Assignment Question 1

Give one illustration each of a ) a negative outwardness, and B ) a positive outwardness.

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Explain how the undermentioned actions will assist to decide the outwardnesss generated by a new subway line:

  1. The metro system buys the belongings around the new Stationss.
  2. The proprietors of belongings near the new Stationss buy portions in the metro system.
  1. Negative outwardness. A negative outwardness may be defined as a cost originating from an economic activity which affects person other than the people engaged in the economic activity and is non to the full reflected in monetary values.
  2. A typical illustration would be of a steel factory which has been moved into a town which so far has clean air. In order to bring forth steel, it has paid for land, labor, capital and entrepreneurship. The monetary value charged by the operator reflects merely the costs incurred. The operator does non hold to pay the cost of cleaning up the fume given off by the factory but people in the community wage that cost in the signifier of dirtier apparels, dirtier autos and possibly even more respiratory unwellnesss.

  3. Positive outwardness. Positive outwardnesss are benefits which arise from economic activities which impact on parties that are non straight involved in the dealing. Monetary values do non reflect the full benefit in ingestion of a merchandise or service.

For case, a apiarist can roll up honey from beehives, but the bees will besides pollenate environing Fieldss and therefore assistance husbandmans. Farmers do non pay anything to profit from pollenation.

  1. A metro system might make a negative outwardness in the signifier of noise pollution to occupants. This will usually ensue since such countries attract commercial activity. However, if the metro system buys the belongings around the new Stationss, such negative outwardness will be reduced or eliminated as there will be less or no residential belongings and more commercial belongings in the country.
  2. Construction of a metro will raise the value of retail concerns located near to the metro Stationss as new concern tend to be generated due to improved entree. If the proprietors of belongings near the new Stationss buy portions in the metro system, negative outwardnesss will be balanced since they will get down having dividends as a consequence of such shareholding.

Assignment Question 2

Our costs are really high because of the immense pensions of our retired persons. Are the pensions of retired employees relevant for prospective concern determinations?

Retirees are populating longer than anyone expected or accounted for. This is doing liabilities look larger as companies recalculate their pension duties. Since retired persons are employees who are already retired, their pension costs are portion of the administration ‘s sunk costs. Sunk costs are historical outgos that are irrelevant for current or future determinations about what to exchange or bring forth. Pension costs are costs that have been created by a determination made in the yesteryear and that can non be changed by any determination that will be made in the hereafter.

Pension costs are irrelevant for decision-making since employers can non walk off from their pension duties.

Economists argue that pension costs should non be taken into history when doing rational determinations. Administrations have pension duties as a consequence of past determinations and such costs need non be considered when make up one’s minding about the organisation ‘s future schemes. However, possible investors who might be interested to get significant shareholding or buy-out the concern demand to see pension duties during a due diligence exercising in order to do an offer.

Assignment Question 3

Explain why the own-price snap is a pure figure ( with no units ) and is negative.

‘The own-price snap of demand measures the reactivity of the measure demanded to alterations in the monetary value of the point ‘ ( Png & A ; Lehman, 2007: 53 ) . Through this, directors can state the extent to which purchasers will react to monetary value lessenings or additions. Own-price snap is calculated as follows:

per centum alteration in measure demanded

per centum alteration in monetary value

Pure figure

The per centum alteration in measure demanded is the alteration in measure demanded divided by the mean measure demanded. Such alteration is a pure figure which does non depend on the units of step. Therefore, if we consider lucifers as an illustration, the per centum alteration will be the same whether we measure measure demanded in boxes or single lucifers.

The per centum alteration in monetary value is besides a pure figure being portion of the same expression.

Negative figure

Demand curves usually slope downward, which means that if the monetary value of an point rises, the measure demanded will fall. Therefore, the own-price snap will be a negative figure.

Some analysts report own-price snaps without the negative mark ( i.e. as an absolute value ) . Therefore, it is really of import to maintain in head that the own-price snap is a negative figure when this construct is being applied.

Assignment Question 4

Hospitals are the lone big purchaser of nursing services in many communities. These infirmaries frequently report deficits of nurses – unfilled places. Reconcile these two facts, utilizing the theory of Monopsony ( Note: A monopsony occurs when a market has merely one purchaser. A monopoly occurs when a market has merely one marketer. ) .

The market for nurses employed by infirmaries is a really typical illustration of a monopsony. Empirical literature nevertheless provides assorted decisions. One base focuses on empirical estimations of nurses labour supply snaps confronting infirmaries. This research by and large finds grounds of upward inclining labour supply curves and concludes that this consequence supports the being of monopsony ( Sullivan 1989, Staiger, Spetz, and Phibbs 1999 ) . Another strand ( eg Adamache and Sloan 1982 ; Hirsch and Schumacher 1995 ) investigates whether comparative pay and/or employment results vary with regard to hospital concentration, labour market size, and the similar.

Hospitals have the market power to put the wages paid to nurses in many communities. However, such infirmaries are describing deficits of nurses for assorted grounds. One ground is the retirement of old registered nurses who are retiring from the work force. Another ground is that 1000s of good qualified nursing appliers are being turned off because nursing plans are non good funded and can non afford the staff, research labs, and clinical installations required to carry through the demands of more nursing pupils. It has been estimated that about two-thirds of nursing schools turned these qualified appliers off because of deficiency of staff and installations to learn them.

Even though infirmaries can increase the wages being offered to make full the unfilled places, the deficit will non be resolved. This will go on to be unless appropriate support will be provided to develop the well qualified nursing appliers which are being turned away.

Assignment Question 5

See two markets, each of which is a duopoly where Sellerss compete on monetary value. In one market, merchandises are more differentiated. In that market, will monetary values be higher or lower?

Duopoly may be defined as a type of market construction in which there are merely two sellers/providers of a good or service.

Most houses, under duopoly, specialize their production and selling activities in order to busy definite sections of the market. A figure of houses offer merchandises or services to the market which are extremely dependable. This might besides include valuable guarantees. Some houses may make up one’s mind to travel for low dependability end product and supplying less valuable compensation footings or guarantees. Firms offering a extremely dependable merchandise or service will usually bear down higher monetary values than those offering low dependability end product. A typical illustration is the non-luxury autos international market. Italian houses specialize in less dependable and less expensive autos with less valuable guarantees when compared to Nipponese houses. The latter promotes extremely dependable and expensive autos with better guarantee trades.

It is often observed that houses, under duopoly specialize their production. Some manufacturers produce end product with high dependability and include good guarantee agreements while other houses manufacture end product with less dependability and less attractive guarantee trades but at a lower monetary value. This usually applies to markets for a few services, few intermediate goods and lasting goods.

Assignment Question 6

Compare the undermentioned ways of paying a attorney in footings of the inducement for attempt:

  1. Hourly rate in which the attorney receives a fixed dollar sum for each hr of work on the instance.
  2. Contingency fee, in which the attorney receives a proportion of the sum that the client recovers. If the client loses the legal action, the attorney gets nil.

Consumers of legal services can pay their attorney in assorted ways. However, it is of import that before subscribing any understandings, consumers should educate themselves about legal fees to maintain the sum down and at the same clip have a quality service. Consumers of legal services can pay their attorney in assorted ways. However, it is of import that before subscribing any understandings, consumers should educate themselves about legal fees to maintain the sum down and at the same clip have a quality service.

If a client enters into an understanding with his attorney whereby an hourly fee will be charged for each hr spent on the instance, this might take to soaking up of inefficiencies and rawness by the client. Lawyers usually charge a standard hourly rate and such rate reflects the experience and repute. The figure of hours of work on the instance depends on the sum in contention, the nature and complexness of the affair and besides client ends.

A eventuality fee footing understanding demonstrates that the attorney has adequate religion in the instance which gives more comfort to the client. Such understandings may be dependent upon a figure of factors which includes the nature and complexness of the affair, the degree of hazard involved, the costs and the chance of being successful.

Most attorneies and clients are more accustomed to hourly charging instead than the eventuality fee manner of bear downing. Under a eventuality fee understanding, clients will non hold to pay big monthly sums to the attorney while the instance is still doing its manner through the jurisprudence tribunals.

Hourly charging transportations all hazards except the hazard of non acquiring paid on clients whereas under eventuality fee charging the attorney is usually bearing the hazard. The attorney will have a lower fee irrespectively of the sum of clip spent on the instance if the instance is unsuccessful or if the client accepts a decreased colony offer.

Assignment Question 7


  1. Why do concerns come in into contracts that are intentionally uncomplete?
  2. A belongings direction concern is sing whether to put up its ain cleansing service to replace an outside contractor. What are the statements for and against this proposal?
  1. Contracts are sometimes left incomplete on intent, because one or both parties withhold information required to finalize the contract. This will let timeserving behaviour. In an uncomplete contract, both parties will non usually be covered for every contingent event which might go on.
  2. Incomplete contracts usually arise due to troubles in stipulating or mensurating public presentation, bounded reason and asymmetric information. Wording of contracts is oftenly left vague in fortunes where it is non easy to mensurate public presentation. Such contracts will non include an exact definition of any obscure words used. Bounded reason is a concept whereby decision-makers have to work under limited and undependable information. The human head has a limited capacity to measure and treat information and the decision-maker has a limited sum of clip to do a determination. If any party to the contract knows information which the other party does n’t cognize, this will take to the creative activity of an uncomplete contract.

  3. Arguments for this proposal

By puting up its ain cleansing service, the belongings direction concern will derive more managerial control. It is easier for a company to director its ain employees instead than pull offing service supplier employees.

Continuity of service will non be guaranteed if the service supplier goes out of concern and through puting up an internal section this hazard will be eliminated.

Keeping the service in-house is besides cheaper when compared to outsourcing.

Arguments against this proposal

More capital will be required as a consequence of holding its ain cleansing services section. The company will hold to purchase cleaning equipment which antecedently was straight provided by the service supplier.

The company will now hold to incur administrative costs such as hiring costs and costs associating to the direction of internal cleansing employees.

In add-on to this, the company will lose focal point on nucleus competences. Outsourcing cleansing services will let the concern to concentrate on its nucleus strengths and competences, taking to the accomplishment of a competitory advantage.

Assignment Question 8

“ Successful houses are those that have developed resources and capablenesss that are non available, movable or imitable by other houses. ” Does this imply that successful houses are monopolist? Explain your reply.

This statement does non connote that successful houses are monopolizers. A house which has value-creating merchandises, procedures and services which can non be transferred or imitated by its rival houses is said to possess a sustainable competitory advantage.

Having a sustainable competitory advantage does non needfully intend that the house or its clients are cognizant of it. This means that the company will necessitate to place itself in the market to clearly province its competitory advantage.

“ Isolating mechanisms ” refer to the ways through which a house can make a barrier to imitation of resources and capablenesss ( Hooley and Greenley 2005, p 96 ) . Such mechanisms can be divided into two groups: competitory isolating mechanism and customer-based isolating mechanisms. Competitive mechanisms relate to cut downing the rivals ‘ abilities to copy. On the other manus, customer-based isolating mechanisms are psychological and economic barriers related to clients ‘ trade name choice determinations. Firms must plan and develop effectual mechanisms to accomplish a better competitory place in the long tally.

Sustainable competitory advantage occurs when despite the attempts by rivals to neutralize or double the competitory advantage, such advantage still persists. In order for this to go on, there must be ongoing dissymmetries between houses.

The resource-based theory of the house states that the competitory advantage of a house is dependent on the valuable resources which it has at its disposal. Such resources and capablenesss should be scarce and amiss nomadic to take to a sustainable competitory advantage.

Assignment Question 9

Neoclassic economic sciences, efficaciously mainstream economic sciences, underpins most of the economic literature in the last century. It does, nevertheless, have its critics. Use your apprehension of this argument to explicate and notice on the undermentioned statement. “ Large houses likely come near to acting harmonizing to the neoclassical ideal of net income maximization, but is this a desirable result? Does it non come at the disbursal of broad societal issues. The response to this is that neoclassical economic sciences is descriptive and non normative. It addresses such jobs with constructs of private versus societal public-service corporation. ”

Neoclassic economic sciences is ‘an attack to economics that relates supply and demand to an person ‘s reason and his or her ability to maximise public-service corporation or net income ‘ ( Investopedia, 2010 ) .

Microeconomicss is dominated by neoclassical economic sciences. The latter together with Keynesian economic sciences forms the neoclassical synthesis, which nowadays dominates mainstream economic sciences. Mainstream economic sciences combines the neoclassical attack to microeconomics with Keynesian attack to macroeconomics.

Neoclassic economic sciences can besides be criticized for the fact that it relies to a great extent on complex mathematical theoretical accounts. Typical illustrations are those used in general equilibrium theory which raises uncertainties on whether the economic system is truly described.

Different positions exist on whether neoclassical economic sciences falls under the normative or the descriptive subdivision of economic sciences. Many argue that it is normative as it tries to alter the universe by urging policies to increase economic public assistance as opposed to descriptive economic sciences whereby economic sciences tries to explicate how the economic system operates in world. Some critics argue that in order to concentrate on persons, neoclassical economic experts are losing to analyze whether the economic system is stable and desirable.

Important facets of human behaviour are ignored as a consequence of the premise that persons act rationally. This rise doubts on these positions as to how existent these positions are. Neoclassic economic sciences criticize houses for non being human and for the fact that in order to accomplish profit-maximization, this has a societal impact.

Neoclassic economic experts introduced the premise of ‘rational outlooks ‘ in modern neoclassical theoretical accounts. This theory is used to project outlooks of future events. Rational outlooks theory assumes that outlooks do non differ consistently from existent results and therefore assumes that worlds do non do mistakes. It is in fact extremely criticized on the footing of pragmatism.

Compatibility of the neoclassical ‘general equilibrium theory ‘ with economic systems which develop over clip and bring forth capital goods is debatable. The Cambridge Capital Controversy debated this issue during the sixtiess. Emphasis was made on the theory of growing, aggregate theory, capital and the fringy productiveness theory of distribution.

Some critics have the sentiment that such developments discovered fatal failings in neoclassical economic sciences. The continued usage of mathematical theoretical accounts such as game theory, econometrics and additive scheduling does non reflect any difference from the other subdivisions of economic sciences.

Most unfavorable judgment high spots that neoclassical economic sciences makes many unrealistic premises which do non stand for existent state of affairss. However, it is of import to maintain in head that this subdivision of economic sciences is highly influential and still dominates microeconomics.

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