Introduction Economics, Technology and Business - Assignment Example

RUNNING HEAD: Introduction Economics Introduction Economics of Answer to Question The free-market economy does functions automatically in allowing the use of markets and prices to coordinate and direct economic activity in allocating resources (Nicholson and Snyder, 2008). Each individual is assumed to be acting rationally in his or her own self-interest in order to maximize satisfaction. However, there are unintended consequences in practice such as great inequality and adverse environmental consequences in economies because of differing abilities, education and training, discrimination by companies, wealth inequality, and different market power (McConnell. and S. Brue, 2005). That people have different mental, physical, and aesthetic talents are verifiable realities. That some have who may have inherited the exceptional mental qualities and that are essential to such high paying occupations such as corporate leadership and medicine (McConnell. and S. Brue, 2005; Frank, 1996; Jennings, B. et al, 2002). Others are also gifted or borne with the physical capacity and coordination to become highly paid professional athletes. Further, one can observe that a few have talents can aspire to actually become artists and musicians while allowing the others to have beauty to become to fashion models (McConnell. and S. Brue, 2005). Unfortunately, others have weak mental talents and may spend their lives working in low-paying occupations. In some cases, they may be unluckily incapable of earning any income at all. The rest of people may have intelligence and skills that come between two the extremes. People differ also in terms of education and training. Some people have native ability, and some people might further develop and refine their talents capabilities through education and training. With difference in education and training their capacity will also vary to cause them to have varying income. Companies employing discrimination in hiring also causes in equality in income. As in the United States, discrimination could restrict racial and ethnic minorities to low-paying occupations (McConnell. and S. Brue, 2005). The reality of preferences and risks chosen by different people (Bonvin and Farvaque, 2005; Esters and Ledoux, 2001; OHalloran and Linton, 2000) for work relative to pleasure, to work in the household and the types of market work definitely will cause differences in income as riskier jobs would normally get paid higher. Wealth produces income and the unequal distribution in the former could be factors in causing inequality as well in income distribution. A wealthy person who has accumulated in the past greater wealth may need not as much time to earn profits at present as the said wealth could be producing current income by just sitting down. They could invest their money in high earning government securities. Different groups of earning income could also have different market power that could be bringing inequality in income. Some professional groups and unions may create barriers that would protect them from competition and their having adopted policies that would limit the supply of their services. The act definitely causes income inequality. Professionals can literally gain favors over other groups due to licensing or authority given to them compared to other non-professionals. The market free-economy functions may still create adverse environmental consequences in the economies of countries due to failure of the market to relocate resources (Arnold, 2008; Baumol & Blinder, 2008; Carroll, 1983). This could happen in case of spillovers, when certain benefits or costs may escape the buyer or seller in some markets. Said spillover occurs when some of the costs or the benefits are passed on third persons, who are other than the immediate seller and buyer. To illustrate, a company engaged in manufacturing dumps its wastes in rivers, the same could create spillover cost. The same could happen in the light of petroleum companuies polluting the air with the obnoxious odors created and which affect the community in general. Companies may avoid costs associated with pollution but government can do something like by having them to pay higher taxes or requiring them to invest in treatment plants to minimize the environmental effects. Answer to Q2.1 Using the demand supply diagrams the effect of effect the technological breakthrough in the production of catalyst for car on the price of metal palladium is to shift the supply curve to the right as shown in Figure I below. By shifting the supply curve due to improvement of technology, it would mean the car manufacturers would spend less production cost than usual and that the industry would attract other suppliers of manufacturers to come into the picture. Since the technology was discovered by Mazda and Nissan only, they will make money by patenting discovery so that they could have exclusive use of the technology which would afford them to lower production cost and therefore higher profitability in the industry. The act of patenting the technology would have the effect of trying to influence the demand curve towards becoming perfectly elastic if Mazda and Nissan plan to maintain prices. The demand become elastic if comes closer to horizontal line as could be observed in Figure 1. The reaction of fall in prices of palladium would also imply that there would be less demand for the said inputs in production of cars and it would mean that they would be purchasing less amount of palladium in the market in anticipation of the future due to the news on technological breakthrough for the production of catalyst for cars. The demand curve for palladium would shift to the left and therefore prices will fall. See Figure 2 below. However overtime, other car manufacturers may finally come to know the same technology by separate experimentation or by benefiting from the new technology by contracts or other means with those who already by knew the same. The act of patenting the technology also tries to influence the demand curve towards becoming perfectly elastic. However, overtime this would become less effective as other companies may eventually duplicate and take advantage the technology may be able to bring down prices of cars in the industry. In such a situation, the fall in the price palladium will definitely be good news for consumers of cars and this would mean there would be more affordable cars to them as there are now producers to supply the same. Because of decrease in the own price for cars, there will increase in quantity demanded for cars that could further cause more producers to come in to the industry that even further cause the supply curve to further shift to the right if they will just compete on prices. Answer to Q 2.2 This technological breakthrough might help Mazda and Nissan since this could lower their cost of production and this would mean that they could produce more with their resources. Mazda and Nissan’s lower cost of production would allow them to compete with low-cost producers not necessarily in term of prices but also in terms of quality. By better branding, they could command a better price since customers would not be affected merely on the basis of price. The bigger companies can also cause the demand curve for branded cars to shift to the right and this would allow them to sell at higher price because of better quality as identified with brands. Assuming the competition would be on prices, decision to lower prices of cars due to lower production cost on their part, Mazda and Nissan will have to know the demand elasticity for cars (Slavin and Slavin, 2010, Hayes, 1989, Hamilton, 2009, Lee and Tolliso, 2009). The demand curve as shown in Figure 3 below would be better for Mazda and Nissan than what could be seen in the demand curve in Figure 4 below. In Figure 3 the demand is elastic, where bringing the price lower would increase revenues assuming same amount of cost while in Figure 4 demand is inelastic and bringing down the price would be irrelevant in trying to increase revenues. Competition with Tata group need not be in terms of price alone. Companies would go into advertising in addition to furthering their differentiation strategy in terms of branding from their knowledge of what makes value to customers (Dornbusch & Fischer, 1990; Samuelson & Nordhaus, 1992, Slavin, 1996). By advertising, they want to push their firm’s demand curve further to the right as way of increasing the demand for cars. At the same time, they want to make their new demand curve to be steeper or vertical or less elastic as this would be more favourable to them since they could literally have their customers buy good quality cars while they increase prices. Translated into business sense, the players can have high profit margin from the sales of products and more wealth for stockholders (Van Horne, 1992; Brigham & Houston, 2002). This in effect gives them higher margin which they could use to further their differentiation strategy and which would keep them leaders or performer in a certain part of the market. This means that buyers of cars are not necessarily motivated to buy lower-price cars alone. The value of cars can be in terms better quality products. Better qualify of products are normally identified with good brands which has sustained competition over the years. Customers are very much willing to pay for quality as this could increase their utility or satisfaction from an economic view point (Samuelson and Nordhaus, 1992). Answer to Q 3. The adoption of the new technology would be finally beneficial for consumer as this would mean cars would be more affordable. This would mean increase utility or satisfaction for consumers since those who could not afford to cars before, could not have those cars more accessible. For producers, the technology would be beneficial on those who make exclusive use the same. Thus their tendency is for them to have the discovery for the production of catalyst patented. But knowledge for new technology will eventually be made available to other manufacturers and the time will just have to bring competition into other levels of more cars would be using the same technology. The effect however on the environment of more car use will be a separate issue. It could be contribution to more pollution or carbon emission and if the environment is affected the lives of more people will get affected as well. The technology discovered has still its downside despite its seeming advantages in terms of more cars produced. References: Arnold, R. (2008). Economics. Cengage Learning Baumol, W. and A. Blinder (2008) Economics: Principles and Policy. Cengage Learning Bonvin, J and N. Farvaque (2005). What Informational Basis for Assessing Job-Seekers$1: Capabilities vs. Preferences; Review of Social Economy, Vol. 63 Brigham, E. and Houston, J. (2002) Fundamentals of Financial Management, London: Thomson South-Western Carroll, Thomas (1983). Microeconomic Theory Concepts and Applications. New York: St. Martin Press Case Study (n.d.). Car Costs Are Cut Through New Technology Dornbusch, R. and Fischer, S. (1990). Macroeconomics. New York: McGraw-Hill Publishing Co, Esters, I and C. Ledoux (2001). 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Stress on the Job: Self-Care Resources for Counselors J; Journal of Mental Health Counseling, Vol. 22 Samuelson, P. and Nordhaus, W. (1992), Economics, London: McGraw-Hill, Slavin and Slavin (2010) Economics. McGraw-Hill Slavin, S. (1996) Economics. Fourth Edition. London: IRWIN Van Horne, J. (1992) Financial Management and Policy. Prentice-Hall International. \ Read More