The Effectiveness of Supposedly Ineffective Price Constraints - Assignment Example

Question 1 a. Price discrimination is one where the organization charges different prices to its customers based on demand and supply along with the overall market conditions. The airline industry indulges in price discrimination as the business charged different prices to customers based on the route they operating, the flow of customers, the availability of other airlines and other external stimuli (Docters, Schefers, Korman & Durman, 2008.). This is in addition to the fact that airlines uses a process of just in time which thereby results in different prices being charged to the customers. This is shown below The above chart shows airlines industry charges different prices to its customers based on the demand and supply of seats in a particular airline in a particular sector. The process of price discrimination thereby results in creating the required gap through which customers are treated differently and the prices charged to customer vary on the market situation resulting in price discrimination to take place. b. The key assumptions of monopolistic competition are as There are many producers and consumers in the market There exist product differentiation among the different products being offered to the customers Producers have control over prices but to a limited degree The barriers to entry and exit is low c. Monopolistic competition results in the exploitation of resources when compared to perfect competition as monopolistic competition always provides an opportunity where the business can make super normal profits in the short run. This thereby creates an opportunity where the different resources which are available are exploited so that better gains can be ensured. While considering the longer period of time when all factors remain constant it is seen that business is able to make normal profits due to increased competition. This thereby limits the chances of business to manipulate the resources or use them to their advantage. This situation thereby leads to a situation where the resources are used in a better way as compared to the short run but still provides some room or scope to use the different resources to their own advantage. d. In the short run when the demand suddenly falls the supply is not able to adjust in the same manner which thereby makes the graph looks as It is clearly evident that in case of a monopolistic competition maker when the demand falls in the short run the supply cannot adjust itself which results in a drop in prices and quantity as people start to reduce the consumption. The decrease in the price and quantity demands on the decrease in demand which thereby helps to find out the equilibrium price and quantity at the point where intersection occurs (Cottle & Wallace, 2005). In case of the long run the supply adjust itself and looks as follows It is evident that in the long run both the demand and supply decreases and this thereby results in little decrease in price as compared to the decrease in quantity. The overall impact of such a decision is that the business starts to reach the equilibrium at the same level of price but lower quantity as certain suppliers move out of the business resulting in the equilibrium to be achieved at some other point and ensuring that the business is able to make normal profits. Question 2 a. i. The profit maximizing level of output is 5 units as it is the point where marginal cost equals to marginal revenue ii. The socially efficiency level of output is 5 units as the social cost is equal to the benefits gained from it iii. The marginal pollution cost continues to increase because when more and more goods are produced the total marginal cost associated with pollution increases as producing more and more goods units results in increased cost of pollution b. i. a. Trade unions will be seen as an advantage to unions till they are able to get a good bargain and ensure that the overall benefits which trade union provides exceeds the cost associated it i. b. Non union members will see an advantage to a point where collective bargaining helps them to improve their marginal productivity and ensures better returns and gains than the sum which has been invested in it i. c. Workers in non unionized job will benefit if the overall benefit which they get as a result of working alone is less than what the unions get resulting in a comparative analysis where the personal gains are more than the gains for the union b. ii. a. Trade unions will be seen as an disadvantage to unions till they are not able to get a good bargain and ensure that the overall benefits which trade union provides is lower than the cost associated it i. b. Non union members will see a disadvantage to a point where collective bargaining helps reduces their marginal productivity and reduces returns and gains than the sum which has been invested in it i. c. Workers in non unionized job will see it as a disadvantage if the overall benefit which they get as a result of working alone is more than what the unions get resulting in a comparative analysis where the personal gains are less than the gains for the union Question 3 a. The circular flow of money refers to the manner in which circulation of income takes place between the different factors of production. Households are provides wages and salaries for the different services which is provided to the business resulting in withdrawals from the business. The same money is used by the household for different purposes which include investment resulting in injections in the business. This thereby results in a phenomenon where the different injections and withdrawals results in change in the actual money which is available in the economy (Colell, Winston, Michael & Jerry, 1995). In fact due to the multiplier effect impact of rejection and withdrawal is seen to create a positive impact on the performance of the organization which thereby results in multiplying the money which is present in the economy. The relationship which is established is thus that the rejections equals the injections which is made on different areas and thereby results in having a positive impact as changes in one has an impact on the other which thereby results in a change in the manner economies perform. b. i. Increase in export will have an impact on import as it will make imports to grow as well as the circular flow of money will result in injections and withdrawals in equal proportions ii. Increase in export will have an impact on net taxes as it will increase due to more goods being sold thereby resulting in more withdrawals iii. Increase in export will have an impact on will improve the GDP as the growth rate will improve due to more injections in the system as the flow of money will increase within the economy c. If planned injections is less that planned withdrawals it will result in an decrease in growth rate, increase in unemployment, increase in the rate of inflation and reduction in the net exports which takes place. This is primarily due to the fact that the injections are less than withdrawals which will create a negative impact Question 4 a. The minimum level of wages which has been declared by the Australian government is $622.20 per week or $16.37 per hour (Fairwork, 2014). This will thereby lead to a stage where people who were refraining from work will start to work due to higher wages. The impact of such a decision will be that the level of unemployment will reduce and more and more people will prefer to work. b. i. Multiplier is a phenomenon which states a change in aggregate production due to change in autonomous expenditure which has an impact on consumption and other expenditure and is induced by the level of income. The government expenditure multiplier is 0.75 ii. At a level of $200 GDP there will be an inflationary gap of $10 as at this point the national expenditure is $190 which will thereby result in filling the gap through inflation so that the GDP level can be easily achieved. iii. The government expenditure has to change by $7.5 as due to the multiplier effect it will result in a change in $10 which will thereby help to fill the gap which is present and ensure that better gaps can be maintained. References Cottle, R. & Wallace, M. 2005. The effectiveness of supposedly ineffective price constraints. Journal of Business & Economics, 10 (4), 71-76 Colell, M., Winston, A., Michael, D. & Jerry, R. 1995. Microeconomic Theory. 3r Edition, New York, Oxford University Press, Pearson Education Docters, R., Schefers, B., Korman, T. & Durman, C. 2008. The neglected demand curve: how to build one and benefit. Journal of Business Strategy, Volume 25, issue 5, pp. 19-25 FairWork. 2014. Fair Work Ombudsman. Australian Government. 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