Economic Models: Trade-Offs and Trade - Assignment Example

Important Assignment about Micro economics Chapter 2: Economic Models: Trade-offs and Trade Chapter 2 terms Comparative advantage: Comparative advantage refers to the production of a particular good per unit at lower costs as compared to the price of others. Absolute advantage: Absolute advantage refers to the advantage of producing more good per unit of production as compared to the production of others. Application The article talks about international business while maintaining proper markets. The comparative advantage of the United States as compared to China, Germany and France remains debatable. In international business, outdoing the production of a country remains impossible as it does not relate on the national scale. Comparative advantage applies in businesses, but when it comes to doing business across the borders a nation considers more than one business. Comparative advantage and absolute advantage are two different aspects. The article compares the absolute advantage of Bangladesh and U.S. Bangladesh cannot produce more goods per unit in comparison to the United States but they can produce goods per unit at a lower price. Comparative and absolute advantage does not hinder countries from conducting business. For instance, Bangladesh may have a comparative advantage in the production of sewing garments, even if Americans can produce better. They both benefit if Americans outsource the production from Bangladesh. American can then focus on producing products that they are far much better in producing. The two economies hence grow through interaction and exposure in doing business. Comparative and absolute advantage plays an important role in regulating product production across boundaries. According to the article, the limit to which a country retracts production depends on the goods and services in question. A country remains in comparative and absolute advantage if the regulation of production maintains. Link: http://www.forbes.com/sites/harrybinswanger/2012/11/27/no-president-obama-we-cant-outcompete-other-countries/ Chapter 3: Supply and Demand Chapter 3 terms Surplus: Surplus refers to the production of goods or services above the expected target Shortage: Shortage refers to the production of goods or services below the expected target Application The article indicates a shortage of gas in Mexico due to the surplus production in the United States. The move leads Mexico to reduce the supply of gas to its market consumers with a great margin. A surplus by the United States in the production of gas effects on the energy based companies. Main contractors including Pemex reduce their gas supplies to deal with the surplus through measures set on every producing company. Mexico hence faces a shortage due to the production boom in the United States. The relation between the U.S. and Mexican rates led to the price of gas lowering. This led to a decrease in the wholesale price hindering manufacturers from obtaining the required amount of energy. A surplus in production of gas means the two countries have to utilize the excess amount of gas in the market before producing more gas. Mexico hence suffers a shortage after its home based companies reduce the level of production. In market analysis, the problem arises from pricing as opposed to penalties and pipelines. The increase in imports into the Mexican market makes gas available for the local market at a cheaper price as compared to the gas offered through the local production. It becomes logical for businesses to purchase the imported, cheap gas as compared to the expensive, local produced gas. Supply and demand depends on the readily available market for selling products and services. Link: http://au.ibtimes.com/articles/381641/20120907/surplus-shale-leads-gas-shortage-mexico.htm Chapter 4: Consumer and Producer Surplus Chapter 4 terms Consumer surplus: Consumer surplus is a measure of consumer satisfaction where customers are willing to spend more on a product than the stated market price. . Producer surplus: Producer surplus is the amount difference a producer receives and the least amount he or she will receive for a given good (Krugman and Wells). Application The article calls for solutions to global imbalances in the American economy. The amount of production does not take the consumers into a surplus purchasing mode. The American economy seeks to increase the production oil while pointing out surpluses in the Asian economy. The global economy customer experience consumer surplus and producers experience producer surplus mainly through the oil industry. Relating consumer surplus with the economy of oil production is a direct one. Consumers are willing to pay extra for oil and it keeps on rising. Producers also go through producer surplus as a producer receives oil in amounts least for the given good. Oil producers get surpluses bigger in China. The forecast IMF forecasts on a surplus of about 6% of the GDP. The competition of oil from the Middle East oil exporters comes with increase in surpluses of oil production. Oil is a resource which depletes easily hence will be on demand by many countries. The increase in oil prices represents distribution of income from individuals who purchase oil and those who produce the oil. Consumer and producer surpluses occur during past periods of high prices of extraction that last long. During this period oil producers get extra revenues to prove a more durable standard. The oil market future expects oil to remain expensive as though the price of a barrel is on the increase. Link: http://www.economist.com/node/5136281 Chapter 5: Price Controls and Quotas: Meddling with Markets Chapter 5 items Demand Price: This refers to the price consumers are willing to pay for a given product. The price derives from the demand curve. Supply Price: The price set for producers to provide a given product and service in the desired quantity. The price derives from the supply curve (Krugman and Wells). Application The article talks on the effects of demand and supply of gas on volatility. Gas is volatile in nature but it depends on the change in climate. The government intervention is on the minimum leading to an increase in supply while the demand goes down. The effect is on a national and global basis. The current production of oil is at 8 million barrels per day. The demand grows with the years meaning the supply should also be on the rise. The supply price is high is the demand of oil is high meaning the demand price will also be high. The report in Saudi Arabia’s oil production shows that the oil production goes above the demand with an excess of 10 million barrels a day. This is aimed at regulating the supply price and demand price. The supply and demand price is affected by difficulties in refinery. Part of the United States also limits the supply of fuel leading to change in supply price and demand price. Dealing with demand in China and United states depends on the growth of the economy. They are world leading companies in oil consuming hence creating more jobs. The two prices vary with the availability of demand and supply. Oil and gasoline prices impact directly due to factors including fluctuations in weather conditions. These determinants vary from one season to another. Link: http://www.usnews.com/opinion/blogs/on-energy/2012/06/13/supply-and-demand-the-key-indicator-of-gas-prices Chapter 6: Elasticity Chapter 6 items Elastic demand: refers to the sensitivity of the demand of a product in relation to the price change. An increase in the selling price decreases the number of units sold and a decrease in the selling price increases the number of units sold (Krugman and Wells). Inelastic demand: it means that a change in the price of a product does not affect its demand Application The article explains an end in elastic oil in terms of elastic and inelastic demand. The oil industry in the past ten years has faced structural changes with the change in demand. The move leads to the maintenance of demand and supply balance. The changes in demand bring about elasticity in the demand of oil in different areas. Oil is the one of the products which experiences both elastic and inelastic demand at any given period of time. The price of oil experiences inelastic demand as its price can change without a drop in its demand. Working in the oil industries requires a constant supply as it does not have a complementary. Individuals will purchase the products no matter how much the price goes up. Oil also faces elastic demand as if its price goes up; clients may reduce its purchase. It is common to find individuals avoiding the use of their cars due to the increasing costs of oil and its products. The problem is not that oil does not exist; it is because it is a growing economic resource hence countries use power to manage the resource. Demand and supply cannot respond instantly to the changes in price, it becomes necessary to estimate an average time of reaction. Changes in the price of a product depend on its availability and resource power of its retrieval. Link: http://www.forbes.com/sites/tomkonrad/2012/01/26/the-end-of-elastic-oil/ Chapter 8: International Trade Chapter 8 Items Tariff: an amount in terms of tax imposed on a good or service during importing and exporting Import quota: is a restriction on the units of goods produced abroad and sold locally (Krugman and Wells). Application The importance of placing a Tariff and import quota on the amount of products available for import and export remains an important one for Thailand. The article gives insight in the reasons as to why tariffs and import quotas are placed on rice by the Philippines. Thailand requires an increase in the gallons of ice they can export to the Philippines to compensate for other import quotas given by other countries. Import quotas operate with trade agreements set by the World Trade Organization (WTO) and the Asean Free Trade Agreement (AFTA) to protect the Philippines from the compensation of the high tariff. As the years go by, there is an increase in interaction through importing and exporting of rice. Maintaining a negotiable state with the countries of export, Thailand must continue negotiations to ensure that the increase of the import quota to avoid Thai from losing its market share. The rice export for Manila seeks information from WTO to allow it to increase the import quota for Thailand and other rice exporting countries. Tariffs and quotas are placed to protect the local industry from cheaper prices received from imports. Thai and Philippines are the main countries that produce rice for imports. The two countries seek to find import quotas and tariffs managed to protect both the local industry and the exporting industries. Importing and exporting remains a business process among countries. Link: http://globalnation.inquirer.net/46193/thailand-seeks-increase-in-rice-import-quota-from-philippines Chapter 11: Behind the Supply Curve: Inputs and Costs Chapter 11 Items Fixed Cost: a constant cost not affected by an increase or decrease in the units of goods and services produced. Variable costs: a cost that varies with the units of goods and services produced by a company (Krugman and Wells). Application The article gives insight on fixed and variable costs in the food industry. Locating resources within the hotel occurs on a daily basis. This changes as the demand of given products change with the seasons. The hotel industry offers a constant cost that is not affected by the increase on the decrease of product and service produced by making an average. Some hotel industries do an average cost that will cushion them from changes in the production costs to maintain a fixed cost for their customers. This is determines by the number of people who book rooms. The information comes from the front desk where the check in takes place. Variable costs in the hotel industry apply when the demand for products and services is high. During peak seasons, hotels set variable costs on bookings to cater for different people through offering a variety of packages. The process seeks to find many individuals to book in a get services at fair prices for the package they choose. Fixed costs apply in situations where the products and services are needs such as food. Variable costs apply in situations that call for extravagant situations. The article talks about hotel new snow’s method of maintaining customers by maintaining costs that would be favorable to clients while maintaining their profits. Maintenance of production and growth depends on the capability of providing products and services to clients while ensuring the company remains in the business. Link: http://www.hotelnewsnow.com/Articles.aspx/6284/Fixed-and-variable-hotel-expenses Works Cited Krugman, Paul and Robin Wells. Macroeconomics. London: Worth Publishers, 2009.Print Read More