Question

Lisa is a Vice-President at the Head Office of a national insurance company and Fred is State Manager for Queensland Branch. They are discussing the Queensland Branch’s budget for next year.

     They both expect that the branch’s client base will expand by about 10%. Fred is asking for a 10% increase in the budget (after adjustment for inflation). Lisa is offering only a 5% increase. Fred worries that this will mean a fall in the quality of services for Queensland clients. Lisa is confident that the new budget will allow Fred to maintain, or even improve, service quality.

     From your knowledge of economic theory, what factors would you see as relevant in assessing whether Lisa's offer is a reasonable one?

Answer 1

Lisa offer is a reasonable offer becuase she is increasing the budget by 5% but fred is worrying that the client base which expand by 10% may not get quality services by this increase in budget by 5%

Fred has got a point that there may be a fall in services in quality of clients but the services rendered will not have any impact because there will be no change in quality of services because due to this increase in budget they will increase the staff which is enough to deal with 10% increase in clients because staff will be increased based on client to policies ratio which is far enough.

So the increase in budget by 5% will be able to meet the client increase.