School of Business & Management

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Name Rizky Adriyantho Yahya

Student ID 29316101 Mobile phone 081218633413

Course code and title Business Economics

Course time and place 08.00 – 11.15 kirana megatara 1 Program Entrée 11
Lecturer Yudo Anggoro, Ph.D

Assignment number Due date 21-04-2017

Assignment title/topic/case Final exam business economics
Assignment type (choose one)
( ) Midterm Exam
( v ) Final Exam
( ) Individual Assignment
( ) Group Assignment
( ) Other

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21-04-2017
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Part I
1. What is the basic difference between using a subsidy to induce producer’s to
install antipollution equipment and a tax on producers who pollute?
The main different between using a subsidy to induce producers to install antipollution equipment and
a tax on producers who pollute, is that using a subsidy’s a proactive measure to put a check on pollution
that is influence and caused by producers, while imposing a tax on producers can only be done after
some sort of negative impact or harm has been compromised to the environment. In providing a
subsidy to the producers, the government can then encourage producers to select preventive measures
that will benefit the business and help them conduct the business in an ethical and beneficial manner.
By doing so, it will also impact the industrial manufacturers by preventing them from negatively
affecting the environment and causing harm to animals and humans. Additionally, it is very difficult
to put a true measure on the damage or negative impact that pollution may impose on animals and
humans, therefore imposing tax on producers, the government will have way of imposing an ethical
and beneficial option for producers to conduct their business (es).
2. In the late 1960s, George Akerlof wrote “The Market for Lemons”, the paper
that later won him a Nobel prize. He explained how “information asymmetry”
between buyers and sellers could kill the market, using used-car market as an
illustration. In reality, however, we see that used-car market is thriving, not
collapsing, at least to date. Does this mean that Akerlof’s explanation is wrong?
Explain your argument.
The classical view of science would hold that Akerlof has told us something about used car
markets, and to confirm his theory one has to test it and see if it is refuted. But, with all due
respect to the used car market, this is not what Akerlof received the Nobel Prize for. And, in
fact, if it so happens that in that market Akerlof’s model does not predict outcomes too well,
this would not change much in the way economists view this model. To capture the way
economic theorists think about this model, the lemons story can be taken as an illustration, a
metaphor, or a parable. These are different ways to describe the fact that one learns so much
from this story, and not necessarily about the used cars, which the story deals with on the
surface. We would suggest calling such a story a “theoretical case”.
3. In order to drive up Indonesia’s economic competitiveness, the government
attempts to develop new growth centers around the country to generate economic
activities. The new growth centers are located for example in Sei Mangke,
Bintuni, Morotai, and other places. How do you see this policy, what are the
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strengths and weaknesses of this policy? How could this policy generate new
business formation in those new growth centers?
Strengths:

Strengths Weakness
• Solid basic skills and a large available • Communication infrastructure
workforce • Unreliable electricity supply
• Promising reforms of rules and • Labor market rigidity
regulations affecting business • Limited depth in the financial
• Solid financial system system • Weak educational
• Greater formal opening of the economy quality
to trade and investment • Weak cluster collaboration and
• Wide array of potential clusters, development
especially in natural resources-related • Lack of advanced skills
fields

To generate new business growth centers government should continue progress on regulatory
reforms, improve logistical infrastructure, electric supply, and reduce rigidities in the labor
market. Government should introduce the cluster to the foreign and local investor to develop
the cluster. After investor interest with the cluster local people should manage the funding to
focusing on cluster developing.

4. We have talked about how disclosure of restaurant hygiene quality grade cards

in the U.S. eliminates “information asymmetry” between restaurant owners and

consumers. Suppose you are a restaurant owner in Jakarta, and the Jakarta
government is to put in place the same regulation (e.g., kitchen inspection to
ensure compliance with local hygiene standard, requirement to post the
inspection result in restaurant windows). Do you think this will bring more harm
or good to your business? Explain.
In my opinion, information asymmetry will bring more advantages to restaurant business in
Jakarta. It show that the grade cards cause (i) restaurant health inspection scores to increase,
(ii) consumer demand to become sensitive to changes in restaurants' hygiene quality, and (iii)
the number of foodborne illness hospitalizations to decrease. Providing evidence that this
improvement in health outcomes is not fully explained by consumers substituting from poor
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hygiene restaurants to good hygiene restaurants. These results imply that the grade cards cause
restaurants to make hygiene quality improvements. Information asymmetries are also present
in the phenomenon known as adverse selection. The typical examples are insurance contracts
that are offered without health examination so the insurer lacks knowledge about the
customers’ health history (information asymmetry). People with better health prospects are
likely to accept other policies with mandatory examinations and they will get better contract
terms. The higher percentage of customers with poor health results in higher treatment costs
and forces the insurer to raise its fees, which is detrimental for all its customers, regardless of
their health condition. Transposed to the securities markets, the concept of adverse selection
suggests that badly informed investors will tend to choose investments which are less
attractive and that this will result in a worse market outcome.
5. Different countries/places have taken different pathways in their economic
development. Many factors can contribute to these differences such as culture,
demographic, market size, etc. Please compare differences in economic
development in Singapore, Rwanda, Vietnam, Saudi Arabia, and Indonesia.
Please put your comparison in a table.
Singapore  Activity of negligible seismic and the crossroads of international
shipping
 Multinational organizations discovered Singapore is a
characteristic center point and were urged to extend and flourish.
 Geographic location is more strategic
 Monetary policy that encourages productivity gains, fiscal policy
geared towards growth supported by government
Rwanda  Government control of corruption and sustained investment by
the Government Flexible policy; national poverty reduction
strategies initiated since 2002 to drive Vision 2020.
 These policies have continued to evolve depending on the
changing needs of the economy
 More than 85% of the country’s workforce is in the agricultural
sector, which has long been the engine of the economy, tea and
coffee being the major country exports
Vietnam  Joining WTO
 The policy on open foreign trade has pushed up Vietnam's
economic growth
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 Vietnam Agricultural reform is the most significant to the cause

of economic development and poverty reduction of Vietnam
 It is now the world's second biggest rice exporter, right behind
Thailand
Saudi  Saudi Arabia Absolute monarch system with sharia law

Arabia  Saudi oil reserves are the second largest in the world, and Saudi
Arabia is the world's leading oil exporter and second largest
producer
 By 1980, foreign ownership of business was allowed. In the mid-
1990s, foreign ownership rules were relaxed again, with
investment sought in telecommunications, utilities, and financial
services
 Saudi government has attempted in years past to raise
employment by forcing "companies to fill at least 30% of their
positions" with Saudi citizens
Indonesia  Reform the governmental service. Broaden the investment base.
As the competition for global capital becomes increasingly fierce,
Indonesia needs to diversify and expand its traditional geographic
base for investments. Not only in the capital like Jakarta.
 Focus on infrastructure. The infrastructure deficit in ports,
railways, roads and utilities has limit Indonesia from reaching its
full economic potential. Infrastructure development creates jobs,
improves productivity, and facilitates new economic
development, including expanding SMEs and the middle class.
 Facilitate more for SME. SME is still the biggest percentage in
Indonesia. Like training for human resource, technology, also
socialization about financial instrument for capital and loan.

6. Some reports from prominent think tanks in the world have indicated that cities
will play more important roles in business and economic development in the
future. There will be shift in the development, from countries to cities. In your
view, how could cities be more instrumental in shaping the way people live and
conduct business in the future? What are the strategies for business to anticipate
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this shift? Please incorporate your answers by comparing the development of

New York City and Dubai we have discussed earlier in the class.
There are many factors that creating cities more instrumental in shaping the way people live
and conduct business in the future.
 Culture as a force for urban inclusion
As hubs of migration and trade, cities draw their strength from the diversity of their
populations. Cities are probably humanity’s most powerful and effective inventions to
bring people and talents together, to foster new ideas and create a sense of unity in
diversity.
 Ensuring the environmental sustainability of cities and building their resilience
The rapid pace of urbanization and population growth in recent decades has also
resulted in a greater concentration of people, jobs and property in informal settlements
and hazardous areas, oftentimes with devastating consequences for people and the
environment. Engaging local governments, especially mayors, and providing them
with information and tools, is therefore, crucial to enhance the resilience of cities to
climate change and natural hazards. Moreover, failures in urban planning models over
the last decades call for culturally-sensitive, sustainable urban development models,
in line with human rights principles.
 Participatory urban planning
To ensure equity and inclusion in urban planning, fostering the meaningful
participation of all citizens, including populations most prone to marginalization and
exclusion, is crucial. Decentralization processes are a common feature of urban
governance around the world, while new levels of governance and complex decision-
making levels of government are emerging, which require heightened coordination,
particularly at the local level.

The strategies for business to anticipate this shift are:

 Build a greater understanding of and a stronger connection to increasingly

empowered consumers
Empowered by technology, the hyper connected consumer is redefining value.
Businesses will have no choice but to remain agile, and constantly innovate and disrupt
themselves by embracing new technologies to meet the high standards and
expectations of consumers.
 Unlock the power of transformative business models in physical and digital
spaces
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The line between online and offline will continue to blur. Emerging business models
will continue to proliferate, gaining scale and momentum. With slow-growing
incomes in most digitally developed countries and a shift in consumer spending from
products to services. Despite growth in e-commerce, the physical store will continue
to be the channel that contributes the most revenue for the majority of large
multichannel retailers.

In my opinion New York and Dubai has similar way to develop the cities. As we know
New York and Dubai is Salad bowl ( concept suggests that the integration of the many
different cultures of United States residents combine like a salad, as opposed to the more
traditional notion of a cultural melting pot ). Dubai since the price of oil is unstable, right
now is developing another sector to help economic growth in tourism sector. Also Dubai
did not forget their first culture with evidence in daily practice of local people in there still
broadcasting the call for prayers up to now. And New York itself have challenge to the
population getting bigger and infrastructure getting older. This cities is the example of
modern and developed country has serious challenge to fix this issued.
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