or output so that its marginal revenue is equal to its marginal cost. Thus, the price of the commodity will reflect a demand curve, which in turn reflects the market power (Edward, 1958).

Question 10

The use of computer software will be significantly affected if they are subjected to a monopolistic market. This is because the demand of computer software is very high in this technological age, and thus, a monopolistic market will intend to maximize the profits thereby increasing the prices of such computer software. In this case, the use of computers, which require such software to run properly, will go down in regard to the increased prices of the product. Thus, consumption of the product decreases.

Question 11

An oligopoly market is a market situation in which a few firms dominate the industry. Such firms are interdependent; thus, their decisions depend upon the behavior of other firms. In order to respond to competition in the market, an oligopoly firm may engage in predatory pricing, where the incumbent firm sell its products at a very low prices in order to drive the new and upcoming firms out of the market. The firm may also choose to collude with other existing firms in order to avoid any form of pricing competition. In this instance, firms raise prices and restrict output in order to maximize profits. The firms may also employ advertising in order to increase the popularity of its products and thus, increase brand loyalty.

Question 12

In an oligopolistic market, price fixing is employed in order to control the market prices. The situation where price fixing is beneficial to all parties is called collusive oligopoly. This exists when the firms in an oligopoly market collude to charge same prices for their products. In this case, the firms agree on the prices they will charge. An example for such collusion is exhibited by the Organization for Petroleum Exporting Countries (OPEC). This is beneficial for both the producers and consumers, as the producers are able to make supernormal profits, which they would invest in many different projects, while consumers on the other hand, enjoy stable prices without the fear of inflation.

Question 13

The different models of oligopoly include the Cournot model, which presents a simple model of duopoly also, product is homogenous and companies act on quantities. There is also the demand model Quebrada, which assumes that oligopolistic believes, that rivals react differently depending on whether it increases the prices or if it reduces the prices. In improving these models, the market can employ the aspect of collusion in order to set prices and control output.

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