Sally Maven had advised many clients about pricing strategies over the years, but in the fall of 2023, she felt anxious about how to direct her newest customer, multinational brewer Anheuser-Busch (AB) InBev. Antitrust authorities had scrutinized AB InBev on multiple occasions in the past, and as a prominent player in the drink market, the company seemed like a possible target for future inquiry. Even if market circumstances warranted raising prices of AB InBev products, would doing so be wise given the potential for action by the Federal Trade Commission (FTC)? This case was written for use in Darden's global economies and markets (GEM) core course for a class on the economics of market power. The case helps students understand the differences in profit-maximization for firms in monopolistic and competitive markets while compelling students to think about various issues that can influence the ultimate price of a product. Using demand and cost schedules for AB InBev, students will need to calculate the firm's optimal price for a six-pack of beers under multiple demand scenarios. With the potential for FTC scrutiny in mind, students will need to consider whether to recommend a price that maximizes short-run profits or an amount closer to the competitive market price.
This case, a follow-up to "Light Rail in Denver?: The Private Sector and Infrastructure Development (A)" (UVA-GEM-0188) revisits Nwanneoma "Neena" Ngondai as she reflects on the work of the Denver Regional Transportation District and what actually happened after the proposed expansion of Denver's public transit system.
This technical note explores how the macroeconomy affects businesses and individuals in everyday life, from pricing to job prospects to investing. Students of macroeconomics will gain insight into the benefits and usefulness of their studies both while in school and beyond.
This case follows Maxine Waters, chairwoman for the US House of Representatives Committee on Financial Services, as she faces the stock market phenomenon in early 2021 surrounding GameStop. The morning of February 17, 2021, Waters was leading a hearing on allegations of manipulation in the market for GameStop stock. A few weeks prior, the company's stock surged from around $40 a share to nearly $400 over the span of a few days. Then, on January 28, the stock plunged from nearly $500 to $120 in under 90 minutes. Given the importance of her role as chair of the Financial Services Committee, Waters wanted to carefully consider the trade-offs and potential unintended consequences of any new regulations. Financial oversight required a broad understanding of the social value of financial markets. With that understanding in hand, one could better assess the social implications of any new regulations.
This public-sourced case uses the California housing crisis to analyze economic policy in an environment featuring a rising cost of living and shrinking affordable housing options. The case discusses policy options as well as the role and incentives of the private sector in helping develop more affordability. In the case, economist Renee Bowen examines the tradeoffs involved in government intervention in housing markets. This includes understanding the causes of the state's rising costs of living, evaluating whether California needed more affordable housing, and assessing policy options to address high housing costs. Three big-picture questions are considered: Should the state government intervene to address housing affordability? What interventions might be most effective? And what would caution against government invention?
What is monetary policy and what is the Federal Reserve's (Fed's) role in determining monetary policy in the United States? How are changes in monetary policy implemented and how do these changes affect firms, households, and other stakeholders? This technical note addresses these questions by outlining the Fed's legal mandate, the tools at its disposal to achieve that mandate, and the mechanisms through which the Fed's policy choices affect macroeconomic outcomes. This note is designed to follow a sequence on the IS/LM-AD/AS model of the macroeconomy (e.g., as presented in UVA-GEM-0125, UVA-GEM-0126, and UVA-GEM-0127). In particular, students are expected to approach this note with prior exposure to a formalization of an economy's potential level of output and how changes in the money supply affect GDP, employment, and the price level. This note expands on prior technical material by distinguishing between the monetary base and the money supply (and hence defining the money multiplier).
As Joseph Biden began his presidency in early 2021, he was faced with the enormous task of balancing his more centrist tendencies with the increasingly activist part of his coalition. More generally, he would need to understand the forces that contributed to subpar economic performance and to redirect government efforts to supporting a market economy that benefitted all Americans. To do so, he would need to understand the arguments for and against government intervention in a variety of contexts.
In March 2020, Jay Powell, Federal Reserve (Fed) chairperson, faced a daunting prospect that only a few months prior seemed like a remote possibility: massive expansion of the Fed's balance sheet. Over the past five years, the economy had experienced steady economic growth, permitting the Fed to reduce its balance sheet. The Fed's economists expected the trend to continue. But the rapidly spreading global coronavirus pandemic (known as COVID-19) had rendered moot all prior forecasts. In addition to the health crisis, the United States-and the world-faced the prospect of another economic crisis-just over 10 years after emerging from the largest recession since the Great Depression. How should Powell and his counterparts who ran fiscal policy respond to the crisis? And to what extent could the policy experiments implemented in response to the Great Recession of 2008 guide the monetary and fiscal policy interventions in response to the pandemic crisis?
This note describes how the behaviors of competitive buyers and sellers interact to determine market outcomes-the price at which a product is sold, and the quantity of a product that is exchanged. It begins by defining supply, demand, and market equilibrium. It then derives firms' supply curves from its marginal cost curve, and demonstrates how the firm's optimal production decision depends on the market equilibrium price. Finally, it shows how different factors that affect the market also affect a firm's production decision.
When we introduce macroeconomic models, we assume that goods and services are exchanged within a single country but not across countries. This assumption is useful for understanding some of the primary determinants of output, inflation, and interest rates. In reality, however, economies trade with each other, and the presence of international markets has implications for national economies. In this note, we incorporate international markets to understand how changes in one country can affect other countries.
In February 2018, Jerome Powell had taken over as chair of the FOMC. At first glance, the macroeconomic conditions inherited by Powell appeared favorable for continued stability: unemployment and inflation were low, and the economy had been steadily growing for nearly a decade. Yet despite the appearance of stability, the economy faced significant risks that required the Federal Reserve's attention. Was an uptick in inflation imminent, and if so, should Powell raise rates to limit any inflationary pressure? Or was the economy still operating below capacity, and if so, should the Federal Reserve take a more accommodative stance? To gain perspective, Powell needed to look back at the past fifty years of monetary policy in the United States.
This case uses France's labor market and regulation reforms in 2018 to illustrate how deregulation and labor market reforms can affect an economy's potential GDP. The case discusses President Emmanuel Macron's efforts to boost economic growth through economic liberalization, focusing on small- and medium-sized enterprises. The material allows for an examination of the effects of regulation on labor policy. If implemented, would the reforms boost broadly based growth? Would lowering taxes and regulation continue to boost France's economy, or would it unnecessarily put France's social safety net at risk?
Ebony Jones manages asset allocation for Colorado's Public Employee Retirement Association (PERA). She is worried that some asset price measures are approaching levels observed prior to the Great Recession, and she is pondering whether she should shift PERA's asset allocation toward cash and fixed-income investments as a precaution. To put the current market situation in perspective, she looks back at the causes and consequences of the Great Recession. Were there clear warning signs of asset bubbles and impending recession prior to 2008? To what extent does today's economy resemble the pre-2008 economy, and what are the implications for Colorado's retirees and the broader economy if stocks and real estate are due for a correction? The case was written for use in Darden's Global Economies and Markets (GEM) core course during a class on the causes of the Great Recession. Each class in the course focuses on a different subset of exogenous variables in the IS/LM AD/AS model that underpins the course. This class focuses on shocks to wealth, consumer confidence, and credit supply, each of which was increasing during the run-up to the crisis and subsequently plummeted.
Quentin Bell, the owner of a small oil extraction firm, BE Oil, owns the rights to drill on six different wells. Drilling requires substantial up-front costs, and each well has different drilling costs and production capability. Bell's challenge is to decide which wells to drill based on his expectation of the price of oil when it is extracted. The case was written for use in Darden's global economies and markets (GEM) core course during a class on the economics of competitive markets. The concepts of supply, demand, and equilibrium are often obscure to students at this early stage in the course, and this case provides a concrete example of how a firm in a competitive commodity market determines how much oil to produce. Students are asked to derive the firm's supply curve, relate that to the oil market supply curve, and ultimately recommend how much oil the firm should plan to produce. The plan pushes students to think about marginal cost/ marginal benefit analysis, implicitly at first and explicitly at the end of class. Students are also asked to consider how exogenous variables in the oil market affect the oil price and the firm's decision.
This case uses Japan's low-growth episodes since the 1990s to analyze economic policy in an environment featuring excess capacity, low growth, and low inflation. The case discusses the rationale behind "Abenomics"-Prime Minister ShinzÅ Abe's three-pronged approach to stimulating Japan's economy. In the case, Haruhiko Kuroda, the governor of the Bank of Japan (BOJ), is tasked with making the case to stick with Abenomics after five years under the policy. Were the three prongs of policy changes on course or was one or more of the prongs failing to reenergize growth? The answer would be especially topical during the upcoming general election, which many viewed as a referendum on Abe's economic policies.
Alexandre Tombini, the governor of the Central Bank of Brazil, faced a difficult situation in July 2015. Inflation was in the double digits, well above the target rate of 4.5%, and unemployment had increased from around 4.5% a year prior to nearly 8%. Any actions Tombini took to control inflation would most likely exacerbate unemployment, at least in the short run. To further complicate matters, Tombini's office was not independent of the executive branch of Brazil's government, and Tombini faced the possibility that any of his actions that were not aligned with the priorities of the current administration could cost him his job. This case follows classes on fiscal and monetary policy in normal times and is the first class in a sequence on macroeconomic challenges-in this case, stagflation-high inflation and high unemployment. Students are pushed to consider why macroeconomic stabilization involves such acute and unpleasant tradeoffs during episodes of high inflation and unemployment. Students use the IS/LM AD/AS model as a reference.