Consider each scenario below. Would the economic agent expect a loss or gain from European monetary...

Consider each scenario below. Would the economic agent expect a loss or gain from European monetary union? Why?

a. A large automobile manufacturer in Germany.

b. The owners of a small family-run restaurant in a village of France.

c. A large commercial bank in Sweden.

Solutions

Expert Solution

a) A large automobile manufacturer should expect gain from European monetary Union

.Access to the markets of Eurozone countries with faster transactions is provided now.Transaction costs will fall as banks will charge less. Total manufacturing costs will also decline and profits will rise.

b) The owners of a small family run restaurant in a village should expect losses.

First of all the owners will have to adapt their business to the scenario created by the monetary Union. The adaption process itself will be costly. If global giants from other member countries of the monetary Union venture into rural area, family run business won't be able to stand the competition and will be driven out of the market.

c) A large bank in Sweden should expect gains.

Market structure of transactions is dominated by large banks. Increase in the volume of trade will result in increase in financial transactions. Even if fee paid to the banks reduced, large bank will still be able to increase their revenue . There will also be a fall in the variable costs. As a result, profits of the bank will rise.

Rahul Sunny answered 1 month ago

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