Critical Analyses. The student is to provide a brief summary of an article, and an analysis and critique of a statement in the article which either contains a microeconomic concept or implies the concept. Four (4) current (within three months of the date of the assignment) news stories, magazine articles, opinion columns or any combination of the aforementioned, dealing with the application of microeconomics to decision making are to be submitted to the instructor. In the analysis, students MUST indicate what microeconomic concept(s), principle(s), theory (theories), etc. is (are) being used (or implied) and if it (they) is (are) being used (or implied) correctly. Note that professional journals in economics are NOT listed in the above items to be analyzed.
In these reports, the students are, in essence, developing discussion questions and answering them. Students are not analyzing and critiquing an entire article, just a statement or statements in the article.
The body of the reports (excluding cover page, references, and appendices) is to be no more than three (3) double-spaced, typewritten pages. The reports MUST include the following, in addition to the body:
a. a cover page and
b. an appendix which contains a copy of the article, with the statement(s) being analyzed highlighted. Failure to include the article with the statement(s) being analyzed highlighted will result in a zero grade for the assignment.
All graphs/tables are to be included in the body of the report.
Students may want to use the following subheadings in the reports: Introduction or summary (of article), analysis, and critique [of statement(s) analyzed from the article].
These reports MUST be typed and are graded on content, English (i.e., grammar, punctuation, spelling, capitalization, etc.) and style in a 7:2:1 ratio, respectively. Late reports, as well as reports that are not typed, are NOT accepted and will receive a grade of zero (0). Reports may be submitted before their deadlines. They are to be submitted to the instructor in Canvas or by e-mail.
An example of the critical analyses reports follows:
The article chosen is “Amazon, Microsoft Earnings Better than Expected” by Michelle Kessler and Jon Swartz, USA Today, April 23, 2004. (You will have to check the source for the entire article.)
Summary of the Article
“The financial performance of Amazon.com during the first quarter of 2004 is discussed in the article. Both revenue and profit increased compared with the same period for the firm during 2003. Tom Szkutak, Amazon’s chief financial officer, identified three reasons why the firm’s revenue and profit increased: lower prices, more types of products offered for sale, and free shipping on some orders. However, industry analyst Dan Geiman of McAdams Wright Ragen questions whether lowering prices might have hurt Amazon’s profits.
Analysis of the News
We know that whether lowering price increases or decreases a firm’s revenue depends on the price elasticity of demand. “Amazon CFO Tom Szkutak credited the strong sales to lowered prices, expanded selection and the company’s continued offer of free shipping on orders of more than $25 in the USA.” “Amazon’s CFO is implying that demand for the firm’s product is elastic. When demand is elastic in the relevant range, lowering the price per book increases sales by a larger percent than the decrease in price, so revenue (which is price times quantity) increases.”
Dan Geiman, the analyst of McAdams Wright Ragen, stated that, “’The lower-pricing strategy drives volume and sales, but the question is whether they are giving away so much it affects the bottom line.” “Geiman refers to Amazon’s profit (which is total revenue minus total costs), rather than its revenue. Since Amazon’s cost per book (or other item) sold does not change much with changes in the quantity of books sold, increases in revenue from decreasing the price should result in increases in profits. Geiman implies that Amazon faces an inelastic demand curve and decreasing the price per book increases sales by a smaller percent than the decrease in price, so revenue decreases.”
Thinking Critically
“Who is correct, Szkutak or Geiman? Because Amazon sells many products, it is difficult to determine what the price elasticity of demand is for every product it sells. Economists Judith Chevalier and Austan Goolsbee (“Price Competition Online: Amazon Versus Barnes and Noble”) estimated that Amazon’s price elasticity of demand for books is -0.45. If this estimate is correct, decreasing the price will actually decrease the revenue Amazon receives from selling books, and Geiman is correct to question the firm’s policy.
It must also be kept in mind that price elasticity of demand generally changes with a movement along a demand curve and that price elasticity of demand has been affected as, over time, more and more of Amazon’s competitors have gone online.”
NOTE: Do not choose more than one statement to analyze and critique, unless there are two or more opposing views in the article on the concept. There are two opposing views in the example, so two statements are analyzed and critiqued.