1) a) Perfect Competition
A perfectly competitive market type refers to a structure where no single business entity commands the
market share. This market structure is characterized by small businesses engaged in fair competition.
Instead of one company being able to dictate prices, the dynamics of supply and demand exclusively
influence the type and price of the goods and services offered in the market.
In theory, this setup is based on the following premise:
-Goods and services can freely enter the market
-All businesses are able to maximize profits by keeping production costs low
-Firms sell similar goods with comparable quality
-Consumers don’t have specific brand preferences
Despite being the most ideal market structure, not one sector can boast of having this type of
competition. Perhaps only the stock market or the foreign exchange market may be a close
consideration.
b) Monopolistic Competition
In monopolistic competition, it’s assumed that various companies may offer goods that are technically
the same, but leading brands offer them with slight advantages. These often-improved product versions
are the main basis for firms to dictate higher products costs or command a slightly bigger market share
compared to their competitors.
The basis for this market structure is almost similar to the assumptions for the perfect competition type,
except for the minimal changes in product offerings, resulting in consumers preferring one brand over
the other. Consequently, supply and demand are no longer the main elements that influence market
prices. Companies that get the lion’s share of the market can impact the prices to a certain level.
A good example would be real estate companies that sell technically similar properties but have
different offers. Personal care products may also fall under this market type, as well as the retail market
and service sectors.
c) Monopoly Competition
This is perhaps the market structure that’s most common across several industries. This market
structure is created when only one company stands out from the rest, therefore becoming the major
product supplier.
When only one firm leads the market, the leading brand will have enough power to dictate much of the
movements in the market. With the monopoly competition market structure, the leading brand can
minimize production cost and maximize profit, leading to unfair competition and limited choices for
consumers. One of the subtle ways leading firms can strengthen their hold on the market is by offering
low cost franchises to enterprising individuals.
In theory, a monopoly competition isn’t an ideal setup because the leading brand can deliberately pull
outputs down just to maximize profits. From unabated price increases to barring product entries and
minimizing the supply volume, there are many unfavorable market movements associated with this type
of market structure.
d) Oligopoly Competition
Taking a slightly different route to monopoly is the oligopoly competition market structure. In a
monopoly, only one company dominates the market. Comparatively, an oligopoly happens when a few
firms compete or collaborate with each other to dominate the market.
A ‘supergroup ’can be composed of small firms partnering with large corporations. These can also be
major industry players that work together to enhance their foothold in the market and inhibit the entry
of new competitors. The goods produced by these leading companies may be the same or slightly
different from each other.
Whether working harmoniously or in competition with other major brands, these firms can earn profit
by pushing prices higher. As a result, this market setup may have been slightly immune to unexpected
events like the severe impact of pandemic lockdowns on businesses. In this market structure, companies
can maximize profits by setting prices and imposing restrictions on the entry and exit of goods in the
market.
Oligopoly competition may exist in major industries such as the media, smartphone, automobile, and
energy sector—industries where major players often engage in fierce competitions or mergers.
2）Price elasticity of demand is a measurement of the change in consumption of a product in relation to
a change in its price. Expressed mathematically, it is:
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
Economists use price elasticity to understand how supply and demand for a product changes when its
price changes.
Understanding Price Elasticity of Demand, Economists have found that the prices of some goods are
very inelastic. That is, a reduction in price does not increase demand much, and an increase in price does
not hurt demand either.
For example, gasoline has little price elasticity of demand. Drivers will continue to buy as much as they
have to, as will airlines, the trucking industry, and nearly every other buyer.
Other goods are much more elastic, so price changes for these goods cause substantial changes in their
demand or their supply.
Clarity in time sensitivity is vital to understanding the price elasticity of demand and for comparing it
across different products. Consumers may accept a seasonal price fluctuation rather than change their
habits.
Example of Price Elasticity of Demand, As a rule of thumb, if the quantity of a product demanded or
purchased changes more than the price changes, the product is termed elastic. (For example, the price
changes by +5%, but the demand falls by -10%).
If the change in quantity purchased is the same as the price change (say, 10%/10% = 1), the product is
said to have unit (or unitary) price elasticity.
Finally, if the quantity purchased changes less than the price (say, -5% demanded for a +10% change in
price), then the product is termed inelastic.
3) Government intervention is any action carried out by the government or public entity that affects the
market economy with the direct objective of having an impact in the economy, beyond the mere
regulation of contracts and provision of public goods.
Government intervention advocates defend the use of different economic policies in order to
compensate the flaws of the economic system that give way to large economic imbalances. They believe
the Law of Demand and Supply is not sufficient in order to ensure economic equilibriums and
government intervention should be used to assure a correct functioning of the economy. Examples of
these economic doctrines include Keynesianism and its branches such as New Keynesian Economics,
which relay heavily in fiscal and monetary policies, and Monetarism which have more confidence in
monetary policies as they believe fiscal policies will have a negative effect in the long run. On the other
hand, there are other economic schools that believe that governments should not have an active role in
the economy, and therefore should limit its intervention, as they believe it will have a negative impact in
the economy. They believe that the economy should be left to run in a laissez-faire way and it will find
its optimal equilibrium. Advocates of none or limited intervention include liberalism, the Austrian
school and New Classical Macroeconomics.
As in most imperfect competition markets and especially in monopolistic ones, a firm may practice an
abusive behaviour, which will translate into a loss of welfare. In such cases, government intervention
will be praised both by consumers and those firms that seek for lower prices and a profitable share of
the market. Regulations such as price setting, taxation or subsidies may be used in order to restore and
maximise the initial efficiency of natural monopolies.
Nevertheless, the government must be cautious when setting and applying regulations, as an incorrect
comprehension of the market structure may bring a higher cost to social welfare instead of the expected
benefits. In order to achieve an optimal regulation level, governments should analyse and determine if
natural monopolies can be sustained whenever they ensure a lower total cost. If this is the case, the
government will have to guarantee that the firm does not make excessive revenues, and that fair prices
are maintained. If, on the contrary, the total costs of the industry would diminish if new firms entered
the market, the government should regulate their entrance. Essentially, what governments should do is
to correctly balance the conflict between the industry’s efficiency and its profitability.
Three Types of Economic Systems, Economic systems are divided into three broad categories: free
market, mixed and command. The determining factor comes down to who owns and controls property
and the factors of production.
In a free-market economy, private individuals or groups are in control. The government is in control of a
command economy. Mixed economies have elements of both. Most economies in the world today are
mixed, though some are command.
An example of a command economy would be communist North Korea. The North Korean government
owns and controls all property, production decisions and allocation of resources. The old Soviet Union
was also a command economy. These are not considered market economies.
The purest free-market economy would conceivably lack a monopolistic government and coercive
taxation.
4) Macroeconomics is a branch of economics that studies how an overall economy—the market or other
systems that operate on a large scale—behaves. Macroeconomics studies economy-wide phenomena
such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP),
and changes in unemployment.
There are two sides to the study of economics: macroeconomics and microeconomics. As the term
implies, macroeconomics looks at the overall, big-picture scenario of the economy. Put simply, it focuses
on the way the economy performs as a whole and then analyzes how different sectors of the economy
relate to one another to understand how the aggregate functions. This includes looking at variables like
unemployment, GDP, and inflation. Macroeconomists develop models explaining relationships between
these factors. Such macroeconomic models, and the forecasts they produce, are used by government
entities to aid in the construction and evaluation of economic, monetary, and fiscal policy; by businesses
to set strategy in domestic and global markets; and by investors to predict and plan for movements in
various asset classes.
Given the enormous scale of government budgets and the impact of economic policy on consumers and
businesses, macroeconomics clearly concerns itself with significant issues. Properly applied, economic
theories can offer illuminating insights on how economies function and the long-term consequences of
particular policies and decisions. Macroeconomic theory can also help individual businesses and
investors make better decisions through a more thorough understanding of the effects of broad
economic trends and policies on their own industries.
It is also important to understand the limitations of economic theory. Theories are often created in a
vacuum and lack certain real-world details like taxation, regulation, and transaction costs. The real world
is also decidedly complicated and includes matters of social preference and conscience that do not lend
themselves to mathematical analysis.
Even with the limits of economic theory, it is important and worthwhile to follow the major
macroeconomic indicators like GDP, inflation, and unemployment. The performance of companies, and
by extension their stocks, is significantly influenced by the economic conditions in which the companies
operate and the study of macroeconomic statistics can help an investor make better decisions and spot
turning points.
Likewise, it can be invaluable to understand which theories are in favor and influencing a particular
government administration. The underlying economic principles of a government will say much about
how that government will approach taxation, regulation, government spending, and similar policies. By
better understanding economics and the ramifications of economic decisions, investors can get at least
a glimpse of the probable future and act accordingly with confidence.
Macroeconomics is a rather broad field, but two specific areas of research are representative of this
discipline. The first area is the factors that determine long-term economic growth, or increases in the
national income. The other involves the causes and consequences of short-term fluctuations in national
income and employment, also known as the business cycle.
Economic growth refers to an increase in aggregate production in an economy. Macroeconomists try to
understand the factors that either promote or retard economic growth in order to support economic
policies that will support development, progress, and rising living standards.
Business Cycles in superimposed over long term macroeconomic growth trends, the levels and rates-ofchange of major macroeconomic variables such as employment and national output go through
occasional fluctuations up or down, expansions and recessions, in a phenomenon known as the business
cycle. The 2008 financial crisis is a clear recent example, and the Great Depression of the 1930s was
actually the impetus for the development of most modern macroeconomic theory.
5) Fiscal policy refers to the use of government spending and tax policies to influence economic
conditions, especially macroeconomic conditions, including aggregate demand for goods and services,
employment, inflation, and economic growth.
Fiscal policy is often contrasted with monetary policy, which is enacted by central bankers and not
elected government officials.
Fiscal policy is largely based on the ideas of British economist John Maynard Keynes (1883-1946), who
argued that economic recessions are due to a deficiency in the consumer spending and business
investment components of aggregate demand. Keynes believed that governments could stabilize the
business cycle and regulate economic output by adjusting spending and tax policies to make up for the
shortfalls of the private sector.
His theories were developed in response to the Great Depression, which defied classical economics'
assumptions that economic swings were self-correcting. Keynes' ideas were highly influential and led to
the New Deal in the U.S., which involved massive spending on public works projects and social welfare
programs.
In Keynesian economics, aggregate demand or spending is what drives the performance and growth of
the economy. Aggregate demand is made up of consumer spending, business investment spending, net
government spending, and net exports. According to Keynesian economists, the private-sector
components of aggregate demand are too variable and too dependent on psychological and emotional
factors to maintain sustained growth in the economy.
Special Considerations, pessimism, fear, and uncertainty among consumers and businesses can lead to
economic recessions and depressions, and excessive exuberance during good times can lead to an
overheated economy and inflation. However, according to Keynesians, government taxation and
spending can be managed rationally and used to counteract the excesses and deficiencies of privatesector consumption and investment spending in order to stabilize the economy.
When private-sector spending turns down, the government can spend more and/or tax less in order to
directly increase aggregate demand. When the private sector is overly optimistic and spends too much,
too fast on consumption and new investment projects, the government can spend less and/or tax more
in order to decrease aggregate demand.
This means that to help stabilize the economy, the government should run large budget deficits during
economic downturns and run budget surpluses when the economy is growing. These are known as
expansionary or contractionary fiscal policies, respectively.
6) Monetary policy is a set of tools that a nation's central bank has available to promote sustainable
economic growth by controlling the overall supply of money that is available to the nation's banks, its
consumers, and its businesses.
The goal is to keep the economy humming along at a rate that is neither too hot nor too cold. The
central bank may force up interest rates on borrowing in order to discourage spending or force down
interest rates to inspire more borrowing and spending.
The main weapon at its disposal is the nation's money. The central bank sets the rates it charges to loan
money to the nation's banks. When it raises or lowers its rates, all financial institutions tweak the rates
they charge all of their customers, from big businesses borrowing for major projects to home buyers
applying for mortgages.
All of those customers are rate-sensitive. They're more likely to borrow when rates are low and put off
borrowing when rates are high.
Monetary policy is the control of the quantity of money available in an economy and the channels by
which new money is supplied.
By managing the money supply, a central bank aims to influence macroeconomic factors including
inflation, the rate of consumption, economic growth, and overall liquidity.
In addition to modifying the interest rate, a central bank may buy or sell government bonds, regulate
foreign exchange (forex) rates, and revise the amount of cash that the banks are required to maintain as
reserves.
Economists, analysts, and investors eagerly await monetary policy decisions and even the minutes of
meetings in which they are discussed. This is news that has a long-lasting impact on the overall economy
as well as on specific industry sectors and markets.
Monetary policy is formulated based on inputs from a variety of sources. The monetary authority may
look at macroeconomic numbers such as gross domestic product (GDP) and inflation, industry and
sector-specific growth rates, and associated figures.
Geopolitical developments are monitored. Oil embargos or the imposition (or lifting) of trade tariffs are
examples of actions that can have a far-reaching impact.
The central bank may also consider concerns raised by groups representing specific industries and
businesses, survey results from private organizations, and inputs from other government agencies.
Monetary authorities are typically given broad policy mandates to achieve a stable rise in gross domestic
product (GDP), keep unemployment low, and maintain foreign exchange (forex) and inflation rates in a
predictable range.
The Federal Reserve Bank is in charge of monetary policy in the U.S. The Federal Reserve (Fed) has what
is commonly referred to as a dual mandate: to achieve maximum employment while keeping inflation in
check.
That means it is the Fed's responsibility to balance economic growth and inflation. In addition, it aims to
keep long-term interest rates relatively low.
Its core role is to be the lender of last resort, providing banks with liquidity and regulatory scrutiny in
order to prevent them from failing and creating a panic.
7) International trade allows countries to expand their markets and access goods and services that
otherwise may not have been available domestically. As a result of international trade, the market is
more competitive. This ultimately results in more competitive pricing and brings a cheaper product
home to the consumer.
International trade was key to the rise of the global economy. In the global economy, supply and
demand—and thus prices—both impact and are impacted by global events.
A product that is sold to the global market is called an export, and a product that is bought from the
global market is an import. Imports and exports are accounted for in the current account section in a
country's balance of payments.
Global trade allows wealthy countries to use their resources—for example, labor, technology, or
capital—more efficiently. Different countries are endowed with different assets and natural resources:
land, labor, capital, and technology, etc. This allows some countries to produce the same good more
efficiently—in other words, more quickly and at lower cost. Therefore, they may sell it more cheaply
than other countries. If a country cannot efficiently produce an item, it can obtain it by trading with
another country that can. This is known as specialization in international trade.
a)An embargo is a powerful tool that can influence a nation, both economically and politically. The
ability to easily trade goods all over the world is key to maximizing the economic prosperity of a country.
When that is no longer possible, it can have serious negative consequences.
Embargoes do not necessarily apply to all goods moving in and out of a country’s borders. Sometimes
only certain items are embargoed, such as military equipment or oil.
b)Barter is an act of trading goods or services between two or more parties without the use of money —
or a monetary medium, such as a credit card. In essence, bartering involves the provision of one good or
service by one party in return for another good or service from another party.
Bartering allows individuals to trade items that they own but are not using for items that they need,
while keeping their cash on hand for expenses that cannot be paid through bartering, such as a
mortgage, medical bills, and utilities.
Bartering can have a psychological benefit because it can create a deeper personal relationship between
trading partners than a typical monetized transaction. Bartering can also help people build professional
networks and market their businesses.
c)A quota is a government-imposed trade restriction that limits the number or monetary value of goods
that a country can import or export during a particular period. Countries use quotas in international
trade to help regulate the volume of trade between them and other countries. Countries sometimes
impose quotas on specific products to reduce imports and increase domestic production. In theory,
quotas boost domestic production by restricting foreign competition.
Government programs that implement quotas are often referred to as protectionism policies.
Additionally, governments can enact these policies if they have concerns over the quality or safety of
products arriving from other countries.
e)A third-party transaction is a business deal that involves a person or entity other than the main
participants. Typically, it would involve a buyer, a seller, and another party—the third party. The
involvement of the third party can vary, based on the type of business transaction.
When a buyer and seller enter into a business deal, they may decide to use the services of an
intermediary or third party that manages the transaction between both parties. The role of the third
party can vary. It may include designing the particulars of the deal in question, providing a specific
service for a company that is slightly outside its wheelhouse, serving as the middleman that connects
two parties, or serving as the means of receiving payment from the buyer and forwarding that payment
to the seller.
8) Economic integration is an arrangement among nations that typically includes the reduction or
elimination of trade barriers and the coordination of monetary and fiscal policies. Economic integration
aims to reduce costs for both consumers and producers and to increase trade between the countries
involved in the agreement.
Economic integration is sometimes referred to as regional integration as it often occurs among
neighboring nations.
When regional economies agree on integration, trade barriers fall and economic and political
coordination increases.
Specialists in this area define seven stages of economic integration: a preferential trading area, a free
trade area, a customs union, a common market, an economic union, an economic and monetary union,
and complete economic integration. The final stage represents a total harmonization of fiscal policy and
a complete monetary union.
The advantages of economic integration fall into three categories: trade benefits, employment, and
political cooperation.
More specifically, economic integration typically leads to a reduction in the cost of trade, improved
availability of goods and services and a wider selection of them, and gains in efficiency that lead to
greater purchasing power.
Employment opportunities tend to improve because trade liberalization leads to market expansion,
technology sharing, and cross-border investment.
Political cooperation among countries also can improve because of stronger economic ties, which
provide an incentive to resolve conflicts peacefully and lead to greater stability.
The Costs of Economic Integration despite the benefits, economic integration has costs. These fall into
two categories:
i) Diversion of trade. That is, trade can be diverted from nonmembers to members, even if it is
economically detrimental for the member state.
ii) Erosion of national sovereignty. Members of economic unions typically are required to adhere to rules
on trade, monetary policy, and fiscal policies established by an unelected external policymaking body.
Because economists and policymakers believe economic integration leads to significant benefits, many
institutions attempt to measure the degree of economic integration across countries and regions. The
methodology for measuring economic integration typically involves multiple economic indicators
including trade in goods and services, cross-border capital flows, labor migration, and others. Assessing
economic integration also includes measures of institutional conformity, such as membership in trade
unions and the strength of institutions that protect consumer and investor rights.
Real-World Example of Economic Integration, the European Union (EU) was created in 1993 and
included 28 member states in 2019. Since 2002, 19 of those nations have adopted the euro as a shared
currency. According to the International Monetary Fund (IMF), the EU accounted for 16.04% of the
world's gross domestic product.
The United Kingdom voted in 2016 to leave the EU. In January 2020 British lawmakers and the European
Parliament voted to accept the United Kingdom's withdrawal. The goal is to finalize the exit by January
2021.
9) As restrictions on travel begin to ease globally, destinations around the world are focusing on growing
domestic tourism, with many offering incentives to encourage people to explore their own countries.
According to the World Tourism Organization (UNWTO), with domestic tourism set to return faster than
international travel, this represents an opportunity for both developed and developing countries to
recover from the social and economic impacts of the COVID-19 pandemic.
Recognizing the importance of domestic tourism, the United Nations specialized agency has released the
third of its Tourism and COVID-19 Briefing Notes, -Understanding Domestic Tourism and Seizing its
Opportunities.- UNWTO data shows that in 2018, around 9 billion domestic tourism trips were made
worldwide – six times the number of international tourist arrivals (1.4 billion in 2018). The publication
identifies ways in which destinations around the world are taking proactive steps to grow domestic
tourism, from offering bonus holidays for workers to providing vouchers and other incentives to people
travelling in their own countries.
Domestic tourism to drive recovery that expects domestic tourism to return faster and stronger than
international travel. Given the size of domestic tourism, this will help many destinations recover from
the economic impacts of the pandemic, while at the same time safeguarding jobs, protecting livelihoods
and allowing the social benefits tourism offers to also return.”
The briefing note also shows that, in most destinations, domestic tourism generates higher revenues
than international tourism. In OECD nations, domestic tourism accounts for 75% of total tourism
expenditure, while in the European Union, domestic tourism expenditure is 1.8 times higher than
inbound tourism expenditure. Globally, the largest domestic tourism markets in terms of expenditure
are the United States with nearly US$ 1 trillion, Germany with US$ 249 billion, Japan US$ 201 billion, the
United Kingdom with US$ 154 billion and Mexico with US$ 139 billion.
10) A foreign direct investment (FDI) is a purchase of an interest in a company by a company or an
investor located outside its borders.
Generally, the term is used to describe a business decision to acquire a substantial stake in a foreign
business or to buy it outright in order to expand its operations to a new region. It is not usually used to
describe a stock investment in a foreign company.
Companies considering a foreign direct investment generally look only at companies in open economies
that offer a skilled workforce and above-average growth prospects for the investor. Light government
regulation also tends to be prized.
Foreign direct investment frequently goes beyond capital investment. It may include the provision of
management, technology, and equipment as well.
A key feature of foreign direct investment is that it establishes effective control of the foreign business
or at least substantial influence over its decision-making.
In 2020, foreign direct investment tanked globally due to the COVID-19 pandemic, according to the
United Nations Conference on Trade and Development. The total $859 billion global investment
compares with $1.5 trillion the previous year.
Foreign direct investments can be made in a variety of ways, including opening a subsidiary or associate
company in a foreign country, acquiring a controlling interest in an existing foreign company, or by
means of a merger or joint venture with a foreign company.
The threshold for a foreign direct investment that establishes a controlling interest, per guidelines
established by the Organisation of Economic Co-operation and Development (OECD), is a minimum 10%
ownership stake in a foreign-based company.
Foreign direct investments may involve mergers, acquisitions, or partnerships in retail, services, logistics,
or manufacturing.