ECON1025: Perform a Microeconomic Analysis of One Appropriate Economic Issue or Phenomenon of Your Choice: Prices and Markets Assignment, RMIT, Singapore

Question:  How has the entertainment industry been affected by the pandemic?

1. Introduction

2. What are the problems they are facing?

3. What may happen to the entertainment industry in the future?

4. What are the implementations they are taking to solve the problem?

Assessment Task

Perform a microeconomic analysis of one appropriate economic issue or phenomenon of your choice. Clearly explain your chosen question, method, and conclusions.

Your task is to conduct an economic analysis of an issue that you select yourself, just as business people and policymakers do. You will be assessed on what you learned in the course by correctly choosing and applying definitions, methods, and theories from lectures and tutorials.

As this is a microeconomics assignment you should not write a general or journalistic report. Do not use concepts from other courses.

• Look at the business and economics news for ideas for an appropriate issue. It needs to fit the purpose of microeconomics (lecture 1) – a topical, important example of resource allocation with questions you can answer by applying microeconomic methods. State the question, why it’s interesting and economically significant. Present facts or data to illustrate.
• Select the right method (i.e. microeconomic model, theory, or tool from this course) to answer your question. Explain your method. Assume your reader needs to be explained every concept needed to follow your analysis.
• Apply the method to your issue. Report the steps of your analysis and your findings. The typical analysis discusses the economic agents, how they exchange, the equilibrium and factors that change it, and finally welfare implications. Use diagrams or models as they answer the question better than only words.
• Your conclusion will directly answer the question and maybe look at the big picture – the significance and limitations of your work.

Assignment Questions:

Question 1

Coffee is now the second most traded commodity in the world after crude oil. Not only has demand for various coffee products risen sharply in Western countries in recent years, but increasingly there is also the greater taste for coffee drinks in developing countries such as China and India. In addition, by-products of coffee beans have become popular such as coffee leaves which can be used to brew tea with known health benefits. However, as natural products, coffee plants are subject to weather conditions. Recently major producers such as Brazil have been plagued by droughts. Using the demand-supply model, explain the likely effects of these phenomena in the coffee bean market. How can a market analyst use this information to her advantage?

Question 2

The internet and online social media in particular are giving people unprecedented ability to express their views and share information with others. On the other hand, the truth of what people say online and the sheer volume of information is hard for most people to handle. In Germany, the government has introduced the Net Enforcement Law which prohibits certain kinds of online speech (e.g. incitement to hatred). Social media firms have 24 hours to check and remove suspect posts reported by users or face huge fines. Use the theories of market failure and government intervention to explain the reasons for Germany’s new law. Critically discuss potential problems with this intervention.

Question 3

Singapore Power (SP) is the only operator in the domestic electricity market in Singapore. Electricity distribution generally is associated with extremely high economies of scale because of the infrastructure (a nationwide power grid) needed to deliver power to individual households. Using the theory and models of market structure, examine this firm. Should the government be worried about any aspect of how a firm under this market structure will perform? What should the government do to address such worries?

Question 4

Starbucks is mostly known to be a retailer of coffee drinks that are brewed in-house using coffee beans and other equipment sourced in the market. Starbucks is now considering vertical and horizontal integration beyond coffee drinks retail. Using the theory of the optimal boundary of the firm, discuss the make-or-buy decision as well as the scope for horizontal integration and diversification of Starbucks. What stages of the vertical chain should it consider conducting in-house? What other horizontal markets may it integrate into and why?

Question 5

In Singapore, 13 fresh chicken suppliers together with accounting for 90% of market share have received a record of $27 million fine for operating as a cartel, fixing prices at a high level, and restricting output. To achieve this representatives of the firms repeatedly met at the Poultry Merchants’ Association. Analyze the interaction between the firms using game theory. Simplify your model to only 2 players representing the different firms in this industry. Present a payoff matrix to model the situation and analyze it for Nash equilibrium. Which is the best outcome for each firm? Which is the best outcome for society as a whole? Why did the government invest in the costly investigation and prosecution of these companies?