Globalization: A Microeconomic Approach - Book Report/Review Example

Globalization: A Microeconomic Approach The Global Village The Commanding Heights is basically focused on globalization and how global markets work and interact, capitalism, and poverty, specifically among developing countries. By just reading the storyline, we can have a better understanding on what is really happening in the different markets in different countries. In this particular paper, I chose to dwell on the Chapter 8 of Episode III which is entitled "The Global Village". This chapter is basically about the impact of technology on globalization. Because of the spread of technological advancements in different parts of the world, trade and globalization have become much easier for countries to participate in. Because of the advancements in communication and the popularity of the internet, the world for markets became "borderless". According to this particular chapter, India, Pakistan, African and China could not even participate in the world economy before. But now, they can easily get involved in the world economy because of the Internet ("Commanding Heights Episode Three: The New Rules of the Game"). Apparently, many multinational companies rely on China for labor while call center industries are very prominent in India. I think the bottom line of this chapter is simple. Globalization affects many aspects of the economy. Entrepreneurs from one side of the world can transact business with the other side of the world with just a blink of an eye. This eventually leads us to the question of whether free market or government intervention is appropriate. If the government should intervene, what policies would be applicable to the ongoing globalization process The Role of Households, Firms, and the Government As I have said earlier, globalization affects many aspects of the economy. Households, firms, and the government are the key stakeholders not only in globalization but also in the world economy. Households serve as the consumers in our economy so they are the ones who are most concerned with the price changes of goods and services. As we all know, the price of goods and services is one of the key factors that affect the demand for a good. The domestic prices as well as the world market price of a good affect the consumers' demand. So basically, the households are responsible for the demand for goods since they are the "beneficiaries" of the market ("Consumers play an active role in the economy"). In the United States, almost two-thirds of the country's economic output goes to individuals for personal use. Because of this, the country is often said to have a "consumer economy" (U.S. Department of State). Because of the behavior of consumers towards goods and services, their choices affect prices and other factors in the economy. They are also capable of influencing economic growth. In general, households make up the demand side of the economy. In the case of the Global Village, households still act as the consumers in the ongoing globalization process. The chapter emphasized about the role of communication on the globalization. We can see in this chapter of Commanding heights how households and consumers around the world interact through communication and other technologies. There was even a part where the narrator said: "Americans were often connected to the developing world without even knowing it. Consumers checking their credit-card balance could be routed seamlessly to call centers like this one in India, where operators identify themselves with made-up American names." The households or the consumers benefit a lot from this generation of technology. Credit card owners, for example, can check their balance by just picking up the telephone. Basically, they are the ones who keep the globalization process alive. Without the consumers, firms around the globe will have no reason to produce. Without customers, call centers in India (just like what was mentioned in the Global Village), will have no reason to take calls. Also, households play a major part by interacting in the globalization process. Households in America, for instance, can easily interact to people in India because of outsourcing. However, households are not always the consumers especially now that globalization is very prevalent. An excerpt from the Global Village also showed how farmers in India can sell their crops at a world price because of the price set by the Chicago Mercantile Exchange which is based in the United States. As you can see, with the ongoing globalization process today, households can play as the consumers and also as entrepreneurs and businesspersons because of the presence of internet and other technologies. In contrast with the role of households, businesses or firms are considered as the producers in the economy. They basically make up the supply side of the economy because they are responsible for the provision of goods and services in the market. They are also responsible for adjusting prices because of changing consumer behavior. In the Global Village, firms are the ones responsible for the interaction of households around the globe. Call center firms, for example, made it possible for customers to interact with their representatives in other parts of the world. Also, firms hire workers in different parts of the world which made it possible for the globalization process to bloom even more. The government is probably the most talked-about and speculative part of the economy. There have been several debates on whether the government should intervene or not in the economy. Adam Smith even introduced the idea of invisible hand and gave the notion that the market can stand on its own because it is driven by an invisible hand. However, the role of government in the economy has been known for several decades. The government is responsible for the stabilization and growth of the economy. This is done through fiscal and monetary policies. Fiscal policies are mostly driven by taxes. These policies help the government control its revenues. Monetary policies, on the other hand, are responsible for the management of money and credit inflows. These policies would in turn affect the level of prices and employment in the economy (U.S. Department of State). Aside from fiscal and monetary policies, the government is also responsible for the provision of public goods. These are the goods that are non-rival and non-excludable. Examples of public goods are infrastructures like roads, street lamps, and sidewalks. Because of the presence of public goods in the economy, assigning property rights is also a duty of the government. Dealing with externalities is also part of the job of the government. This is done by giving regulations like subsidies and incentives. According to the Global Village in Commanding Heights, people around the world can now talk or transact business with each other in just a matter of minutes. This is where the role of government comes in. Because of globalization, different transactions may take place inside and outside the country. Although globalization has its positive effects, the role of the government is to somehow regulate the different transactions in the economy and correct some market failures to achieve efficiency. Government Intervention and Central Planning With the ongoing globalization process, I believe that there is a need for public intervention by the policy makers. Globalization enables firms around the world to enter the global market freely. With this, the exports and imports of the country would most likely be affected. Because of globalization, countries can import goods from other countries easily. This is why we need the government to impose tariffs and quotas on these imports. Without tariffs and quotas, imports would most likely skyrocket and hurt the local industries in the country. This would also affect the price of the goods. For example, if we apply the Cartel model of oligopoly in the oil market, prices will decrease with the tremendous supply of oil products. Also, using the lessons in chapter 18, governments use the concept of elasticity of demand when imposing excise taxes. Excise taxes on products with inelastic demand will raise the most revenue and have the least impact on quantity demanded for those products. The government could also provide different barriers to entry like immigration laws and quality control. This would somehow regulate the market entry of new firms. However though, decentralized institutions are more appropriate than implementing central planning. This is primarily because central planning dictates the different sectors on what to produce and command the firms to produce those goods ("Command Economy"). With globalization, it would be much harder for firms to enter the market if the government uses central planning. It is better to have decentralized institutions and the government would only regulate and not dictate the businesses. Also, with decentralized institutions, the consumers are faced with more substitutes. Applying what I have learned in Microeconomics, the more substitutes available, the more elastic the demand. This means that the consumer would be more responsive to price changes which can be an indicator for firms to adjust their prices. Today's Oil Market Oil is a basic component of almost all goods and services in the world. Because of this, we can say that oil products are inelastic because it is a necessity. Changes in price will just have a very little effect on demand for it. However, output outcomes in the future depend on how oil is extracted today. Since oil is a non-renewable resource, oil producers should efficiently deplete it. The supply of oil in the future would be less if the producers will opt to extract more in the present. According to chapter 27, the price of oil in the future will rise assuming that the demand for it will also be greater. Also, if there will be new technologies that will be developed for oil extraction, extraction costs will be expected to decrease. Applying the knowledge on price elasticities of demand, it is safe to say that if oil is inelastic, and the amount of oil that can be extracted in the future will be less, price increases are very likely to occur in the future and lesser output will be produced. The oil market can be considered as an oligopoly market where there are only few sellers in the market. Because of this structure, consumers have less (or no) control over the price. The competition between private small oil companies is enough but oil producers should have more competition to avoid a cartel-like effect. Also, competition is capable of leading prices to go down. Insights Gained from Microeconomics With all the knowledge I have gained from Microeconomics, I realized that economics is not just about dealing with business, poverty, stock markets, exchange rates, and those other things that we usually see on television. We encounter economics in our everyday lives in the form of prices, goods, establishments, and even ourselves, as consumers. I have also learned that studying the concept of elasticity is very useful for private firms and the government. Microeconomics can also be useful in maximizing profits and minimizing costs for firms. Economics is not just a school of thought but also a tool used by policy makers to come up with something that will lead to efficiency. Relating the study of Microeconomics to globalization, I can't say that it is always good nor it is always bad. Globalization can be beneficial to a particular nation if appropriate government policies will be done. Globalization will be present for a long time so it would be better to cope with the pace of the growing world economy while being armed with the appropriate policies at the same time. Works Cited Command Economy. EconomyWatch. 5 Oct. 2008 . Commanding Heights Episode Three: The New Rules of the Game. PBS.org. 4 Oct. 2008 . Consumers play an active role in the economy. 28 Oct. 2002. Ministry of Consumer Affairs. 5 Oct. 2008 . U.S. Department of State. A Mixed Economy: The Role of the Market. About.com. 5 Oct. 2008 . U.S. Department of State. Government's Role in the Economy. About.com. 5 Oct. 2008 . Read More