Economics for Business and Management - Assignment Example

Economics for Business and Management Student Name Tutor Course Code Date Word count is:2992 Part one Question one Some people believe that the market system is the best mechanism for allocating scarce resources and the process encouraging a positive investment climate. This is prompted by the evaluation of the benefits of a market system without looking at its downside. The market system provides an ample ground for unprecedented innovation. In a market system the companies allocate enough capital to be used on research and development which is encouraged by huge profits that are realised by corporations in such an environment. With devoted research, creativity and innovation is encouraged since there is cash allocated specifically for innovation. Moreover in the market system high income mobility is realized. Consequently under this system it is easier to negotiate through income brackets. Villanueva (2002) notes that people can therefore move from being poor to being rich within their own time range that is proportional to tactics applied, chances and empowerment available. Where the government control resources an individual or a corporate organization may be hindered to realize their own goals by the set structure of system put in place by the government (International Monetary Fund, 2009). Millward & Singleton (2002) argue that market system leads to colossal escalations in productivity and efficiency. With increased competition coupled with the desire to be at the top make corporate organizations and individuals to be more efficient and hence improve greatly their methods of production resulting into increased productivity and efficiency. The firms that cannot cope in the face of competition will be automatically be pushed out of business. Increased economies of scale make more goods to be produced at low costs and therefore high profit margin. Better methods of production are discovered and a break-neck atmosphere of completion is encouraged. Besides, it encourages an increase in the Gross Domestic Product. Countries with type of market system will realize a high GDP due to increased productivity. A tax system that is very productive will be encouraged in the environment of market system. Owing to colossal wealth levels it is easier to collect more taxes through the system entitled with tax collection. It is a lot easier and expedient to collect tax from a rich person than from a poor person. In addition to that more money is collected due to the high profit margins. More foreign investors are able to come to the country because the government involvement in private affairs of the companies is minimal. Many investors will invade this type of system (Villanueva, 2002). This system allows more money being spent on social programs. In the face of increased competition and improved methods of production, many private corporations engage in social responsibility programs to endear themselves to the surrounding community. Schools and other social amenities programs are put in place just to ensure the firm earns a good name in the public. In a system market economy there are more opportunities for investment and the eminence of higher returns encourages more investment to be made. These reasons and many others make some people to have a liking for market system as the best was to ensure proper allocation and utilisation of resources (International Monetary Fund, 2009). Question two Some people believe that not everything can be left to the free market and that the governments also have a role to play in encouraging a positive investment climate. The market system does not mean it does not have the bad side of it that calls for the intervention of the government. As advocated by John Keynes without government intervention the market system can fail to resolve some imbalances created by it. One of the fundamental reason of encouraging government intervention is that merit goods that cannot be provided in the market system because they are not profitable they can be availed by the government in a controlled system. Private Corporation mostly will engage in activities that earn them huge margins of profit. Essential merit goods such as better housing, healthcare and schools can only be made available by the government which can engage is investments that have low returns or no profits at all. Owing to competition the poor can be isolated from benefitting from merit goods and to ensure fair play the government has to come in. The market system players are only interested in profits and high turnover where these do not seem to occur they opt out. Consequently public goods are not provided in this kind of system, and it is only reasonable for the government to come in to ensure provision of these public goods such as street lighting, fire services, police, and army. The consumers are unwilling to pay for these services and goods. With the sole goal of making profit compounded by stiff competition can lead to production demerit goods such as alcohol, drug and cigarettes. The private corporations are only interested in ventures where profits and returns are huge. Even if the goods being produced are illegal the monopolies will engage in them so long as they can get profits. Monopolies are bound to occur and dominate the market prompted by absence of regulation and push small players out of the market since they render them helpless. On top of that the monopolies prevent new competitors from entering the market. They lock them out by taking over the most of the means of production. The monopoly exhibit selfish character of setting prices that may be discriminatory to the customers who cannot afford them. The consumers are very much exploited by the means of the high prices. Baumol & Blinder (2008) argue that in a free market economy social cost are ignored. The private corporation are unwilling to engage in any activity that is not profitable and subsequently most of them do not set a budget for social responsibility geared towards the benefit of the local community. Private firms mostly will ignore negative externalities accruing from their ventures which in turn can be dangerous the society. These externalities include water pollution, air pollution, road damage, noise pollution and the general degradation of the environment due to mover exploitation of resources. There is rampant wastage of resources and perpetual social injustice. The private sectors do not care about appropriate ways of utilisation of resources. Question three The investment climate in the United Kingdom can be improved if the government through its policies can implement or put in place a number of things to enhance this. Supply-side policies in product market should be designed to increase efficiency and competition. If the productivity improves then the country will be able to produce more goods surpassing even the sources endowed to it. Investors are bound to be attracted with this kind of atmosphere that creates confidence in the economy and there is assurance of good returns. Moreover competition and efficiency can be enhanced through privatisation. Over the last couple of years the government has privatised state owned from being the public sector to the private sector. Examples include British airways, British Telecom, regional water companies and British steel. Privatisation will also attract the investors because many fear the monopoly of the government that is impossible to cope up with. Privatisation does away with monopolies of the state and creates more room for free competition. Mohanty & Hazary (1997), note that improvement of investment climate could also be done through deregulation of markets. To deregulate refers to liberalisation. This is opening up market for greater competition to take place. The importance of this is to increase supply in the market and broaden the variety of choice that is made available to consumers. This makes the producers to employ more cost effective methods of production and expand their market share. If potential investors see this they are encouraged to invest because they are assured of high returns in the course of their production and selling of the manufactured goods (Munasinghe, 2006). The competition policy should be made tougher. Many supply-side economists belief in dynamic impact of increased competition and consequently competition compel businesses to be more efficient in the utilisation of the scarce resources. This results in reduction of costs which could be handed down to consumers in the likeness of lower prices. Tougher regulation policy include policies meant to do away with anti-competitive exercises or malpractices which include cartels for price fixing and other abuses meant to keep other investors out of the market. The intervention through regulation and stiffer penalties to those engage in activities that are discriminatory and creates unfair ground (Munasinghe, 2006). On the monetary policy side the government can ensure that the interest rate is low compared to the international interest rate. When the interest rate is low investors are attracted because the possibility of them making huge profits is high. The government can do this through its management of the home banks affairs. Consequently it should be easy for one to obtain loan and also to pay back (Mohanty & Hazary, 1997). Part two Question two Hosting the Olympic Games in London in 2012 will have a strong implication on the United Kingdom as far as its economy is concerned. Hosting the Olympics will lead to great development in the infrastructure of the country. Stadia have to be accessed by the visiting teams and therefore the government will not relent in its effort in making the infrastructure to be as impeccable as possible in order to score highly in the global assessment of the United Kingdom preparation prior to the event. The United Kingdom will want to be seen as a formidable force to reckon with on the international front. With the infrastructure networking being improved greatly, the cost of doing business will fall since more money that could have been lost through poor infrastructure is saved (Millward & Singleton, 2002). According to Miller (2008), the market will be easily accessible since the government will streamline travelling even in the airline sector by engaging experts to foresee that. Many places that the visitors would want to visit will be opened up by the superb transport system. Investors in the United Kingdom will also find it easy to take their products to the market. More earning can be realised since production becomes cost effective as extra cost accruing from laboured transport is eliminated. This will also lead to the opening of new markets and also market niches which had been closed up. The countries imports also from other foreign countries, for example coffee from Kenya will get faster to its final destination thereby reduction the cost of importation. The money saved can be channelled to stimulate other sectors of the economy. The hosting the Olympic Games will also lead to increased Gross Domestic Product as more income will be realised particularly in the hotel industry. There will be an upsurge of visitors who will be participating in the games and the hotel rooms holding capacity will be stretched to the maximum. The hoteliers will reap huge profits and this will lead to the subsequent increase in the national income through increased tax revenue. With effective method of tax collection the government income is bound to go up as more money is collected on the huge profit margins made by the private investors in the hotel industry Başçi & Togan 2007). The charges levied by those in the hotel industry may also hike due to the increased demand. More money finds its way to the economy from the hands of the visiting teams. Apart from the visiting teams, there are also the funs who will accompany the teams and therefore increasing the population of the visitors. Besides, there will be tourists who will be prompted to visit the United Kingdom just in the event of the competition and not any other time just to be part of the excitement created by the mere occasion of the Olympic Games. The tourist will bring in more cash and therefore more income in the form of foreign exchange. With the increased money in the economy there is also the possibility of inflation being realised. Many people will have more money to spend during the period of the games and the prices will be hiked. Consequently a lot more money will be needed to buy something that had previously only cost a pastry amount. Inflation occurs when consumers have more money that are willing to spend but the goods available or which suppliers are willing to supply in the market and consequently consumers’ demand surpass the market supply for goods and services. There will be longer queues in the shopping area but few goods to be bought hence prompting inflation (Miller, 2008). In the face of inflation the local currency will depreciate as necessitated by it. More local currency will be needed in order to obtain a foreign currency because its value would have gone down. For instance, the American dollar may just be stronger and gain value over the pound. The government can come in and subdue the effects of inflation by withdrawing excess money from circulation by the issue of treasury bonds and bills. In this case the government will be employing monetary policy which is a concept in macroeconomics as suggested by Keynesian theory-the government has to intervene and help in steering the economy to stability. As the public reach out to invest their money in the bonds money is withdrawn from circulation. This will eventually stabilize prices and in the long run make the local currency stronger. The aftermaths of inflation may be short-lived. Hosting the Olympics will also open up new opportunities for investing. Opportunities that may hitherto be hidden may be realised. Creativity and innovation will be encouraged as investors grapple to look for better ways of delivering services and goods. For example, in the hotel industry the hoteliers may look for better ways of providing superior services to their customers. In the event of increased competition efficiency and productivity will be increased. All these happening will lead to increased growth rate of the economy. The living conditions of the locals will rise and services such as better healthcare and excellent education service will be realised. With increased living standards, life expectancy can go up as a large population can access better health care and improved education standards. Visitors who will come to watch the Olympic Games may spot opportunities for investment. There are people who have not invested in the United Kingdom for the simple reason that they have never been in this great country. If these people step their foot in the United Kingdom they may see so many opportunities that other people have not realized so far and on the spur of the moment, invest (Başçi & Togan, 2007). Coricelli (1998) notes that the hosting of the Olympics games by the United Kingdom may also lead to exchange of technical know-how. When we have these Olympic Games being hosted in the country we will need experts to help in setting up the facilities required for these games. More experts will be sourced from the outside the country who specialise in specific areas and subsequently they will impart their technical know-how to the locals making the delivery of better services by the locals sufficient and effective. The technical knowledge of how to do certain things will lead to improved or increased productivity being attributed to efficient methods of production being applied (Cashin, 2001). According Mankiw (2008) some of the local citizens also will also get to meet other people of different nations and this will improve their chances of getting employment in foreign countries. This will be a boost to the economy because the number of people unemployed will go down and therefore subsiding of the rate of unemployment that will steer the economy towards stability and full employment which are among the main goals of the macroeconomic policies. Self adjustment of the market equilibrium will be improved and therefore more stable prices and stable market equilibrium will be arrived at. The hotel industry also will hire more staff in its rush to provide excellent services. More staff will be needed to cope with the surge in the number of visitors (Baumol & Blinder 2008). The Olympic Games will lead to improved relations with the international community. With the improved relations more trade ties and avenues will be opened between the United Kingdom and the rest of the world. More markets for manufactured goods will be found and hence more money will be realised in terms of foreign exchange. This kind of improvement will lead to stability in prices and the local currency is bound to improve. More exports translate to more income and consequently economic growth and stability in the market. The neighbouring countries will also benefit as the visitors may just decide to visit such countries Mankiw, N. G. (2008). More so the hosting of the Olympic Games could come with other challenges as it is the case in such scenarios. Some hooligans may take advantage of the whole excitement to engage in criminal activities that may jeopardize the economy. If a foreigner is attacked by a criminal and he loses his assets in the attack automatically he will leave the country with a bad memory about it. This will discourage other potential investors from thinking about investing in the country. This will also tarnish the international image of the country and consequently scare away investors. If for instance, one person is killed by a criminal gang, the country that that person is coming from will be bitter and it will affect the relationship between the countries. Despite the effort of any given country stepping up its security team in the event of organizing such an activity the truth is that criminals also take advantage to pounce on unsuspecting visitors. In addition the upsurge of many people in the United Kingdom market may create market destabilization and consequently the equilibrium will not be reached unless some urgent adjustments are done in the market. Bibliography Miller, R. C. (2008). International political economy: contrasting world views. New York: Taylor & Francis. Mohanty B. & Hazary S. C. (1997). Political economy of India: retrospects and prospects. New Delhi: APH Publishing. Heilbroner, R. L. & Thurow, L. C. (1999). Economics explained: everything you need to know about how the economy works and where it's going. Melbourne: Simon & Schuster. International Monetary Fund. (2009). Global Financial Stability Report: 40095: Global financial stability report. International Monetary Fund, 2009 Mankiw, N. G. (2008). Principles of Economics. London: Cengage Learning. Baumol, W. J. & Blinder A. S. (2008). Microeconomics: Principles and Policy Edition11. London: Cengage Learning. Coricelli, F. (1998). Macroeconomic policies and the development of markets in transition economies. UK: Central European University Press. Munasinghe, M. (2006). Macroeconomic policies for sustainable growth: analytical framework and policy studies of Brazil and Chile. Sydney: Edward Elgar Publishing. Villanueva, D. (2002). Macroeconomic policies for stable growth. New York: World Scientific. Cashin, P. (2001). Macroeconomic policies and poverty reduction: stylized facts and an overview of research. New York: International Monetary Fund. Başçi, E. Togan S. (2007). Macroeconomic policies for EU accession, New York: Edward Elgar Publishing. Millward, R. & Singleton J. (2002). The Political Economy of Nationalisation in Britain, 1920- 1950. Cambridge: Cambridge University Press. Read More