1. Manager do not like future uncertainty.  Most managers use forecasting, prediction, and estimation to minimize uncertainty. Suppose you have a linear demand function for product X: Q = a + b•P_x+c•P_y+ d•M, where Q is sales of X, P_xand P_yare the price of products X and Y, and M (consumer’s income).

(a) What does the coefficient for each independent variable mean?

(b) How would you conduct inference from the regression coefficients?

(c) How should we determine the choice of forecasting technique?

Using indifference analysis and income constraints, explain why you don’t just eat lobster every day for breakfast, lunch, and dinner.

Introduction

Deciding to conduct formal market research is a significant decision for a firm. The following is an excerpt from a meeting, where the participants are discussing the for/against of whether to conduct more market research prior to the full launch of their new product.

As you read through the excerpt, identify the for/against reasons. Given these arguments, would you recommend that the firm go ahead and do the research?

Activity/Task

Jane:                OK team, we’re getting near the end of the project, time to discuss the merits of a market test. Personally, I’m keen on a market test as the successful launch and fast adoption of our product is a key success factor.

Bruce:             I’m going to disagree. I’m a ‘speed-to-market’ sort of guy. Look it’s a good product. It’s got success written all over it. Let’s just get it out there and the product will do the rest.

Mike:               Sure Bruce, it’s a good product. But unless it’s well promoted, widely available, and the consumers clearly understand its benefits – it just won’t sell well. A market test will give us valuable information so we can market it more effectively.

Harry:              But do we really need that information? We're professional managers and we've all been through major product launches before. I'm sure that between all of us we can work out the best way to strategy without extra information.

Simon:            Well I'm not so sure Harry. I’ve said it before, and I’ll keep saying it. This product is so critical – it’s just too important – we must test it and get it right.

Mary:              To add to this discussion, I’m going to put my finance hat on. We’re talking a big expense. This product already has a big investment to recover and adding another few hundred thousand dollar more is a big ask!

Lyn:                 Personally, I think that undertaking more research sends a bad signal to the executive team that we’re really not confident in the product’s likely success.

Darcy:             That could be true. But I’ve heard rumors that a few of our competitors are in development of a similar product. We need to go now or we’ll possibly lose our “first-to-market” advantage. I think that the executive team would be very disappointed if a competitor beat us to the marketplace.

Anna:              I'm sure that some of you feel like I do. We've been working on this project for over two years and it would be good to skip the research and just push the product out now.

But we’re professional. We’re paid to make the right decisions. So let’s weigh up the pros and con and make the right decision for the firm.

Suppose that a country’s inflation rate increases sharply. Explain what happens to inflation tax on the holders of money? .  Can you think of anyway in which holders of savings accounts are hurt by the increases in the inflation Rate?

How have we evolved over time to rely upon “non-paper” money to drive economies around the world?

Compare the total surplus TS in a market with no trade at P_dom to a market with imports eP_imp < P_dom and another market with exports eP_exp > P_dom. Explain which groups win and which lose in the import and export markets compared to the autarky market.

Impact of COVID-19 PANDAMIC, on Middle Eastern economies.

The Japanese government was pressured by the U.S. government to place limits on the number of vehicles exported to the United States by Japanese automobile producers in 1981. This is an example of

A. tariff rate quota

B, Specific tariffs

C. Voluntary export restraint

D. Ad valorem tariff

True or False

Decreasing long-run average costs for a firm as it expands plant size and output result from increasing returns to scale

What is your understanding of the role of government in mitigating market failure?

Do you think it is the best remedy for the nation and the economy to allow government to manage the economy in this way? Why or why not?

How far should our government (G) go in order to try to “make whole” the workers losing wage income starting March,2020?  Should our G try to transfer money to these workers? Yes? WHY? How much? A. One quarter of their lost income? B. One third? C. One half? D. ALL OF IT???????? E. Do you see any potential problems with D???? What might they be? 6. Okay. One could argue that D may be a little extreme…. You have to form your own opinion….. IS NOW THE TIME IN OUR COUNTRY’S HISTORY FOR US TO CHANGE OUR CURRENT SYSTEM OF INCOME DISTRIBUTION AND WEALTH DISTRIBUTION? IF SO, just in general terms, what should we do? Why?

1. A change in which of the following would cause the LM curve to shift? To rotate? To both shift and rotate? Which do not affect the position or slope of the LM curve?
   1. nominal money supply
   2. responsiveness of the demand for money to the interest rate
   3. responsiveness of the demand for money to income
   4. business and consumer confidence
   5. interest rate (r)
   6. price level (P)

2. Calculating costs

Becky is working for an advertising firm making $50,000 per year but considers starting her own advertising company. Becky has determined that to launch the business, she needs to invest $80,000 of her own funds. The annual cost of running the business will include $75,000 for the rent of the office space, $190,000 for employee wages, and $6,000 for materials and utilities. Becky plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 5%.

Becky's total implicit cost per year is _____ .

Becky's total cost per year is _____ .

3. Definition of economic costs

Nick lives in San Francisco and runs a business that sells guitars. In an average year, he receives $722,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $422,000; he also pays wages and utility bills totaling $268,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Nick does not operate this guitar business, he can work as a paralegal and receive an annual salary of $21,000 with no additional monetary costs. No other costs are incurred in running this guitar business.

Identify each of Nick's costs in the following table as either an implicit cost or an explicit cost of selling guitars.

Complete the following table by determining Nick's accounting and economic profit of his guitar business.

Alternatively, the economic profit he would earn as a paralegal would be

.

If Nick's goal is to maximize his economic profit, he _____   stay in the guitar business.

True or false: Nick is not earning a normal profit because his profit is positive.

False

True

Grexit or Not?

When the euro was introduced in 1999, Greece was conspicuously absent from the list of the EU member countries adopting the common currency. The country was not ready. In a few short years, however, European leaders, probably motivated by their political agenda, allowed Greece to join the euro club in 2001 although it was not entirely clear if the country satisfied the entry conditions. In any case, joining the euro club allowed the Greek government, households, and firms to gain easy access to plentiful funds at historically low interest rates, ushering in a period of robust credit growth. For a while, Greeks enjoyed what seemed to be the fruits of becoming a full-fledged member of Europe.

In December 2009, however, the new Greek government revealed that the gov- ernment budget deficit would be 12.7 percent for 2009, not 3.7 percent as previously announced by the outgoing government, far exceeding the EU’s convergence guideline of keeping the budget deficit below 3.0 percent of the GDP. As the true picture of the government finance became known, the prices of Greek government bonds began to fall sharply, prompting panic selling among international investors, threatening the sov- ereign defaults.

Several years into the crisis, the Greek government debt stands at around 180 percent of GDP and the jobless rate among youth is above 50 percent. The country’s GDP declined by about 25 percent. Severe austerity measures, such as sharply raised taxes and much reduced pension benefits, were imposed on Greece as conditions for the bail- outs arranged by the EU, IMF, and the European Central Bank. In addition, people were allowed to have only restricted access to their bank deposits, to prevent bank runs. Opin- ion polls indicate that the majority of people in Germany, the main creditor nation for Greece, prefer the Greek exit from the euro zone, popularly called Grexit, while some people in Greece are demanding Grexit themselves and restoration of the national cur- rency, the drachma.

Discussion points: (i) the root causes of the Greek predicaments, (ii) the costs and ben- efits of staying in the euro zone for Greece, (iii) the measures that need to be taken to keep Greece in the euro zone in the long run if that is desirable, (iv) If you were a disinter- ested outside advisor for the Greek government, would you advise Grexit or not? Why or why not?