Quiz 2: Understanding Basic Economics


A consumer's loyalty towards a specific brand is a function of the consumer's experience with the brand's product and services. If the brand's is able to differentiate itself by providing unique and quality products, and services, it can enjoy customer loyalty. As in the given case, the company is producing a unique product and consumers are willing to wait for weeks for the product's delivery. The customer loyalty is not static. In order to maintain loyalty, companies are required to continuously deliver excellent products and timely services. If they fail to fulfill demand and provide services in a timely fashion, the consumers can switch to other companies for fulfillment of their demand. Losing a loyal customer is considered as the biggest loss in industry because a company invests almost nothing to make a sale to a loyal customer. If the company fails to provide timely delivery of the mobile phone, the consumers can switch to its competitors. To avoid the transition of its consumers towards other brands, the company is worrying about producing enough mobile phones.

Subprime mortgage: Subprime mortgage is a mortgage that is provided to the borrowers who has poor credit ratings. Due to the poor credit rating of the borrower, a conventional loan is not presented. The creditor views the mortgagor as having a larger possibility of non-payment on the loan. Lending organizations frequently charge higher rate of interest on such mortgages in comparison to a conventional mortgage. Whence, they could be paid off for carrying additional risk. These loans trigger a recession because the borrowers are exposed to a higher risk for lenders. These mortgages charge higher interest rate that is usually higher than the rates of prime lending.

Feed-in-tariff is a method used by the governments to boost the consumption of solar electricity. People or business firms whose solar panels generate more energy than their actual consumption capacity can sell them back to the utilities. Their Governments buy this electricity at comparatively higher rates than the actual market rate. In this way, the homeowners and business firms who use solar power are getting good profits. On the other hand, electricity users who don't adopt solar power due to high installation cost or having rental houses have to pay huge electricity bills to the government or the homeowners. This outcome is not fair because it would create huge differences between the solar power users and non users. It might create dissatisfaction among the electricity users who cannot adopt solar power. These people might feel neglected.