IAI Actuarial Core Principles · Business Economics · Relationship between economics and business
A steel manufacturer in India finds that its own sales fall sharply even though the economy-wide index of industrial production is rising. Which statement best explains why both micro and macro analysis are needed?
Aggregate growth can coexist with a weak result for one firm, because macro indicators hide differences between firms and markets. Firm-specific factors such as competitor pricing or product demand must be analysed with microeconomics, while macroeconomics supplies the broader background conditions.
- AMacroeconomic growth guarantees that every firm's sales rise, so the firm must have made an accounting error
- BAggregate growth can coexist with weak performance in a particular firm or market, so firm-level factors such as competitors' pricing must also be examinedCorrect
- CMicroeconomics is irrelevant when the macro economy is growing
- DMacroeconomic data are simply the sum of firm data, so the situation is impossible
- Only government policy can explain falls in a single firm's sales
Explanation
Aggregate indicators describe the whole economy and mask variation between firms and sectors. A firm can lose share to rivals or face cost or demand shifts specific to its market even in a boom. Hence macro conditions set the background but micro analysis explains firm-specific outcomes.
Did you get it right without looking?
One question tells you little. A timed set on Relationship between economics and business shows your real accuracy, how long you take and where you lose marks.
More Relationship between economics and business questions
- Which of the following questions would a life insurer's economist most naturally address using macroeconomic analysis rather than microecono…
- A life insurer in India is assessing how the business environment affects its strategy. Which development is best classified as a change in …
- Which of the following is a normative statement rather than a positive statement?
- An Indian insurer is reviewing factors outside its control that affect its business. Which of the following would be classed as part of its …
- A Mumbai insurer's owners are separate from its professional managers, who are paid bonuses linked to premium volume. Managers therefore pus…
- A life insurer's analyst says, 'Increasing the sales force by 10% will raise sales, but each additional agent beyond a point will add less t…