Business Economics | Question and Answer

Running head: Business Economics
BUSINESS ECONOMICS
NAME OF THE STUDENT
NAME OF THE UNIVERSITY
AUTHOR NOTE

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Table of Contents
Introduction......................................................................................................................................2
Answer to question 1.......................................................................................................................2
Answer to question 2.......................................................................................................................5
Answer to question 3.......................................................................................................................7
Answer to question 4:......................................................................................................................8
Answer to question 5.....................................................................................................................10
Answer to question 6.....................................................................................................................12
Answer to question 7.....................................................................................................................14
Answer to question 8:....................................................................................................................16
Answer to question 9:....................................................................................................................18
Answer to question 10:..................................................................................................................20
Answer to question 11:..................................................................................................................22
Answer to question 12...................................................................................................................24
Answer to question 13:..................................................................................................................26
Answer to Question 14..................................................................................................................27
Answer to question 15:..................................................................................................................29
Conclusion.....................................................................................................................................30
References......................................................................................................................................32

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Introduction
Business economics is the field that studies the financial, organizational and market-
related issues faced by the companies. Theories of the economic and quantitative methods are
utilized to measure and access the factors that are affecting the corporation — the role of
government for the regulation, the impact of business expansion over the entrepreneurs.
Therefore, the study is based on business economics. Therefore, further discussion will be made
on the topics of the monopolized industries, exchange rates and its effect over the capital
outflows, grim theory and its promotion of collusive behavior. Explanation of the AD-IA
framework in the closed economy. Effects of price flooring in the competitive market and how to
regulate the vertically integrated companies and other various tax-related subsidy related and
different other topics has been elaborated.
Answer to question 1
Monopoly is said to happen in the situation when there is just a specific supplier of the
specific commodity, where they feel little or no competition of substitutes and production of
goods and services. A monopoly is a situation where the market possesses certain power, which
is the power to charge high prices since the demand of the product is high and the supplier gets
limited to very limited or maybe one. In a monopolistic market, the price will be set by the seller
for the goods and services. In this scenario, the goods will be priced higher and the quantity of
the available goods will be lower (Fumagalli and Motta 2019).This is what makes the goods a
commodity.

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Monopoly will further result in the formation of deadweight loss since the firm waves the
transaction with the consumers. The deadweight loss is the gains that do not go to the producers
of the goods or consumers rather it is a loss of economic efficiency which can occur when
equilibrium for goods and services is not on Pareto optimal ( Devereux,Young and Yu 2019).
When a good or services is not on Pareto optimal, then the efficiency of the economy is not at
equilibrium. Therefore, when the resources are allocated, it creates difficulty in making an
individual person better without making the other at least one person, the worst. In the situation
of deadweight loss, there is a loss of economic surplus. Deadweight loss creates market
inefficiency and is the result of the condition where the market is unable to clear it naturally.
Therefore the demand and supply of the goods are not at equilibrium. Below is the diagram to
show the deadweight loss Fig-1.

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Fig 1- The graph shows the deadweight loss due to the binding price ceiling.
As compared to the competitive environment, a monopoly is lesser efficient in earning of
total gains from the trade activity. Since, in the monopolistic market, there are no competition
from other producers in the market place and therefore, it is expected that the monopoly may loss
its efficiency and the zest to new innovation over the period of time. Smugness among the
private monopolies might lead to the new entrants to take over the market, when the new entrants
will be able to enter the market and be capable enough to break all the barriers related to their
entry into the market. Along with that, long-term substitutes can make way in the market when
the monopoly became inefficient. In the situation of monopoly, abusing the power of monopoly,
will ultimately lead to the failure of the market. Failure of the market occurs, when the goods and
services allocation, by a free market, is not Pareto efficient, which makes way for the net loss of
the economic value. Monopoly is the imperfect market which restricts output in the attempt to
maximization of profit. Market failure in monopoly might occur when not enough goods will be
available or when the price of the goods will be too high. In the absence of the market competitor
it is difficult as well as challenging for the monopoly to self-regulate and remain competitive
over time. Further graphs to show various indication of monopolistic market. Fig 2 , Fig 3 and
Fig 4 :-

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Fig 2
Fig-3

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Fig-4
Answer to question 2
When the country made use of the widely used currency and the commodity and ties it
with the exchange rate and fixed it up, those countries are said to have a fixed exchange rate. The
dollar is one of the most used currencies where international trade is involved. Most fixed
exchange rates are tagged with US dollars. A fixed exchange rate tells that one can exchange
money in one currency with the same amount of the other country currency. Stability is provided
by the fixed exchange rate and investors always have an idea of the worth of the currency which
leads to more attraction towards the business of the country for foreign direct investors. Inflation
can be avoided by the country, if currency of the country is set to the widely used currency like
the US dollar or euro (Chen 2019).
Movement of the asset of the country to another is termed as the outflow of capital.
Outflow of capital is always not desirable as it mostly happen as the result of the political and
economic instability of the country. The movement of assets is said to be happen when the
investors from the foreign or even the domestic ones involve in the selling of their holdings in a

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specific country because they think that the economy of that country is getting weakened and
they believe that better opportunities exist abroad.
The Russian, East Asian as well as Brazilian currency crisis in the year 1990, it has been
observed by the economist that the main reason or maybe the contributing factor behind this is
the liberalization of the capital outflow along with the fixed exchange rate. (Radelet and Sachs
1998). Therefore, this further concludes that the common prescription that we can draw from
this argument is to restrict the capital flow and other payments that will be internationally based
on the hope to protect the economy from speculative attacks and therefore, creating greater
currency stability. Restricting the flow of capital internationally refers to the restriction of
purchase and sales of domestic assets by domestic residents and similarly, restriction of the
purchase of domestic assets by residents of the foreign country. Restrictions over the capital
inflow and outflow have a long history in a reduction of instability of the finances as well as the
macroeconomics of the country. However, it has been observed that capital control have a
destabilizing effect on exchange rates as well because the restriction on the movement of
international capital may themselves lead to the capital outflow and sudden increased the
instability of the finances (Steinberg and Nelson 2019). Restricting investors from taking capital
from the country thus further lead to the investment irreversibility as their willingness to invest
in that country declines. The imposition of capital control shows the inconsistent and poorly
designed government policies, which ultimately makes the country to be more vulnerable to the
currency crisis.
It has been observed that the restriction on the international outflow often associates with
the higher exchange rate crisis. Therefore the countries where there is little or no capital control,
seems to have stable exchange rates and face fewer speculative attacks. It has also indicated that