Price Elasticity of Demand and Monopolistic Competition

Price Elasticity of Demand and Monopolistic Competition The Price Elasticity of demand is inversely related to excess capacity in the monopolistic competitive market – Discuss Before we even dwell and discuss on the abovementioned topic, it would vital for us to understand and define what Price Elasticity of Demand, Excess Capacity and Monopolistic Competitive Market are all about from the economic perspective. By understanding the aforementioned than only we would be able to discuss and deliberate the abovementioned topic in detail. Elasticity From the economics perspective based on journal and article in Wikipedia, elasticity can be defined as the measurement of how receptive or responsive an economic variable is, to a change of the other. For example: If we lower or reduce the price of our product, how much more will it be sold? If we raise or increase the price of one product, how will that affect sales of the other product? If we learn that a resource is becoming infrequent or limited, will people rush to acquire it? We can further elaborate that an elastic variable (or elasticity value greater than 1) is one which responds more than proportionately to changes in other variables. On the other hand, an inelastic variable (or elasticity value less than 1) is one which changes less than proportionately in response to changes in other variables. Elasticity can be measured as the ratio of the percentage change in one variable to the percentage change in another variable, when the latter variable has a fundamental influence on the former. It is a tool for measuring the responsiveness of a variable, or of the function that determines it, to changes in contributory variables. Frequently used elasticities include price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production and elasticity of substitution. Elasticity is one of the most vital concepts in a traditional economic theory. It is valuable in understanding the rate of indirect taxation, marginal concepts as they relate to the company, and distribution of wealth and different types of goods as they relate to the theory of consumer choice. Elasticity is also crucially imperative in any discussion of welfare distribution, in particular consumer surplus, producer surplus, or government surplus. In a pragmatic work environment, an elasticity is the estimated coefficient in a linear regression equation where both the dependent variable and the independent variable are in natural logs. Elasticity is a common tool amongst observers because it is independent of units and thus simplifies data analysis. Price Elasticity of Demand On the other hand, according to Alfred Marshall, Price elasticity of demand (PED or Ed) is a measurement used in economics to illustrate the responsiveness or elasticity, of the quantity demanded of a good or service to a change in its price. More accurately, it gives the percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e. holding constant all the other determinants of demand, such as income). Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to uncertainty. Only goods which do not conform to the law of demand, have a positive PED. Generally, the demand for a good is said to be inelastic (or relatively inelastic) when the PED is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one (in absolute value): that is, changes in price have a relatively large effect on the quantity of a good demanded. Revenue is maximized when price is determined so that the PED is exactly one. The PED of a good can also be used to predict the rate of a tax on that good. Various research approaches are used to determine price elasticity, including test markets, analysis of historical sales data and conjoint analysis. Nevertheless, according to Professor Dominick Salvatore in its book, Managerial Economics – Principle and Worldwide Application, mentioned that â€Å"Sometimes, lowering the price of the commodity or products increases sales sufficiently to increase total revenues. At other times, lowering the commodity or products prices reduces the firm’s total revenues†. Thus, lowering the price of a particular products will not necessarily increase the total profitability of a company. This is due to the fact that it also have an impact on the production cost. Therefore, we can also say that the higher the price elasticity, the more sensitive consumers are to price changes. A very high price elasticity indicates that when the price of a good increase, consumers will buy less of the items and when the price of that good falls, consumers will buy more. A very low price elasticity suggests the opposite, that changes in price have slight influence on demand. As such, it is imperative for a company to really understand the economics and the concept of PED before any decision is made for a price review or for a pricing strategy. Excess Capacity Meanwhile, Excess Capacity, based on our reading, as defined in Wikipedia is a situation in which actual production is less than what is achievable or optimal for a company. This often means that the demand in the market for the product is below what the firm could potentially supply to the market. The amount of excess capacity within an industry is a signal of both the performance of that industry and the demand for the products it produces. Excess capacity is also seen as a good thing for consumers, as it is not likely to lead to the price inflation that would be seen in periods of near-full capacity. A company with sizable excess capacity can often lose a considerable amount of money if it is not able to meet the high fixed costs that are associated with producers. In other words, it could also be the case that in the long run, the production is operating not at the lowest of its long run average cost curve. Instead, it is operating on a gauge that is smaller and less efficient which the company has, in fact, a capacity to produce more at a lower average cost. , each firm is serving a market that is too small, and there are too many firms, so that the product group as a whole has the capacity to serve more customers than there are. Excess capacity exists when marginal cost is less than average cost and it is still possible to decrease average (unit) cost by producing more goods and services. Excess capacity may be measured as the increase in the current level of output that is required to reduce unit costs of production to a minimum. Excess capacity may also arise because as demand increases, firms have to invest and expand capacity in uneven or inseparable portions. Company may also choose to maintain excess capacity as a part of a deliberate strategy to deter or prevent entry of new firms. Monopolistic Competitive Market Monopolistic competition from economic perspective is a category of imperfect competition such that many producers sell products that are different from one another as goods but not perfect substitutes (such as from branding, quality, or price). In monopolistic competition, a firm takes the prices charged by its competitors as given and ignores the impact of its own prices on the prices of other company. In the presence of strong government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The founding father of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition. Joan Rob inson published a book The Economics of Imperfect Competition with a comparable theme of distinguishing perfect from imperfect competition. The characteristic of a monopolistic competitive markets are as follow: There are many producers and many consumers in the market, and no business has total control over the market price. Consumers perceive that there are non-price differences among the competitors products. There are few barriers to entry and exit. Producers have a degree of control over price. In the long-run characteristics of a monopolistically competitive market are almost the same as a perfectly competitive market. Two differences between the two are that monopolistic competition produces diverse products and that monopolistic competition involves a great deal of non-price competition, which is based on subtle product differentiation. A firm making profits in the short run will nonetheless only break even in the long run because demand will decrease and average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This illustrates the amount of influence the firm has over the market; because of brand loyalty, it can raise its prices without losing all of its customers. This means that an individual firms demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule. Differences between Perfect and Monopolistic Competition To show that the PED is inversely related to excess capacity in the monopolistic competitive market, in this discussion, we will be comparing mostly between perfect competitive market and monopolistic competitive market which is also an imperfect market. There are two main differences between perfect competition and monopolistic competition. First is excess capacity; in perfect competition, firms usually will produce a product up to the maximum capacity of its production to get the lowest average total cost, ATC. Meanwhile in monopolistic competition, the firms will have an excess capacity if they produce less than the quantity at which average total cost is at minimum; which if they lower the price, they could sell more but they might producing at a point where their cost will exceed their revenue. The second differences are mark-up. In perfect competition, P=MC, but in monopolistic competition, P > MC because of its marked up. The marked up is because of the price discrimination which use by the firms in monopolistic market. Price and Output in Monopolistic Competition First of all, let us look at the factors affecting the PED. As we can see, in monopolistic competition market, there are high numbers of substitutes available for the products that produce by the firms. This is because each of the firms produce similar product but not identical. Because of this, the market has a greater PED. Any changes in price will make a possibility of consumer to change their demand for other substitute products. This is why, monopolistic market are also called price searcher market, as they are actually looking for the best price for their product. Since the firms produce similar product, they cannot fight their price using the ATC, where they cannot produce more than they can sell. They can only produce the quantity at which the marginal revenue is equal to the marginal cost. Can we say that monopolistic competition is inefficient? Yes, because in monopolistic competition P > MC, marginal benefits is larger than marginal cost. In order to reach the highest possible profit, firms competing in three important area of product differentiation, which is the quality, price and marketing. The quality of the product is just not only about the reliability of the product, but also about the design and the services, more on the after sales services. Using this quality aspect, firms can do the price discrimination, which differentiated their product with other product. However there is a trade off between prices and quality. The lower the price, the lower the product quality can be. As to further increase the sales, firms have to do a good product packaging and advertising. Since consumer value a variety, and variety is a cost, it is reasonable for the firms to price discriminate other products. However in monopolistic market, since no barrier to entry and exit from the market, firms have to be careful not to gain high profit in the long run as it can attract new competitors into the market. Product Development and Marketing Since monopolistic firms need to maintain their economic profit, in the condition of high ATC, there are needs to keep and sustain a continuous product development. In the market where the competitors are always looking for new innovation, new technology and attractable product, they need to be in line with the up to date trend of consumers. New product development would allow a firm to gain a competitive advantage, even sometimes temporarily before competitors imitate the innovation. Looking at the scenario where competitors usually keep imitate the new innovation produce, it might cross our mind why firms need to be the innovation leaders since after that the competitors will had it imitate. The innovation cost are high compare to imitate cost, but the benefit as innovation leaders have a value to consumer and also would increases total revenue. Firms usually will pursue product development until their marginal revenue from innovation equals to the marginal cost of innovation. As a human, consumer have a natural willing feeling to pay higher for the products that have a high value to them, even sometimes the price is ridiculous. The marginal social benefit of an innovation is the increase of price to the product and also a marginal social cost to the firms for the cost of innovation. Basically, the profit is maximized when MR=MC, but in monopolistic competition P>MR. Because of that, amount of innovation is less than efficient. Compare to the perfect competition market, monopolistic market have a higher selling cost since they need to spend a lot on promoting the uniqueness of their product compare to other substitutes product. The increase in selling cost will increase ATC at any level of output, but would not affect the MC of production. If their effort in promotion and advertising increases the demand of the product, then they are considered success. This is the cost that the monopolistic firms have to pay, to reduce their excess capacity, by increasing the demand of the products. But advertising is not only use to promote the variety and the uniqueness of the product, but also sometimes use to remind the market of their high quality product. Conclusion From the comparison that we highlight between perfect competition market and monopolistic competitive market, we can see the relation between the increasing of selling cost, increase of demand and reduced in excess capacity. When the firm concentrate in having a continuous product development with greater advertising and promotion effort, they can increase the demand of the product which in turn inversely reduce the excess capacity of the firms.

Us Compared to Germany

I chose to compare the United States (U. S. ) healthcare system with Germany. I chose Germany because I know very little about this country, especially its healthcare system. The biggest difference I noted  is  that Germany has a universal healthcare system, whereas the U. S. does not. The people of Germany contribute 8% of their  earnings towards healthcare. The top 10% who make  more than $72,000 a year pay more for health coverage, but receive  more prompt and extra services (Lanier, 2008).Another difference I noted is that in Germany, there is no discrimination  when it comes to certain illness and  age (Lanier, 2008). The heath coverage covers  everyone no matter how sick or old they are. In  America, chronically ill individuals, at times, find it hard to  find an insurance company to  accept them. When they do, the coverage is usually at a much higher rate than  that of a  younger, healthier person. In Germany, there is quicker access to care.There is no long waiting period for surgery or procedures and it does not take weeks or months to see a physician like in the U. S. (Lanier, 2008). Many assume that there would be a longer waiting period in a country that has universal healthcare, but this isn't the case in Germany. America has the most costly healthcare system in the world, yet underperforms compared to many other countries including Germany (Davis, 2007). Some of the areas that the U. S. ranks last on are access, safety, and efficiency.Germany spends less on healthcare, yet performs higher in these areas. Davis, K. (2007, may 15). Mirror, mirror on the wall: an international update on the comparative performance of american health care. Retrieved from http://www. commonwealthfund. org/Content/Publications/Fund-Reports/2007/May/Mirror–Mirror-on-the-Wall–An-International-Update-on-the-Comparative-Performance-of-American-Healt. aspx Lanier, S. (2008, July 29). Healthcare: germany vs america. Retrieved from http: //www. health-insurance-carriers. com/blog/health-care-germany-vs-america/

Sociology Reflective Essay

‘Social Stratification is the division of large numbers of people into layers according to their relative property, power, and prestige; applies to both nations and to people within a nation, society, or other group. ’ (Henslin, James,2011) There are basically four systems to socially stratify a family. Social class, as one of the systems will be investigated in the following paragraphs. (1) Identification of my family’s social class position and explanations of it: Social class is fundamentally determined by how much wealth you have.Income, education and gender are three major factors that I would consider to determine my family’s social class position. Concisely speaking, I came from a single-parent family which I only live with my mother. My mother is the only person who is officially employed in my family. Her occupation is a salesperson at a beauty centre with unstable income. One other important financial income of our family will be the alimony given from my father who no longer lives with us. Our household income per month is about $10,000. According to the 2006 Population By-census, the median monthly domestic household income (at current prices) was $ 17,250.Although there are only two people in my family, our monthly income is nearly 40% below the median figure in 2006. Individually, my mother does not receive stable income so her monthly income tends to be lower than the median monthly income of an employed individual of $ 10,000. In conclusion, my family’s income is comparably low; especially the data was collected in 2006 which inflation has already been excluded. Education is counted as an essential factor determining social class as it’s believed that well-educated people can always get well-pay jobs with comfortable working environments.As mentioned in the 2006 Population By-census report, people with higher educational attainment generally have higher income than less educated ones. Also, in the past fe w decades, only economically sufficient families could provide educations for their children. There are many middle-aged people nowadays do not have high-school qualifications. Thus, in the past few decades, the more educated a person was, the wealthier his/ her family would be. My mother did not finish high-school education while I have just started my university study. Finally, a very special factor—gender, is considered. ‘Gender is a basis for social stratification. (Henslin, James, 2011) All of us in a family are both females. Even though people in modern world advocate gender equality, women still suffer from gender inequality. Stated in the report of the 2006 Population By-census, the median monthly income from main employment of working men was higher than that of working women by some 30% during 1996–2006. Other than income, clothing, right to divorce and education are restricted in some Middle East countries (e. g. Iran). Hong Kong seems t o be a liberal city but there are still some deep-root traditions and thoughts that limit the social mobility of females.Due to gender inequality, my mother was not allowed to attend high school and she is forced to receive lower pay comparing to her male colleagues with same working titles. To conclude, I would say gender serves as a force that aid pushing down my family’s social status. After the considerations of all these factors, I would place my family as working class or sometimes lower class. In term of Marx’s theory, my family would be the proletariat (workers). In term of Weber’s theory which considers three components of social class, I would still place my family as working or lower class. 2) Prediction of my own social class when I am 40 years old and the possible difference between my current family social class position and the future: It is extremely hard to predict my own social position when I am 40 years old which will be approximately two decades later as our world is never predictable. Nonetheless, if everything reminds unchanged in our world, I will be a clinical psychologist or at least graduate with bachelor degree. Ideally, I will be working for the government as a professional with ‘Iron Rice Bowl’. The salary I get will be higher than average.According to the report on salary scale of common posts in the non-governmental organizations, the monthly salary of a clinical psychologist was $ 30,615 in 2009 which was 2 times higher than the median monthly income in 2006. In 20 years time, my mother will be retired hopefully and I will be the only financial support at home. My occupation, wealth, education level and income will be the main indicators to identify my social position in our society. According to Marx, I remain a proletariat who lacks of class consciousness as I do not perceive an occupation as a clinical psychologist as an exploited worker.According to Wright, I may be on the level of managers or still work ers. I guess I will not own any means of production or labor power but I hope I can still own control over investments or money capital (e. g. a flat unit). In short, from both Marx’s and Wright’s view, my social position will not differ a lot from my family’s current social class position. However, I doubt that their views are relatively simplistic and out-dated so I prefer Weber’s three components of social class (property, power and prestige). At the age of 40, as a professional, I may have a secretary which means I gain power on controlling my subordinates at work.Also, prestige sounds more achievable as a professional with more respects. From his perspective, I may achieve vertical mobility and move to a higher-rank social position comparing to my family’s current social class position. Generally, I believe being a clinical psychologist can upgrade myself from a lower/working class to lower middle class. However, the above assumptions are made under the circumstances that nothing has changed. In my own opinion, there are some essential factors that I have to consider. For examples, the prestige and income I will get for being a clinical psychologist may not be that much as in the past.This is because studying in universities is very common; getting a university degree will be easier than the past. Potentially, there will be more clinical psychologists in Hong Kong and salaries will be lowered when there are sufficient supplies. (3) Considerations of all advantages and/or disadvantages my family’s current social class position provides or poses in helping to determine the social class to which I see myself belonging when I am forty years old: First of all, I would like to state some of the disadvantages at the beginning.Income is an important indicator determining class position. However, my mother’s income can be very unstable (as a typical factor of local working class). She can earn quite a lot this month but earn nothing in the following month. A few years ago while there was a structural change in the industry that I have considered not to continue my study but to work in order to support my family’s expenses. This kind of consideration may appear again if the economic condition is really bad.Although the possibility is very low, income uncertainty can still block my sights from determining my future social class which is possibly determined by my education level. Also, social class is likely to be intergenerational so I am very likely to be part of the working/ lower class but not what I have expected in part (2). One significant advantage is that being a part of the lower/working class provides very strong motivation for me to study harder and move to the middle class rank in the future.When being a part of the middle class becomes my goal, I can easily conclude what social position I will be in my 40s. References: (1) Thematic Report :Household Income Distributionin Hong Kong 2006 Population By-census http://www. statistics. gov. hk/publication/stat_report/population/B11200452006XXXXB0401. pdf (2) Salary Scale of Common Posts in the Non-governmental Organizations w. e. f 1. 4. 2009 http://www. swd. gov. hk/doc/ngo/Salary%20Scale%20of%20Common%20Posts%20wef%201%204%202009. pdf (3) Sociology: A Down-to-Earth Approach (Henslin, James,2011)

Teaching Philosophy Essay examples - 682 Words

Teaching Philosophy As a teacher I have a great responsibility and will strive to have a positive impact in each one of my students’ lives, inside and outside of the classroom. As an educator I believe that I will play many roles-a facilitator, a mentor, and a friend. With these functions I will contribute to helping my students deal with the daily obstacles that they may face throughout their lives, academically and socially. There are some students that do not have a support system within their home, therefore as a teacher I may have to fill that void and act as their sole advocate in developing their meaningful purpose in life. I will treat each student as if they were my own children by respecting, teaching, and caring about†¦show more content†¦Each student has a different learning style and as a teacher I have to incorporate a mixture of resources to engage all of my learners. I will use a variety of authentic materials and tools to meet the needs of the diverse students. Such items will include the use of songs, movies, pictures, newspapers, magazines, literature and games to attract their attention. Through these tools I will be able to present the subject matter in a unique way, thus allowing my student to learn the lesson in the manner that suits them best. Using visual, kinesthetic, and auditory activities will enrich the lessons in a tremendous way. Having the students actually do something with the information presented to them will allow them to retain the information best. An additional function that a teacher holds is that of a facilitator, where the students are the center of the learning experience. As a teacher I must encourage the development of independent thinking that will assist them throughout their educational careers and for the rest of their lives. 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