Problem 1:
• Is the advice, "Know your customer" a management strategy or economic concept or both? Explain.
• How can managers use economic concepts to manage more strategically? Give three specific examples.
• How does making tradeoffs apply to business management?
Discussion:
• Consider illegal immigration. How would illegal immigration be affected if all countries had property ownership rights as well defined as in the United States?
• Consider the following statement by Charles Wheelan, author of the Naked Economist: "The problem with Asian sweatshops is that there are not enough of them." How is Wheelan's statement illustrative of fundamental economic concepts?
• Describe the types of information that market prices provide.
Part 2:
• What are the incentives of government bureaucrats who run public services such as the water services, the parking services, and the airports? Do these incentives differ from those of private companies in running these services? Why or why not?
• Why would the general public want the government to provide water rather than a private for-profit company?
• How does the government protect property ownership rights?
Discussion:
• Can trade and exchange occur within the firm without the existence of private property rights? If individual property rights are necessary for economic success, how might the firm allow property rights?
• What are the "boundaries" of a firm? What determines the extent of vertical boundaries? What determines the extent of horizontal integration? Use a cost-benefit analysis to describe the optimal boundaries of a firm.
• Why does the evolution of large firms lead to a principal-agent problem? How can the principal-agent problem between owners and managers be minimized?