The Economic Theory Allows Managers To Approach Problems: Managerial Economics Assignment, UCD, Ireland

Short rationale

The economic theory allows managers to approach problems with an analytical lens. The theory will not answer business questions definitively; however, it allows decision-makers to argue their standpoint from a sound theoretical basis.

Often the outcome of world events has fairly obvious outcomes, for example, a natural disaster that destroys a large part of the world coffee crop will most likely lead to higher coffee prices. Economics models allow economists to come to this conclusion without using common sense but by applying the models appropriate to this issue. Managers need to back up their ‘opinions’ with a sound theory which is why this assignment allows you to apply the basic model of economics to typical scenarios.

While no one can predict the future, economic theory can often provide a logical explanation as to how various world events/government policies may impact the pricing and output decisions of firms, and ultimately the profit firms make.

Question 1

Use the theory of demand/supply and elasticity to address each of the following scenarios:

The government often interferes in the free market to achieve an objective. Discuss, using diagrams, the impact each of the following interferences might have on equilibrium price and quantity. Each action could have an impact on the equilibrium in various markets, so please ensure you specify which market you are discussing as you complete the assignment. For example, the subsidy on solar panels will impact the market for solar panels but also may impact the market for gas.

1.  A subsidy to households to help pay for the installation of solar panels on their premises.

2.  A price ceiling on rental accommodation in Dublin to help young people who wish to move out of their parent’s homes.

3.  A grant to first-time house buyers who wish to purchase their own home. This grant is only available on houses under 80 sq/mt.

Question 2

The following quote is taken from the EU commission’s website.

The competition puts businesses under constant pressure to offer the best possible range of goods at the best possible prices because if they don’t, consumers have the choice to buy elsewhere. In a free market, the business should be a competitive game with consumers as the beneficiaries.

Sometimes companies try to limit competition. To preserve well-functioning product markets, authorities like the Commission must prevent or correct anti-competitive behavior.

 Critically evaluate, citing examples, the various anti-competitive behavior of companies. Explore the means by which the regulation of anti-competitive practices are pursued in the EU and the objectives of the EU commission when they impose fines on such companies.