Economics Assignment - Analysis of Economic Principles and Markets

This economics assignment delves into several core economic concepts. It begins by examining the impact of warfare on national economies, particularly during economic downturns, and discusses the effects of government spending and taxation on GDP and private sector growth. The assignment then explores fiscal and monetary policies, their roles in controlling unemployment and inflation, and the inherent trade-offs between them. It also differentiates between accounting and economic profit, emphasizing the importance of considering both explicit and implicit costs when evaluating business ventures. Furthermore, the assignment analyzes different market structures and applies these concepts to a hypothetical restaurant business, considering its competitive environment and strategies for differentiation. Finally, it outlines the functions of money as a medium of exchange, unit of account, store of value, and measure of liquidity, providing relevant examples for each function. The paper includes a comprehensive reference list of the sources used.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................2
Answer 3:.........................................................................................................................................3
Answer 4:.........................................................................................................................................4
Answer 5:.........................................................................................................................................5
References........................................................................................................................................7

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Answer 1:
Many economists view phenomenon like warfare as stimulator of the national economy.
This notion comes from the fact that during warfare, especially in times when the concerned
economies experience lower phases of business cycle, the government expenditures increase
considerably, much of which can be attributed to the war related spending, which benefits
several industries and their production and sales levels considerably (Martin-Acena, Martinez
Ruiz and Pons 2012). This spending, much of which being on military expenses, does not
however benefit the GDP growth visibly.
The increase in the expenditures of the government implies increase in the taxes imposed
on common residents, which in turn reduces their purchasing power and economic well being
negatively. This in turn decreases the aggregate demand of the residents, which hinders the
productivity and profitability of the firms in the private sector as they experience a downturn in
the demand for the commodities and services, which they offer.
The expenditures of the government of the United States of America did not have visibly
positive effects in the aspect of stimulating the economy as many of the times these expenses
were funded with the help of deficit financing (Carbonnier 2015). This, though temporarily
create a positive trend in the GDP as well as in the multipliers, however, this does not have
considerable positive impacts on the private sector growth and expenditures.
Answer 2:
The economy of any country is controlled or driven by the governing authorities with the
help of robust economic policy framework, which is primarily composed of fiscal and monetary

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policies. While the fiscal policies deal with the aspects of total spending and production in an
economy, the monetary policies try to regulate and stimulate the monetary indicators including
the rate of interests and price levels in the economy. The fiscal policy framework is thus one of
the measure to control unemployment while the monetary policy framework is used by the
government to keep the level of inflation controlled in the economy (Ormerod, Rosewell and
Phelps 2013). However, the two economic phenomena, inflation and unemployment, are
inversely related to each other. With the decrease in unemployment, the purchasing power of the
people increases, which in turn increases the aggregate demand, thereby increasing the overall
price level of the country? This in turn leads to a tradeoff between the monetary and fiscal
policies implementation, which the government of the country experiences while trying to
maintain a balance between inflation and unemployment.
Although both inflation and unemployment have negative implications in the economy,
in the long run, the problem of unemployment appears to be more adverse than that of inflation.
This is due to the fact that prolonged unemployment leads to substantial decrease in the
economic welfare of the people, which by reducing their aggregate demand, reduces the
production activities in the economy too, thereby pushing the economy into a vicious cycle of
stagnation for the economy (Gregory and Smith 2016).
Answer 3:
The profit of a firm can be measured in two ways, which are discussed as follows:
Accounting Profit- In this method, the general profit of the firm is calculated by subtracting the
explicit costs of production of a firm from its revenue. Therefore,
Accounting Profit= Total Revenue – Total Explicit Cost of Production

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Economic Profit- However, often there several implicit costs, which are incurred in the
production of commodities, and services, which cannot be taken into account in the accounting
profit. These implicit costs are calculated in the economic profit of the company. Therefore,
Economic Profit= Accounting profit of the company- Implicit Costs of Production
Thus, it can be asserted that a business, which experiences economic profit, is a good
option to invest in (Knight 2012).
Keeping this into consideration, while starting up a business, the total cost of production,
including the explicit as well as the implicit ones have to be taken into consideration. The total
revenue, along with the marginal revenue and the average revenue per unit of production has also
to be taken into account in order to produce optimally and earn maximum profit.
Answer 4:
Keeping the characteristics of different types of market structures and the operational
framework in the same, the business, which I want to venture in, is the business of restaurants in
my hometown.
a) Restaurants, in the global framework, is a part of the hospitality industry. Keeping this into
account, the restaurant business which I want to venture in, will intend to provide superior and
varied culinary experiences to the potential customers, making it possible for the customers to
experience the cuisines of different countries as well as a big collection of premium alcoholic as
well as non-alcoholic beverages. The size of my restaurant, in the initial phase, will be moderate,
neither too big nor too large (Haghighi et al. 2012). Based on the profitability and customer
satisfaction, it will be expanded with time. To enter the highly competitive market of restaurants

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in my hometown, the services of my restaurant needs to be cost efficient, of superior quality and
as per the demands of the customers.
b) The restaurant is expected to operate in a monopolistically competitive market, with a lot of
supply side players in the market. This makes it challenging for the restaurant to earn more
clientele, share of market and market power, given the fact that there remains many options in
the hands of the customers in this market. However, there remains the opportunity for the
restaurant to earn profits and competitive edge over its competitors by differentiating their
products and services distinctly from their rivals, thereby giving unique dining experience to the
potential customers (Zhelobodko et al. 2012).
Answer 5:
The functions of money are as follows:
a) Medium of exchange- Money is traded for any kind of goods and services. For instance, any
good or service can be availed in the USA can be brought in exchange of stipulated amount of
US dollars.
b) Unit of account- The values of goods and services are measured with the help of money, the
common measuring yardstick. Example- The goods and services bought and sold in the USA are
valued in terms of the US dollars.
c) Store of value- Money is treated as the purchasing power of people, which are kept for future
use. For instance people in the USA, hold US dollars in hand as future purchasing power, which
is stored over time (McLeay, Radia and Thomas 2014).

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d) Liquidity- Money is the most liquid and easily tradable asset. Example- Of all types of assets
of the residents of the USA, money is the asset, which is most easily transferrable or
exchangeable.
In the contemporary period, bit coins can be treated as a type of commodity money as it
has intrinsic value, which is one of the unique characteristics of the commodity money.

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References
Carbonnier, G., 2015. Humanitarian economics: war, disaster and the global aid market. Oxford
University Press.
Gregory, R.G. and Smith, R.E., 2016. 15 Unemployment, Inflation and Job Creation Policies in
Australia. Inflation and Unemployment: Theory, Experience and Policy Making, p.325.
Haghighi, M., Dorosti, A., Rahnama, A. and Hoseinpour, A., 2012. Evaluation of factors
affecting customer loyalty in the restaurant industry. African Journal of Business
Management, 6(14), p.5039.
Knight, F.H., 2012. Risk, uncertainty and profit. Courier Corporation.
Martin-Acena, P., Martinez Ruiz, E. and Pons, M.A., 2012. War and economics: Spanish civil
war finances revisited. European Review of Economic History, 16(2), pp.144-165.
McLeay, M., Radia, A. and Thomas, R., 2014. Money in the modern economy: an introduction.
Ormerod, P., Rosewell, B. and Phelps, P., 2013. Inflation/unemployment regimes and the
instability of the Phillips curve. Applied Economics, 45(12), pp.1519-1531.
Zhelobodko, E., Kokovin, S., Parenti, M. and Thisse, J.F., 2012. Monopolistic competition:
Beyond the constant elasticity of substitution. Econometrica, 80(6), pp.2765-2784.