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Economic Principles
Economic Principles
Student’s Name
Institution
Date
Economic Principles
The economic principles are used in satisfying unlimited consumer wants with the little available resources. In general, it incorporates a comprehensive variety of economic laws as well as the theories which typically defines or explains how the economy for example of a particular country tries to fulfill the indefinite demand in the market with a finite supply of the available resources. Therefore, some trade-offs plus choices ought to be made. The other description of the economic principles is through the study of the choices which the consumers make typically as well as the elements and actions affecting the choices which they have made. A consumer is referred to as an individual, firm, organization or a governmental body which consumes goods or services (Taussig, 2013). The goods consumed by the customer could be finished goods, unfinished goods or raw goods. On the other hand, the services include for example medical, entertainment and legal among others. This paper discusses and analyzes to an in-depth some of the economic principles for example business trade-offs and presents a proper analysis of the housing sector issues to the economy basing on an article from the New York Times.
Purchasing a new home can either be an exciting experience in an individual’s life or it can result to be a hectic task due to the consequences involved. It includes the reason why an individual is buying the house, for example, it can be for the family, or the individual is purchasing the home for business purposes, for example, buying and then selling the home or the houses at a profit. This is a suitable type of investment since it involves mostly direct contact between the customer and the clients (Glaeser et al., 2018, p.14) However, in this type of business, it is always good to plan well and make reasonable decisions before purchasing or before selling the house. Therefore it is always good for any individual planning to buy to consider several factors before purchasing. Consequently, economic principles play a significant role in helping an individual in the decision-making process which is regarded as one of the essential things before conducting a purchase.
An excellent example to explain this concept is through an article published on November 15, 2018, in The New York Times titled, “Why the Housing Market Is Slumping despite a Booming Economy.” According to this article, home prices are becoming unattainable which is relative to incomes as well as the mortgage rates. This leads to big questions to the economists and for the economy at large on how this imbalance adjusts. The current economy tends to be thriving whereby many individuals or workers are working at higher pay, and this should be considered as the good times for the housing sector at large. However owing to the prosperous thriving of the economy, the housing market has remained soft, and it tends to be dragging back the economy, instead of boosting it forward.
For example in September, the trades of newfangled single domestic-homes were identified to be below by twenty-two percent from their latest high sales which were defined to be in November 2017 (The New York Times, 2018). Also in September, the existing home transactions were designated to be down by ten percent. Nevertheless, the home prices seem to have not deteriorated nationwide, and this is according to the vastly followed indexes. However, it is notable that their percentage of growth has worsened, and thus as more home venders are looking for buyers, they must decrease the asking prices for them to find a potential buyer.
Considering the way in which the housing sector has contributed to the growth of the economy in the past years, this issue need not be taken lightly. This is because it is considered as the leading driver of both affluence as well as indebtedness for the majority of the families and the individuals who have invested in this sector. While looking carefully at the obtained data, it seems that this inconsistency of a healthy economy besides a weak housing market is at the climax, and thus this a clear depiction of a central rule in economics which states that if something cannot go on steadily, it would not. Demographics in one way seems to be favorable for housing demand making the houses to be out of reach. Nonetheless, this does not worry considering that the costs are out of reach which is comparative to wages. Also, the lending principles have persisted to be higher compared to the way they were in the previous housing boom, and this makes it tougher for individuals to be able to buy a home.
According to the principles of economics price movements are the way in which the supply, as well as demand, is equivalent to each other (Goodwin, 2015). However, it is evident that in the housing sector, the adjustment demand and supply to be equal can take some time. The sellers are thus creating more imbalance to this issue as they try to cling onto some prices which are not relative to the buyers as there seem to be fewer buyers who are willing or are capable of paying those costs. The sellers appear to be not realizing that they would not be able to acquire what they believed their house investment was worth about some six months before, and whereby buyers still reflect and regard the homes to be more expensive. Thus according to the economic principles incentives attracts clients and increases buying ability and therefore they should be introduced in the selling of homes especially by the sellers to attract more customers.
In conclusion, it is evident from this discussion that learning and understanding of the economic principles are vital for any business and mainly the economy. As described in the housing sector analysis for the economy to be sufficient demand and supply have to be equivalent. This discussion, therefore, helps in explaining why the transaction volume mainly for the new homes has dropped significantly while the prices have not, and this standoff helps a lot in determining the future economy of the country.
References
Glaeser, Edward, and Joseph Gyourko. “The economic implications of housing supply.” Journal of Economic Perspectives 32.1 (2018): 3-30.
Goodwin, Neva, et al. Principles of economics in context. Routledge, 2015.
Taussig, F. W. (2013). Principles of economics (Vol. 2). Cosimo, Inc..
Why the Housing Market Is Slumping Despite a Booming Economy. (2018). Retrieved from https://www.nytimes.com/2018/11/15/upshot/housing-market-slumping-despite-booming-economy.html
FIN 6406-Corporate Finance
Len Lin
Professor’s name:
FIN 6406-Corporate Finance
17/10/2018
Final Exam
Problem 1 [10 points]1.0
1-year call option, S=100, E=87, rf= 3%(annual)I step per year
How much should the call option worth?
The initial and time-t values of the hedge portfolio are given by
HS0-C0= 103H- 50
103H-0
103H-0=103H-50
H=C+- C-/S+-S+ =0/50 = 0.5 shares
Therefore, a portfolio that is long 0.5 shares of stock and short one call is risk-free
0.5So-Co= 0.5*103-50= 26.5
It pays $ 26.5 in all cases
Since S=100, E=87, rf= 3%(annual) a bond that pays 26.5 will be worth today Bo=26.5/1.03= 25.73
This bond is equivalent to the portfolio 0.5So-Co
Therefore, the bond and hedge portfolio must have the same market value;
0.5So-Co=0.5*100-Co=25.73
50-25.73= 24.27
The call price will be $24.27
Problem 7 [10 points]
Consider the following average annual returns for Stocks A and B and the Market. Which of the possible answers best describes the historical betas for A and B
Answer: bA < 0; bB = 0.
Problem 6 [10 points]
We currently have the once-in-a-generation low interest rate environment, and the rates are likely to increase in the next decade. If you recently graduated from college and have a decent job, you have decided to purchase a relative expansive house to your income. Suppose that a bank offers you have three types of mortgages: adjusted rate mortgage (ARM), fixed-rate mortgage with constant payments (FRM) and graduated payment mortgage (GPM). Which type of mortgage should you choose and why?
Answer: One should choose the Fixed-rate mortgage since the interest rates remain the same throughout the term of the loan and since, the rates are likely to increase in the next decade, this choice would be the safest since the current rates are based on the low interest rate environment, while compared to GPM where, payment would start low and increase over time, meaning one will pay more in the next decade. Conversely, the ARM would also not be safe as the initial rate would be fixed for a certain period of time, after which it would adjust itself periodically either monthly or annually and with the anticipated increase in the mortgage rates one would pay more, thus the fixed-rate mortgage is the safest choice.
Problem 8 [10 points]
Suppose that Federal Reserve actions have caused an increase in the risk-free rate, rRF. Meanwhile, investors are afraid of a recession, so the market risk premium-rM-RrF, has increased. Under these conditions, with other things held constant, which of the following statements is most correct and why?
Answer: The prices of all stocks would decline, but the decline would be greatest for high-beta stocks.
Beta in stock tells us about the sensitivity of a stock or underlying with respect to the changes in the stock market. High-beta stocks exhibit greater volatility than broad market index. An increase in the risk-free rate will decrease in the prices of stocks but the decline would be greatest in high-beta stocks since they are very volatile and their prices go up and down very sharply.
“Just Clean Your Hands” Case Study
Name
Professor
Course
Date
“Just Clean Your Hands” Case Study
How would you feel if your negligence leads to the death of your most valued family member, friend, or relative? Accordingly, every individual must strive to embrace ethical behaviours and duly execute their roles and responsibilities to encourage the wellbeing of other people in the community.
Unfortunately, humans tend to learn from mistakes which could attract detrimental consequences. For example, in the 19th century, many women in Europe succumbed to childbed fever during delivery periods (Case Study 19). Luckily, an appropriate intervention by a brilliant doctor called Dr. Ignaz Semmelweis led to a drastic reduction in the number of deaths. Precisely, Semmelweis commanded every medical staff and student to wash their hands before attending to women in labour. As a result, the mortality rate among delivering women dropped to under one percent (Case Study 20). Therefore, several lives perished before healthcare management discovered the cause and solution to the rampant deaths among mothers. Hence, healthcare management must remain vigilant and proactive in identifying and preventing potential risks.
Although hand-washing proves to be one of the most effective ways through which humans can prevent communicable diseases, some individuals and institutions do not exhibit a hundred percent compliance to practice (Case Study 22). As a result, healthcare-associated infections (HAI) have been common in various parts of the globe. For instance, Canada experienced more than 250, 000 cases of HAI with over 8,000 deaths per year from the infections. Consequently, Canada spent millions of money in handling the HAI (Case Study 20). Hence, healthcare facilities should endeavour to ensure a hundred percent compliance with the hand-washing policy that the Center for Disease Control and Prevention claims to prevent the spread of diseases effectively. Canada, and probably other nations, could not have encountered many cases of HAI, related deaths and expenditure of huge amounts of money on treating the sick had it adopted the policy.
Unluckily, manly healthcare providers tend not to comply with the hand-washing policy even after learning on the importance of the practice and vigorous campaigns. In 2009, only 39 percent of doctors and 65 percent of nurses embraced hand-washing practice. (……Image……( https://www.google.com/imgres?imgurl=http%3A%2F%2Fimages.smh.com.au%2F2009%2F10%2F18%2F797040%2Fwashingcomplaince-graphic-420×0.jpg&imgrefurl=https%3A%2F%2Fwww.tapatalk.com%2Fgroups%2Foneworldtalk%2Faussie-doctors-don-t-wash-hands-often-risk-of-infe-t2879.html&tbnid=Ilw7duK3qk1Q0M&vet=10CIABEDMoogFqFwoTCKj9tsuFg-gCFQAAAAAdAAAAABAC..i&docid=oqPZFvb5oWAtLM&w=420&h=319&q=images%20for%20infections%20from%20not%20washing%20hands&ved=0CIABEDMoogFqFwoTCKj9tsuFg-gCFQAAAAAdAAAAABAC)) ( intext citation: Wallace). Therefore, it is ethically wrong for a nation and its healthcare facilities to allow the spread of infections by not embracing particular strategies that have been tested and proven to be effective in handling contagious infections.
Furthermore, disease-causing microorganisms that are linked with HAI are highly-challenging and difficult to be contained. First, such pathogens exhibit high-resistance to antibiotics. Consequently, the pathogens could lead to more deaths as well as massive costs of research, treatment and care for patients. Besides, some of the microorganisms can survive in harsh environments for more extended periods of up to sixty minutes. Subsequently, there are high chances that pathogens come in contact with more people. As a result, more infections could overwhelm healthcare facilities. Thus, concerned authorities should endeavour to prevent the spread of the diseases to gain better reputations and trust from the public and remain highly-effective and efficient in treating patients suffering from ailments they contracted outside their facilities.
Also, it is hurting and demoralizing to learn that an individual could contract new diseases by visiting healthcare facilities. Instead of treating patients as usual, healthcare facilities would turn out to be the origin of further infections by not embracing hand-washing practices. Besides, healthy people, including healthcare providers, medical students, managers and persons visiting the sick at hospitals could become victims of HAI when hand-washing is not practised. Healthcare staff inevitably come in contact with patients because they could be physically examining them or administering drugs (Case Study 20). Subsequently, the healthcare staff could transmit more deadly pathogens to patients who were initially suffering from acute infections. Although healthcare providers could be unaware of the pathogens, they would be held accountable for the consequences of their actions.
On the contrary, healthcare providers could contract infections from patients. Subsequently, sick healthcare staff would remain less effective and inefficient while delivering relevant services. As part of the management team, therefore, the Board of Governors should strive to ensure a healthy and safe work environment for its employees, patients and visitors to promote better service provision.
As responsible parties, local authorities, especially the Board of Governors for healthcare facilities, should strive to ensure a hundred percent compliance with the policy of hand-washing to prevent HAI. In the long-run, healthcare facilities, local authorities and governments would save lots of money that could otherwise be used to treat new infections, contact further research with regards to the development of antibiotics and establishment of more healthcare facilities. Moreover, the interested parties would not incur substantial expenses in the short-term since the practice of hand-washing demand relatively limited and less-costly resources such as sterilizers, antiseptics and disinfectants. However, additional efforts should be employed to ensure that every healthcare staff, medical student, visitors and other relevant persons wash their hands before coming in contact with patients and their environments. Specifically, more punitive measures should be developed and implemented against individual who breaches the policy. Therefore, the Board of Governors should adequately exercise their mandate and responsibilities of ensuring orderly and operating healthcare facilities where applicable rules and regulations are strictly adhered to by all the concerned parties.
Overall, hand-washing serves as an effective way through which healthcare facilities would discourage the spread of contagious diseases. Unfortunately, a hundred percent compliance of the policy is yet to be achieved. Therefore, concerned authorities, including the Board of Governors, should invest reasonably in ensuring that adequate resources for hand-washing practices are available. Besides, additional efforts should be employed to ensure strict adherence to the policy. Since it is relatively cheap and highly-beneficial for healthcare facilities to implement the strategy, the Board of Governors should use their powers and authority to ensure a hundred percent compliance.
Works Cited
Case Study
Wallace, Natasha. “In The Wash-Up, Doctors Forget About Hygiene”. The Sydney Morning Herald, 2009, https://www.smh.com.au/national/in-the-washup-doctors-forget-about-hygiene-20091018-h303.html.