Microeconomics Essay Example | Topics and Well Written Essays - 2000 words - 5

Microeconomics - Essay Example This paper discusses the concept of monopolistic competition using a variety of theories and real data. It also presents an existing case where specific aspects of monopolistic competition can be highlighted. Monopolistic competition refers to a market characterized by many firms that offer similar products but not identical. The products and services can be considered as substitutes but not complete identical to each other. This aspect means that the cross-price elasticity of demand is huge but not infinite. The firms in this kind of competition can enter the market freely as well as exit freely when they please. It is effortless for new organizations to enter the market with own brands. Similarly, firms that have been in the market for long can also leave when their products become unprofitable (Morton & Goodman, 2003:203). Monopolistic competition is like a monopoly because the organizations in this market have a downward-sloping demand curve meaning that the prices exceed the marginal cost. Organizations that exist in monopolistic competition markets have similar rules to monopolies in terms of profit maximization. They choose the output level where the marginal cost and the marginal revenue are similar and they set their prices by looking at the demand curve so that the goods produced must be bought by the customers (Zhelobodko, Kokovin, Parenti & Thisse, 2012:2765) There are different theories that explain monopolistic competition. First, the Krugman model (1980) offers a formal description of the profits gained from a particular form of trade in the absence of comparative advantage (Bertoleti & Etro, 2014: 459). This model was branded a new trade theory because it influenced a lot of research on trade and industrial organization between the 1980s and 1990s. The Krugman model explains that product differentiation at the firm level leads to monopolistic competition because such competition comes about when

Many authors and commentators argue that income inequality is among Essay

Many authors and commentators argue that income inequality is among the most pressing current problems of our era. The received - Essay Example Income inequality has become the preferred measure in determining the quality of life in a country. At some point, per capita income was considered a preferable way, but further studies have indicated that this is not as clear in determining poverty levels. For instance, two countries may have a comparable per capita level, but the incidence of poverty in these countries may differ significantly. For this reason, income inequality is considered more precise in indicating the incidence of poverty which is a pointer to the quality of life in a country. To measure and compare income inequality among countries, economists use Lorenz curves and Gini indexes. However, leading institutions and organizations such as the World Bank and the OECD have shown a preference towards Gini indexes, which is considered more convenient when comparing inequality among many countries (Ghanei, 2013 [class notes]). One of the constant enquiries in the subject of income inequality is whether a less equal dis tribution of income is good for a country. In this regard, most studies advance different views about the best patterns of distribution they are split as to whether the Gini coefficient should be around 25 percent as in Sweden or around 40 percent as is the case in the United States. The most quoted arguments are detailed below (OECD 2012). The first argument cites that an excessively equal income distribution can be bad for economic efficiency. An example of this would be in a socialist country, where deliberately low inequality characterized by the absence of private profits and salaries and wages are harmonized depriving the citizens the incentives required for their active participation in economic activities. It is considered that socialist equalization of salaries and wages translates to poor discipline and lack of initiative among workers. Other effects include reduced quality and restricted variety of goods and services, marginal technical growth which eventually slows econo mic growth and compounds poverty. The alternate argument indicates that excessive inequality adversely affects people’s quality of life translating to widespread poverty, therefore, affecting progress in health and education. This leads to other social problems such as crime. Other effects of high income inequality include a threat on a country’s political stability and increases in business risks. A consideration of these effects explains why some international experts look at decreasing income inequality as the most effective way of accelerating economic and human development. Shigehiro, Kesebir and Diener highlight the development of this social problem in United States for the past four decades (2011). The scholars note that the growing income inequality is the most profound social change in the period considered. Using the Gini coefficient they indicate that, during the 1960s and 1970s, United States had a much lower coefficient than that of France and were at the same level with a host of other European nations (Oishi, Kesebir & Diener, 2011.p.1095). In contrast, by 2008, the Gini coefficient was much higher for United States as compared to most European nations and Canada (Oishi, Kesebir & Diener, 2011.p.1095). This trend is best indicated by a Gini coefficient graph covering the past six decades. This graph makes it so clear that income inequality in the United States has been on the rise over the past seven decades. A look at the European countries also