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Economics for Business

BUSINESS

ECONOMICS

Paul A. Zevgolis

Table of Contents for Macroeconomics

Abstract

3

The Four Market Models

4

Levis Relative

Market Structure ............................................................................................

5

Market Model Specifications

6

International Trade Benefits

6

Comparative Advantage

8

Trade Restrictions of United Kingdom

8

The Different Types of Unemployment

9

10 Year Period Inflation of Greece

12

10

References

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Abstract

There are several focus points in this paper; the first focus is on the types of market structures there are in doing business. In relation to the market structure a look at the kind of structure Levis incorporates into practice is present. As one goes further into the paper, the topic shifts and focuses on the benefits of International Trade, and analysis are of the theory of Comparative Advantage. Furthermore the different kinds of unemployment are explained with relevant theory, and finally Greece’s inflation is explained from the period of 2002 to 2011, which is approximately in a ten year span.

Paul A. Zevgolis

The Four Market Models

The four different markets structures that economists group industries are: Pure competition, pure monopoly, monopolistic competition, and oligopoly. However these structures in the market are different in a few ways, such differences include, the number of agencies that exist in the industry, the fact that the firms either produce a consistent product to the trends of the other firms, or if they produce different products in the market relating to other firms, and the level of difficulty for a firm to enter the industry that already exists (McConnell B. 2005).

Starting with pure competition, the pure competition is basically an industry of firms that produce the same thing that other manufacturer produce, such as lemons, and sugar, whereas lemonade would fall under a monopolistic competition due to different types of lemonade. Entry of new firms is relatively easy, considering how one approaches the industry (McConnell B. 2005).

A pure monopoly as a market structure is the idea that one company is the main seller or provider of a product or service, for instance a pharmaceutical company that sells one type of drug to the whole market (Viagra by Pfizer or Paracetamol a.k.a Depon by Bristol-Myers Squibb). Hence the company controls the entire industry of that particular product due to the products uniqueness which in turn there is no need for the products to distinguish its appeal amongst other products, making the other firms entries blocked in that market (McConnell B. 2005).

A monopolistic competition consists of large amount of sellers that produce different concepts of a product but with similar characteristics such as clothing, building tools, art work, books and many more. These firms usually compete against each other in the market by means of marketing their unique design, or feeding a perception in the minds of consumers about their unique selling propositions (USP). This market is substantially easy and simple to enter or exit, having that most products are brand made (McConnell B. 2005).

The fourth and final market structure is oligopolies, which are made up of a couple of sellers of a similar or different product in its industry, such as an auto parts manufacturer or steals, gold, diamonds and metals manufacturers. These companies

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have to be careful when it comes to choosing its own price and production rate of output, which may be affected by the decisions of their competition. For instance a car

producer may switch to a cheaper seller if one firm raises their prices, based on the fact that steal is the same compound product for cars or bearings made from steal (E.

Rodopoulos 2011) (McConnell B. 2005).

In these markets marginal-revenue and marginal cost play a big role, same can be said for price, profit, supply and demand. Also an important aspect in these markets is elasticity of demand factors.

Levis Relative Market Structure

According to the case of Levis, Levis belongs to a monopolistic competition, although jeans or clothing can be made from the same material or fabrics, they are essentially separated and distinguished by design, brands and workmanship. Although many other brands exist in the clothing industry, some companies tend to try and reach many potential consumers on a worldwide basis. The competition in this market is quite high, which forces companies, or in this case Levis to attain and keep customers satisfied, either by following current trends or moving into markets where the brand may bring in the most profits. One major task clothing companies with established brands face is innovative marketing tactics to further increase brand awareness and essentially stay on top of the particular market their in. Cutting costs and creating attractive designs are important aspect in the clothing industry, and monopolistic markets tend to find better and improved ways of these tactics by all means to achieve their goals. However at the same time they tend to supply the needs of consumer demand above all other aspects. Another relationships with customers explored by Levis is the internet and technology, which move in a synchronized pattern, usually competitive firms such as Levis take advantage of social factors and combine them with a personal touch, with new technologies such as consumer relationship management (CRM) which match the preferences of their customers with the specifications that suit their customers’ needs, in order to utilized sales. By offering customers a more personal and interactive experience to their brands, this influences customers to perceive their choices were made by them, on their own decisions, this

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belief, irrespective if it was either their choice or the marketing teams tactics, is an approach that strengthens the relationship between customers and the company brands which is one of the most important entities in monopolistic competition industries (McConnell B. 2005).

Market Model Specifications

Levis is a monopolistic competition market, and compete amongst many other firms, they have differentiated products, and they have some control over prices, but within rather narrow limits. On the other hand entry to this market structure is relatively easy although considerable amounts of equity is spent in marketing which is purchased on means of advertising, brand names, and trademarks (TM). Levis clothing ranges from shoes, jeans, shirts, dresses and usually are sold through retail trade (McConnell B.

2005).

International Trade Benefits

The benefits of international trade are created by an increase of output gained through specialized occupations and exchanges. International trade benefits societies by the use of its resources in order to increase the total output that can be made, thus essentially increasing a society’s well-being.

Gross domestic product (GDP) plays a big role in international trade, GDP consists of the goods and services that an economy produces either by a nations own citizens or by citizens of foreign countries. One important benefit from trade is the additional output gained, from abroad, although imports do not count in the nations GDP that sell those imports, instead the benefits are that the imports are sold for less, whereas if they were produced in a particular nation they would cost more to produce(McConnell B. 2005).

One example is that if Greece tried to produce the famous coco bean, it would cost the nation much more to harvest and maintain the production of it. Firstly labor would

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be too expensive and secondly taxes on imported produces are usually classified as revenue tariffs or protective tariffs, and have decreased since 1940, from 37% to a mere 5% in most nations making it much cheaper to import (McConnell B. 2005). Furthermore it would cost less to obtain coco beans from Western African (which would be considered revenue tariffs) countries such as Côte d'Ivoire and Ghana where they are naturally grown and harvested with cheap labor making them more productive in comparative advantage terms (The Hershey Company 2012).

Although imports benefit a country’s well-being in that sense it also benefits the nation that exports the goods as well, by increasing their GDP through all the output they are able to sell, though most profits are see by undeveloped countries rather than developed countries, being that undeveloped countries changes in GDP are substantially noticeable than developed countries.

Improvements in distance trading has cut costs in international trade, airplanes for example transport low weight items such as diamonds, pipelines that natural gas flow through are exported and imported faster and cheaper. Also, international trade contributes to a global market, meaning that products are able to be sold all over the globe, thus increasing the possibility of sales, and therefore contributing to nations overall increase in production and GDP (McConnell B. 2005).

Importantly international trade helps countries stabilize their market; by means of stabilizing a particular resource, an extreme example is that if a country lacks labor recourses, it can then offer people an opportunity to enter the working market of that particular country, depending on the specialties one may have, this may be seen as a form of importing, thus labor is exchange by wages stabilizing the economy from scarcity of employment, the same can be true for corn, wheat, beans, milk, and any exchangeable recourse (McConnell B. 2005).

Communication in technology are constantly improving international trade as well, information travels much faster now a days, and most communication means are linked directly to traders in a internationally accepted relationship, which is contributing to a clearer and faster means in trade (McConnell B. 2005).

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Comparative Advantage

“A country has a comparative advantage when it can produce a product at a lower

domestic opportunity cost than a potential trading partner can (McConnell B. 2005

pg 101).”

The explanation about Greece and the coco bean is a good example of comparative advantage. Another example is if Greece produced cars such as Mercedes Benz’s it would cost them more to produce 1 unit/cars per day at high labor costs, whereas Germany can produces the cars a lot faster with less workers and less equipment giving a lower domestic opportunity cost to Germany, either by trade to Greece and around the world. On the other hand Greece has a comparative advantage over Germany in olive production and trading due to costs of producing olives are cheaper in Greece than in Germany, therefore Greece can balance Germanys lack of olives via trade (McConnell B. 2005).

Trade Restrictions of United Kingdom

A major restriction but not the most significantly hash type are tariffs, which are compulsory and permit the protection of domestic firms. A tariff that’s for products that are not being produced nationally are called revenue tariffs and a protective tariff is designed to protect local manufacturers from foreign rivalry. One restriction done by the United Kingdom is the frequent restrictions of issued licenses, although many countries have different types of restrictions, the United Kingdom inherits this type to block the importation of coal (McConnell B. 2005). However profits on exports are taxed as all other profits in the UK, and the occurrence of having overseas companies, may mean that the profits shall be taxed in both countries. Nevertheless, as of 2010 the European Union of Services Directive have removed many of the barriers in the trade service. Hence trade that is taking place in the boundaries of the E.U is a lot easier than before (Crown 2012).

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The Different Types of Unemployment

There are three types of unemployment which are frictional, structural, and cyclical. Each of these types of unemployment, seem to be very different from each other and at the same time have a relationship. Frictional unemployment is based on the concept

that at any given time a percentage of workers are between jobs. Either it’s due to

voluntary leave or because of layoffs. This type of unemployment has been coined the term frictional unemployment by economists, hence fictional unemployment labels the group of people who are either searching for a job or waiting to start working in a job in the future (McConnell B. 2005).

Structural unemployment is the form of unemployment that permanently disables a worker in a particular field to continue working at that present time and in the future, thus he/she is no longer able to meet the requirements to finish the job, in other words the demand of such skill that one may have is no useful any more. In clear terms the labor forces do not respond directly or at full capacity to the new structure of job opportunities (McConnell B. 2005).

Structural unemployment differs from frictional unemployment in the sense that one who faces frictional unemployment has the option to move to a location where employment for that skill is needed whereas in structural an entire industry moves to a new location or changes completely in business operations structures, thus contributes to a person’s permanent unemployment (McConnell B. 2005). Summer jobs in Greece are considered frictional because one may only be hired during summer, thus in order for a person to have a full time job, they have to consider finding new summer locations, whereas in structural unemployment when a worker is no longer needed they permanently loss their position, or are replaced by technology, such as the stock exchange example where people where no longer required to shout on the floor or take orders, they were replaced by computers (Chaelee Duhigg 2009). A future example of structural unemployment would be doctors being replaced by Nano-bots and genetic reconstruction pills.

Cyclical unemployment is cycled unemployment; this type of unemployment is caused by low spending in an economy, and usually occurs in times of recession. Greece is experiencing this type of unemployment, due to less spending businesses

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are forced to lay-off workers, which unemployment cycles in an economy. Usefully when a country gains more money flow and new opportunities spin the economy that is experiencing cyclical unemployment, workers are hired again, and the economy becomes productive as before (McConnell B. 2005).

10 Year Period Inflation of Greece

Inflation rate (Annual average rate of change in %) Greece 5 4.7 4.5 4.2 4 3.9
Inflation rate (Annual average rate of change in %)
Greece
5
4.7
4.5
4.2
4
3.9
3.5
3.5
3.4
3.3
3.1
3
3
3
2.5
Inflation
2
1.5
1.3
1
0.5
0
10 Years
Inflation
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

Depicted above is the inflation rate of the past 10 years in Greece. As read in the beginning of the graph of 2002 when the euro was introduced into the Greek economy slowly settled to its new low in 2004 when the Olympic games took place in Athens. Greece had taken longs prior to the Olympics and after the games. The inflation rate from 2004 to 2007 (3 years stable growth) shows a stable percentage rate each year of about (3.2%) as depicted above. In the year of 2008 a sudden rise significantly noticeable on the graph appeared, due to a global recession in that year. The cause of

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the recession made the economy of Greece stop spending (Larry Elliott 2012). Thus

inflation had dropped immensely to (1.3%). Greece’s politicians took out an even

bigger loan in 2009-2010 due to accusations that the party elected in parliament had emptied the reserves (Amie Ferris-Rotman 2011). Spending increased due to the new loan and the rate of inflation did the same rocketing from 1.3% in 2009 to an extreme of 4.7% in one year alone. Finally in 2011 the economy experienced cyclical unemployment, many businesses struggled to maintain themselves or even break even, due to a lack of spending in the nation, and thus inflation took a downward turn to 3.1%. The total increase in inflation from 2002 to 2011 is 33.4 percent.

References

Paul A. Zevgolis

Amie Ferris-Rotman, 2011, “Greek Loan” [Online] Available at:

idUSTRE7AM0EM20111123, Accessed on: June 1, 2012

Chaelee Duhigg, 2009, “Trading replaced with computers” [Online] Available at:

2012

Crown, 2012, “Trading restrictions” [Online] Available at:

OURCES, Accessed on: June 1, 2012

Larry Elliott, 2012. “Global recession[Online] Available at:

Accessed on June 1, 2012

McConnell B. 2005, Economics Principles, Problems, and Policies, 16 th edition .McGraw-Hill Companies, Inc. pages 97-104 Cited on May 29-June 3

The Hershey Company, 2012. “Coco Bean” [Online] Available at: