Marketing and Economic Interests - Essay Example

Running Head: MARKETS AND ECONOMIC INTERESTS Name Markets and economic interests Course Tutor Dater Markets and economic interests The various economic schools of thought have different ways in which they approach economic issues. The classical school of economic theory believes that the economy is self- regulating system of the market and that the economic needs of the population are satisfied without human intervention. The classical also describes the mechanism of the market as an “unseen hand” that drives all the persons to undertake their own self- interest so that they can obtain the greatest benefit for the whole society. This theory therefore is of the opinion that the markets help in resolving conflicts that may exist between an individual and the public. It also assists in reconciling competing economic interests (Sowell, 1994). On the other hand the Marxian theory strongly believes in capitalism, where the production and distribution means are owned privately or corporately and the development is in proportion to the accumulation and the reinvestment of the profits in a free market. Marx finds out that markets tend to vague the social relationships and production processes. People in this case may be aware of the commodities but they don’t think about the relationships and labor they represent. This therefore does not reconcile the competing economic factors (Wood, 1993). Neoclassical economists want the markets to be free. This therefore means that the governments should not come up with regulations on who make to things, who may sell, who to buy the items, the type of businesses, the business behavior, prices or even the amount of goods be sold. They say that allowing such freedom will lead to better economic outcomes. Through this way, the competing economic interests will be able to be reconciled and also the personal and the public interest will be taken care of because the government will have been separated from the market forces (Senio, 1995). Also the market price of the goods will be determined by how much the seller is willing to sell at and the buyer is also willing to buy the commodity. This will therefore mean that the market will be determined by the demand and supply forces hence the self and public interest is reconciled e.g. a seller who wants to sell at a given price may not do so if the buyers are not willing to buy at that price, he or she may therefore be forced to bring down the price. The economy helps in shaping the class structure in the society. How this is done varies from the various schools of thought. According to the classical school of political economy, a class is determined by the amount of income one earns irrespective of the economic sector the income is earned from (Horowitz, 1998). This therefore means that well developed economies will lead to high level of income to those individual working in such economies hence will be seen to be in a higher class than those working in less developed economies e.g. somebody working in developed country like USA is of higher class than the one working in developing country like Somalia. Those therefore in high class as a result of their level of income may end up underestimating those from the low income and this may bring a negative impact on the economy at large. Karl Marx on the other hand argued that class came about as a result of surplus labor in the economy. This class classified individuals into those who produce the surplus labor and those who appropriate and distribute the received surplus. This class structure may shape the economy in many ways for example when the surplus labor level increases it would follow then that the economy will also grow and the fall in the level of the economy in a situation where the level of surplus labor decreases (Senio,1995). The economy also has led to the coming up of the elite class in the society. This class is defined by ability to secure a disproportionate share of economic surplus generated and to change it into wealth that can be passed to some other generations. The capitalists also find out that class can either be proletariat or semi-proletariat. Semi-proletariat refers to classes that still hold to land and that hey receive their dues from the small agricultural plots they have while at the same time spending most of their times working in the capitalist enterprises. The existence of this class lowers the level of the subsistence wages the capitalists are expected to pay and therefore raising the level of surplus labor they are suppose to appropriate. There is also class that comes as a result of economic power. In this case the class boundary depends on the power distribution rather than the amount of property one has therefore there would be the ruler and the ruler in the economy (Wood, 1993). These various class structures shape the economic outcomes in various ways also for example the class transition in the agrarian sector is very important in that it shaped the wellbeing of the people in the rural areas, the nature of labor supply and migration to urban areas and many other sectors. In economics, competition can be defined as the ability of the various firms and individuals to strive for a greater share of a certain market to sell or buy goods and services. According to Adam Smith in The Wealth of Nations (1776) and later economists competition is a way of making allocation of productive resources to their most highly-valued resources and also encouraging efficiency. Competition has been classified into two i.e. perfect and imperfect competitions. Neoclassical economists have had two ways of looking at perfect competition (Rousseau, 2004). The first way is the emphasis on the difficulty of any one agent to affect prices. This means that any one consumer or firm is very small as compared with the market at large and there their presence or absence in the market does not affect the equilibrium price. The second one is that the agents are seen to be taking advantage of and therefore getting rid of profitable exchange opportunities. The more this happen, the more the market becomes very competitive. According to the microeconomic theory competition is seen to be causing commercial firms to come up with new products, services and also technologies which will give the consumers better products and also greater selection of goods and services. There are three levels of economic competition that have been classified. The first one being direct competition also called brand competition. In this competition those products which do the same function compete against one another (Kirzner, 1998). For example, one brand of motor bikes competes with several other brands of motor bikes. In a case where two companies are competing and that one of the companies adds a new product to their line, the other company will also have to distribute the same new product in the market and in that way they will be competing. The second class of competition is the indirect competition which is also called substitute. In this kind of competition, those products which are close substitutes of one another compete. For example, butter may compete with margarine because the two products are close substitutes and therefore incase one of them is not in the market, the other one can be used for the same purpose. The other form of competition which is seen to be the widest form of competition is the budget competition. According to this competition, anything that the consumer might want to spend using his or her available money is included. For example, a family which has $30,000 available to them may choose to spend them on various items. These items will therefore be competing with each other for the family’s available resources. Competition does not have to be between the various companies but it can also be within the company (Machovec, 1995). This kind of competition is what is called internal competition. In economics also, competition can be restricted legally, for example, competition is not allowed in the case where there is government monopoly or government- granted monopoly. Competition in economics can either be desirable or undesirable. On the positive side, competition can be seen to of great importance to the society at large. For example through competition the quality of products and services which are produced by various firms will improve. Competition makes the firms to produce quality goods and services so that they can out do their competitors in the market. This will be of great benefit to the consumers. Competition also leads to lowering of the prices for the products or services. This is so because of the greater selection of the goods and services by the consumers. This is also to the advantage of consumers. Competition on the hand can be undesirable in the various ways. Competition can prove to be very costly to the side of the company (Potter, 1995). The company will have to incur a lot of cost so as to remain as competitive as its competitors in the market; this can be done by improving the technology of the company and even hiring other competent staff to improve the company’s level of production. According to economists, profit can be defined as the difference received from the sale of a product or service and the costs used in producing that product or service. Profit can also be seen to be the economic value added (EVA).Profit therefore is seen to be the objective of most businesses in the economy .Therefore most of the companies in the economy are ranked according how much profits they generate (Potter, 1995). Those businesses with the highest level of profits are said to have been managed very well and that they have utilized the resources available to them in the most efficient manner. The various economists had various views as far as the profits are concern. Marx believed that the value of the goods is equal to the value of the labor used to produce those goods. In this case therefore, if all the proceeds from the sale of these goods do not go to the laborers, then they are not paid their value fully. This will mean that profit was obtained only by exploiting the labor, which the capitalists were able to achieve because they controlled the jobs. They paid the labor less it was worth, and the difference was kept as the profits.Marshallian-neoclassical view, which comprises the modern mainstream economics, finds the economic efficiency to be as a result of competitive equilibrium and that the profits are a sign of inefficiency. Profits are obtained as a result of markets being out of equilibrium, which is inefficient, or from monopoly power of firms, which is inefficient also. This therefore means that the profits are not desirable because they show inefficiency (Senio, 1995). As much as the profit is seen to be undesirable, without it, there could be no innovation. This is mainly because profits encourage innovation in the companies.Marx, Adam Smith an David Ricardo all are of the opinion that the source of the profits under capitalism is value added by the workers which has not been paid out in wages. Marx at the same time critized both Ricardo and Smith for realizing their economic concepts showed capitalists institutions. Marx’s theories of businesses cycles, economic growth and development especially in the two (Wood, 1993). sector models and of the declining rate of profit are the other important issues in the Marxist school of economics. Profits under the normal circumstances come from the proceeds obtained from selling the business items in a price which is higher than the one which was used to purchase the item i.e. profit is equivalent to revenue less the cost incurred in realizing the revenue. In this case therefore, profit is seen to be desirable to the business and that will be used in expanding the business so as to increase the business base. Bibliography Aspromourgos .T. 1996. On the origins of classical economics: value and distributionfrom William Petty to Adam Smith.New York, NY: Routledge press. Clark B.S. 1998.Political economy: a comparative approach. New York:Greenwood Publishing Group. Horowitz.D.1998. Marx and modern economics. Modern Reader Paperbacks press. Keen. S. 2001. Debunking the economics.London: Zed Books press. Kurz.H. and Salvadori .N. 2003. Classical economics and modern theory.New York,NY: Routledge press. Kirzner I.M .2000. The driving force of the market. Routledge press. Kirzner I.M. 1998. Competition and entrepreneurship.Chicago: University of Chicago Press. Machovec.F.M. 1995. Perfect competition and the transformation of economics. Routledge press. Potter .A. 1995. Political economy. 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