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Ethical Requirements in Economics

  • 10 Pages
  • Published On: 10-11-2023

Unit 1: Demand and Supply

1. The term “despite” has been used in this extract to highlight the significance that even though the demand had increased but still there was increases in the prices of the tickets. According to theory of demand and supply, increase in the prices of the tickets can be explained by the fact that the increase in demand has led to an increase in the equilibrium price, which shifts the demand curve to the right, provided the supply remains unchanged (Kaldor, 2020). One of the probable reasons for increasing the prices of the tickets could be that the railway department wanted to take the advantage of the increased demand for the train services, which leads to an increase in the equilibrium prices as compared to the earlier equilibrium prices.

Demand-Supply Curve when the market is in equilibrium Demand-Supply Curve when the market is out of equilibrium

Unit 2: Production and Cost Theory

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1. The main reason for closing down the old wells was that it had been producing a lot of saltwater which was becoming extravagant to get rid of. According to the rule of shutdown for profit maximization, it can be analyzed that revenue earned from such wells were far less than the total variable costs incurred to maintain the oil wells (Kheiravar et al.2020). This generally reflects that there is no level of out for the old well as they have become nonproductive, and have left no scope for maximizing the profit margins. So the only option left to minimize the losses is to shut down the old wells.

2. The new wells were still operational despite facing losses as according to the theory of maximization, the fixed expenses need to be met in any case, even if the wells are nonoperational. So on operating the new wells even under unfavorable conditions, in order to meet the basic objective of covering the variable costs, and if a possible cover up some of the fixed costs. The year 2014 has been undoubtedly the strongest year for the US economy (Usnews.com, 2020). The reviving US market in 2014 had been another motivating factor for the new wells to keep on operating even under unfavorable global market conditions.

Unit 3: Market Structure

1. The idea behind thousands of sellers choosing to sell their services on Groupon.com has been purely based on the concept of price discrimination, which helps to identify the different markets in order to sell the different products with variable price elasticity’s. Moreover, it also helps the different sellers to charge different prices for the same product based on a bias directed towards a group of people with specific characteristics (Adachic and Fabinger, 2020). This strategy also helps the different sellers to increase their revenue by selling the products to the consumers, who were previously unwilling to purchase the same product due to the higher price of the product.

Demand-Supply Curve when the market is out of equilibrium

3. Customers often choose to pay the non-discounted prices for a product instead of availing the discounted prices available on Groupon.com as such consumers are more inclined towards a particular brand and value the quality of the product rather than the price they pay for it. Such customers never want to compromise with the quality of the products even if they have to pay more for it.

Unit 4: Markets, Efficiency, and Public Interest

2. The imposition of the "sugar tax" on sugary beverages would increase the price of the beverages considerably and the consumers have to pay more for the product. The increased price of the beverages would push the supply curve inward so that the decline in supply conforms to the existing prices, which reflects that the beverage industry would be able to produce less for the same amount of money. The increase in the price of the beverages due to the imposition of the “sugar tax” would lead to a fall in the equilibrium price (Allcott et al. 2019). This would make it difficult for the beverage industry to make more profits by selling beverages and the buying behavior of the consumers would change as they would purchase less of the expensive beverages.

Demand-Supply Curve before tax is imposed Demand-Supply Curve after tax is imposed

3. The manufacturers of sugary beverages can play a role in reducing the price of the beverages in order to keep a check on the increased prices of the beverages after the tax is imposed. The manufacturers can reduce their profit margins so that the consumers need not pay the extra price for the beverages. The manufactures might also adopt a strategy of selling the beverages at the price they are manufactured and not making any profit. Again a section of consumers might be aware of the price discrimination strategy employed by the sellers on Groupon.com.

Unit 5: The National Economy

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1. The increase in the base rates by the Bank of England is likely to increase the value of the British Pound. A stronger currency would ensure less competition in imports and export carried out by the UK, by reducing the exports and enhancing the imports. Moreover, this would lead to the effect of diminishing the aggregate demand in the economy. The higher base rates in the UK as compared to the other countries would also ensure the investors saving more money in the banks of England, in order to gain more interest from the money saved in the banks.

2. The Bank of England in August 2018 raised the base rates from 0.5% to 0.75%, which has been the highest since March 2009 (Bbc.com, 2020). The first and foremost intention of the bank in taking this step has been to increase the payments of interests on variable mortgages, which would consequently have an impact on the spending patterns of the consumers. Another intention of the bank to increase the base rate has been the mounting fears of the economic impact on the British economy after the exit of the UK from the European Union.

Unit 6: The Global Business Environment

1. The curves are shown below:

Local Demand, Local Supply, and World Supply Curve after tariffs imposed

3. The prices of the products manufactured in the US declined as compared to the imported products after the tariffs were imposed on the Chinese imports by the US government. This increased the demand for the products manufactured in the US by the consumers as a result of which the equilibrium price also increased.

4. The American manufacturers of appliances reported that their business was harmed after the US government imposed tariffs on Chinese imports. The manufacturers of appliances like refrigerators, air conditioners, and dehumidifiers stated that the tariffs on Chinese imports would only increase the prices of such appliances. They further stated that this would affect the average working class, the students, and the elderly the most (Miller, 2018). Again, the tariffs on Chinese imports are expected to make the products manufactured in the US a lot cheaper than the imported products, and that would encourage the consumers to purchase US manufactured products.

5. The situation being closely analyzed reveals that the tariffs imposed by the US government on the Chinese imports had largely affected businesses of the US-based manufacturers (Miller, 2018). Besides the appliance industry, the business of the manufacturers of bikes for children, animal medicine, baby cots, roof tiles, and many others had been severely affected. Eventually, the US-based manufacturers were the biggest losers after the imposition of the tariffs.

References

  • Adachi, T., and Fabinger, M., 2020. Output and Welfare Implications of Oligopolistic Third-Degree Price Discrimination. Available at SSRN 3006421.
  • https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3006421
  • Allcott, H., Lockwood, B.B., and Taubinsky, D., 2019. Should we tax sugar-sweetened beverages? An overview of theory and evidence. Journal of Economic Perspectives, 33(3), pp.202-27.
  • https://www.aeaweb.org/articles?id=10.1257/jep.33.3.202
  • Bbc.com, (2020). BBC News. 2020. Bank Of England Raises UK Interest Rates. [online] Available at: [Accessed 19 September 2020].https://www.bbc.com/news/business-45043776
  • Kheiravar, K.H., Lawell, C.Y.L., and Jaffe, A.M., 2020. The world oil market and OPEC: A structural econometric model. Working paper, Cornell University.http://clinlawell.dyson.cornell.edu/world_petroleum_mkt_dynamic_game_paper.pdf
  • Kaldor, N., 2020. Economics without equilibrium. Routledge.https://books.google.co.in/books?hl=en&lr=&id=oyr3DwAAQBAJ&oi=fnd&pg=PT5&dq=change+in+demand+affecting+the+equilibrium+price+in+economics&ots=TlHPjQn3gj&sig=OtwqhYFiYw2yc-hppXEOEhFWcDU&redir_esc=y#v=onepage&q=change%20in%20demand%20affecting%20the%20equilibrium%20price%20in%20economics&f=false
  • Miller, J. (2018). 8 goods to be hit by Trump’s tariffs. BBC News. [online] 22 Aug. Available at: https://www.bbc.com/news/business-45270474 [Accessed 19 Sep. 2020].https://www.bbc.com/news/business-45270474
  • Usnews.com, (2020). 2014: The U.S. Economy’s Breakout Year. [online] US News & World Report. Available at: https://www.usnews.com/news/articles/2014/12/30/2014-the-us-economys-breakout-year#:~:text=Despite%20the%20harsh%20winter%20weather [Accessed 19 Sep. 2020].
  • https://www.usnews.com/news/articles/2014/12/30/2014-the-us-economys-breakout-year#:~:text=Despite%20the%20harsh%20winter%20weather,year%20as%20overseas%20economies%20stumble

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