Global Shift - Reshaping the Global Economic Map in the 21st Century - Assignment Example

?Topic: 3 Questions Assessment Affiliation: Question One Human livelihood involves the production, distribution and consumption of resources which is possible with economics. Economics involves the study of how scarce resources are allocated among the unlimited and alternative uses of a consumer. These production activities are carried out in economic systems which address the economic problems of scarcity with the finite factor inputs. Economic systems thus are composed of people, rules, institutions and relations and can be of many types. A free market system also known as the Laissez- fairre system is such that resources are allocated based on the price mechanism where demand and supply forces interact freely (Fernando, 2007, p.6) Demand increase causes prices to increase leading to more production of the good in question. The market value of an individual’s work determines ones income which dictates the consumption levels. In this system government role is limited and is based on individual innovation and the idea that hard work is rewarded. The businesses will thus exist to make profit and competition is the key element. The entrepreneur takes a great risk with his capital since he requires a full and free availability of information on the buyers and sellers which is not always readily available. However, they have the power to choose on how they want to spend their incomes. In addition to that, the free market economic system leads to the development of monopolies and oligopolies. It influences the production and the distribution of harmful goods and services such as drugs in the economy. It also leads to social income disparities thus widening the gap between the rich and poor. As a result of the major limitations observed in the laissez- fairre system, most countries choose to conduct their affairs in a mixed economy. This type of economic system encompasses both the government and privately owned corporates that work together to produce goods for the consumer and solve the economic problems. A mixed economy is considered to be more effective because of the involvement of the government. It is the public sector that will influence the prices of goods to go down through its control measures thus preventing inflation and protecting the consumer. Besides this, the government ensures that income is distributed equally throughout the states. This is achieved through heavy imposition of tax on the rich than on the poor and using such money to construct social amenities throughout the country. The government is also actively involved in the prevention of monopolies by pumping money to support other competing industries as well as obtaining much money from patent owners. Prevention of entry of harmful drugs is also the key role of the government and therefore it ensures that the masses are protected at all costs. The most accepted roles of the government will include the enforcement of property rights, definition of a law system, prohibition of fraud and punishment for prohibited practices (Fernando, 2007, p.297). The state ensures that all goods produced internally are well allocated to generate investments while the private sector is mainly concerned with profit maximization. In a private sector, technology is highly applied and the revenue gained is more than that in the public sector. It may translate to failure to pay taxes or tax evasion or even the engagement in illegal acts. It is therefore the duty of the government to ensure that all taxes are paid and that illegality is exempted. Therefore, most states tend to concentrate on the mixed economy since in such there is a balance between the ownership of resources which translates to a balance in investments. In most and both cases, there is gain to the parties involved and the roles in both correspond and interact. Question Two Forces of demand and supply determine the price level of goods and services. The intersection of the two marks the equilibrium of both demand and supply, where the price level is determined. A change in technology is a critical factor to account for in the car industry (John and Kwoka, 2004, p.509). It is a variable that highly determines the output level of the car industry. On the same note, costs of doing business must be accounted for when it comes to pricing. In this regard, technological breakthrough affects demand, supply and price of the products in that industry. In the case study that considers cutting prices through new technology, the technological breakthrough news caused a fall in the prices of metal palladium. The technological breakthrough was specifically tailored towards the production of catalysts for cars. With the news of a technological breakthrough, production of cars was bound to increase. Technological advancement would come with a lower cost production of catalysts for cars, thereby reducing the overall cost of production. Car manufacturers therefore could afford to manufacture and assemble more cars at reduced costs of production. The effect of this on the demand-supply relationship is that the supply curve at such an instance shifts to the right (outwards). The impact of this scenario is directly transferred to the price level. The price of metal palladium fell following the same concept. Equilibrium price level lowers, explaining why the price of metal palladium fell. A diagrammatical representation of this is shown below: With a shift in demand to the right, as shown from S1 S2, the quantity produced increases. This is shown by the movement from Q1 to Q2. As a result, the price level decreases from P1 to P2. Following a technological breakthrough in the case earlier presented, the cost of producing cars becomes relatively cheaper and more output is realized (John and Kwoka, 2004, p.522). It is in the context of these factor combinations that the price of metal palladium fell. This and other technological breakthroughs can help Mazda and Nissan compete against the low cost producers in a number of ways. It is essential for these two companies to embrace the fact that consumers are rational and therefore utility driven. Consumers seek maximum utility at the lowest price possible. Therefore, for Mazda and Nissan to compete in the mentioned market, they have to be as competitive as the low producers or even more. Their pricing strategy must be favourable to the consumers and the quality of cars should match or exceed that of the low cost producers (Dicken, 2003, p.104). Demand and supply interaction affects pricing as shown below: It is therefore upon the producer to determine the optimum level of production and the pricing, prior to the producer’s desired goals and consumer expectations. Mazda and Nissan should evaluate and assess the low cost producers such as Tata Group and others in order to come up with a move and countermove strategies of getting a significant market share out of the one that the low cost producers have already taken. Optimal demand, supply and price can foster competitiveness for Mazda and Nissan by adopting technologies that reduce costs of operation, increase output and quality of output and further enhance a pricing strategy that favours both the manufacturers and the consumers. Question Three The primary role played by technology in the car industry cannot be refuted. New technologies are making it cheaper for manufacturers to produce cars, consequently offering high quality cars at affordable prices (Dicken, 2003, p. 183). The efficiency and effectiveness of production has been enhanced in that pursuit. Non adoption of new technology in the car industry is likely to hold back the actual potential of many manufacturers. With new technology, there is enhanced efficiency in production and a cut on the prices consumers pay for cars. Failure to adopt new technology therefore impacts negatively to both producers and consumers. To producers, cost of production remains high, competitiveness in the market may not be at par with rival companies. Consequently, the output produced may not be the optimal output that fully employs the producer’s resources. On the consumer side, higher prices are likely to be charged, but low demand will be realized. Consumer rationality will dictate that the best pricing producer holds a significant chance of controlling the market share where producers fail to adopt new technologies. Reference Dicken, P, (2003), Global Shift: Reshaping the Global Economic Map in the 21st century, 4th ed. London: Sage Publications. Fernando, A, C, (2007), Business Environment, London: Pearson Education. John E, and Kwoka, Jr. (2004), Market Power and Market Change in the Automobile Industry, The Journal of Industrial Economics, Vol. 32, No. 4. June. pp. 509-522. Read More