(solved) Assignment on Economics

ECONOMICS

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
2. TECHNOLOGY IMPACTING SUPPLY CURVE ...................................................................1
2.1 Microeconomics ..............................................................................................................1
2.2 Macroeconomics...............................................................................................................4
3. TECHNOLOGY IMPACTING DEMAND CURVE .................................................................7
3.1 Microeconomics...............................................................................................................7
3.2 Macroeconomics...............................................................................................................8
4. MICROECONOMICS EQUILIBRIUM.....................................................................................9
5. CONCLUSION..........................................................................................................................10
REFERENCES .............................................................................................................................11
6. APPENDIX................................................................................................................................12
6.1 Micro-economics equilibrium........................................................................................12
6.2 Elasticity.........................................................................................................................12
6.2.1 Elasticity and revenue..................................................................................................13
6.2.2 Price elasticity of demand...........................................................................................13
6.2.3 Elasticity of Demand for vehicles...............................................................................15
6.3 Profit maximization firm................................................................................................15
6.4 AS-AD model macroeconomics equilibrium.................................................................18
6.5 Diminishing marginal returns, opportunity cost as scarcity and choice .......................19

1. INTRODUCTION
Field of economics can be distinguished into two parts such as micro and macro. In this,
microeconomics is highly concerned with the study of individual, group and company. On the
other side, macroeconomics lay emphasis on the study of national economy as a whole. In this,
the present report will shed light on the manner in which new technology affects the equilibrium
position, demand and supply of product market. By using both micro and macro-economic
approach influence of technological aspects on automobile sector will be assessed. For this
project, automobile sector has been selected which comes under the category of matured one.
Along with this, such sector is characterized with high economies of scale, capital insensitivity
and oligopoly competition. However, such sector also has some characteristics of perfect
competition which is filled up with more buyers and sellers. Thus, it will describe the way in
which technological aspects have an impact on both demand and supply curve. Besides this, it
also highlights how technological aspects ensure improvement in the efficiency and flexibility of
product lines in the context of medium sized and consumer segment vehicles such as Ford.
2. TECHNOLOGY IMPACTING SUPPLY CURVE
2.1 Microeconomics
Marketplace implies for the sum of all consumers and firm pertaining to specific vehicles.
As per the economic terms, consumer segment goods indicate for the normal, inferior and luxury
one. Supply in context of market is the available amount of product at a particular point of time
which is made available to public by company (Ehrenberg and Smith, 2016). So the supply curve
will be depicting relationship between price and quantity of goods for given period.
From evaluation, it has assessed that when changes take place in the technological
aspects then it may result into incline in efficiency and productivity gains. Meanwhile, supply
curve also shifted to the right from S to S1. The below mentioned supply curve presents that
with the shift from supply level, equilibrium position also moved to the new one such as from A
to B. Along with this, reduction in the price level has also assessed from P1 to P2. Thus,
considering overall evaluation or aspects it can be depicted that output level increases when
production cost decreases and vice versa.
Initial equilibrium (Refer appendix 1)
Incline in supply curve
1

Figure 1: Supply Curve
Thus, it can be depicted that automation will reduce cost and enables firm to provide
customers with vehicles at lower prices. However, considering the perspective of
macroeconomics it can be stated that massive automation in the field of auto mobiles may result
into high level of unemployment (Kagel and Roth, 2016).
In the context of technological improvement in the automobile sector elasticity of
demand curve can be understood through appendix 7.2.1
Further, from evaluation, it has identified that there are several automobile companies
that offer consumer segment vehicles. Considering the same, it is characterized as crowded
segment because more sunstitures are available. It can be seen in the appendix 7.2.2 and 7.2.3
that demand curve presents an elastic behaviour rather than inelastic. This in turn places positive
impact on firm’s revenue. On the basis of such evaluation, it can be concluded for the generation
of higher revenue firm like Ford makes more focus on production. However, on the critical note,
it can be stated that high sales revenue does not mean that firm will generate higher margin.
Revenue in equilibrium (Long run)
The below depicted figure 2 presents the equilibrium position in relation to revenue and
cost. Further, graphical presentation shows that average and marginal revenue is equal
irrespective of the output then firm is considered as price taker (Sahlins, 2017). For the concept
of profit maximization refer appendix 6.3.
2

Figure 2: Revenue in equilibrium
Considering figure 3, it can be stated that business unit will lay emphasis on reducing
production cost through placing on increasing capacity with the help of technological changes
and improvements. This in turn leads profit maximization and thereby contributes in the
organizational success. However, it is to be critically evaluated that attainment of higher profit
margin is not only the motive of firm. Now, with the motive to develop effective and distinct
image in the mind of customers now business unit focuses on organizing programs that
contribute in the welfare of others (Tietenberg and Lewis, 2016). Hence, it can be stated that
CSR activities do not come under the category of profit maximization.
Diminishing Marginal Returns:
3
Figure 3: New revenue in equilibrium
Market
LRD
QS
1 Q
S
22
2
Q2
Price
P
2

In the terms of production diminishing marginal returns is known as decrease in marginal
production when only one of the factors of production is increased and all others are constant.
Scarcity and choice:
This is very basic of all the concept of economics which include that all the factors of
production which are used to manufacture one vehicle for Ford are scare and there remain the
problem of choice. Scarcity is limited as demand of product is very high in market but
production remain constant because of limited resources.
Opportunity Cost:
As there are many choice from which Ford need to choose what is the factor of
production to be chosen where technology or labor and for this one need to be choose and other
need to sacrificed. (Refer appendix 6.5)
2.2 Macroeconomics
Production Possibility Frontier (PPF)
PPF may be served as a curve that depicts all the maximum output which is associated with
the output possibilities pertaining to two different goods. Such economic theoretical framework
assumes that all the resources will be used more effectively and efficiently (De Grauwe, 2016). If
Ford manufacture two different types of goods like that of car and lorry than what will be all
maximum output possibilities in producing those goods with the given number of inputs. In the
figure depicted below, it can be seen that when new technology is introduced then PPF increases
from A1B1 to A2B2. The rationale behind this, use regarding similar kind of resources also
increases production of vehicles to a great extent. In this, it is assumed that economies is
running optimally and thereby make increase in consumer segment vehicles from B3 to B4 as a
result of technological changes or improvements.
Refer Appendix 6.4: Aggregate supply and demand model Macro equilibrium
4
Lorry