Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Evaluate the Significance of Imperfect Competition Models for Explaining the Pattern of International Trade - Essay Example

Comments (0) Cite this document
The word “competitive” means ‘not monopolies’. A market structure that does not satisfy the assumptions of perfect competition is regarded as the market of imperfect competition. This type of market does not operate under the rules of perfect competition…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.6% of users find it useful
Evaluate the Significance of Imperfect Competition Models for Explaining the Pattern of International Trade
Read TextPreview

Extract of sample "Evaluate the Significance of Imperfect Competition Models for Explaining the Pattern of International Trade"

Download file to see previous pages This type of market does not operate under the rules of perfect competition. In this type of market structure, a firm has the ability to affect the prices. In spite of being close substitutes, the products can be differentiated and advertising and branding plays a major role in this type of market. A large number of sellers exist in the market. The market structure is characterized by freedom of entry and exit. Monopolistic competition and oligopoly constitute the structure of imperfect competition. Firms that are imperfectly competitive offer many products. The products are offered at administered prices. The price changes are costly and slower. The prime prediction of the theory of monopolistic competition is that firms will produce at the level where marginal cost equals marginal revenue in the short run. However in the long run, the firms will operate at zero profit levels and the demand curve will be tangential to the average total cost curve. Intra Industry Trade Situation where there is exchange of similar products between similar industries is referred to as intra industry trade. This is a very common term in international trade where imports and exports of similar product take place. The three types of intra industry trade include trade between goods that are homogeneous, trade between horizontally and vertically differentiated goods. Consider the Krugman’s model of monopolistic competition. This model helps to explain intra industry trade by using economies of scale as experienced by production, products that can be differentiated and heterogeneous preferences between and within countries. The sum of fixed cost and variable cost is the total cost of the firm. Therefore, C= F+cX, where F is the fixed cost, c is the constant marginal cost and cx is the variable cost. So, average cost, AC= F/X+c The demand curve faced by the monopolistically competitive firms is downward sloping. Profit is maximized at the level where marginal revenue equals marginal cost. The equation of the demand curve faced by a monopolistically competitive firm is X= S[1/n-b(P-Pavg)] Where X= sales of the firm, S= total sales of the industry, n= number of firms participating in the industry, P=price charged by each firm, Pavg=average price charged by each firm, b=parameter of MR. A typical firm that charges the price greater than Pavg, is likely to enjoy smaller share of the market. Another assumption is that S is not affected by P. This refers to the situation where competition in price will simply redistribute the share of the market without increasing the total sales. To determine the market equilibrium, firms are assumed to be symmetric. The demand and cost functions are the same for all firms. An upward sloping relationship is said to exist between the number of firms and average cost of any firm. A downward sloping relationship is said to exist between the number of firms and price charged by each firm. In equilibrium, P=Pavg as all firms are assumed to be symmetric. The demand curve is X=S/n, and AC=nF/S+c. The demand curve can be rewritten as X=(S/n+SbPavg)-SbP where the bracketed term is the intercept and Sb is the slope. Then the marginal revenue is P-X/Sb. MR=MC, therefore, P-X/Sb=c or, P=c+X/Sb. But each firm charges the same price, then, P=v+1/bn. (Cashel, n.d., p. 1). The long run equilibrium takes place where P=AC. This model can be used now to derive the implications of international trade. International trade is ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Evaluate the Significance of Imperfect Competition Models for Essay”, n.d.)
Evaluate the Significance of Imperfect Competition Models for Essay. Retrieved from
(Evaluate the Significance of Imperfect Competition Models for Essay)
Evaluate the Significance of Imperfect Competition Models for Essay.
“Evaluate the Significance of Imperfect Competition Models for Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Evaluate the Significance of Imperfect Competition Models for Explaining the Pattern of International Trade

The Universality in International Human Rights

The continuous changes in the international area have created the necessity for a flexible legal framework that could achieve the above target. However, in order for such a task to be successful, there must be a specific theoretical ‘vehicle’ that could present with accuracy both the existing situation, the problems under examination and the desired result. Towards that direction, the creation of the ‘international human rights’ sector gave to the nations the chance to organize their internal legal rules and their behaviour in the global area in the basis of a specific set of principles recognized by the international community as binding and directly applied in the interior of the participated countries. I...
10 Pages(2500 words)Assignment

The Role Played by Cultural Difference in International Politics

The discourse of multiculturalism is inconsistent. To its advantages belongs preservation of cultural pluralism, recognition, and protection of the diverse minority, refusal from xenophobia, chauvinism, and racial prejudices. Lacks are shown in ethnisation of social relations, the institutionalization of cultural distinctions, ignoring the liberal principle of priority of the rights of an individual.

The culture of any nation, defining its spiritual uniqueness, expressing its creative power and abilities, simultaneously is a property of all mankind. “According to official multiculturalism, no individual is forced to retain his or her culture, but all cultures are granted a universal right to celebrate and even to...
9 Pages(2250 words)Essay

International Trade Theory

 Further to this, it is also believed that international trade can bring substantial economic welfare to the countries however still most of the countries do not view it as a favorable thing. Despite having a very promising and bright outlook, international trade has been largely viewed with suspension and it is because of this that governments impose barriers to restrict international trade. There can be many reasons behind this act of imposing restrictions or blocking international trade however there are also benefits on the other side too.

International trade has driven the attention of many of the brilliant minds in economics therefore the origins of the economic theory on international trade owe much to the c...
6 Pages(1500 words)Case Study

The Trade Union Movement in the UK

Before the ERA 1999, union membership and recognition in the UK were characterized by voluntarism, in which employers and employees could bargain over the terms and conditions of employment without any legal interference. With the statutory system ushered in by the new law, voluntary recognition of unions is no longer allowed and it becomes unlawful for British employers to deny recognition to unions under any circumstances. That conveys the impression that ERA created a radical change in British industrial relations. This paper takes the contrary view, however, and proposes that while the new industrial relations law looks revolutionary in principle, there are no fundamental changes in actuality for the change to qualify as &ldqu...
8 Pages(2000 words)Case Study

Globalization and International Business: Starbucks Corporation

The Small Business Encyclopedia defines globalization as the process by which the economies of countries around the world become increasingly integrated over time. This integration occurs as technological advances expedite the trade of goods and services, the flow of capital, and the migration of people across international borders (globalization,
The shreds of evidence of globalization are all around us. For example, Hill (2005) cites an example of an American driving a car designed and produced in Germany that was assembled in Mexico from components made in Japan fabricated by Korean steel and Malaysian rubber. The car is filled with gasoline from oil pumped from off the coast of Africa, at a service station o...
12 Pages(3000 words)Case Study

Potential Benefits of International Trade

.... Nelson (2000). This is a study set out to make a comprehensive and vivid answer to the question, “Which are the benefits of international trade and why are trade restrictions imposed by countries?” II. The Reason Why Countries Take Part in International Trade The countries ‘comparative advantage’ drives them to participate in international trade. Costs of factors of production and also the relative distribution are the ones that guide the specification of nations. Under oligopolistic business patterns, productions and involvement in trade are the major determinants of the competitiveness of specific firms involved as well as governments. The patterns of exports depend upon the particular governments’ policies and also those...
6 Pages(1500 words)Coursework

Macroeconomics and Trade Policys

Keynes argued that prices and wages do not determine the level of employment, as many classical economists suggested, but instead the level of aggregate demand for goods and services (Case & Fair 683). Keynes realized as well during the Great Depression that the government could intervene in the economy to attain specific employment and output goals by either increasing or decreasing taxes and government spending.

For example, raising taxes will decrease the disposable income of households and thus effectively decreasing consumption. When the government decreases consumption, the household demand for goods and services decreases thus it would only seem reasonable that the amount of output that the economy would also...
7 Pages(1750 words)Article

International Law: Child Soldiers

Using children to fight wars is not only morally abhorrent but very bad very the physical and mental health of the children in question. That is in part why a series of international laws and treaties have come into effect to try to deal with this scourge. But the issue is more complicated than that. While child soldiers are victims of war crimes, they too can also perpetrate serious breaches of the law of armed conflict. Under normal circumstances, individuals who commit such acts, be they combatants or not,2 would be vulnerable to prosecution. However, because children in such situations are victims as well as perpetrators and because of the special protections afforded to children under international law, many have questioned w...
8 Pages(2000 words)Case Study

International Affairs v. Liberalism

As a matter of fact, Hoffman’s statement that “international affairs is the nemesis of liberalism” has a grain of truth in it and this is especially so after the 9/11 incident.
There are two schools of thought or perspectives that are used to view international affairs: liberalism and realism. The study of these two perspectives is significant to the idea posed by Stanley Hoffman because they determine the reasons why international affairs, according to him, does not only see eye-to-eye with liberalism but seems to stand on the opposing side of it.
Liberalism can be defined as having four elements: citizens; the legislature; property rights, and; a market-driven economy (Dunne 186). Realism, on the othe...
6 Pages(1500 words)Assignment

International Business: World Economic Forum and Davos 2010

...Introduction Globalization, one of the most hotly debated issues means global capitalism to some while others consider it to be the continuation of modernism with the forces of wealth, progress, democracy and happiness at play (Kellner, 2002). Globalization is considered to be beneficial which promotes economic prosperity, cultural diversity and technological advancement. According to the critical social theory, technology and capital work together to create a new globalized and interconnected world. While each force of globalization is important, technological revolution has impacted the business models, value creation and differentiation (Spelman, 2010). The cloud computing technologies that have made the popular social networking...
7 Pages(1750 words)Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Evaluate the Significance of Imperfect Competition Models for Explaining the Pattern of International Trade for FREE!

Contact Us