Advanced Business Economics Economic Policy Assessment

Excerpt from Assessment :

Business Economics/Economic policy

Competitive Balance

Competitive balance is an important aspect to maintain in a league sports structure as it is a direct factor of the degree of uncertainty that could exist within a sporting event. The general belief is that higher uncertainty creates higher buzz and excitement about the end outcome. The customers prefer to have competitive balance as well as it increases fan interest in teams whereas a lack of competitive balance will overshadow all weak teams which will lead to decreased demand and interest in the sporting event. One of the popular ways to counter competitive balance in sports leagues is through the use of collusion techniques. Collusion is basically a secret, and mostly illegal, agreement between two parties to limit the overall competition within a league through penetrating false information and depriving others of their legal rights. Two examples of collusion techniques could include the restriction imposed on the players' salaries and sharing the criteria of contracts to expose the salary cap of a club. Two ways that competitive balance can be measured includes: the dispersion of the overall triumph percentages within the league (i.e. The number of games won by each club out of total games played) and Hirfindahl-Hirschman Indexes (HHIs) of the championships where the distribution of a championship amongst teams is calculated (Humphreys, 2002).

Question 9: Positive externalities and Healthcare/Sports

Positive externalities mainly exist when the social benefits are the top priority. In healthcare, two of the most common positive externalities include the increase of national wealth with the increase of investment in private health structures and the awareness of the need of vaccinations (Smith, 2005). In physical exercises and sports, two of the most common positive externalities include the positive bond and support structure within the communities as well as foreign investment and interest gained through popularity and strength of a sporting event. The diagram (Appendix I) shows how the balance of price of vaccines and their availability can easily lead to higher social benefits and increase economic efficiency. It is important to note here that the diagrams also shows the potential loss that can occur when there is surplus demand (from consumers and producers) and an imbalance of the social benefits. This diagram further indicates that the internalization of an external benefit will most likely be the preferred action for many healthcare providers. This simply means that the private benefits would be equal to the social benefits and the free, timely and rightful provision of vaccines would be recognized as vital. Hence all policies created would be based around that particular activity as well.

Question 10: Environmental Pollution, abatement cost and external cost

Abatement Costs are usually defined as the costs that are calculated based on the hazardous emissions in the environment. They help in calculating the forecasts of emissions, investment openings as well as policy structures for hazard-free emissions. External costs are the expenses that are incurred due to the negative impact made from the hazardous production or consumption activities primarily within the energy industry. In simpler terms, external cost is when the activities of one entity effects impact another entity without the total costs of the impact paid from the first entity. In the diagram below we show the relationship between marginal abatement costs and pollution. The diagram (Appendix II) shows that the steel production imposes additional external costs that are not included in the marginal private costs. The external costs can be calculated by subtracting P0 from P3. Furthermore, the overall net social benefits would increase if steel production was at Q3 units. The overall impact of imposing tax on emissions is believed to be a positive as the general perception is that if companies have to pay high external and abatement costs, they will look to produce and encourage consumption in ways that were least wasteful or hazardous to the economy (ICF, 2005).

Question 11: Labor Migration

The overall impact of inward and outward migration affects three aspects of both the receiving and sending countries. These three aspects are: wages, employment rates and population growth (See appendixes III, IV, V). The diagrams show that the relationship between labor migration and wages is a negative one i.e. The higher the inward labor migration, the lower the wages. The opposite stands true for outward migration. The employment rates, in the long run, seen to have a negative impact in the long run as with inwards migration. However this depends on a number of factors with economic growth being one of the major factors. If the industrial growth is high, it will generate economic efficiency lead to higher demand of workforce. However, if the industrial growth leads to depressed economic growth, major downsizing will surface and unemployment rates will rise. The population ratios are proportional i.e. higher inward migration increases population and vice versa. The advantage of labor migration for the host or receiving country is that the overall income of local is not majorly affected and there is birth of new industries in the economy leading to increased competitiveness, investments and relief in times of social insecurity. It can also cause some innovative policy changes to occur for adjustment of inward migrants. For the sending countries, the advantages are in the increased foreign trade in the shape of increased remittances. Other advantages include: higher wages for locals, decrease in the informal section of the employment and returning migrants add a new level of skill to the existing economy (Lucas, 2008).

Question 12:

Adverse selection is most likely to rise in this situation as it will lead to ambiguous investments that will not bring in the profits in accordance to the costs incurred. This will impact the market negatively as eventually the prices will rise and increased investment in 'bad' automobiles. Furthermore, there will be more activities from the customers and sellers that have a low-balance quality i.e. lemons. Valuation gaps alone could not cause much difference unless the interest rates, earning and treasury yields did not change profitably as well. Perhaps the most fruitful ways to counter this adverse reaction would be to separate the peaches from the lemons and make sure that the market prices of all second hand cars is based on the level of performance, output and efficiency that they have, Furthermore, visibility of all information for sellers and buyers will need to available and easily accessible so that the market does not crash due to unnecessary price inconsistencies.

Question 13:

The initial wages offered will never be equal since there are no clear indicators of who is the laborer that provides H. performances and provides L. performance. It will only be with the passage of time that the differentiations between H. And L. workers will be recognized, based on the returns they force, the efficiency levels, the production levels etc. Once these differentiations are recognized, the wages will be compensated in the form of rewards, commissions and bonuses. Adverse selection could very well be created through this as there will be a case of 'bad' or unfair economics created which will leads to increased job dissatisfaction and furthermore, there will be a probability that a larger amount of L. workers are hired and given the higher wages then the returns they make. The wages the employers will thus most likely offer in an adverse selection structure will be the wage closer to the per unit output of L. workers and compensate for the decreased wages for H. workers (later recognized). One of the most effective ways that adverse selections can be resolved in the labor market is by offering different salary packages based on prior experience and education that workers have at the time of hiring. Compensations through rewards, commissions and bonuses are also a very effective solution to counter adverse selections in labor markets.

Question 14: Moral Hazards in Employment Relationships

Moral hazards will be created in uneven employment relationships as there will be little to no sense of accountability of the consequences that will arise with the absence of these actions which will lead to careless activities from one party (in this case the employees). The important thing that makes this a moral hazard is that the consequences of the careless activities of one party will be faced by both parties. Of course, there are many reasons why the employees will choose to disregard these necessary actions, some of these reasons are recognized as the brittle nature of the business world and could include: job insecurity, inflation, decreased compensations, economic strains and downfalls, IT downgrades or decreased IT investments, amongst others. When the business world for the employee is facing such hurdles, the employees will most likely look to make revenues and conserve energy in whichever way possible and usually the first domain of conserving energy is in the performance of these intangible assets. The salary contracts will play a huge role in these circumstances. To avoid a moral hazard in the employment relationships in these circumstances, the contracts will have…

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