Essay on "Knowledge and Proficiency in Economics"

Essay 8 pages (2757 words) Sources: 4

[EXCERPT] . . . .

Knowledge and Proficiency in Economics

The opportunity to study economics at SCHOOL has been one of the most magnificent events in my academic life since it has revolutionized my view of the contemporary world and applying the acquired knowledge into daily life. Economics, being "a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services" as Merriam Webster (2011) notes is a practical, daily engagement since we have the need to constantly produce various goods or services, distribute them as we consume another kind of goods/services. Economics is a daily life application subject that can help make our lives easier if well applied.

One of the significant aspects I came to appreciate is the nature of business cycle in the contemporary business environment, filled with contraction and expansion as well as reaching the peak at times, all measured by the real GDP of a country. I also learnt that government fiscal policy has a great impact on the economy of a country. Government fiscal policy is the way a government adjusts its spending trends as well as revenue collection in order to control the economic trends of the country, i.e. taxation and expenditure. Some of these basic fiscal policy shocks include government spending and revenues. When the business cycle fills the government coffers with extra cash, governments will eventually spend more. I also came to understand how the deficit spending in fiscal policy can stimulate the consumption and output in an economy during a given duration.

The fact that monetary policy shock is more often accompanied by a surprise and sudden rise in interest rates makes it quite separate and clearer from fiscal policy shock which will result in higher taxes to insulate the government from the high debts that faces it yet it has to operate and keep spending. This I experienced first hand since my father runs a textile industry in Indonesia and the government taxes are regularly adjusted on the textiles and the related products whenever there is a deficit, the same applies to other industries in a bid to cushion the government from lack of funds to run. It is a symbiotic relationship since the textile industry cannot run as well without an operational government.

I also became conversant with how linked the forces that drive the market like the output, goods supplies, the interest rates, demand and the rate of savings are. Firstly the output and the interest rates can intertwine to sweep the market of the goods supplied. High levels of goods output result in a downward sloping investment curve, hence this higher level of output leads to a lower or decreased real interest rates sending the investment saving curve in a downward slope. Say the textile industry in Indonesia, if so many people produce the same material in the market, then my father will face an inevitable lower manufacturing of the textile and consequently get lesser interest which will make him not invest much in his industry eventually since the market shall have been flooded with the textile and he will have nowhere to take it to. This makes clear the relationship between the savings and interest rates and that the output can affect the interest rates as well as the goods supply in the market.

Secondly, the interest rates can adversely affect the market equilibrium point, if there is witnessed increase in interest rates, people will tend to increase their saving and cut down on consumption consequently making the supplying firms to cut down on their investment. This will mean that there will be a decline in the quantity of goods on demand, in order to restore the equilibrium, the quantity of goods supplied must be significantly cut down. This made me realize that the real high interest rates are associated with lower output. For instance as indicated above, when my father halts the production of the textiles in his industry, the situation can be replicated elsewhere hence creating a shortage or lesser supply of textiles, this will in turn create a demand for the textile and an increase in price of the few that will be in supply hence increasing the real interest rates accordingly.

The third important relationship that exists between market forces is the output and prices that can determine the amount of money in the market. If there is a rise in demand for real money with the rise in the levels of output and a fall in the demand for real money will lead to the rise in the interest rates. Hence, if there is a sustained high output then the market eventually run out of real money. To revert to the equilibrium, the demand for real money will make people sell of the nonmonetary items hence making their prices to fall and the interest rates to rise. With the rise in the interest rates, there will be a sustained reduction in demand for real money until the equilibrium is achieved.

Fourthly and lastly in this context, market relationship can also be found in the labor market. This is prompted by the fall in production that lowers the supply, hence reducing the productivity of labor. As a consequence of the lowered productivity of labor, there will be lower labor demand and the little that will be in utility will attract lower remunerations. I noticed here that the lower labor demand results into an equilibrium wage and a fall in employment. Say my father goes ahead and cuts down on the production of the textile in his industry, he then will need fewer workmanship, meaning even the retained few will be paid lesser than before since there will be no sales made and most likely some people will have to be relieved of their duties from the textile industry.

The innovative marketing technique is one of the major ways through which organizations achieve the desired market projections. Innovative marketing techniques encompass thorough knowledge of the customer segments, accurate and relevant value propositions as well as appropriate customer relationship. It is worth noting that there are various customers segments i.e. loyal, discount, impulse and need-based customers as well as wandering customers. Each category of customers is vital for the continuity of the business, however, of them all the loyal customer bracket, though usually the smallest percentage, is the most significant segment and every business must strive to expand it to maximum.

The customer segmentation is not the only innovative marketing technique available; many organizations rely heavily on the value propositions. These are the sets of attributes that make an organization unique hence increasing the clientele base. Various companies employ various propositions like innovative solution by Microsoft and Intel, customer intimacy by most home depots, operational excellence like Hertz and FedEx do as noted by Business Growth Strategies, (2011). It is therefore vital that the management knows the precise relationships that the business and the stakeholders need to maintain with the customers. These relationships vary from one customer to another.

The categories of clients are grouped as transactional customers; these do not need information nor relationship but just looking for the best prices. Relationship customers; these customers need to be known by the person serving them as well as what their needs are. Information customers; these customers do not need any relationship but professional information and education from the person serving them. Partnership customers; is the high relationship category as well as education/information need group hence they will expect the person serving them to be quite proactive and to know them as well as educate them (Retail Sales, 2008).

Apart from innovative marketing, microeconomics significantly covers the aspect of monopoly power and how a firm can implement this among their competitors. This can be calculated easily through the leaner's index which will help indicate the firm's market power. Apart from knowing the market power, there are different price discriminations used by various firms to strengthen their market power.

There are three major ways to implement the price discrimination effectively and secure a wide base of clientele. The first degree discrimination is experienced when firms discriminate on the basis of the willingness and ability of the client to pay for the goods or the services. The seller in this case will first identify the minimum amount that the clients are generally willing to pay and then operate from that price onwards. It entails a lot of price elasticity on both the clients end and the seller.

The second degree discrimination is pegged upon the quantity that a client is intending to purchase. The most commonly used method by sellers to implement the second degree discrimination is discounts and non-linear pricing used by suppliers. The discrimination does not only depend upon the quantity but at times on the quality, like airlines availing different classes with differing prices for travelers. For instance in the textile industry, my father would consider a better discount for a customer who buys the textile in bulk for resale than… READ MORE

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