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Managerial Economics

Provide answers to the four Final Exam questions using APA format. Submit your exam on schedule.

This final exam consists of four questions. Please answer them using APA format.

Two to three pages should be sufficient for each question.

1.In his book, Rewarding Work: How to Restore Participating and Self-Support to Free Enterprise (Harvard University Press, 197), economist Edmund Phelps offers this plan to help the working poor: apply tax credits for “qualified employers” or hire disadvantaged people for “eligible jobs.” Evaluate this plan in terms of market incentives, one of the ten principles of economics, to work and current welfare programs. Is the Phelps’ plan an improvement over current government policies? Discuss.

2.The availability of investment capital is critical for a market economy to grow. Explain how this investment capital is transformed into fixed capital goods, new technology, and cost reduction using new methods of production. Also, explain how interest rates impact the availability of investment capital.

3.Your text, on page 629, lists three arguments for trade restrictions. Since economists do not favor trade restrictions, and this is a course in Managerial Economics, make the case as an economist against trade restrictions for these three items. Are there any arguments for trade restrictions that most economists would support? Discuss.

          Argument #1:Infant industries. Nascent industries do not enjoy the economies of scale of business acumen of more mature foreign competitors; why not give them a chance? By imposing tariffs or other restrictions on foreign products, governments give new or infant industries the time to develop a significant market before facing stiff competition from abroad.

          Response: By taking advantage of tariffs or subsidies, fledgling industries may never gain the incentive to become competitive. Besides, if a nation has a natural comparative advantage in a new industry, why can’t foreign capitalists enter the market and finance this new market?

          Argument #2 National security. Oil, platinum and other commodities may be vital for a nation to keep functioning during a war or national emergency. If foreign imports are allowed, domestic industry will not be capable of providing essential products during a national crisis, when the essential import may suddenly be restricted. Journalist Pat Buchanan states, “the United States ought not to surrender any weapon in its arsenal of defense for vital U.S. economic interests.”

          Response: Most economists believe that stockpiling essential commodities and importing foreign products for day to day use is a more efficient way to protect the national economic interest than through protectionist measures.

          Argument #3: Protection against lost jobs and lower wages at home. Business and labor unions lobby legislators to provide relief from foreign competitions to prevent jobs from going overseas, or cheap labor from undercutting high union wages. Representing this view, economist Alan Tonelson in Foreign Affairs magazine (July/August 194) states, “Five major American industries-automotive, steel, machine tool, semiconductor and textile-received significant relief from imports through intelligently structured trade laws. Those industries have confounded the predictions of laissez faire economic ideologies by gaining market share at home and in some cases abroad, contributing to job creation and reinvigorating American competitiveness.”

          After Tokyo agreed to voluntary import limits in 1981, American auto makers achieved an astonishing comeback. The Big Three introduced new products such as the minivan and compact utility vehicles. Investments in new plants and equipment resulted in a substantial increase in both productivity and the quality of U.S. cars. Similarly, after Reagan negotiated bilateral agreements limiting imports of finished steel in 1984, investment and worker productivity in the U.S. steel industry soared, making the U.S. on of the lowest cost producers in the world. Import curbs on machine tools, semiconductors, and textiles saw similar results-increased research and development, investment, cost cutting, job creation, and retooling. The U.S. improved its competitiveness in all these markets. As Pat Buchanan concluded, “The conventional wisdom was wrong.”

4.Who was responsible for the global financial crisis of 2007-2009? Free-Market capitalism, government intervention, or a combination of both? Identify the causes of the crisis, the steps the private and public sector took to resolve it, and what leaders should do to keep it from happening again. Remember, banks are profit making firms who supply capital to suppliers of goods and services.

Your paper should reflect scholarly writing and current APA standards. Please include citations to support your ideas.


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