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Economic Analysis: You will follow one firm of your choice for the entire session. You will analyze how this firm makes economic decisions as well as how events in the economy affect the firm. Please choose ONE Fortune 500 firm from the following list (feel free to use ANY firm, it does not have to be in the top 10):

You will follow one firm of your choice for the entire session. You will analyze how this firm makes economic decisions as well as how events in the economy affect the firm. Please choose ONE Fortune 500 firm from the following list (feel free to use ANY firm, it does not have to be in the top 10):

Fortune 500

After choosing one firm, address the following questions in a 5-page essay:

  1. What is the organization you are going to use? Why do you think it will be an interesting focus for your economic analysis?
  2. What are positive and normative statements? Describe the difference between these two types of statements in your own words. Write at least ONE positive and ONE normative statement about your firm.
  3. Find any current event/article regarding your firm from an online resource (nytimes.com, online.wsj.com, etc). Be sure to reference this article in your paper. Summarize the issue and how it relates to at least ONE of this module’s economic concepts (opportunity cost, scarcity, factors of production, diminishing returns, spillover principle, etc.)

SLP Assignment Expectations

Use concepts from the modular background readings, as well as any good-quality resources you find from the Trident online library or other Internet search engines. Be sure to cite all sources within the text and provide a reference list at the end of the paper.

Length: 4 pages, double-spaced and typed.

The following items will be assessed:

  • Your ability to perform an economic analysis of a firm of your own choice.
  • Some in-text references to the modular background materials (APA formatting not required).
  • The essay should address each element of the assignment. Remember to support your answers with solid references.

The Solution:

Economic Analysis

Question 1

Economic analysis is one of the most ideal techniques of determining the financial health of a company. In this paper, the company of interest is JP Morgan Chase Bank. It is a financial institution whose core business ranges from providing loans to both small and large institutions to investment banking. It is one of the oldest financial institution in the history of USA with an asset base of approximately $2.4 trillion (JPMorgan Chase & Co., 2017). Further, it has operations in more than 100 different countries in the world hence it is a large employer. The stock of the organization is a component of the Dow Jones Industrial Average.

The reason for using JP Morgan Chase Bank is that it has been in existence for a long time (JPMorgan Chase & Co., 2017). The company has survived some of the worst economic depressions in the American history and still managed to be listed as one of the current tier 1 banks. There is plenty to be learnt from an analysis of the institution since its growth since inception is provides insight on the business life cycle. Further, it has managed to remain profitable despite having reached the peak stage. As such, it is suitable for a detailed and comprehensive economic analysis.

It also presents an interesting focus due to its availability of data. Information on the company is freely and readily available on its website and other newspaper articles. Due to its size and the large shareholder base, the company is of interest to many individuals. As such, data about its governance, its earnings and other key financial elements are readily available (JPMorgan Chase & Co., 2017). The economic analysis is, therefore, made easier since the relevant data is accessible to the researcher. Additionally, the brand awareness of JP Morgan Chase Bank makes it easy to evaluate the opinion of the public towards the company.

Question 2

In economics, positive statements are statements that are based on facts. Since there exists data that supports the statement, it is assumed to be objective (Mankiw, 2015). They are reliable since different analysts can test the point being put across and either approve or disprove. Over time, individuals have argued that policies should be set based on positive statements. They can be adjusted to fit the current data hence they remain relevant in making decisions. It should be noted that positive statements are not based on the herd mentality and do not blindly approve the public’s opinion. They are, therefore, reliable and objective.

Normative statements are statements that are based on the opinions of people (Caplin & Schotter, 2010). There is no underlying data that can be tested to either prove or disprove them. They are considered subjective and value based since there is no real foundation to their existence except for the attitude of individuals towards a particular situation. There have been instances where normative statements have been shared on numerous occasions making people believe that they are factual. However, it is important to note that they describe the opinions of different people and do not serve as a true reflection of the existing circumstances.

One of the main differences between normative and positive statements is that positive deals with facts whereas normative deals with opinions (Mankiw, 2015). As earlier described, positive statements are objective and have data that can be tested to provide a conclusive result. Analysis by data is more concrete since it a true reflection of people’s tastes and preferences. It can be used in determining the potential results of an election since the data collected will assist in modelling the people’s real view. However, normative statements are subjective and value based. An example can be given of a campaign manager who voices that his or her candidate will win the election without considering any real data.

The second difference between the two branches of economics is that positive does not have to be correct whereas normative has to be correct. Researchers are able to test positive statements (Caplin & Schotter, 2010). They can build models on which they can test the available data. As such, the theory spanned can be approved or disproved. However, it is impossible to test normative statements. There is no data to support or disprove the opinion that is being held by the masses. As a result, should the statements be incorrect it could lead to the spread of propaganda.

The final difference is that positive statements explain the cause and effect relationship between variables whereas normative statements pass value judgement (Mankiw, 2015). There exists a relationship between the elements of a positive statement. An example can be given of a declaration that an increase in income leads to a higher purchasing power. In this case, the independent variable is the increase in income and the dependent is the purchasing power. A study conducted to test the validity of that positive statement will highlight a cause and effect relationship between the two variables. The same logic is not applicable in normative economics.

Both positive and normative statements can be identified from a study of the JP Morgan Chase Bank. A positive declaration will state that approximately 50% of the bank’s revenue is derived from servicing the small businesses. This theory can be tested since the total revenue of the bank in a given financial period is drawn from its financial statements and a breakdown of the different sources of revenue is available. One can then calculate and determine if indeed 50% of the company’s revenue is obtained from its relationship with small businesses. An example of a normative statement would be JP Morgan should expand the sphere of its work in data analytics. It is subjective and value based.

 

Question 3

According to an article in the Guardian by Helmore (2016), JP Morgan Chase Bank intends to raise its minimum wage by 20%. The current minimum wage for employees lies at $10.15 an hour. The management plan to raise it to between $12 and $16.50 an hour depending on the location of the branch. This initiative will affect approximately eighteen thousand employees. Such a move by the management relates to the spillover principle since an increase in the minimum wage of the employees increases their purchasing power and contributes towards economic growth and development.

Conclusion

The decisions made by the management of companies put into practice the economic theories and models. They employ techniques such as the spillover principle and the opportunity cost and this has a general effect on the growth and development of the country. In relation to positive and normative statements, it is important that individuals identify the differences since it helps them understand whether a statement is a true reflection of the financial situation of the company or not.

References

Caplin, A., & Schotter, A. (2010). The foundations of positive and normative economics: A handbook. Oxford University Press.

Helmore, E. (2016). JPMorgan Chase raises its minimum wage by 20%. Retrieved from The

Guardian. https://www.theguardian.com

JPMorgan Chase & Co. (2017). JPMorgan Chase & Co. Retrieved from JPMorgan Chase & Co.: https://www.jpmorganchase.com

Mankiw, N. G. (2015). Essentials of economics. CengageBrain.com.

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