International Trade and Government - Assignment Example

Macro and Micro Economics Question The government should be involved in the economy due to various reasons. In the free market systems, the governments are responsible in ensuring the markets are best suited in the allocation of scarce resources where the forces of demand and supply determine the prices of services and products. The governments protect the rights of property ownership, maintain the regulation of law and sustain the currency’s value. Competitive markets have the significance of improving production, allocation and dynamic efficiency of services and goods, but the government intervenes in the case of unhealthy competitions. Various governments form and implement some policies reliable in correcting market failures, achieving equitable wealth and income distribution and improving the economy performance (Fishback 384). The government also terminates or tax heavily unnecessary businesses such as those involved in selling harmful drugs which also affects the economy. The government gets tax revenues from all businesses within the country that helps in improving the economic growth and development of a country. Question 2 Producing ready-made clothes is my business idea. The location of the business will be within the city where I will employ some of my family members to earn their living and enhance the growth of the business. Since the area has more other tailoring shops, I will develop the career by making new clothes with unique designs and fashions to attract customers. The stock will target much on woman clothing who are much on new fashions and designs than men. The raw materials are readily available within the city only ordering is needed. The source of materials has a direct link with the production industries where specific design and material with different colors ordered can be delivered. Two tailor-machines are available where five more machines are needed for the business. Land, entrepreneurship, labor and capital are the main factors of production that are essential to start and sustain the tailoring shop (Rittenberg 200). The land is determined by the strategic location that is chosen to start the business where the cost of the land should be paid in form of rent and lease. The amount of money required in paying a lease of 10 years is available and is paid to make it ready to commence on business. The capital for buying the raw materials is enough for the available three tailoring machines including paying the workers for the first six months. The tailoring shop will be making good, and quality clothes are upholding to entrepreneurship rules and regulations and get the license from the government. Only three qualified tailors will be required to start the business and are available. External sources of capital can add an advantage in starting the business to buy five remaining tailor-machines that will increase the stock up to the designated level in the business plan (Vinturella and Suzanne 13). Bank loan will assist in uplifting the business and also be capable of paying additional tailors. After the business flourishes, the loan will be repaid including the additional interests. Question 3 It is necessary for the government to provide for the disadvantaged and the poor to meet their living standards favorable for the life. The government should form social welfare programs responsible in the distribution of social facilities to the elderly, disadvantaged and poor people. The social facilities include providing free primary education, constructing better roads, rural electrification, providing health facilities, supplying water and giving some end-month cash to the elderly people. Creation of employment is another social welfare program for the poor and disadvantaged people. It can be attained by taxing heavily on luxury products and other items to get sufficient tax revenues for the provision of mentioned social welfares to the poor and disadvantaged (Greiner and Bettina 120). There some national economies that suffer a large gap between the rich and the poor. Such a country can have a good economy although there are many people lagging behind in terms of technological, economic or social accessibility where the government should intervene and cater for them. Question 4 There are some benefits of having a balanced budget where a government spends equal to the amount proposed in the yearly budget. A government can lower the level of taxes in future which would spur the economic growth of a country. Government amendment over a balanced budget encourages the government to save continuously some revenue that can be useful in future in case of economic crisis. Balanced budget amendment helps in elimination and reduction of federal debt where the centralized government is required to function without deficit (Besanko, Ronald and Michael 49). A balanced budget would make smaller centralized government and reduced spending on pork-barrel including reduction of the government waste. Pork-barrel is a situation whereby the legislators push good projects for their constituencies to acquire better social amenities. Elimination of deficit by use of balanced budget amendment reduces the increased amount of interests required to enable the government pay when it sprints a deficit. Balanced budget hinders from unnecessary spending of the public funds. National debts are the interests that the federal governments incur from borrowing after a long period. National debts affect the economies of the countries where the government opts to introduce higher taxes and reduce its spending to get revenue for paying national debt. Government investments become low, and the introduction of higher taxes prevents new investments where the government runs a deficit reducing the economic growth and development. Stifling of businesses is the second negative where the increased government’s borrowings affect the total economic demand that makes the costs of borrowing in businesses. Higher borrowing costs hinder future financial investment in stock and equipment in the private sectors thus creating unemployment (Besanko, Ronald and Michael 50). The third negative effect is high-interest rates. The government depends on investors who continuously buy UK gilts essential in funding its spending habits. If the borrowing of gilts exceeds and the bond market decides to lower the price, then government spending habits also declines. The country will suffer from higher interests on borrowing leading to the unhealthy economy. The final effect of national debt is currency collapse. If the gilt’s market of the country weakens, then it can print money to access its bonds which in turn lowers the value of the currency hence inflation. Question 5 Elasticity is the measure of how the quantity demanded changes in respect to the change of supply, income or price. When the price of a commodity changes a little, and the quantity demanded changes a lot, then the commodity is referred to be elastic. For example, if the price of milk rises the quantity demanded will be low because the customers will switch to other alternatives brands of milk. Inelastic commodity is a commodity in which if its price increases, then there will be slight decrease in demand and if the price of the commodity decreases, there will be a slight increase in demand for the commodity (Simpson 85). For example, water is inelastic commodity where an increase or decrease of its prices there is slight decrease or increase in its demand respectively. Most of the inelastic commodities are necessary or luxury goods. Even if the price of water goes high with a large margin, consumers will still because of its necessity. Question 6 1. Sally would supply 3 quilts if she sells each at a price of $500. 2. There other factors that could affect Sally’s supply of quilts including prices of other goods with alternative uses, the price fluctuations of inputs, state of technology, tax policy and Sally’s objectives towards the business. 3. Situation 1: The output of the quilts will be very high which may cause increased supply. Situation 2: The supply of the quilts may reduce do increased price. Situation 3: The supply of quilts will reduce do competition with other quilt suppliers. Personal market schedule Price per men’s trousers Quantity supplied per month $ 300 10 $ 400 8 $500 5 $700 4 $1000 1 The supply of the commodity is affected depends on the price of trousers, the price of other trousers in the market and prices of the materials. If the price of trouser increases its supply reduces while if the price of the trouser decreases the supply slightly increases (Simpson 88). At higher prices of the trouser there is less supply because of supply of other trousers in the market. The higher the higher the quality of the trouser the higher the price of the commodity, hence decreased supply. Question 7 The country is no not heading for a recession, but its economy is in the period of expansion. The country suffered from recession in the period 2007- 2010 where government has put measures to prevent future recession or depression in the country. The government is increasing industrial and trade activities for an increased Gross Domestic Product (GDP). The country is on prosperity phase within the four business cycles. The country is expanding on income, prices, output, profits and income within the economy (Singleton 85). There are also increased living standards. The country is aiming at expanding the bank credits for more investments to take place. Effective demand of various commodities such as exports has increased, hence more revenue to the country. In general, the businesses, companies and industries aim at optimizing their businesses’ activities for profit maximization and increased competitive advantage. Due to increased level of economic activities and maximizing level of production, it increases profits, prices and GNP. Question 8 On 4th June 2015, an article “Rick Perry Hones His Image as ‘Texas Miracle’ Fades” in The New York Times describes the booming of the Texas economy. 4.2 percent was the Texas’ unemployment rate in the March where it was below the national unemployment rate which is 5.4 percent. The country lost twenty-five thousand jobs in the month of March while in April, the oil industries in Texas lost eight thousands jobs because hiking oil prices pressed the producers and drillers to terminate their projects (Uhlhaas 76). Mr. Perry said he was absent for an interview, but the senior advisor, Avik Roy, suggested that the oil defunct did not undermine the economic record of Mr. Perry. Avik Roy is a senior consultant to RickPAC. Roy said that the economy of the country will continue flourishing despite a greater challenge in energy sector. However, even if the Texas has greater slide in oil production, the country is still a bright spot on economic progression. Mr. Perry is offering a light regulation and low-tax model that other candidates like Hillary Clinton offer in the democratic countries. Democrats warns about Texas Miracle, pointing to falling public schools, low-income earners and groups of citizens living below poverty live with insufficient health services. Democrats give another example of a Sate aiming to counter the economic situation in Texas. The California economy is still thriving despite its strict regulations, raising the minimum wage in the cities, high taxes and wider access to health care services. Golden State’s unemployment has also fallen from 12% to 6.3% within a period of four years ago. In the last year, the country has additional of 500000 new jobs. In both countries, they have young populations portraying leading on more spending in education. Wealth drainage, slack in flow of cash, wage inflation, decreased consumer expenditure, under-utilization of recourses, increased debts and decreased investments are the major effects of unemployment in a country (Uhlhaas 78). Question 9 International trade is the exchange of services and goods across the international borders. The trade allows competition in the market system due to various pricing of the products. International trade is essential because due to high competition, the supply of the products becomes high, hence being affordable to consumers. International trade helps in optimum allocation of resources due to geographical division of labor and international specialization. Each country enjoys enhanced wealth due to increased exchange of valuable possessions (Monczka et al. 252). The country also various cultural values, larger output and welfare contour. Some products should not be imported from other countries if they are produced in large-scale in the domestic country. The reason is because, the bring competition among the produced products because of cheaper prices which lead to delayed growth and development of industries within the country. There are some other products which can be imported and have lower demand in the country which can go to waste leading to a greater loss in the economy. Works Cited Besanko, David, Ronald R. Braeutigam, and Michael Gibbs. Microeconomics. Hoboken, NJ: John Wiley, 2011. Print. Fishback, Price V. M. Government and the American Economy: A New History. Chicago: University of Chicago Press, 2007. Internet resource. Greiner, Alfred, and Bettina Fincke. Public Debt, Sustainability and Economic Growth: Theory and Empirics. , 2014. Internet resource. Monczka, Robert M, Robert B. Handfield, Larry C. Guinipero, James L. Patterson, and Donald Waters. Purchasing & Supply Chain Management. Hampshire: Cengage Learning EMEA, 2010. Print. Rittenberg, Libby. Principles of Microeconomics. Nyak, New York: Flatworld Knowledge, 2008. Print. Simpson, Brian P. Money, Banking, and the Business Cycle: Volume Ii. , 2014. Internet resource. Singleton, Jeff. The American Dole: Unemployment Relief and the Welfare State in the Great Depression. Westport, Conn. [u.a.: Greenwood Press, 2000. Print. Uhlhaas, Anne. What Are the Main Advantages and Disadvantages of Global Free Trade? Does It Exist in Practice?Munich: GRIN Verlag GmbH, 2003. Internet resource. Vinturella, John B, and Suzanne M. Erickson. Raising Entrepreneurial Capital. Burlington: Elsevier Science, 2013. Print. Read More