Reference no: EM132298059 , Length: word count:3000

Economic Principles and Decision Making

Assessment: Report

Learning Outcomes

1. Interpret and successfully apply economic concepts of supply and demand for effective organisational problem solving.
2. Apply quantitative methods to forecast complex business variables including demand, supply, production and costs.
3. Critically analyse production processes and cost functions and classify the main forms of market structures as well as recommend appropriate pricing and strategies.
4. Critically evaluate the role and impact of various forms of government intervention in the economy including the implications of competition and deregulation policy for managerial practices.

Instructions:

Schmeckt Gut plans the market launch for the Schmeckt Besser energy bar in Atollia within the next couple of months. The Research Department of Schmeckt Gut has conducted a market analysis of Atollia. The results are provided for you in the supplied EXCEL file.

Based on international sources, the Research Department is comfortable in working with the following scenarios on the future development of average income in Atollia, the inflation rate development and tariff rates on imports from Industria:

- Income growth: 1% increase or 3% increase or 5% increase or 7% increase
- Inflation rate development: 2% increase or 3% increase or 4% increase or 5% increase
- Tariffs on imports from Industria: 7.5% or 10% or 5% or free trade

Note: These developments are not necessarily matched to each other in the sequence shown above; meaning that we do not know if the 1% increase in income is associated with a 2% increase in inflation rate and a 7.5% tariff rate.

Your task:

Your task is to write a 3,000-word report addressed to the Board of Directors of Schmeckt Gut in which you address the following:

- Do you think you can match the different projections? That is, do you think that a 5% increase in income is associated with a 10% tariff rate and a 2% inflation rate? Explain by linking your discussion to the following concepts:
o supply and demand
o aggregated demand and aggregated supply
o the Philipps Curve, and
o the Laffer curve.
- What impact would the different predictions of income development, inflation rate development and tariff rate development have on the potential demand of Schmeckt Gut? Conduct a multiple regression analysis using data in the supplied Excel file and then interpret the results. Fully discuss and explain their implications.
- Make recommendations as to what the Board of Directors should do under each of your scenarios, based on your matching of the predictions.

The precise format of the report will be informed by research undertaken by the student using the Torrens University library. Formal document sections such as executive summary, table of contents and appendices are not counted in the word count. Assume that the prescribed word limit is literally a limit and that the board will reject any report that breaches it.

Final report clarifications
1. If the government in Atollia wants reduce consumption of imported products they may increase tariffs. In this question you are required to test what will happen if, say for example, 5% increase in income is associated with 2% inflation rate, etc.
2. You need to predict how changes in average in income, tariffs, and inflation would impact on the average demand. In this case, you need to run regressions once again.

For example, Income 3%, 5% or 7%. If you multiply the income column with these percentage you will get the values for all 3 scenarios.

Tariffs 7.5% , 10% , 5% or free trade. Same as above

Inflation is a Nominal Income (indicated as "average income") minus inflation. That can also be incorporated. Example: income of 15000 - 3% inflation Conducting a multiple linear regression (in log linear form) which is Log Y = α + β1X1 +β2X2 +β3X3 + β4X4. The log is in base e so you need to put in Excel the formula = LN (average demand). In case, you want to know more about how to do it in excel, do go youtube with these keywords or see the links below.

That should be interpreted as the impact of these variables (variable 1, etc) on the demand. Say, with + sign increase, with - sign (increase in tariff, which is actually tax, and its impact on demand).

Another hint: according to Laffer Curve as taxes (tariffs in our case) increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point would cause people not to work as hard or not at all, thereby reducing tax revenue and as a result their real income.

Or:
According to Phillips; Decreased unemployment in an economy correlates with higher rates of inflation (up to a certain extent). That does not necessarily translates into greater total real income in the economy but we could assume that more people will be employed affecting sales dependant on the number of stores (this is just an assumption).

Attachment:- Economic Principles and Decision Making.rar