Microeconomics entails the study of the ways

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Microeconomics is the study of how individuals and firms make decisions on how to better use scarce capital. Microeconomic theory, on the other hand, explores the individual and his profit-maximizing behaviour, especially in the purchasing and selling of goods. The aim of this paper is to demonstrate applicable microeconomic and microeconomic theory principles in real-world scenarios. In order to achieve the target, I reviewed numerous recent news stories and articles about business conditions, and I applied my economic knowledge to study microeconomic concepts. The first aspect described, and which is evident in day-to-day activities is about demand and supply, and further explaining the scenarios that lead to a shift in demand or supply. In my explanation, I have been keen to note where there has been a change either in demand or supply, and I have assessed the non-price factors likely to have caused the shift. Besides, I have explained the concept of scarcity regarding the current economic times, giving appropriate examples. Lastly, the paper has acknowledged the essence of the concept of elasticity as it applies to decision making in businesses; hence there is a discussion of the elasticities of demand and supply.

According to the article “Trump Trade Friction overlooks America’s huge Surplus in Services” by Jiyeun Lee, Americans have a $248 billion surplus when it comes to exporting services such as software, education, and banking. For instance, when such corporations such as FedEx Corp., Microsoft Corp., and Goldman Sachs Group do business overseas, they are actually exporters in the modern economy (Lee). As further explained by Sparshott, the U.S Treasury posted a budget surplus at the beginning of the year 2017, thus helping in narrowing the deficit experienced by the spending in federal government. The money used by over 70 million foreign visitors spend in the U.S. every year should count as a means of exporting services, but most Americans still believe in Trump’s complaints regarding the U.S. trade deficit (Lee). Also, the tuition fees of more than 1 million international students schooling in U.S. colleges, as well as the returns realized from box-office for Hollywood record hits when they are screened abroad all, are exported services. Even though the surplus in the provision of services is crippled by the goods deficit, it has twice increased over the past 20 years in a sector where the U.S. could realize a positive or rightward shift in demand for such services. In that light, there would be increased gains as the U.S. has a highly educated and skilled workforce.

However, with the proposal by President Trump to return manufacturing jobs to the U.S. through ditching the "unfair trade deals," and also by encouraging American firms to produce more locally, there is an expected high substitution effect between such services offered in the U.S. with what is offered in other developed nations. Individuals benefiting from such services will more likely substitute their quest, for instance to school in the U.S. and seek the services of other nations with similar levels of education. The “American First” policy on goods exportation is likely to decrease the appetite of other nations for services produced in the United States; hence a left (Lee). According to researchers, the surplus of services in education and intellectual property sectors is due to the leftward shift in demand curve that arises due to the substitution effect. Besides, in the article “Buy America’ Push tests steel industry” by Ted Mann, and Brody Mullins explains the concept of substitution effect as the policy of using materials made in the U.S. in the process of manufacturing steel products is more complicated than it seems (Mann and Mullins).

The example of carmakers to offer significant discounts (incentives) in efforts to increase sales offers a perfect example of two options in the market, the first one being a rightward movement in the demand curve, or rather an increase in the demand for quantities. The second option is a rightward shift in demand, and there is the need to note that either of the options is dependent on the nature of incentives applied by the automobile industry to boost sales. In the Bloomberg news article “Carmakers Post Surprise Declines as discounts fail to buoy sales” by Jamie Butters and David Welch offers the explanation that even with the application of incentives, the overall sales show no promise to increase (Butters and Welch). In that light, the incentive was in the form of a reduction in price that only shows a rightward movement along the same demand curve (a rise in quantity demanded), but not necessarily an increase in demand.

On the other hand, if the incentives offered by carmakers targets low interest (or availing loans free from interests to the clients), then there would be an expected spike in the sales as a result of a non-price determinant, and this would be termed as a rightward shift in demand, provided all other conditions remain the same. For instance, the case elaborated by Butters and Welch presents a perfect example of a rightward movement along the same demand curve. Such automobile firms like Kia Motors Corp. and Ford Motor Co. reported some of the greatest drops in demand for their products since the heavy incentive spending did not increase the demand for both compact and sedan models. The article does not show any explanation regarding any shift in supply. The changes in labor costs that could be considered significant in shifting the supply were accounted for before the situation clarified in the article. There is the need to note that the drop in labor costs that were addressed before the release of the article would have led to a movement or shift of supply curve for the automobiles from left to the right. Therefore, the rightward shift in car supply, as well as the drop in demand is expected to have raised the number of surplus cars.

The VC Star article “Trump plans could hit growers, consumers here” by Tyler Hersko explains the various concepts of the policies put forward by President Trump that could lead to significant changes for the agricultural businesses in Ventura County (Hersko). The government has proposed to implement policies targeting exported and imported goods as well as taxation. An example of such a policy is pulling the U.S. out of the Trans-Pacific Partnership and is further committed to renegotiating the North American Free Trade Agreement, as well as floating significant policy ideas like the 20 percent tax on Mexican imports (Hersko). The 20 percent tax on the imports will lead to increased costs for consumers as well as cause trade war that will be associated with significant repercussions.

According to the Law of Demand, when the prices for commodities rise, there is a significant decrease in the quantity demanded. The 20 percent tax on goods imported from Mexico is expected to have significant impacts on the agricultural business activities in Ventura County, with a majority having both Mexico and domestic operations (Hersko). The article “Harley Davidson is Doing Pretty Well Overseas” by Sean McLain and Andrew Tangel provides further details regarding the issue of tariffs and law of demand. The article discusses the encounters of Harley Davidson in the global (specifically Asian markets) upon the U.S. withdrawal from the Trans-Pacific Trade Pact that would have significantly reduced tariffs. Despite the increased tariffs from 75% to 125% in the Indian market, Harley is determined to expand sales in Asian markets by up to 50% (McLain and Tangel). For such a goal to be realized in light of the increase in price; there has to be a shift in demand curve to the right. The greatest contributor to the rightward shift in demand curve (increase in demand) is due to the non-price determinant where Harley’s clients hold dear their tastes and preferences. The estimate the price elasticity of demand experienced by Harleys in the new markets can only be attained if there is adequate data pertaining to the percentage drop in sales experienced by the firm due to the sudden rise in prices. Nonetheless, the article by McLain and Tangel proves that the demand for Harleys in the new markets can only be considered as fairly inelastic since the increase in price pose minimum negative impacts on the quantity of products demanded by the customers. Therefore, it becomes evident that customers will still stick to their tastes and preferences even if the prices are hiked.

In conclusion, the paper has ascertained that the concepts of microeconomics are evident in daily business operations. Economists and businesses follow the microeconomic theory even in real life scenarios; hence a full understanding of the various terms and concepts is important.

Works Cited

Butters, Jamie and David Welch. Carmakers Post Surprise Declines as Discounts Fail to Buoy Sales." 2017. Bloomberg. Web. 8 April 2017.

Hersko, Tyler. Trump plans could hit growers, consumers here. 2017. Ventura County Star. Web. 8 April 2017.

Lee, Jiyeun. Trump Trade Friction Overlooks America's Huge Surplus in Services: Intellectual property is a big export earner for the U.S. 2017. Bloomberg Markets. Web. 8 April 2017.

Mann, Ted and Brody Mullins. ‘Buy America’ Push Tests Steel Industry. 2017. The Wall Street Journal. Web. 8 April 2017.

McLain, Sean and Andrew Tangel. Harley-Davidson Is Doing Pretty Well Overseas. 2017. The Wall Street Journal. Web. 8 April 2017.

Sparshott, Jeffrey. U.S. Treasury Posts $51.26 Billion Surplus in January. 2017. The Wall Street Journal. Web. 8 April 2017.

November 23, 2022

Economics Sociology



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Microeconomics Study People

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