Microeconomics

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Microeconomics Discussion Questions

 

  1. Should the United States pass a minimum wage that assures all workers earn a wage above the poverty level? Defend your position using economic principles.

United should not set the minimum wage because such practice would affect the country’s economy considerably. Initially, setting the minimum wage discourages productivity because wage is a product of productivity. Legislating a wage promote laxity because it creates a situation where remuneration fails to correspond with the employee’s effort. According to Mankiw (2012), an effective strategy of enhancing employees’ productivity is by ensuring that wages are increasing with productivity. This is essential because employees tend to increase their effort in order to earn more. Defining the minimum wage is also detrimental because the strategy provides only a temporary solution. Mankiw (2012) argues that introduction of money or stimulus into the economy provides a short-lived remedy, but result to a severe economic crisis eventually. Crisis like the ones experienced in the housing market highlights the threats associated with such strategies. Furthermore, establishing the minimum wage is risky because it causes unemployment by encouraging producers to discriminate against the unskilled employees. Minimum wage may also reduce the quality of human capital because it does not encourage people to access further education in order to increase the wages. Employees tend to disregard the effort of developing their skills after realizing that they can earn enough without the extra cost. Lastly, setting minimum wage may result to inflation by interfering with economic forces.

  1. Is Google a monopoly?

Economists believe that there is a monopoly in a scenario where a single enterprise owns all or almost all of the market for a particular product or service. Primarily, competition is absent in a situation of monopoly which results in increased prices and substandard products. Google can be regarded as a monopoly because it owns nearly all of the Web search market. For example, Google accounts for about 82% of the international search market. In the mobile industry, Google enjoys about 98% share in the US market. Furthermore, the company owns more than 44% of the Global Advertising Market. Lastly, competitors minimally challenge the company and it mainly favors its own services over its competition. Google’s products are found everywhere on the internet and most websites are obliged to work within the company’s rules. The popularity of Google and its influential authority over the market affirms that the company is a monopoly.

  1. Actions for responding towards a projected depreciation of Mexican peso

Depreciation of the peso in relation to dollar means that the value of the firm’s Mexican subsidiary would decline considerably. This would decrease the entire dollar value of the company’s equity recorded in its consolidated balance sheet. Furthermore, this condition has the potential of increasing the advantage of the firm leading to increased company’s outlay of borrowing and reducing its access to the capital market. Effective actions for addressing this challenge include adopting calculative strategies for managing the company’s inventory. For example, the company should minimize its present inventory and increase it later when it value depreciates (Mankiw, 2012). This would reduce the cost of US dollar significantly. Moreover, the firm should account for an effect the scenario on the balance sheet by examining the value of its assets in Mexico in terms of US dollars. Assessing the effect of the indicated situation on the collateral for the loan is also essential because the collateral is in Pesos and the loan is in US dollars. This would provide the company with the opportunity of formulating effective corrective strategies.

 

 

 

References

Mankiw, N. G. (2012). Principles of microeconomics. Mason, OH: South-Western Cengage Learning.
 

 

 

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