Analysis of 5 Articles in Economics - Research Paper Example

 Economics Article # 1 - Dell margins miss as plagued by supply shortage This article talks the problems that Dell was facing towards the end of the first quarter of 2010. Dell’s profit and sales were according to the expectations but the problem was with the gross margin of Dell, primarily because of the supply shortage of various components. In addition, Dell’s financial chief said that they supply will continue to remain tight for the next two quarters as well. Moreover, Dell who was the market leader in terms of sales is now lagging behind Hp and Acer. The rest of the article presents various financial figures of that Dell that show good performance for that quarter. However, the concern remains about the margins that are expected to go even further down since Acer has somewhat gained that cost advantage by being the unit leader in the industry that Dell used to have (Ando, 2010). One of the most basic concepts of economics is of the demand and supply rule. Quite understandably, the competition has been rising for the past few years, thus, increasing the demand of the inputs or computer components, and disturbing the equilibrium in the industry. This rise in the demand on the components by Acer and HP to increase their sales has created a shortage. The same people are trying to have a larger share of the pie however, since the pie is of the same, there would be buyers that would remain partly unsatisfied. For remaining in the competition and competing, they would bid up the price (Png & Lehman, pp. 92). Quite clearly, when suppliers would produce more they would only do the same for a higher price in order to maximize their profits. Now this whole activity results in a new equilibrium where more is bought and is sold at a higher price. This eventually means that Dell is now finding itself in a situation where the price of its inputs are rising but in the short term, they can not increase their prices considering the competition but clearly, the same is driving their margins down. There are two ways to cope up with this problem. Firstly, Dell can opt for becoming the market leader and by producing more, demanding more, it could drive the price per unit down, at least by buying in bulks. The second option to cope with the problem of lower margins would be increasing their prices so that the margins can be increased; however, the same is only possible in the end after much market research and differentiation of the product (Hirschey, pp. 312-316). The graph presented below also proves that how an increase in demand increases the price and creates problems for the rest of industry. Article # 2 - UAE Ranked 25th globally Global Competitiveness Report ranks UAE among top ten countries in 18 competitiveness indicators World Economic Forum has ranked United Arab Emirates 25th in the list of most competitive countries. No Arab country has a higher rank than United Arab Emirates. Factors like goods market efficiency, macroeconomic stability, foreign direct investment, innovation and others. This indicates the UAE’s government is committed to the development of overall infrastructure and building new economic sectors. UAE has also been classified as “innovation driven” in line with top economies of the world like Germany, Japan, Sweden, Australia, US, UK, Switzerland, Singapore and Canada (Al Bawaba, 2010). Important here to note is that UAE has achieved its position because over the years, UAE has developed an economic policy that has helped the country to create efficient and competitive markets in all sectors the economy. Over the years, the government has followed a policy of liberalization, free trade, privatization and an open economy with lesser government intervention and governmental regulations or laws preventing firms from entering in to the business. Quite understandably, this gave rise to the increased competition in all sectors of the economy. Considering the potential of UAE many firms entered in the market thus putting an end to the monopolies, oligopolies and cartels in many sectors and creating a monopolistic market structure where many huge firms are offering their own slightly differentiated products (Barro, pp. 278-279). Almost all sectors of UAE are nor presenting the same picture. Considering the flexibility in the business laws, there are few barriers to entry and exit for the firms. Moreover, producers can deviate from the market prices slightly but no producer has total control over the market price. In addition, the consumers of UAE seem to have great deal of information about these differences as well. This model has become the success model for UAE. Quite understandably, this model has the ability to create win-win situations for both consumers and producers at the same time. Consumers get a choice to choose from a variety of products in product line, differentiated and with different prices and producers are free to choose on the production volumes are not bound to copy or imitate any other competitors (Png & Lehman, pp. 92). Article # 3 - New Ambulances Will Save Long-run Costs with Longer Life Span This article focuses on the purchase on new ambulances in Lubbock, Texas that are believed to decrease the long run costs for the city. Despite the fact that it comes with a higher price yet to its lower maintenance costs and greater efficiency makes it a cost saving decision in the long run. The whole deal comes for more the 1.37 million US dollars but the officials believe in the absence of these ambulances, the losses that they would make by ineffeniecy, lesser capacity and loss of lives would be much higher. Moreover, these ambulances are bigger, bigger, and more reliable having a greater life span. The authorities have spent around 256000 US dollars more on these bigger ambulances but the fact here is that these ambulances come with the guarantee of running more than 200000 miles without any problems however; the same figure for the older ambulances is less than 70000 miles (Pyle, 2010). The major economic principle under discussion here is of long term and short costs coupled with the idea of fixed and variable costs. Businesses that are looking at the short-term results will always opt for lesser-fixed costs and will accept slightly higher variable cost; however, firms that are more concerned about the long-term returns will always focus on options that would provide them lower variable costs even if it means high fixed costs. Since lower variable costs would provide them higher profit margins and in the long run, higher profit margins would eventually, cover the high fixed costs as well (O'Sullivan, Sheffrin & Perez, pp. 89). Quite understandably, the firms focusing on the short run are looking for an early break-even point. However, firms looking at the long run are ready to delay their break-even point since the same gives them with higher average annual returns over a longer period of time (Barro, pp. 278-279). Quite clearly, the same that has been explained above is evident in the graphs as well. The first graph presents the previous deal of ambulances where the fixed cost was low but the costs of maintenance were high. However, the latter graph with high fixed cost and low variable costs is a demonstration of the current situation. Important here to note is the fact that in both of these situation, if assumed that the stream of profits would remain the same, both of these would give breakeven at the same time. However, more importantly, noticeable is the difference between lines of “total income” and “total cost”. Quite understandably, over a longer period, it increases significantly in the second case thus proving that this decision is better considering the long term. Article # 4 - Google is a dangerous monopoly -- more than Microsoft ever was This article talks about the growing monopoly of Google in the online search business, especially after its acquisition of DoubleClick. There have been three complaints from Google’s competitors regarding its monopoly problems and the European Commission has started investigating it. However, no major action has been taken yet. Important here to note is that back in 1990, Microsoft anti trust investigations started with just a single complaint from Sun Microsystems. Since the acquisition of DoubleClick, Google has reaped many benefits of its monopoly in terms of sales of Chrome Web browser, Android mobile operating system, online books, and others. Quite clearly, it is trying to expand its monopoly in adjacent markets in same Microsoft was by entering in to the market of Web browsers. Google’s monopoly is disturbing the business models of many other companies since Google is trying to put all this stuff online. However, it has become difficult to cope with this problem since Google, according to reliable estimates has acquired more than 90 percent of the advertising share in European Union. Moreover, Google is becoming the information gatekeeper and is making revenues out of selling something that is not his own. More importantly, Google is increasingly violating the intellectual property rights and this is becoming a serious problem (Wilcox, 2010). Quite clearly, Google is not a perfect monopoly, in fact, there are no examples of perfect monopoly, but this model is getting closer to being a monopoly. Monopolies have various characteristics. Firstly, the firm has great market power in terms of price. Quite clearly, Google does not charge any price for the usage for its services but derives its profits from the advertising therefore, in this case Google can alter or in crease the volume of its advertising. Secondly, there are significant barriers to entry to enter in the market in which Google is operating. Taking away Google’s market share is not easy for any firm. Thirdly, Google does not have a supply like other monopolies (Png & Lehman, pp. 92). In short-run, it just cannot figure out that for a given price what much quantity of information would be supplied. Fourthly, unlike firms operating in the perfectly competitive markets Google can have excess profits even in the long run. Moreover, Google has preserving its profits like other monopolies to stop competitors from entering into the market or try to take away its market share (Hirschey, pp. 312-316). As shown in the graph for a monopoly firm, profit-maximizing output would be at MC equals MR; moreover, the price has to be above the MC. The same applies to Google in this case as well. The price that Google charges is way over its Marginal Cost. At the same time the point where the marginal revenue of Google would equal the marginal cost that would be the profit maximizing output level. Article # 5 - OPEC's power play as cartel marks 50 years It was in 1960 in Baghdad when the heads of five states Saudi Arabia, Iraq, Iran, Venezuela, and Kuwait decided to work together in terms of supplying oil to the world and unifying their prices. Today OPEC has around 12 members and these countries control more than 75 percent of the total petroleum output of the world. In terms of numbers, these countries own more than one trillion barrels of crude oil. This autumn of 2010 has market the 50th anniversary of this cartel which controls now the production and prices of oil of these countries (Defterios, 2010). Quite understandably, OPEC is a clear example of a cartel that has made a profound impact on the oil industry. Moreover, cartels always present a situation of prisoner’s dilemma for the cartel members since are always tempted to break up the cartel and earn higher profits. However, when all the members would break the cartel, firm’s extra profit’s would diminish and it would again find it self in the same situation which forced it to enter in to the cartel initially. For example, Gabon left the cartel in 1994 and Indonesia in 2008 (O'Sullivan, Sheffrin & Perez, pp. 89). Quite clearly, this cartel has made the oil industry an oligopolistic one, where these few counties, through their cartels control a significant portion of the production and prices and other producers are just passive observers. Like any other oligopoly, OPEC aims at profit maximization, through either reduction or increase in production. Moreover, oligopolies work on the principle of interdependence. Therefore, any country, whenever takes a decision, always anticipates the moves of other players just like a game of chess (Barro, pp. 278-279). Most of these oil producing countries are so large that there decisions would certainly affect the whole market. That explains why despite all the disputes amongst these countries and threats of leaving the cartel, no big player has yet left the cartel. Saudi Arabia tries to protect the interests of its western friend whereas other countries prefer to take a more anti-west approach. Iran and Iraq were in a state of war around a decade yet all these countries are still are a part of the cartel because this is what happens in an oligopolistic market structure. Another way to explain the temptation to stay in the cartel would be through the graph. This graph presents the complicated structure of the demand curve considering the factor of elasticity. Quite clearly, from point P until E, the line exhibits high elasticity. A small increase in price would decrease the quantity demanded by a huge portion. However, after the point E, no possible price cuts would result in considerable increase in quantity demanded, thus demonstrating highly inelastic behavior. The reason being that any firm in a cartel or oligopoly tries to increase the price, quite understandably, people would shift towards the low price competitors therefore the firm would not be able to attract new customers. However, if any firm tries to decrease the price then the equilibrium, very quickly the competitors would respond to match the price thus offsetting the new customers acquired (O'Sullivan, Sheffrin & Perez, pp. 89). Works Cited Al Bawaba. UAE Ranked 25th globally Global Competitiveness Report ranks UAE among top ten countries in 18 competitiveness indicators. September 8th, 2010. Retrieved on Oct 29, 2010: http://www1.albawaba.com/news/uae-ranked-25th-globally-global-competitiveness-report-ranks-uae-among-top-ten-countries-18-com Ando, Ritsuko. “Dell margins miss as plagued by supply shortage”. Reuters. May 21, 2010. Retrieved on Oct 29, 2010: http://www.reuters.com/article/idUSTRE64J6KD20100521 Barro, Robert J. Macroeconomics: a modern approach. Cengage Learning, 2008. Hirschey, Mark. Managerial economics. Cengage Learning, 2009. Wilcox, Joe Google is a dangerous monopoly -- more than Microsoft ever was. Beta News. February 24, 2010. Retrieved on Oct 29, 2010: http://www.betanews.com/joewilcox/article/Google-is-a-dangerous-monopoly-more-than-Microsoft-ever-was/1266994170 Defterios, John. “OPEC's power play as cartel marks 50 years”. CNN. October 14, 2010. Retrieved on Oct 29, 2010: http://edition.cnn.com/2010/BUSINESS/10/13/austria.opec.50th/index.html O'Sullivan, Arthur, Sheffrin, Steven M., & Perez, Stephen J. Macroeconomics: Principles, Applications, and Tools. Prentice Hall, 2009. Png, Ivan, & Lehman, Dale. Managerial economics. Wiley-Blackwell, 2007. Pyle, Robin New Ambulances Will Save Long-run Costs with Longer Life Span. Fire Link. October 27, 2010. Retrieved on Oct 29, 2010: http://firelink.monster.com/news/articles/15765-new-ambulances-will-save-long-run-costs-with-longer-life-span Read More