Absolute advantage is when a country is capable of producing more of a certain type of output. An example of this would be that the U.S. might be able to produce 100,000 thousand of a specific vehicle to export, but China might only be able to produce 10,000 thousand. Comparative advantage is when a country can produce more of a certain type of output in relation all of the other things it produces. Another example, the U.S. and China might both be able to produce 5 thousand performance chips, but in relation to their other output China is producing 5/10,000 of salsa, and the USA is producing 5/100,000, so China has comparative advantage. If either the U.S. or China specialized in output production for which they have comparative advantage …show more content…
Following the coffee example earlier, a second cup of coffee in the morning after the first will provide additional desired gratification. Even so, this addition it will not provide near as much satisfied contentment (utility) as the first one did. The third cup has even less supplemental gratification or need meeting ability (utility) as the second and the first. In the beginning, some products or services may have some incrementing marginal utility; however, every service and goods at one time period will provide a decreasing supplemental utility (or diminishing marginal utility). When the total utility curve stops increasing at an increasing rate and starts increasing at a decreasing rate, which is the point where the marginal utility curve reaches its max and starts decreasing. This decrease is the point of diminishing marginal utility. 6. Explain the difference between diminishing returns and diseconomies of scale. What are the causes of each? Diminishing returns is when more of one input is integrated together, while on a different end, another input is held fixed, causing a diminishment of marginal product. Diseconomies of scale are when a firm doubles its inputs and output is …show more content…
In this scenario, positive instead of negative profits can exist, making it to where others cannot enter and obtain some of these profits because sharing the market means they have to enter at a smaller scale of operation and thus face higher average costs. 9. Explain why cartels are naturally unstable. Do these factors explain the decline of OPEC as an international cartel? Cartel-behavior by businesses is fixing prices which are prohibited by the law regarding competition. The reasoning for cartels being unstable is that many price fixing or market sharing agreements eventually collapse. Examples of these collapses are listed: • Firms that are not a cartel entering into the industry creates fresh competition which creates a disruption. • Government agencies have been especially active in trying to break down cartel behavior and tighten laws in order to bring exposure to price
To reiterate, let’s construct another example of two companies that produce oranges. Company number one is located in Florida where it’s the perfect environment to produce oranges. Company number two however is located in Toronto, which to be fair, isn 't a suitable environment to produce natural oranges, unless of course they’re produced in a green house. Although both companies are able to grow and produce oranges, company number one has the absolute advantage because they use the much cheaper and natural methods, hence the greater demand. This theory can be contradicted with the concept of comparative advantage, which in description means the ability to produce specific goods at a lower opportunity
First the story of the Standard Oil Company briefly describes the limits of power. When Rockefeller was trying to take over the market he formed the “South Improvement Plan. When this occurred the public grew very angry with the price of trains, so nobody went on the railroads and Rockefeller eventually got the bill, until prices changed. This is an example of how the consumers, make the company run and when nobody wants to buy your product the individual must adjust. Another example would be when the Standard Oil Company was primarily the only oil company and was forced to split into thirty nine different independent companies. This shows that one business cannot control the entire market and interventions will need to be done accordingly so that a company does not have all the power.
manufacturing a competitive advantage. According to 2013 analysis done by consultant AlixPartners estimated that cost of manufacturing in China will equal cost of manufacturing in U.S. due to labor cost in China has been increasing in past 10 years. The low cost energy and labor equivalence recently is contributed to 500,000 jobs created in manufacturing sector since 2010 (Ludwig & Spiegel, 2014).
Based on the integration of a cartel of its type in the diamond market, I see it fit to say that the price of diamonds is set above what is reasonable. This essay will expound the role of the diamond cartel in cinching the high price charged by all those involved in selling diamonds. (Levenstein, Suslow, 2008: Cartel) states that cartels are agreements or associations between or of firms, with the aim of fixing prices and/or limiting output. These can operate in multiple ways, from rigging auctions, to separating their firms far from each other, making it seem as though they are the only supplier of a specific commodity within a certain area and thus limiting supply within their respective area. On average, cartels last just about five years and then end, often as a result of legalities, seeing as cartels are most commonly illegal.
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price.
In 1890 Congress passed the Sherman act with their first attempt at protecting businesses and consumers (FTC, 2008). This act was to touch down on monopolization and unreasonable trade. In order to protect consumers and businesses it was decided that monopolization; or the practice of controlling a single market, was an unfair act. Not only do monopolies have the ability to play with prices, but they can also decrease the quality of their products (Amadeo, 2013). For the consumer it could be unfortunate if, for example, the only supply of baby formula is controlled by a single company and the price increased by 40% after competition has been knocked out.
Even though monopolies are illegal, public corruption allows companies to form and continues to be a problem today. In an article published by the Los Angeles, Anh Do
In 2008, the Global Financial Crisis broke out; both the American economy and the economy in the West suffered a hard blow. However, a big economy system in the East emerged unexpectedly. China is now able to challenge the America’s decades-long dominant position in economic area. Started during the middle of 1990s, China’s manufacturing industry developed rapidly that billions of exports were floating out, and China was given the title of “the world’s factory”(BBC). By the end of 2010, China with a GDP of $5.8 trillion, surpassed Japan’s GDP of $5.48 trillion, became the world’s second largest economy system (BBC). China also exceeded Japan became America’s largest foreign securities holder. Since then, China has been seen as the US’s biggest opponent in economic field. Some economists even say that in 10 years, China will be the same size as the US economy. No matter whether China is going to reach the US’s economy size in 10 years or not, after forty years since the US first opened trade with China in 1972, America’s economy gradually relies on China’s economy and will collapse without the strength of China’s market.
In general the customer bargaining power is low and therefore it raises the potential of market's profitability. Though, most of the companies provide "buy-backs" and price protection that lessens the chance to cash on moderately strong manufacturers position.
“Marginal analysis involves changing the value(s) of the choice variable(s) by a small amount to see if the objective function can be further increased (in the case of maximization problems) or further decreased (in the case of minimization problems)” (Thomas & Maurice, 2012, pp. 91). Marginal analysis is known as “the central organizing principle of economic theory” for its importance and applicability to many aspects of our daily lives as well as our careers (Thomas & Maurice, 2012, pp. 94). The key concepts of marginal analysis include total benefit, total cost, marginal benefit, marginal cost and net benefit. These concepts all come together to play a significant role in the use of marginal analysis to reach the optimal desired outcome.
For instance, if a business wants to produce 5,000 more t-shirts, yet it will require the purchase of another machine, the marginal cost for the extra t-shirts includes the cost of the new machine. A marginal product describes the additional output that results from adding one more unit of input. It can be calculated by dividing the change in the total product by the change in the variable input. For example, in order to increase the t-shirt productivity by 1000 units, the company may hire two new employees to the production line. In which case, the total change in product is 1000 units. Although, hiring two more employees increases productivity, now the law of diminishing marginal product applies. Diminishing marginal product primarily indicates that increasing one input while retaining other inputs at the same level will initially increase output; however, further increase in the output level will eventually diminish. For example, hiring an extra two employees to increase productivity, will eventually have a limited effect or diminish the average income. Production function is a graph utilized to demonstrate the relationship between physical inputs and outputs, define marginal product, and distinguish allocative
cannot sustain this level of abnormal profits in the long run due to competitive pressures since other firms are free to enter and exit the industry and often firms enter and " eat into" the abnormal profit of. the monopolistic producers, as shown in the graphs below. In an oligopoly, firms are interdependent, e.g. as shown in the graph. below, if firm X decides to lower its price from B to D, sales should increase from A to C but since firms are interdependent, other firms would retaliate and lower their prices, too. So for firm X sales would increase only by AE, not AC.
Angola's socialist turned capitalist market is full of such regulated areas where government intervened directly much to the disarray of the market. I can remember a time when you couldn't import tires into the country because Mabor the country's tire producing factory had the monopoly of the tire market. If a private company wanted to import tires they had to require an authorization from Mabor, which would result more than often in it being denied, or a request for a commission on the import wasn't uncommon either.
In the race to be the best, China is clearly outperforming the United States. China has strong economic fundamentals¬ such as “a high savings rate, huge labor pool, and powerful work ethic” (Rachman, Gideon. "Think Again: American Decline). Their economy has grown an astonishing 9-10% over the past thirty years; almost double of what it used to be decades ago. China is also the “world’s greatest manufacturer and its greatest market” (Rachman). The continuing growth of China's economy is a source of concern for not only the U.S. but surrounding nations as well. One could argue that the U.S. need not worry about China’s growth because of the spread of globalization and that western ideologies would influence China to turn to democracy. Yet China has still managed to “incorporate censorship and one party rule with continuing economic success” (Rachman) and remains a communist country. Hypothetically, even if China does resort to a democratic state, this does not gua...