Laws of Demand Assignment Sample

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• Subject Name : Global Business Environment and Economics

Global Business Environment and Economics - Internal Assignment - 1

Q.1.A. Define durable goods with examples

Durable goods can be defined as goods that are tangible and can last of three or more years. Products that falls under the tangible (physical) category come under durable goods and generally these goods are more expensive as they last for long period of time (Eraker, Shaliastovich and Wang 2016). Durable goods are those goods which does not wear easily. Example of consumer durable goods include jewelry, furniture, garden equipment, turbines, appliances, cars and many more. These types of goods are used continuously and are purchased for long period of time. Example of durable goods in business are vehicles, aircrafts, technology, furniture, property, machinery and many more. These types of goods are owned by a business or company and they are a part of company assets. Though they are continually depreciating but they should bring value to the company. Durable goods are those which can be easily rented like cars and furniture. If an individual buys a durable good it falls under the category of investment demand of goods. They are also known as hard goods as they are not being consumed in one use in spite of that they yield over time. Durable goods are more expensive than that of non-durable goods as their lifespan is large as compared to non-durable goods (Eraker, Shaliastovich and Wang 2016).

Q.1.B. What is increase and decrease in supply?

There are various factors that results in change in supply curve. This change in the supply may occur either to decrease in the supply or increase in the supply. In the supply curve, point E is determined as the original equilibrium, when the SS (original supply curve) and DD (demand curve) intersects each other. It the supply curve, OP is the equilibrium price and OQ is the equilibrium quantity (Christopher 2016).

Increase in Supply: Increase in supply means that the curve is shifted towards the right from SS to S1S1. When there is an increase in supply towards S1S1, excess supply is created at old equilibrium price of OP. As a result of which there is a reduction in price and increase competition among seller due to which supply falls and demand rises. This process or change continuous until the new equilibrium is established at point E1 (Christopher 2016).

Decrease in supply: Decrease in supply means the supply cure is shifted towards left from SS to S2S2. As a result of decrease in supply excess demand is created at the old equilibrium price of OP due to which there is a raise in price leading to competition among the buyers. Further, the increase in the price results in fall in demand and rise in supply. This process or change continuous until the new equilibrium is established at point E2 (Christopher 2016).

Q.2.A. Laws of Demand

It states that price and quantity are inversely related to each other for any goods or services considering other factors to be constant. When there is an increase in price, the demand will fall for the same product.

Q.2.B. Exceptions to Laws of Demand

There are two exception Veblen goods and Giffen goods. In Giffen goods and Veblen goods, demand increase with increase in price.

Q.2.C. Disadvantages of Deflation

• It discourages the consumer spending.
• It increase the real value of debt
• It increases the real interest rate.

Q.2.D. Features of Business Cycles

• It occurs periodically
• It is synchronic
• Cyclical fluctuation affects the consumption and investment of durable consumer goods.
• Profit fluctuates more than any other type of income.

Q.2.E. Types of Inflation

• Creeping
• Walking
• Galloping
• Hyperinflation
• Stagflation
• Core inflation
• Asset inflation
• Wage Inflation

Global Business Environment and Economics - Internal Assignment - 2

Q.1.A. Elaborate role of managerial economics.

A managerial economist has highly developed skills and analytical skills through which they helps the management in solving complex issues of future advanced planning and successful decision making. They directly apply economic theories to businesses which helps the business to determine strategies and make decision regarding production, investment, risk, operation and pricing. There overall role is to increase the profit of the business by increasing the decision making efficiency (Hirschey and Bentzen 2016). The role of managerial economist in management includes following things:

• At micro-level, studying the economic pattern and analyzing its significance
• Examining the profitability of changing environment in best possible way to one’s organization.
• They assist the business to determine strategies related to pricing of products and services for which they uses methods that includes cost-plus pricing, value-based pricing and price discrimination.
• Managerial economist also conducts researches on industrial market.
• They also economic information to management which includes competitor’s product and price, tax rates, etc. Besides this, they also provide advice to authorities of government (Hirschey and Bentzen 2016).
• Marginal economist also uses tools and analysis models for making investment decisions for both savvy individual investors and corporations. In addition, for making capital investment decisions and stock market investment decisions for business, these tools are also used.
• They analyses various changes in macroeconomics indicator like business cycle, population, national income and their effects on the functioning of the firm or business.

Q.1.B. Give the meaning of fixed cost and variable cost

Variable cost are associated with the number of goods or service the company produces. The variable cost of the company changes with its production volume. In other words, production volume will increase with the increase in variable cost. Moreover, the variable cost will go down if the production volume decreases. Variable cost is different for different industry therefore, comparing the variable cost of an appliance manufacture and a car manufacture is of no use as their product output is completely different. Example of variable cost includes cost of raw material, commissions, utility costs and labor costs (Chen and Koebel 2017).

Fixed Cost: Fixed costs are those which are acquired by corporations and businesses. The company’s fixed cost does not varies according to the production volume unlike the variable cost. The fixed cost remains the same even if there is no production of goods and services. Hence, the fixed cost is unavoidable. In addition, the more the company has a fixed cost, the more revenue the company needs so as to break even. It means that the company needs to work hard in order to sell and produce its product. Moreover, the impact of fixed cost can change on the bottom line of the company based on the number of product the company produces. Therefore the fixed cost drops when the production increases. Example of fixed cost includes interest payments, insurance, rent and lease payments (Chen and Koebel 2017).

Q.2.A. Disadvantages of inflation

• Creates lower investment and uncertainty.
• Less stability and lower growth due to high inflation
• Leads to recession when inflation is reduced.

Q.2.B. Market structure

It is characteristics of market that describes the nature of pricing policy and competition followed in the market either by organization or competitor.

Q.2.C. Forms of market structure

• Perfect Competition
• Monopoly
• Oligopoly
• Monopolistic competition
• Contestable markets
• Collusive oligopoly

Q.2.D. Meaning of Revenue

It can be defined as the total amount of income related to the primary operation of the company by selling goods and services.

Q.2.E Law of Variable Proportions

The law is as follows “keeping the other factor fixed if a producer increase the unit of variable factor, then at an increasing rate the total product increases initially, that at diminishing rate, and finally it starts declining.”

References for Global Business Environment and Economics

Chen, X. and Koebel, B.M. 2017. Fixed cost, variable cost, markups and returns to scale. Annals of Economics and Statistics, (127), pp.61-94.

Christopher, M. 2016. Logistics & supply chain management. Pearson UK.

Eraker, B., Shaliastovich, I. and Wang, W. 2016. Durable goods, inflation risk, and equilibrium asset prices. The Review of Financial Studies, 29(1), pp.193-231.

Hirschey, M. and Bentzen, E. 2016. Managerial economics. Cengage Learning.

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