Business Economics Study Material and Solved Assignments

This study material covers various topics in Business Economics including monopolies, equilibrium price, price elasticity, labor market, and more. It provides explanations, examples, and graphs to enhance understanding. It also discusses the impact of oil price shocks and how the Bank of England controls money supply and interest rates.

Business Economics

Contents
INTRODUCTION...........................................................................................................................................3
QUESTION 1.................................................................................................................................................3
(a) Explain using the above examples why a monopoly is problematic for a given economy or a
government?............................................................................................................................................3
(b) Reflecting on examples from the article explain how public policy can curb Monopolies?...............4
(c) Using Cost curves explain how Monopolies make unusual profits?...................................................4
QUESTION 2.................................................................................................................................................5
(a) What are the equilibrium price and equilibrium quantity of sweet packs?.........................................5
(b) Explain what would happen to the price of a pack of sweets.............................................................5
(c) Use the above data to draw a graph with the correct labeling.............................................................6
d. Explain what is price elasticity of demand and explain why it would be important for producers to
know the price elasticity of their product and how it would affect their decision making?......................6
QUESTION 3.................................................................................................................................................6
Income Elasticity.....................................................................................................................................6
QUESTION 4.................................................................................................................................................7
Equilibrium in labor market.....................................................................................................................7
What other factors that can cause the labour supply curve to shift?.........................................................8
QUESTION 5.................................................................................................................................................9
External effects associated with Water from a uranium mine leaking into Kakadu National Park..........9
QUESTION 6.................................................................................................................................................9
a) Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a
graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this
shift..........................................................................................................................................................9
b) Different theories attempted to explain why SRAS curves slope upwards........................................10
QUESTION 7...............................................................................................................................................11
Discuss how the bank of England can control the Money supply and interest rates and then reflect on
the above actions taken?........................................................................................................................11
Discuss briefly how do Interest rates affect the economy?....................................................................11
QUESTION 8...............................................................................................................................................12
Briefly discuss the reasons behind the global financial crisis in 2007 -2009.........................................12
Discuss the UK Policy actions to stimulate the economy to face the global financial crisis..................13

CONCLUSION.............................................................................................................................................14
REFERENCES..............................................................................................................................................15

INTRODUCTION
In general, economics is the study of the elements and roles of a particular mechanism or
market, including producers and consumers and the effects of the shortage theory. Inside an
economy, significant topics of study include prospective study, production processes, and
demand. Market economics focuses on the elements and causes of corporate operations, as well
as how they relate to the environment overall (D’Amato, 2020). Economic concepts, strategies,
common business governance, operating expense expenditure, profit generation, production
growth, and ultimate organization structure are mostly discussed in the field of international
business. In this report consist of various questions that based on economics. In these questions
discussed about various topics price elasticity, mono-policies and many others.
QUESTION 1
(a) Explain using the above examples why a monopoly is problematic for a given economy or a
government?
Monopolies stifle free trade and make it impossible for the government to fix rates. As a
result, the following 4 negative consequences occur: Price fixing: Although corporations are sole
suppliers, they can charge anything they want. This is known as price setting. Empirical evidence
suggests that organizational dominance is a major contributor to several of our more critical
issues. Small Businesses are undermined by Monopoly Power, in most markets; smaller firms
are aging rapidly, whereas the majority of additional enterprises launched per year has dropped
dramatically.
At first, there was no government oversight of early American monopolistic. Even then,
the introduction of monopoly legislation in the United States in the form of the Sherman
Antitrust Act in 1890 resulted in the destruction and reform of Standard Oil and American
Tobacco by 1911. These first lawsuits, like all antitrust cases taken against corporations now,
took many years to work their way into the legal system. With the exception of Standard Oil and
American Tobacco, U.S. Steel was questioned but not discovered to be the only provider of
product to the American industry. Nevertheless, it maintained a sizable customer base for several
years (Bhawe and Zahra, 2019).

(b) Reflecting on examples from the article explain how public policy can curb Monopolies?
The majority of today's monopolies do not actually control an entire global market.
Instead, they manage significant assets in a single nation or territory. This is known as
liberalization, and it is most common in the oil, infrastructure, and finance sectors. Saudi
Aramco, the country's government natural gas and oil corporation, is the most significant
indication of a nationalized great asset. The majority of contemporary monopolies do not
actually control the whole global market. It is undoubtedly the most profitable corporation in the
world, with a value of $1.7 trillion as of its late 2019 IPO.
(c) Using Cost curves explain how Monopolies make unusual profits?

In a reasonably dynamic market, entry pressures will strengthen this benefit over time. A
monopolist, on the other hand, is secured by entrants. Indeed, one unmistakeable indication of a
potential monopoly because when a company makes profits every year with doing the same
things, all without having such profits diminished by competitive pressures. A monopolist's
median income curve is often lower than the consumer demand slope. To explain why, simply
increase the quantities along of the pricing mechanism through one component, resulting in a
small change in volume but a minor decrease in price (Moschella and et.al, 2019). A demand
curve is not linear: we do not market Q1 at a higher cost and thereafter Q2 at a reduced price. A
demand curve, on the other hand, is contingent: if pay the higher cost, we will sell Q1. Rather,
when charged a reduced cost (on all units sold), we would sell Q2.
QUESTION 2
(a) What are the equilibrium price and equilibrium quantity of sweet packs?
The equilibrium price is 80 and equilibrium quantity of sweet packs was 130.
(b) Explain what would happen to the price of a pack of sweets.
When pack of sweets were 50% so at this time market for sweet are good because demand was
increasing and reach on 160 but supply is not good due to less production of sweets.

(c) Use the above data to draw a graph with the correct labeling
Price
(cents per pack )
40
50
60
70
80
90
100
110
0
50
100
150
200
250
300
0
90 100 110 120 130 140 150 160
0
170 160 150 140 130 120 110 100
Quantity
Quantity demanded
d. Explain what is price elasticity of demand and explain why it would be important for
producers to know the price elasticity of their product and how it would affect their decision
making?
Price elasticity is defined as the ratio of the percentage change in price required (Qd) or
equilibrium quantity (Qs) to the subsequent percent change in price. The price elasticity of
demand is the total figure in a product or provider's amount required greater than the percentage
change in value. The price producer surplus is calculated by dividing the percentage change in
quantity provided by the change in price. The principle of income elasticity is critical for
deciding the prices of different factors of supply. Considerations of supply are compensated
based on their market elasticity. In these other phrases, when a factor's request is inelastic, its
demand will be large, while if it is flexible, its value will be weak (Godley, Morawetz and Soga,
2019).
QUESTION 3
Income Elasticity
Judi’s income increase from $10,000 to $12000

Increase demand for concert ticket 10%
Decrease demand for bus ride 5%
(a) Income elasticity for concert tickets
= 12000-10000 / 10%
= 2000 / 10%
= 200
(b) Income elasticity for bus
= 12000 – 10000 / 5%
= 100
QUESTION 4
Equilibrium in labor market
Graphical presented supply of labor in U.S.
After all, there are several notable exceptions of price floors in the labour market, that are often
used to raise the salaries of low-wage jobs. The federal government of the United States
establishes a base salary, a market limit that requires it unconstitutional for employers to pay

workers less than a specified annual salary. The basic income in the United States was increased
to $7.25 per hour in mid-2009. Local reform campaigns in a number of American cities have
advocated for a minimum wage increase, dubbed a "living wage." Proponents of living wage
legislation argue that the min salary is insufficient to guarantee a decent quality of living (Del
Sarto and et.al, 2019).
What other factors that can cause the labour supply curve to shift?
Change in culture: A change in culture about business and leisure will cause the labor
supply curve to shift. When people are more likely to place a higher emphasis on recreation, they
will retire earlier for each paycheck, and the labor supply curve will turn to the left. If they plan
to purchase goods and services, the supply curve would most likely change to the correct.
Change in income: As income rises, so does the market for recreation, growing the
supply of labor. It is important to differentiate between variations anywhere along supply curve
and changes in the supply curve itself. A difference in income as a result of a pay change is
represented by a shift along the curvature; it causes the income and replacement results that we
have already described. But assume wealth comes from someone else: a person decides to marry
and has admission to his or her spouse's income, or a person inherits money, or earns the game.
Adverse side effect wage gains are expected to lower labor supply, moving the beneficiaries'
supply curve for labour to the left (Asongu and Odhiambo, 2019).
Changes in population: A rise in population raises the surplus of labor; a decrease
decreases it. Labor unions have traditionally criticized increasing immigration although their
advocates believe that a rise in labor supply would change the supply to the right, putting strain
on the economy.
Changes in expectations: Average lifespan is one shift in attitudes that may have an impact
on labour supply. One factor is faith in the provision of State Pensions. Assume, for instance,
that individuals hope to live healthier lives but become less positive regarding their Social
Security payments. This could result in a rise in labour supply.

QUESTION 5
External effects associated with Water from a uranium mine leaking into Kakadu National Park
The consequences of uranium extraction are far-reaching. The end-use of plutonium in
power and military manufacturing has consequences for the atmosphere and population health,
including threats of radiation spills, contamination, meltdowns, and nuclear blasts. A Public
sector scientist has disclosed that the Explorer uranium mine within the World Culture and
history Kakadu National Park leaks 100,000 litres of polluted water into the earth underneath the
reserve each day.
At a Senate committee meeting, Alan Hughes, the United kingdom supervisory scientist
assigned to oversee the mine works ecological consequences, revealed that about 100 metric tons
of chemical is flowing from the mine works drainage system into rock fractures underneath
Kakadu, the amount of 100,000 litres or three fuel container ships (Fairlie, 2020).
QUESTION 6
a) Oil price shocks have an evident impact on the short run aggregate supply curve. With the
help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors
can cause this shift.
A significant increase in oil prices would increase inflation. This is due to rising
transportation costs, which would result in increased rates for certain commodities. This is cost-
push inflation, as opposed to inflation triggered by increasing accounting career expansion.
Buyers' net spending would be reduced. They receive additional transportation costs but do not
benefit from increasing wages. Rising oil prices will delay economic development, which is
especially problematic if consumer demand is poor.

b) Different theories attempted to explain why SRAS curves slope upwards.
According to the sticky market principle, the simple supply curve rises upwards when the
costs of certain commodities respond slowly to increases in the inflation rate. The main
explanation for elasticity of demand, as per the sticky price hypothesis, is what we call menus
costs (de Zubielqui, Lindsay and Jones, 2019).
Sticky wage theory: According to the sticky wage hypothesis, the simple upwards trajectory of
the aggregate output is attributable to the reality that wages increase respond slowly to shifts in
the value of currency (i.e., they are sticky). As a result, when the market level decreases, most
businesses are unable to automatically raise wages, resulting in an uptick in actual output costs.
As a result, distributors employ less staff and deliver less items / solutions. The slow wage
change level, including this hypothesis, is primarily triggered by current work agreements and
social standards that prohibit regular pay increases.

QUESTION 7
Discuss how the bank of England can control the Money supply and interest rates and then
reflect on the above actions taken?
Monetary policy is set by the Bank of England's Monetary Policy Committee in order to
achieve the 2% inflation goal while still supporting stability and jobs. In that sense, the current
dilemma is to adapt to the business and market consequences of the Covid-19 pandemic. The
MPC overwhelmingly voted to keep the Bank Rate at 0.1 percent at its meeting that ended on
September 16, 2020. The Board overwhelmingly voted to extend the Bank of England's current
programs of UK government bonds and currency non-financial financing bond market
purchasing funded by the issuing of foreign exchange reserves, with the cumulative stock of such
acquisitions remaining at £745 billion (Stevenson, Kuratko and Eutsler, 2019).
Discuss briefly how do Interest rates affect the economy?
A currency's value rises as interest rates a strengthened pound makes UK exports
cheaper, resulting in lower output and higher inputs. In order to boost the Economic activity
following the financial crash of 2007/2008, interest rates were reduced from over 5% to 0.5

percent. If the UK lowers interest rates, it leaves saving money in this Country quite appealing.
As a result, the Pound Sterling would be in less competition, allowing its worth to plummet. A
drop in the value of the pound makes UK exports more attractive and products more costly. This
further contributes to a rise in overall demand. Investing at lower interest rates yields a better
leverage. This reduced ability to invest would allow employees to shop or even save.
QUESTION 8
Briefly discuss the reasons behind the global financial crisis in 2007 -2009.
There are mentioned different reasons behind the global financial crisis such as:
 The probability of default was too far away from the borrower time of closing: This is the
adverse selection point, in which the people who have the interaction with the client, who
look the client down and say "yes" or "no" to the credit, are not even the same persons
who can bear the responsibility if the customer defaults. Buyers, on whose backs credit
risk eventually fell, were reassured by policy and securities rates. Public investment

banks make their debut in this market by purchasing bonds that are usually valuable and
important and are secured by lenders that have protection added to them (Rahman,
Sobhan and Islam, 2019).
 Modern financial products had spread far and wide to the point that calculating the selling
price of several of them had already become difficult, and so knowing the fair value of
entities that owned them or pledged them had already become unthinkable. The main
tragedy struck the credit default swaps corporate debt industry in the United States, but it
soon expanded internationally to institutions holding emerging investment vehicles
linked to these lenders. Businesses who had pledged these financial products discovered
that their net value was dwindling, raising questions more about entities that had
depended on them.
 Multiple lenders were entangled in this network and were forced to raise incremental
equity financing in order to satisfy actively manage and retain depositor interest.
Liquidity vanished from the banking sector has resulted of these innovations. The United
States does seem to be doomed to a contraction. Prior hopes that other countries had
"detached" from the US were also being supplemented with predictions that countries all
over the world would accompany the US into decline.
Discuss the UK Policy actions to stimulate the economy to face the global financial crisis
The global financial crisis of 2007–08 resulted in a sudden shift in the United Kingdom's
economic plan (UK). Prior to the recession, the government initiated stable growth, good
governance, and glow financial oversight. Following the recession, the government tolerated
unorthodox monetary practices, an increase in public-sector spending, and a rethinking of
financial regulation. Utilizing Peter Hall's philosophy of represented, this essay attempts to
comprehend the meaning of these shifts. Its core point is that, according to expectations, the
United Kingdom has not yet undergone a profound reorganization of economic structures,
organizations, and goals. Third-order reform cannot be counted out once the recession
progresses, however the structural ideas undergirding UK economic policy have shown
impressive stability so far, for best or even worse. The Bank of England took measures to boost
bank's profitability. They exchanged some of their mortgage loans for Treasury bills. They
devised a Financial Inclusion System to reestablish investor interest. Certain types of personal
debt were protected under this arrangement (Temür, Akgün and Temür, 2019).

CONCLUSION
As per the above report it has been concluded that business economics is the application of
economic theory with industry norms with the aim of assisting organization in achieving its
objectives with forward preparing. Company Economics, also known as Managerial Economics,
is the synthesis between political models with market practice. Although policy prescriptions
offer the means for explaining different topics such as production, availability, prices, interest,
and competitiveness, Market Capitalism uses this technique in the framework of making
business decisions.

REFERENCES
Books and Journal
D’Amato, A., 2020. Capital structure, debt maturity, and financial crisis: empirical evidence
from SMEs. Small Business Economics. 55(4). pp.919-941.
Bhawe, N. and Zahra, S.A., 2019. Inducing heterogeneity in local entrepreneurial ecosystems:
the role of MNEs. Small Business Economics. 52(2). pp.437-454.
Moschella, D. and et.al, 2019. Persistent high-growth firms in China’s manufacturing. Small
Business Economics. 52(3). pp.573-594.
Godley, A., Morawetz, N. and Soga, L., 2019. The complementarity perspective to the
entrepreneurial ecosystem taxonomy. Small Business Economics, pp.1-16.
Del Sarto, N. and et.al, 2019. Born global and well educated: start-up survival through fuzzy set
analysis. Small Business Economics, pp.1-19.
Asongu, S. A. and Odhiambo, N. M., 2019. Challenges of doing business in Africa: A systematic
review. Journal of African Business. 20(2). pp.259-268.
Fairlie, R. W., 2020. The impact of Covid-19 on small business owners: Evidence of early-stage
losses from the April 2020 current population survey (No. w27309). National Bureau of
Economic Research.
de Zubielqui, G. C., Lindsay, N., Lindsay, W. and Jones, J., 2019. Knowledge quality,
innovation and firm performance: a study of knowledge transfer in SMEs. Small Business
Economics. 53(1). pp.145-164.
Stevenson, R. M., Kuratko, D. F. and Eutsler, J., 2019. Unleashing main street entrepreneurship:
Crowdfunding, venture capital, and the democratization of new venture
investments. Small Business Economics. 52(2). pp.375-393.
Rahman, M. M., Sobhan, R. and Islam, M. S., 2019. Intellectual capital disclosure and its
determinants: Empirical evidence from listed pharmaceutical and chemical industry of
Bangladesh. The Journal of Business Economics and Environmental Studies. 9(2). pp.35-
46.
Temür, A. S., Akgün, M. and Temür, G., 2019. Predicting housing sales in Turkey using
ARIMA, LSTM and hybrid models. Journal of Business Economics and
Management. 20(5). pp.920-938.