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Macroeconomics
Discussion
9. The economic costs of taking this class generally comprise opportunity costs. An opportunity cost generally concerns the economic cost involved in the utilization of a sparse resource to attain something, which also comprises the cost gained from not utilizing the resource within its best substitute use. Simply, these costs comprise the benefits, gains, or values of something that should be sacrificed in order to achieve or attain something else. Indeed, the opportunity costs of attending this class comprise the financial gains I would have received if I decided to work as an alternative. Such prospects would have enabled me to attain financial gains throughout the period.
10. Generally, pure competition markets constitute a considerable quantity of firms each manufacturing and producing a similar product. Since pure competitive firms lack market power, the only measure they can apply in order to compete in the short-run involving initiating changes to production. As noted, these firms, based on the qualities of their market, function as price takers. Since their outputs are small in relation to the sum market, price takers are capable of selling all their output at market price. Alternately, they cannot sell any of their output at higher prices and possess null incentives to sell their products for a much lesser price than the market’s.
11. Despite the lack of market power, competition in the long-run forces pure competitive firms to lessen the average total cost and impose a price enough to cover the cost of production. As stated, pure-competitive firms can only focus on covering the production costs in an effort to engage in competition within the perfect competition market. If the price is greater than the average total cost in the long run, the firms gain economic profits, which also appeal to new firms to enter into the sector. Alternately, if the price is less than the average total cost, the firms incur significant economic losses, forcing them to shutdown.
12. Pure monopolies comprise market structures whereby a single form acts as the only source for the provision of a product. The reason why such market structures bear significant market power is due to the unique features of the product they offer. Accordingly, the products lack close substitutes. In America, a good example of a monopoly comprises the United States Postal Service (USPS). The USPS has the limited right to deliver or supply letters for a certain charge. Other providers may deliver letters deemed as excessively urgent but still the Post Office has the right to establish the minimum fee that the competition must charge.
13. Several features tend to equate monopolistic competition to pure competition. However, one key distinguishing factor of the former market structure involves the prominence of product differentiation. In monopolistic competition, the products offered by various companies are not the same. Even though they possess close substitutes, such products are still disparate from one another. The existence of product differentiation within this the monopolistic competitive market encourages competition among the large number of firms. Unlike pure competition, monopolistic competitive firms can compete based on the different features that their products possess. For instance, if a seller decides to reduce the fee for a product, then, such a particular strategy can appeal to consumers of other commodities.
14. Usually, most resources are scarce and as such, impose an effect on the costs and prices incurred by both the producer and the consumer respectively. In this respect, the resource demand is dependent largely on the product demand. Additionally, it is reliant on the resources’ productivity as well as the price set for the finished commodities. As such, control over the resource demand should lie in the hands of consumers. Customers pose control on product demand. Hence, it is possible to assert that they establish control over the demand for resources, which usually comprise capital, land, and labor in the economic context.
15. Wages commonly constitute the prices reimbursed for every unit of time for a form of labor. In this context, the workers should be responsible for determining wages. In order to maintain effective production, firms depend on optimal labor. Such workers possess an exclusive set of skills that enable the company to maintain a competitive edge over other companies. Hence, the wage rate may influence the manner in which the labor operates depending on its significance. Usually, low wage rates tend to demotivate workers. This deleterious impact on morale influences workers to reduce their efficiency. Hence, with such impact over the profits, workers should be responsible for wage determination.
16. Landowners usually earn rent. Indeed, land supply is exclusive due to its perfect inelasticity. As such, alterations in rent do not pose any effect on the amount of land provided. In this respect, demand is responsible for determining rent. Consequently, interests are prices reimbursed in order to attain finances for the purchase of capital commodities. Alternately, profits are paid to firm owners who produce commodities. Hence, the difference of these concepts with wages and salaries is because of the risky nature associated with dependence on them. A renter may lose income due to the tenant, a firm may fail to pay a loan, and still be unable to make profits.
Response
9. In the first response, Booker defines economic costs in the line of implicit and explicit costs. The illustration she uses is based on the payment of monetary reimbursements. Even though she makes a good argument, she does not understand what an economic cost is. As such, she focuses on introducing concepts such as implicit and explicit costs without noting the difference between such expenses and economic costs.
b) In the second answer, Reynolds also views economic costs as implicit and explicit costs. However, it is imperative to note that these costs actually comprise expenses normally incurred together with the costs of production for firms. Hence, her response is misinformed. Accordingly, an economic cost comprises the sacrifice involved specifically in the performance of an activity, following a course of action.
10. Bancharan’s answer establishes the dimensions that need to be observed in order to understand the factors used by pure competitive firms in order to compete in the short run. However, it is incorrect to allege that the number of firms is inflexible in the specified economic period. Furthermore, Bancharan should have highlighted an element such as market price, which is imperative in deciding competition.
b) Hayek’s response, alternately, introduces the concept of market price and the lack of control that firms in pure competitive markets possess over this particular factor. In this context, Hayek notes that the inflexibility of the market price influences firms to increase their outputs in an effort to compete within the pure competitive market.
11. Morris’ answer focuses mainly on the impact of production costs over the competitive nature of the firm within the pure competitive market. The response is correct since firms within this structure pose null control over the market price. Hence, the only way they can compete in the long-run involves the reduction of production costs.
b) Hayek’s answer, aside from noting the inability of the firms to influence the market price, also captures the entrance of other competitors into this structure if firms within this market gain economic profits. As such, her answer provides the measures that companies may use in order to compete in the long-run.
12. Even though Morris notes the presence of monopolies within the United States, he fails to establish the existence of these pure structures within the country. It is important to note that monopolies can also created by law or government as in the case of the United States Postal Service (USPS).
b) Reynolds also shares a similar view with Morris on the non-existence of monopolies within the country. In addition, she introduces the laws that restrict engagement in monopolistic practices by corporations. Despite the facts of this, Reynolds does not produce actual illustrations of the companies that are actual pure monopolies in America.
13. Eichenlaub’s understanding of monopolistic competition is accurate and concise. Even though he notes factors constituent of this market structure, his choice to choose entry barriers as the key distinguishing factor for monopolistic competitive markets is not accurate. Accordingly, barriers to entry are common in all markets depending on the level.
b) Leuzzi also illustrates a good understanding of monopolistic competition. In addition, she notes product differentiation as the main differentiating factor in this particular structure from other market variants. Consequently, product differentiation allows consumers to have alternatives that they can select, which also encourages competition in this market, in contrast with the pure competitive market framework.
14. Eichenlaub concurs with the role of the consumer as the controller of resource demand. Despite this, he does not provide a rational answer as to why the consumer should attain such an extensive responsibility. Moreover, he does not utilize any economic concept or notion in order to support his answer.
b) Hayek introduces the three main forms of resources evident within an economic setting. Her utilization of this concept supports her answer since she advocates the role of the consumer in terms of controlling the demand for resources. Hence, her use of the three main forms as an example illustrates why the consumer is the best alternative concerning the management of resources.
15. Eichenlaub establishes the workers as the determinants of wages. For him, such a responsibility affects the productivity of a firm. In addition, his utilization of wage concepts and real-life examples such as the use of 401k contributions support the direction of his answer on a rational basis. In concurrence, the firm should direct this role to employees.
b) Alternately, Booker asserts that firms should determine the wages of workers. Her answer is based on the role that the firms assume in hiring the specific set of employees they require. Even though this answer is rational, it is also important to involve the worker in the wage determination process.
16. Leuzzi illustrates the difference in wages and salaries from rent, interest, and profit by focusing on the general and distinguishable attributes that each of these aspects possess. By focusing extensively on the latter, the answer fails to provide any form of distinguishing factor between wages and salaries and rent, interest, and profit.
b) On the other hand, Eichenlaub uses the properties of rent, interest, and profit as differentiating factors for wages and salaries. The introduction of risks mainly serves as the point of disparity between both groups. However, it is also important to note that wages and salaries also possess risks. A firm may face bankruptcy and be unable to reimburse its employees with the payments they require. An obvious case of this concerns Enron Corporation.