Some Issues on the Macro- and Microeconomics - Assignment Example

Exam Questions Exam questions Question a) Creativity is the ability of an individual to generate ideas or any possibilities that are likely to be useful in solving certain problems or even interacting with other people and entertaining oneself with others. b) Brainstorming is a technique which involves individuals coming up together and trying to generate ideas through a session of discussion and every individual is free to express their ideas on the topic of discussion without any judgment. This though involves several techniques of brainstorming that makes the process effective in problem solving. One of the techniques is to starting the process with individual ideas. Every individual should first put down their own ideas individually. After the first step, everyone should then bring up their ideas. Judgments should be withheld and no one’s ideas should be criticized. This then should ensure that everyone is heard. The group should then go radical and ensure that even the impractical are analyzed for any possibility. There should be emphasis on generation of many ideas as possible. The group should then build on individual ideas. c) The problem solving model can help the management team to gather information on the market and identify possible solutions to their problem. They can then define their issue, gather information and try to brainstorm ideas that can solve the problem on the sale of their product. They will then come up with a solution after critical analysis of several ideas. However they are likely to encounter difficulties in gather adequate information on their problem of their sales. This then will hinder the identification of possible solutions. d) Individuals working on their own should consider identifying the issue at their stake before trying to generate any ideas. After that, the individual should consider the technique of looking at issue on different points of view. This will enable the individual be able to consider several possibilities when generating ideas. Question 4 a) The characteristics of critical thinking include defining the problem that is at hand and understanding well. Another feature is asking as many questions as possible to get all the necessary information on certain issue. Critical thinking also involves clear analysis of several assumptions and biases on certain ideas. Tolerating ambiguity avoiding emotional reasoning in several cases are also common features of critical thinking. b) Logical fallacies are arguments that are mostly concerned with the pattern in which their inferences of reasoning in which they stand for a very superficial similitude c) Fallacies of relevance are arguments whose premises are logically relevant and are therefore in a position to establish a clear truth and justification on their conclusions. On the other hand, fallacies of insufficient evidence are those arguments which are formulated on the basis of premises and conclusions which do not present clear or sufficient evidence to support their reasoning and truth. d) Logical fallacy that could occur in a board discussion on a possible acquisition of a coffee company is the claim that the assumption that conclusion made by the board of directors is based on valid arguments. For example if the board makes a conclusion that the company has no internal issues just because it has a wide market share. Another example is if the board concludes that the company staff is highly skilled based on the performance of the company. There is no guarantee that all successful companies have skilled personnel. If all coffee companies are successful the board may conclude the company is also successful. This will be a fallacious argument because there is no valid truth that all coffee companies in the world are successful. If the board also decides that just because the company has never incurred losses, it is a perfect target, they will have committed a fallacy of logic. This is because there conclusion is based on an invalid premise. Exam Revision for Economics Q1: Monopoly and Competition Firms in oligopolistic or monopolistic markets operate against public interest through issues of efficiency and pricing. In terms of pricing, monopolistic markets operate against public interest by producing less output at higher prices than competitive markets. In this case, monopolies charge high prices because there are no competitors to drive down prices (Abel et al 2005). Profit maximization in monopolistic markets occurs when Marginal Revenue is equal to AC while profit maximization in competitive markets occurs when Marginal Revenue = Marginal Cost = Price. In terms of efficiency, monopolies produce low quality products because there are no competitors, and they enjoy economies of scale which leads to inefficiency in production of goods and services. Q2: Money and Monetary Policy Money is a medium of exchange used to conduct economic transactions and store value of goods and services. They often exist in form of notes and coins. Money is created by the central bank through printing. The Central Bank controls money through monetary policy by balancing money supply and money demand. The Central Bank controls money by increasing or decreasing currencies using certain monetary policies such as reserve rate, discount interest rate and Open Market Operations (OMO). Money in circulation can be increased by lowering the reserve rate, lowering the discount interest rate, and buying government securities through OMO (Abel et al 2005). Q3: Inequality Economists are concerned with measuring social inequality because it can be used to determine the level of poverty in a given economy. This will enable the economists to provide economic solutions to the problem of poverty. Measuring inequality also enables economists to determine the level of economic growth rates (Abel et al 2005). This is because social inequality always leads to lower economic growth rates. Inequality is measured using gini coefficient based on income or wealth as the base of measurement. The Gini coefficient is a ration on Lorenz curve which shows the relationship between income or wealth (Y axis) and percentage of the population (X axis). Social inequalities may be caused by poor taxation policies, attitudes of the society, and corruption in government. Its effects include poverty, low standards of living, crime, and low economic growth and development. Q4: GDP and economic growth GDP is a deceptive way of measuring economic growth and wealth of a nation. It only measures the economic activity of a country, which mainly includes what the farmers produce and sell. It does not measure the food that people grow for consumption. It also measures buying food from a hotel but does not measure the food prepared at home. It also includes money paid to a nanny or babysitter but does not measure the effort used to care for your own baby. Generally, GDP measures what can be quantified in monetary terms but does not include things that improve welfare but cannot be quantified as commercial or monetary. A nation’s wealth is measured based on certain factors such as gross assets and gross liabilities of the country. Presence of tangible and financial assets in a country determines its levels of wealth (Abel et al 2005). Health and peace of a country also affect its wealth. Q5: Trade Non-tariff barriers are restrictions on imports excluding tariffs. They include import bans, quota shares, restrictive licenses, import licenses, employment law, packaging and labeling conditions, certifications, rules of origin, export subsidies and minimum import prices (Abel et al 2005). Tariff is a tax imposed on imports. Examples of tariff barriers to trade include custom duties, import quota, Ad Valorem tax, excise duty, and telecommunications tariff. This affects prices as shown in the diagram below. CS P tariff PS SL TR SL P world Q1 Q2 Q3 Q4 From the diagram, a tariff raises world price from P world to P tariff and causes Producers Surplus (PS), Societal Loss (SL), Tariff Revenue (TR), and Consumer Surplus (CS). One of the arguments for free trade is that it allows transfer of capital and technology from one country to another. It also allows an exchange of goods and services between countries with comparative advantage of production of a given product or service; hence it enables a country to have what it is not able to produce at cheap price (Abel et al 2005). The World Trade Organization (WTO) maintains the principles of free trade by supervising and liberalizing international trade. Question 6: Current Crisis The government can use monetary and fiscal policies through monetary authorities such as the central bank to avoid recession. One way of doing so is to increase aggregate demand in form of exports, consumer spending and investment. Cutting interest rates may help in increasing aggregate demand. Those who support this policy argue that low interest rates reduce mortgage interest payments; hence allowing consumers to have more disposable income and increase their spending (Abel et al 2005). However, arguments against lowering interest rate suggest that it may cause a liquidity trap and inflation. Another policy that can be used to avoid inflation is expansionary policy. This includes cutting taxes to increase consumers’ disposable income; hence increasing consumer spending. Those who oppose this mechanism argue that this may not be practical or feasible if a country is experiencing an increase in bond yields. References list Abel, A.B., Ben, S. B., Smith, G.W. & Kneebone, R.D. 2005, Macroeconomics, 4 Ed. Toronto: Pearson Education Canada. Read More