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- Subject Code : MB113
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- Subject Name : Economics
Economics - Question 1
a) Over the decades, growth has taken the movie industry by storm. Presently, the movie industry exists as an oligopoly type of industry. The oligopoly nature gives anticipation for future success. There is competition among the few firms in the industry. Surprisingly, the movie industry has tended to prevail in the recent past as the few firms in the industry sell products that exist as close substitutes (Gaonkar et al., 2018). The interdependence among the firms in the movie industry also creates anticipation for future success. The firms do not see each other as threats but, at times, even look for help from their competitors. The chances of success of the movie industry are also widened by the fact that some of the expenses are cut for them. For instance, movie industries do not engage in advertisements as they form part of the ads.
The group behavior in the movie industry also creates a significant boost towards future success. Acting as a group provides a chance for collaboration in providing more advanced content, especially in terms of technology and innovation. The indeterminate Demand curve of the movie industry promises future success of the industry as every firm keeps an eye on its competitors' actions and strategizes accordingly. As the individual firms act following their competitors' activities, the future success of the industry is guaranteed. The sector has also shown effective response to consumer needs, which has resulted in increased customer loyalty towards the future. The firms' growth and merger as they drive away their rivals provideanticipation for success soon, at least if not in the distant future.
b) The payment of premium by customers will continue as long as the firms are structured in a monopolistic or oligopolistic nature. With such structures, product peculiarities drive customers into paying more than the marginal costs the products have. The monopolistic market power of the firms grants them the authority to formulate the pricing strategies. The Lerner's Index may be used to calculate the monopolistic powers of the firms, which forces firms to pay a premium for getting services in the movie industry from the past, through the present, towards the future. In the model (P-MC)/ MC, P stands for the price that a firm has set for its good while MC is the marginal cost of the firm (Brander et al., 2019). The index is the measure of the percentage of markup that a firm can charge over its marginal cost. In the current times of the global COVID-19 pandemic, excessively low prices may be experienced. However, consumers may end up paying more for their access to certain types of content.
Economics - Question 2
a) Covid-19 has had significant impacts on global economies. Among the majorly impacted areas is consumers' behavior. Being a highly contagious disease, consumers are required to maintain social distances even in the shopping areas. The nature of the disease has had significant impacts on the consumers' spending behavior, especially their preferences. Due to the uncertainty in the economy, consumers tend to cut down their purchases on non-essential goods, while at the same time, they curb impulse shopping. Consumers currently have no liking for crowded and air-conditioned shopping areas (Pantano et al., 2020). In this pandemic, consumers prefer shopping from Mom and Pop stores that are less crowded. Moreover, the online market has experienced a significant boost as the consumers prefer online buying platforms that have less personal interactions, which increases the chances of contracting the disease. However, consumers may prefer impulse buying, especially for perishables, to avoid the regular need for sanitization, which may easily be forgotten. Consumer behavior has also been affected by increased precautionary savings as they respond to income volatility, which leads to generally low spending.
b) The worsened trading and economic conditions have adverse effects on retailers, which leads to a consequential impact on landlords. As the economy keeps deteriorating, the retailers may not be able to meet their operational costs forcing them to move-out with sudden closures to the shops. The slowed-down demands by consumers, with a reduction in footfall arising from the consumers' concerns about social distancing in the shopping malls, may lead to a major problem in the payment of the rents by retailers. The landlords may be forced into renegotiating their agreements on rents with the retailers. For continuity, the landlords have to give retailers favorable terms if they want them to continue being their clients. The real estate sector is also affected by the economic slowdown. When the real estate sector is affected, the value of the building is significantly reduced. The landlords can't receive as much as they were getting before the pandemic broke. Some of these retail estate projects are built through the aid of financers and creditors who may not adjust to the building's value. As the landlords become bankrupt, they may entirely lose the properties to the creditors. Other properties may experience a full closure, a disadvantage to the landlords.
Economics - Question 3
The employment situation in a country is a significant element while determining the economic state of the country. The living standards in a country are determined by portions of the employed who tend to be the economic cushions for the unemployed. In the calculation of the rate of unemployment in a country, the portion of the unemployed is ranged against the entire workforce. The more significant the portion of the unemployed, the higher the rate of unemployment. From an economic angle, a change of unemployment from a lower rate to a higher rate shows that the economy is below capacity in its operations. It also shows that economic operations are inefficient. The results of an economy operating below its full capacity are low output and incomes. The population in the employment sector felts substantial costs as a result of higher rates of unemployment.
Higher unemployment rates expose the working population to a reduction in the subjectivity of well-being. As a result of unemployment or a case of underemployment, a country faces a general increase in income inequality within its population. Income inequalities lead to uneven distribution of wealth. As wealth is held in the hands of the few, disparities in developments also result. Higher levels of unemployment also result in a change in the hours of working as well as salaries. With increased unemployment, many people are left jobless as employers have plenty of choices in terms of the workforce. The workers have no options but choose the work terms presented to them by the market employers whether they favor them. In the cases where the workers are not willing to take the available working offers, they face a risk of job losses.
The reported Australian increase in unemployment from 5.2 to 6.2 is reflected in the country's employment situation (Khemka et al., 2017). To meet the economic demands of the increased percentage of unemployment, Australia's borrowing has been increased. Recently, the employee unions have explained the introduction of unfavorable working terms by employers targeting the increased unemployed population. It also easy to lose a job in the Australian working sector. Several studies done on the Australian economy have also shown that income disparities in the Australian population are advancing from one financial year to the other. There have also been unplanned pay cuts in the country. Regular working hours have also been significantly altered.
Economics - Question 4
Monetary policies are essential in handling economic downturns that may present themselves during pandemics. Among the core players in the regulation of monetary policies during such pandemics are the central banks. For instance, the Covid-19 pandemic has called for a response by Central banks by putting in place the viable monetary policies in controlling the economic problems that have resulted, and keep projecting towards the future (Schofield & Butterworth, 2018). The central banks are called into action during this tough time of the nations since they act as the first line of defense through their decisive actions. The central banks have established expansionary monetary policies aimed at boosting the slowly moving economies. Among the widely used tools is the policy rate cuts. Interests have significantly been cut with the central banks placing downward pressure on the interests on a short-term basis. Lowering interest rates leads to an overall decrease in the cost of borrowing. The reduction in the cost of borrowing leads to stimulation in business investment and the expenditure by consumers.
Central banks have also introduced quantitative easing on the schemes of asset purchases. This acts as an economic cornerstone in which newly created currency purchases government assets such as government bonds. The liquidation of government bonds leads to an increased flow of income. Moreover, central banks may act against the unexpected cash flow needs by using their buffers to liquidity. Measures to support the borrowers have also been introduced. For instance, the central banks have introduced delays in payments. The temporary postponement of outstanding consumer debts may be essential in reducing their pressure during the pandemic. As a result, the consumers use the limited resources they have to meet their daily needs rather than care about their debts with the financial institutions. As the central bank imposes softer terms on the financial institutions, the softness is transferred to the local consumers. In dealing with the economic effects of the COVID- 19 pandemics, the central banks may also waive lateness fees, especially when setting financial debts (Lam & Ossolinski, 2019). This ensures that debt payers are not put under extra pressure when they cannot pay their debts at the right time. If the borrowers are not able to pay their debts, central banks may suspend closures or evictions until the pandemic's fate is determined.
Economics - Question 5
In case of an emergence of a pandemic, a nation's treasury is among the branches that should be on the response side. It is one of the nation's sectors that face significant economic challenges. The pandemic has brought lessons on the future need for critical thinking about the ways of supporting the economy while keeping stability in public finances. Economists have raised concerns over the anticipated increase in debts, especially due to the government policies during this pandemic, such as lockdowns. The economic shutdown has a high probability of resulting in 'great depressions.' Responses by the treasury are thus required. It may respond by borrowing more as global interests have significantly reduced (Christensen & Krogstrup, 2019). The fear of accumulated debts, especially the interest rates during the payment time, is no longer there. The pandemic has reduced the interest rates to the extent that even double borrowing is no longer an issue. Even in engaging in double borrowing, the government, through the treasury, has less to pay as a result of reduced share tax receipts. Economists have explained that such reduced rates have never been experienced in the world's history.
Moreover, Economists have advised the treasury to carry our investments in pro-growth sustainable projects. Such projects guarantee commercial developments from the present and even after the pandemic. The projects that the treasury engages in should have as minimal government restriction and regulation as possible. Treasury should also avoid paying its previous debts in full. Nearly every player in the global economy understands the effects that their counterparts are experiencing as a result of the pandemic. Thus, it is easy for the treasury to plead with its creditors for changes in terms of the payment of their debts as they had been laid before the emergence of the pandemic (Tiernan, 2007). Partly paying its debt during this pandemic ensures that the treasury is not exposed to further strains, resulting in bankruptcy. The treasury may also cut its spending by ensuring that money is only spent on what is unavoidable and necessary. The treasury may also roll over their debts as they entirely concentrate on dealing with the pandemic first. It may be the best way, especially now that nations are left with limited options in stabilizing their economies during the pandemic.
References for Economics
Brander, J., & Song&, V. (2019). Financial Structure and Oligopoly: The R&D Effect (Preliminary and Incomplete).
Christensen, J. H., & Krogstrup, S. (2019). Transmission of quantitative easing: The role of central bank reserves. The Economic Journal, 129(617), 249-272.
Gaonkar, S., Kim, S. H., & Mele, A. (2018, July). Novelty and Market Success: Evidence from the Movie Industry. In Academy of Management Proceedings (Vol. 2018, No. 1, p. 12567). Briarcliff Manor, NY 10510: Academy of Management.
Khemka, G., Roberts, S., & Higgins, T. (2017). The Impact of Changes to the Unemployment Rate on Australian Disability Income Insurance Claim Incidence. Risks, 5(1), 17.
Lam, T., & Ossolinski, C. (2019). RDP 1999-05: Trends in the Australian Banking System: Implications for Financial System Stability and Monetary Policy.
Pantano, E., Pizzi, G., Scarpi, D., & Dennis, C. (2020). Competing during a pandemic? Retailers’ ups and downs during the COVID-19 outbreak. Journal of Business Research.
Schofield, T. P., & Butterworth, P. (2018). Are Negative Community Attitudes Toward Welfare Recipients Associated with Unemployment? Evidence from an Australian Cross-Sectional Sample and Longitudinal Cohort. Social Psychological and Personality Science, 9(5), 503-515.
Tiernan, A. (2007). Power without Responsibility: ministerial staffers in Australian governments from Whitlam to Howard. UNSW Press.
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