Business

Economics Take Home Exam

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a) In what way does monopolistic competition resemble monopoly?

In both monopolistic and a monopoly entry into the market so as to trade is free without restrictions. Exist in the market is also free to anyone who wants to exit.

In both they are the price makers. Although in monopolistic competition there are more suppliers they are the ones whom set the value cost of a product in market.

In both they aim at maximizing their overall profits and to do so they have to ensure that the marginal revenue has to be equal to the marginal cost this way profit is at maximum.

b) How is it different?

In monopolistic competition the type of goods sold are close substitutes only that there is product differentiation which makes product to appear different although they are similar while in monopoly market product are unique a with no close substitutes.

In a monopolistic market, price of products is higher than the marginal cost of production and suppliers can only influence price while in monopoly market the firm ensures that the marginal cost must be equal to marginal revenue to ensure maximum profits and they also set the price of commodities (Admati,1996).

Monopolistic market has many sellers in market selling products which are close substitutes while a monopoly market has on one key player who sets the price and influence market.

c) Why is the difference between monopolistic competition and monopoly important for consumer welfare in our intra-industry trade model?

In the model trade occurs better between countries within an industry rather than across many industries, thus the intraindustry trade among countries can arise and boost national welfare as a result of international trade.

8) Explain how increased intellectual property (IP) pirating or production and sale of counterfeit American goods without paying royalties by foreign producers might affect the product cycle and revenue in the United States.

Give an example of how an American product is affected and explain how a theft of intellectual property is detrimental to a US firm.

Innovation remains a key to economic growth and job security in an economy. Due to breach of intellectual properties there has been increased trade of counterfeit products across America. These reduces the volume of sales in the original product. These has resulted to small firms’ hardships to even get investment security due to less sales and thus end up in closing and these leads to reduction of country’s economic growth.

9) Explain why the US became more competitive after the 1990’s.

Also, please list a latest competitiveness ranking for about 7 to 10 most productive economies in the world -in a ranking order beginning with the most competitive one as evidence of the US competitive position in world’s rankings.

In the 1990s the United States economy had a stable economic growth with jobs created and there was a low inflation rate. It happened due to various factors such as a) oil prices were low and it reduced transport fee and the manufacturing costs went down. b) There were reforms in the welfare associations and technology led to innovation which impacted the nation very positively c) there was a low dependency ratio in the country since even the young ones worked (Bhagwati et al 2012). Most productive economies are Norway ($75.08) Luxembourg ($73.22) United States ($67.32) Belgium ($60.98) Netherlands ($60.06) France ($59.24) Germany ($57.36) Ireland ($56.05) Australia ($55.87) Denmark ($55.75)

10) a) Refer to the above graph. What is the relationship between average yearly changes in merchandise export and average yearly change in per-capita income

As years increase the merchandise export increase and the income per capita also reduces.

b) List at least 3 major economic reasons that trade can cause economic growth.

Difference in technology. Through trade country’s with low technology are able to adapt better technology which assist in economic growth of the country.

Difference in resource endowments through trade countries which are not able to produce some resources are able to get them through trade thus increases the GDP of that country (Copeland,2013).

Difference in demand. Different countries have different demands for product through trade countries with surplus are able to trade with countries with higher demand thus economic growth.

References

Copeland, B. R., & Taylor, M. S. (2013). Trade and the Environment. Princeton university press.

Bhagwati, J. N., Panagariya, A., & Srinivasan, T. N. (2012). Lectures on international trade. MIT press.

Admati, A. R., & Pfleiderer, P. (1996). A monopolistic market for information. Journal of Economic Theory, 39(2), 400-438.