Microeconomics3 Part A: Micro- and Macro-economics

Business Economics TABLE OF CONTENTS INTRODUCTION 3 Part A: Microeconomics3 Question One 120 3 Question Two.4 Question Three .5 110 Question Four .6 6 Question Five .6 Part B: Macroeconomics7 Question Six.7 Question Seven .8 Question Eight 9 REFERENCES.11 INTRODUCTION Economic have two main aspects which is micro-economics and macro-economics which involves the various principles and concepts related to economics. It covers the topic like public

Business Economics

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
Part A: Microeconomics............................................................................................................3
Question One..........................................................................................................................3
Question Two.........................................................................................................................4
Question Three...........................................................................................................................5
Question Four.............................................................................................................................6
................................................................................................................................................6
Question Five.............................................................................................................................6
Part B: Macroeconomics............................................................................................................7
Question Six...............................................................................................................................7
Question Seven...........................................................................................................................8
Question Eight............................................................................................................................9
REFERENCES.........................................................................................................................11

INTRODUCTION
Economic have two main aspects which is micro-economics and macro-economics
which involves the various principles and concepts related to economics. In this report,
various aspects and topics of economics will be analysed and interpreted based upon the
situation given. It covers the topic like public policies on curbing monopoly, understanding
the point of equilibrium, income elasticity pertaining to demand. It also demonstrates the
labour supply in US and the factors causing a shift. In addition to this, it will demonstrate the
influence of increasing oil prices over the SRAS curve and the ways to control the money
supply in the economy. At last, it involves understanding the impact of interest rate over the
economy and the policies used by government to overcome the crisis.
Part A: Microeconomics
Question One
a.
Monopoly is problematic for country and government
It is a situation in the market where there is only one seller in respect to a particular product.
For instance, has been head of various monopolies like as of Saudi Aramco and many other.
It can be conveyed that where there is monopoly organization or the firms has the full
dominance over the market which involves their own terms and conditions (Christophers,
2018). This is possible because they are sole trader or provider of such product or services.
This results into aggressively influencing the prices of the goods which results into creating a
problem for government along with the economy at large.
b.
Public policy can curb monopoly
The government is having a full right to plan and implement policies in order to control the
market. The firms within the monopoly market requires to comply with government
regulation for delivering its functions (Schuetz, 2020). Support of government helps in
curbing the better environment for the other firms for entering into monopolistic market. For
instance, 1890 Sherman Antitrust Act can overcome the certain monopoly of few
monopolistic firms in the standard oil, steel and other similar sectors.
c.
Curve demonstrating how monopoly make unusual profits

The above chart clearly depicts that the monopoly makes unusual profits and gains through
the way of channelizing the business operations and functions. Since, such firm is the only
running entity within the market which makes it dominate the market in terms of prices
(Barney and Mackey, 2018). The yellow area highlighted conveys the supernormal profits
that the company undertakes. The Pe is the price the entity receives for each of the units sold
(AR) while Ce is the average cost of involved in making each unit. In the given case, AR<Ac
so the yellow part is the supernormal gain. this is considered as the sustainable long run
position for a monopoly.
Question Two
a. The equilibrium price is 80 cents a pack, and the equilibrium quantity is 130 million
pack a week. The price of a pack adjusts until the quantity demanded equals the
quantity supplied. At 80 cents a bag, the quantity demanded is 130 million packs a
week and the quantity supplied is 130 million packs a week.
b. At 50 cents a pack, there will be a shortage of sweet pack and the price will rise. At
50 cents a pack, the quantity demanded is 160 million packs a week and the quantity
supplied is 100 million packs a week. There is a shortage of 60 million bags a week.
The price will rise until market equilibrium is restored—80 cents a bag.
c.

d.
The
price elasticity of demand basically refers to the measurement of change in respect to
consumption of the product in relation to its price. The Price Elasticity of Demand =
% Change in Quantity Demanded / % Change in Price. The knowledge of the price
elasticity assists the producer to effectively analyse the impact of changes in the price
on the demand of its product and thereafter the revenue (Price elasticity of demand.
2020). Thus, if the demand of the product is price elastic, then through the way of
lowering the price will help in generating greater profits. This therefore, results into
influencing the decision of the producers in respect to the production and pricing.
Question Three
a. The income elasticity of demand equals the percentage change in the quantity
demanded divided by the percentage change in income. The change in income is
$2000 and the average income is $11000, so the percentage change in income equals
18.18 percent.
The change in the quantity demanded of concert tickets is 10 percent. The income
elasticity of demand for concert tickets equals 10/18.18, which is 0.55.
b. The change in the quantity demanded of bus rides is -5 percent. The income elasticity
of demand for bus rides equals -5/18.18, which is -0.275.
Question Four
a. Graphical demonstration of supply of labour in US affected by increase in labour
force
40 50 60 70 80 90 100 110
0
20
40
60
80
100
120
140
160
180 170
160
150
140
130
120
110
100
90
100
110
120
130
140
150
160
Quantity demanded Quantity Supplied
Price (cents per pack )

From the above graphical representation, it can eb clearly stated that the rise in the labour
force could lead to increase in the supply of labour. The immigration in the US of Mexican
might result into contributing towards the overall supply within the labour force (The Labour
Market Effects of Immigration. 2020). The US market always have a demand of the labour in
order to meet with the market. The immigrants could rise the availability of the labour force
which could further boost the labour supply from Q1 to Q2in number.
b.
Other factors cause labor supply curve shift
There are number of factors which can influence the labor supply. The factors like
wages the labor gets in return of the work done is an important factor having an impact over
the labor supply (DEMAND AND SUPPLY AT WORK IN LABOR MARKETS. 2021). The
literacy rate of the economy and the demographics is also an important factor or element
which creates an influence on the labor supply within the market.
Question Five
The water spill from the uranium mine at Kanadu National Park contain certain outside sway
like interference of the government in between because of the spillage. Another outer impact
is the overall familiarity of the individuals and society towards the security of common
assets. This has been idealised that these are the two key outer components or factors that
could impact absolutely for taking up the ruling against the event. The idea of the external
impact is the prosperity of society. This is significant for the general development of the
general public to ensure the normal assets and increment durability of the individual common
W 1
W
2
Q 1 Q 2
Labour
Supply

assets (ENVIRONMENTAL IMPACTS. 2021). There are direct environment related impact of
the uranium mining which involves the tailing waste, production and the mining procedures
along with its impact over the local environment. The tailing from uranium contains 80 per
cent of the level of radioactivity because of the presence of uranium decay products. This
posses a great level of concern in respect to designing and managing water management and
the tailing system which is important to protect the World Heritage region, that is, Kanadu
National Park. Thus, there should be an independent scientific assessment of the
environmental impacts in order to identify the solution.
Part B: Macroeconomics
Question Six
a. The increase in the oil prices might result into increase in inflation along with
reducing the economic growth. In respect to inflation, the oil prices have a direct
impact over the prices of goods which is made from the petroleum products. Also,
Oil prices indirectly affects the various other costs as well like transportation,
manufacturing and heating (Jiang and et.al., 2020). The rise in such cost might result
into influencing the price of the variety of products and services which is because the
producers might pass the production costs on to the consumers. The level to which the
oil price increases lead to rise in the consumption price. With an increase in price,
SRAS curve shifts to left and discourages production at higher price.
SRAS1
SRAS2
LRAS
AD
Real GDP
Price
level
P1
P2
Y1
E1
Y2
E0

The aggregate supply (AS) curve shifting to the left, from SRAS0 to SRAS1, causing
the equilibrium to move from point E0 to E1 which is nasty effect, reduced GDP,
increasing unemployment etc.
The other factors that lead to shift is the shocks to the labour market which can affect
the aggregate supply. For instance, the overseas war which needed large number of
workers to cease their ordinary production for the purpose of fight for their country.
In this case, SRAS and LRAS would both shift towards the left due to the reason that
there would be very few workers available to produce the goods at a given price.
b. The three theories are:
 The misperception theory: This theory occurs when the lower level of price
results into misperception in respect to the prices (Ding, Mazouz and Wang,
2019). These misunderstandings stimulate the supplier’s reactions to react to
the reduced price levels through decreasing the number of products which is
being supplied.
 The sticky price theory: This theory occurs when there is an unanticipated fall
in the prices results int leaving few companies with the high price than is
desired (Moura, 2018). This is mainly due to the reason that the price adjusts
to the fluctuating conditions at the varying intervals which consequently lead
to the reduced sales and decline in the output by the firms.
 The sticky wage theory: The sticky wage theory at the lower prices causes
employment and production to be very less profitable because the wages does
not reflect the immediate adjustments to the price level (Huo and Ríos-Rull,
2020). This results into forces firms to reduce their supply and production.
The common among these three theories is the lower prices which results into affecting the
profitability.
Question Seven
a.
The Bank of England can control the level of money supply in the economy by setting
reserve requirements and purchasing or selling government bonds in the open market. The
monetary policy is the action that the country’s central bank and use in order to influence
how much money is within the economy along with how much it will cost to borrow. The
UK’s central bank uses two main monetary tools, fist it sets the interest rate which the central
banks charges from other banks when they borrow money. This is called as the bank ate.

Second is creating money digitally to buy the corporate and government bonds which called
as quantitative easing. The monetary policy affects the way in which the prices rise called the
rate of inflation, thus, the monetary policy is set in such a way it helps the government in
achieving the government’s target of keeping the inflation at 2%. The lower and stable
inflation is the good for the UK economy and also it is considered to be the main monetary
policy aim and objectives. In respect to the given case, the Monetary Policy Committee
(MPC) have set the policy with the aim of meeting the 2% inflation target and this will
consequently help in sustaining growth and employment (Goodhart, 2017). The MPC sets
and announces the decided policy 8 times in a year and it has 9 individual members who
before undertaking any actions, holds number of meetings to have a look at the way the
economy is working. And thus, it takes nearly 2 years for the monetary policy to have its full
effect on the economy, therefore, the MPC member requires to take into consideration what
inflation and growth within the economy is likely to be in the next coming years. The outlook
of an economy is mainly uncertain and MPC undertakes the decision based upon the
projection’s and it also involves that the direct impact of covid-19 would dissipate gradually.
In addition to this, it also involved the free trade agreement with European Union which will
help in recovery of the UK GDP. It can be stated from the above that that the actions
undertaken by the bank of England is right.
b.
The existence of the interest allows the borrowers to spend money immediately rather than
looking for the ways to in order to make purchases. A decline in the interest rate will lead to
making people to borrow more money in order to make big purchases like cars, houses.
When the consumer has to pay less in regard to the interest, this results into giving them more
money to spend which consequently creates a ripple effect throughout the economy. On the
other hand, the higher interest rates would mean that the consumers do not much amount to
spend and must work on saving. This affects not only the consumers but also the businesses
as well. As they have to cut in spending in buying new equipment which results into slowing
down the productivity or leading to unemployment. This change in interest rate affects both
inflation and recessions which has a huge impact over the country’s economy.
Question Eight
a.
The reason behind the global financial crisis is stated below:

 With the economic conditions of US and the other countries were stable, there was an
expectation of house prices will continue to rise which lead the property developers
and households to borrow the excessive funds. Most of the mortgage loan in US were
near to the purchase price of the house and this was a large share pf risky borrowing
done by the investors for making profits by flipping profits.
 The increase in borrowings extended up to the purchase of mortgage-backed
securities (MBS) products. Borrowing money for the purpose of purchase an asset is
having the potential profits as well as losses (The Global Financial Crisis. 2020). As
an outcome, when the prices of the house start falling, this resulted into incurring
huge amount of losses for banks and investors as they already had borrowed huge
amount of money.
 The regulations in relation to subprime lending and MBS products were very lax and
also there was in sufficient regulations that created and sold the opaque MBS to its
investors. The loans given to the individuals were also unlikely to be able to repay
them which involves fraud on account of the overstating the borrower’s income or
over-promising the investors pertaining to the MBS product sold.
b.
In September 2008, the policy response pertaining to the crisis came from the Central Bank
which involved lower interest rates in order to stimulate economic activity and this policy
ramped up the collapse created by Lehman Brothers and the downturn of the global economy
(Evenett, 2019). The interest rates were reduced to very low rate and lent a huge sum of
money to banks and other institutions which could not borrow in financial markets and
bought substantial amount of financial securities in order to effective respond to the
dysfunctional market along with stimulating the economic activity. Also, the government also
increased its spending in order to stimulate demand and support employment and purchased
ownership stakes in some banks. The regulators also strengthened its oversight of banks and
other financial institutions.

REFERENCES
Books and Journals
Barney, J. B. and Mackey, A., 2018. Monopoly profits, efficiency profits, and teaching
strategic management. Academy of Management Learning & Education, 17(3),
pp.359-373.
Christophers, B., 2018. Financialisation as monopoly profit: the case of US
banking. Antipode, 50(4), pp.864-890.
Ding, W., Mazouz, K. and Wang, Q., 2019. Investor sentiment and the cross-section of stock
returns: new theory and evidence. Review of Quantitative Finance and
Accounting, 53(2), pp.493-525.
Evenett, S. J., 2019. Protectionism, state discrimination, and international business since the
onset of the Global Financial Crisis. Journal of International Business Policy, 2(1),
pp.9-36.
Goodhart, C.A., 2017. The determination of the money supply: flexibility versus control. The
Manchester School, 85, pp.33-56.
Huo, Z. and Ríos-Rull, J. V., 2020. Sticky Wage Models and Labor Supply
Constraints. American Economic Journal: Macroeconomics, 12(3), pp.284-318.
Jiang, Y., and et.al., 2020. How do oil price shocks affect the output volatility of the US
energy mining industry? The roles of structural oil price shocks. Energy
Economics, 87, p.104737.
Moura, A., 2018. Investment shocks, sticky prices, and the endogenous relative price of
investment. Review of Economic Dynamics, 27, pp.48-63.
Schuetz, R., 2020. a monopoly supplier of regulation: the us gambling model. Gaming Law
Review, 24(5), pp.355-359.
Online
DEMAND AND SUPPLY AT WORK IN LABOR MARKETS. 2021. [Online]. Available
Through:< https://opentextbc.ca/principlesofeconomics/chapter/4-1-demand-and-
supply-at-work-in-labor-markets/#:~:text=The%20main%20factors%20that
%20can,the%20economy%2C%20and%20required%20education.>.
ENVIRONMENTAL IMPACTS. 2021. [Online]. Available Through:<
https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Former_Comm
ittees/uranium/report/d03>.
Price elasticity of demand. 2020. [Online]. Available Through:<
https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_dema
nd.html>.
The Global Financial Crisis. 2020. [Online]. Available Through:<
https://www.rba.gov.au/education/resources/explainers/the-global-financial-
crisis.html>.
The Labour Market Effects of Immigration. 2020. [Online]. Available Through:<
https://migrationobservatory.ox.ac.uk/resources/briefings/the-labour-market-effects-
of-immigration/>.