Economics Principles and Applications

This assignment delves into fundamental economics principles. It examines the impact of skilled migration on a country's economy, explores characteristics of money, defines inflation and its causes, explains the government's role in providing public goods and services, and outlines strategies for central banks to reduce household borrowing through monetary policy.

Running head: ECONOMIC APPLICATION
Economic application
Name of the student
Name of the university
Author note

1ECONOMIC APPLICATION
Question: 1
A) i. Managerial economics refers to the uses of the economics theories and concepts for the
formulation of the managerial decision making process. Application of the managerial
economics helps in aligning the economic theories and concepts with that of the practical
situation of the managers1. Thus, it helps the managers in effectively implementing the
economic theories and concepts in their organizations.
ii. Micro and macro economics are different in terms of the covered fields. This is due to
the reason that, micro economics covers the aspects of an individual and considers all the
factors from the view of the individuals. On the other hand, macro economics refers to
the national and global economical factors. Micro economics include supply and demand
of products, business regulations and the determining factors of the pricing strategy2. On
the other hand, macroeconomics refers to the national economy growth, GDP of the
countries and the impact of the international business including import and export.
iii. Elasticity and inelasticity are the key factors that are being considered during the
initiation of the pricing strategies. Elasticity refers to the change in the percentage of the
quantity demanded or supplied with the change in the price of the product3. On the other
hand, inelasticity refers to the phenomenon where the percentage change in the quantity
demanded or supplied is less compared to the percentage of change of the price. The
more will be the change in the quantity demanded or supplied of the products in the
market with the change in their products, the more will be the elasticity and vice versa.
1 Gurgul, Henryk, and Robert Syrek. "The structure of contemporaneous price-volume relationships in financial
markets." Managerial Economics (2013).
2 Borio, Claudio. "The financial cycle and macroeconomics: What have we learnt?." Journal of Banking &
Finance 45 (2014): 182-198.
3 Gordon, Brett R., Avi Goldfarb, and Yang Li. "Does price elasticity vary with economic growth? A cross-category
analysis." Journal of Marketing Research 50.1 (2013): 4-23.

2ECONOMIC APPLICATION
iv. One of the potential risks being identified is the stoppage of the earning for the
student. This is due to the reason that, the student was earning money from his job, which
will not be available when he will be in school. Thus, the income will get stopped for
him. On the other hand, one of the key benefits to be gained by the student from the
decision will be the enhancement of his skill and qualification4. In addition, the added
skills and qualification that will be gained by him in the school will help to fetch more
earning in the future.
B) i. In a market economy, government has no role in the allocation of the resources; rather,
the resources are being allocated according to the purchasing power of the consumers.
Thus, in the market economy, the product to be produced, the process of production and
whom to offer the products are being determined according to the consumer portfolio.
ii. In the case of the congested cities, social cost of using car is more than the private cost.
This is due to the reason that, private costs of using car including fuel and maintenance
costs will be similar in every city5. However, the social costs will be more due to the
reason that, air pollution, congestion and visual pollution will be more in the congested
cities. Thus, customers in the congested will face more social costs in driving car
compared to the private costs.
iii. According to the principle of demand, the more will be the quantity demand for the
product with the reduction in the price and vice versa. Thus, if the extra tax is being
levied on the cost of petrol, the price of petrol will get increased, which will in turn
reduce the demand for petrol in the market. On the other hand, if the rate of tax on petrol
is being reduced, then the cost of petrol will also get reduced and it will increase the
4 Kurzban, Robert, et al. "An opportunity cost model of subjective effort and task performance." Behavioral and
Brain Sciences 36.6 (2013): 661-679.
5 Greenstone, Michael, Elizabeth Kopits, and Ann Wolverton. "Developing a social cost of carbon for US regulatory
analysis: A methodology and interpretation." Review of Environmental Economics and Policy 7.1 (2013): 23-46.

3ECONOMIC APPLICATION
quantity demand for the products. In the case of the supply principles, when the price of
the product gets decreased, the quantity supplied will also get decreased. While, with the
increase in the cost of the products, the supply will get increase. Thus, if the rate of tax
gets increase on the cost of petrol, the price of the petrol will get increase, however, tax
refers to the income for the government. The profitability for the organizations will not
get increased. Moreover, with the increase in the price of petrol, the demand will get
reduced and thus, the supply will not get increased by the oil companies.
iv. Bus travel can be subsidized by the government in order to promote the use of public
transport over the private transport6. In the congested cities, it is much important for the
government to initiate various activities in order to reduce the road congestion and
pollution. One of the effective ways to do that is the increased use of public transport.
Thus, subsidizing the bus travel will reduce the cost for the users and will motivate them
to use public transport over their private transport.
C) There will be favorable and unfavorable impact of taxing the cigarette consumption by
the government. One of the key favorable impacts will be the increase in the price of the
cigarettes and according to the law of demand; increase in the price will reduce the
consumption. Thus, taxing the cigarette consumption will increase the price of the
cigarettes, which will de-motivate the users. The average consumption of cigarette will
get reduced7. However, on the other hand, there will be unfavorable impact also for the
taxation of the cigarette consumption. This is due to the reason that, the cigarette is
having inelastic demand in the market because cigarette consumption is habitual for the
6 Stephens, Jennie C. "Time to stop investing in carbon capture and storage and reduce government subsidies of
fossil‐fuels." Wiley Interdisciplinary Reviews: Climate Change 5.2 (2014): 169-173.
7 Mainous, Arch G., et al. "Health considerations in regulation and taxation of electronic cigarettes." The Journal of
the American Board of Family Medicine 28.6 (2015): 802-806.

4ECONOMIC APPLICATION
users. Thus, regardless of the price get rapidly increased with more taxation, consumption
for the cigarette will not witness any reduction. Thus, taxation of the cigarette
consumption will not be effective as desired.
Question: 2
A) i. Budget deficit refers to the poor financial health of the government due to the fact that,
budget deficit is the difference between the income and expenditure of the government8.
If the expenditure of the government is more than that of the income, then the
phenomenon of budget deficit will occur.
ii. Reduction in the unemployment rate leads to the increase in the purchasing power of
the customers. This is due to the reason that, the less will be the unemployment, the more
will be the earnings for the customers. Thus, with having earnings, the demand for the
products will get increased. Thus, with more demand in the market, the rate of inflation
will also get increased. In this case, it is being assumed that, the rate of supply will be
constant. The more will be the employment, the more will be the purchasing power of the
customers.
iii. Emigration of the people will have both negative and positive impact on the economy
of the country. One of the positive benefits for emigration will be less pressure on the
national resources9. This is due to the reason that, the more will be the emigration, the
more people will migrate to other countries. Thus, the consumption of the national
resources will be less. However, on the other hand, negative benefit of the emigration
include brain drain. This refers to the phenomenon where skilled candidates migrate to
8 Luechinger, Simon, and Christoph A. Schaltegger. "Fiscal rules, budget deficits and budget
projections." International Tax and Public Finance 20.5 (2013): 785-807.
9 Kerr, William R. US high-skilled immigration, innovation, and entrepreneurship: Empirical approaches and
evidence. No. w19377. National Bureau of Economic Research, 2013.

5ECONOMIC APPLICATION
other countries for better opportunities. Thus, emigration will cause loss of skilled human
resources along with deficit in the man power, which will not attract foreign investments.
B) i. The two key characteristics of money are acceptability and divisibility. Acceptability
refers to the fact that, money should be accepted by everyone in point of time for the
mode of exchange of goods and services. On the other hand, divisibility refers to the
availability of the smaller denominations of the money or value.
ii. Inflation refers to the phenomenon of average and holistic increase in the price level.
Thus, this leads to the increase in the price of the goods and services in the market 10. In
the majority of the cases, inflation occurs when the demand is more in the market
compared to the supply of the products or services.
iii. Government provides public goods and services due to regulate the pricing of the
private organizations in the market along with offer the basic facilities to the entire
population. For instance, if the cost of education is more in the country, then government
can provide education in low cost and to increase the competition for the private players.
iv. Central bank should initiate the monetary policies in order to reduce the household
borrowing. One of the key steps will be the increase in the rate of interest of borrowing.
Increasing the rate of interest will de-motivate the households to borrow less due to the
reason that, they have to pay more during repayment.
10 Kremer, Stephanie, Alexander Bick, and Dieter Nautz. "Inflation and growth: new evidence from a dynamic panel
threshold analysis." Empirical Economics (2013): 1-18.

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Reference
Borio, Claudio. "The financial cycle and macroeconomics: What have we learnt?." Journal of
Banking & Finance 45 (2014): 182-198.
Gordon, Brett R., Avi Goldfarb, and Yang Li. "Does price elasticity vary with economic growth?
A cross-category analysis." Journal of Marketing Research 50.1 (2013): 4-23.
Greenstone, Michael, Elizabeth Kopits, and Ann Wolverton. "Developing a social cost of carbon
for US regulatory analysis: A methodology and interpretation." Review of Environmental
Economics and Policy 7.1 (2013): 23-46.
Gurgul, Henryk, and Robert Syrek. "The structure of contemporaneous price-volume
relationships in financial markets." Managerial Economics (2013).
Kerr, William R. US high-skilled immigration, innovation, and entrepreneurship: Empirical
approaches and evidence. No. w19377. National Bureau of Economic Research, 2013.
Kremer, Stephanie, Alexander Bick, and Dieter Nautz. "Inflation and growth: new evidence from
a dynamic panel threshold analysis." Empirical Economics (2013): 1-18.
Kurzban, Robert, et al. "An opportunity cost model of subjective effort and task
performance." Behavioral and Brain Sciences 36.6 (2013): 661-679.
Luechinger, Simon, and Christoph A. Schaltegger. "Fiscal rules, budget deficits and budget
projections." International Tax and Public Finance 20.5 (2013): 785-807.
Mainous, Arch G., et al. "Health considerations in regulation and taxation of electronic
cigarettes." The Journal of the American Board of Family Medicine 28.6 (2015): 802-806.

7ECONOMIC APPLICATION
Stephens, Jennie C. "Time to stop investing in carbon capture and storage and reduce
government subsidies of fossil‐fuels." Wiley Interdisciplinary Reviews: Climate Change 5.2
(2014): 169-173.