ECON6000 - Analyzing Demand and Trade Policies in Atollia

This assignment focuses on economic principles and decision-making, specifically analyzing the demand for energy bars in Atollia. It uses simple linear regression to assess the impact of store numbers, income, and tariffs on average annual demand. The analysis reveals a significant positive correlation between the number of stores and demand, while tariffs exhibit a negative impact, reducing trade gains and creating deadweight loss. The assignment further discusses the benefits of free trade between Industria and Atollia, highlighting how tariffs hinder these advantages by reducing import volumes and distorting efficient resource allocation. The conclusion emphasizes the importance of free trade in promoting mutual competitive advantage and overall economic benefit for both nations.

ECONOMIC PRINCIPLES AND DECISION MAKING
STUDENT ID:
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Problem A
Based on the given information, it is evident that the objective of the given analysis is to
highlight the impact of number stores which tend to offer the energy bars on the annual
average demand for the energy bars in Atollia, The statistical tool which has been used for
this analysis is simple linear regression with number of stores, income and tariffs applicable
on imports of energy bar being the three independent variables and the average annual
demand being the dependent variable. The regression analysis has been performed through
Excel and the relevant result is as highlighted below.
The slope of the number of stores variable in the above regression line is 4.07 which implies
that on an average with a unit increase in the store, the average annual demand per person
with regards to energy bars would increase by 4.07 units. Clearly, this is quite significant
(Flick, 2015).
Also, it is apparent that the slope coefficient related to number of stores seems significant
considering that the fact that the p value related to slope coefficient is less than 0.05 and
hence proving significance at 5% confidence level (Eriksson & Kovalainen, 2015). Hence, it
would be fair to conclude that number of stores would be a reliable and significant predictor
of average annual demand of energy bar on a per capita basis.

Problem B
1) The simple linear regression with number of stores, income and tariffs applicable on
imports of energy bar being the three independent variables and the average annual demand
being the dependent variable. The regression analysis has been performed through Excel and
the relevant result is as highlighted below.
The above regression equation clearly highlights that a negative relationship exists between
the tariff rate and the average demand which is not surprising considering that levying of
tariff would lead to higher price and hence having an adverse impact on the demand. The
slope coefficient corresponding to tariff rate coefficient is -6.457 which implies an increase in
1% tariff would bring down average annual demand per capita for energy bars by 6.457 units
which is clearly quite significant (Flick, 2015).
2) The impact of tariff on the energy bars is indicated through the following diagram.

It is apparent from the above diagram that as a result of tariffs, there would be a decrease in
the overall gains from trade owing to the introduction of deadweight loss indicated using C
and E. Due to higher price, there would be a decrease in the consumer surplus while an
increase in the producer surplus. In the above example, the price of the energy bar has been
taken as $ 15 and an import duty of 40% is levied which enhances the price to $ 21. Further,
the government is able to earn revenue which is indicated by D. Besides, owing to levying of
import, the import quantity has severely shrunk because of lower demand supply mismatch
which is clearly disadvantageous to the exporting country (Mankiw, 2014).
Problem C
Based on the regression results obtained, it is apparent that owing to levying of tariffs on the
import of energy bars, there is a significant decline in the import volume of the energy bars
which is not in the interest of Industria and Atollia. The benefits of free trade for both
importer and exporter may be exhibited using the following graph.

It is apparent from the above graph, that there are significant gains from free trade as
indicated above. However, when trade barriers in the form of tariffs are introduced, a
majority of these gains are lost as deadweight loss. Further, from an exporter perspective, free
trade provides an additional market and thereby prevents a glut situation at home. This tends
to increase the prices closer to the world prices and thereby is beneficial to the exporters. The
importers are also able to obtain goods which are in short supply and hence consumers are
able to enjoy the same at similar prices that exist in the host country (Krugman & Wells,
2014). In the lack of trade barriers, the trade between Industria and Atollia would be driven
by their mutual competitive advantage which would lead to efficient use of scarce resources
and extend benefit to both nations (Mankiw, 2014).

References
Eriksson, P. & Kovalainen, A. (2015) Quantitative methods in business research. 3rd ed.
London: Sage Publications.
Flick, U. (2015) Introducing research methodology: A beginner's guide to doing a research
project. 4th ed. New York: Sage Publications
Krugman, P. & Wells, R. (2014) Macroeconomics. 3rd ed. London: Worth Publishers.
Mankiw, G. (2014) Principles of Macroeconomics. 6th ed. London: Cengage Learning.