Microeconomics

Posted: October 17th, 2013

Microeconomics

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Microeconomics

Taxation of cookbooks is due to the need to curb the consumption of unhealthy foods. This is usually referred as a Pigovian tax as it is aimed at curbing the consumption of products, which have a negative impact on the population from which the government derives its revenues. In essence, it is a tax aimed at correcting the market outcome of the consumption of the unhealthy foods. The negative transactions of externalities in economic terms is referred to as the costs or benefits if consumption of a product within a defined market, which cannot be calculated in monetary terms. It is calculated in terms of the social effects of the consumption of the products (Vedder, & Gallaway, 2002).

The costs or prices of the cookbooks within the market do not reflect the costs and benefits in use of such products. This is because the costs and benefits of such are only calculated via the social impact of the consumption of the product. The aim of imposing the tax on cookbooks is to minimize the consumption of unhealthy foods, which are entailed in the cookbooks. Taxation of cookbooks is actualized with target foods in mind, which consumption the government intends to minimize (Perloff, 2004).

Increased taxation of Cookbooks results in decreased purchase of the books given that the tax is also included in the end cost of the products, which is passed on to the consumer of the product. Increased taxation on the product results in lower demand given that some consumers of the product are driven away by the high prices of the product. In addition, it also results in over supply of the product in the market, as there is lesser demand for the product.

The equilibrium prices of the products and specifically the cookbooks after actualization of the Pigovian tax to control the negative externalities are dependent on the market. Various markets such as competitive markets, monopolistic markets and oligopoly respond differently to the presence of Pigovian taxation. When Pigovian taxation is actualized under the competitive market in tends to enhance the social welfare of the consumers. However, in a monopolistic market the Pigovian taxes tend to minimize the social welfare, which was in existent with the use of the product. This is because the monopoly assumes a vital position within the market by providing the foods, which might be a necessity to consumers in the market.

The Equilibrium price of the product in demand and supply curve is pushed up by the increase in the prices due to additional tax costs, which are part of the overall costs of the product. The Pigovian taxes are usually paid for by the consumers given that the consumer is essentially the one who makes a purchase of the product. It affects the producer of the raw materials for the production processes as well as the producer of the product who accrues other costs of production despite the reduced demand for the products.

Pigovian taxes are usually considered a sure way of enhancing social welfare depending on the product in the market with the market type factor in consideration. However, this tax is problematic in that the governments lack the ability to predict the perfect amount of tax, which should be levied on the product to achieve the desired level of social welfare. This is what is regarded as “the knowledge problem” in that no perfect level of tax is known to achieve a certain level of social wellbeing (Vedder, & Gallaway, 2002).

Tax levied on such products could be used to develop better health facilities, as well as education health programs for the society. Other taxation avenues could also be used to improve the health of the society as well as curbing other negative externalities. Progressive taxation could also be used by taxing incomes of individuals with an increase in their levels of incomes. This approach is commonly used by governments use to fund their operations and activities. In addition, a government could also apply indirect taxes to increase its revenues. Majority of consumers do not realize that they are taxed for certain products and activities. Hence, this is a sure avenue for generating revenue without accruing public acrimony. Such is applied irrespective of the individual circumstances of the market players, the buyer and the seller (720 Words).

Part IV

Absolute advantage is defined as the efficiency accrued in the production of a certain product, in comparison to the same product produced by another country. Comparative advantage is defined as the opportunity cost accrued by a country in the production of a product in comparison to other countries seeking production of the same. Success of Justcookbooks.com depends on numerous factors before it achieves international status. Such factors identified are the presence of opportunity costs in the production of products in the United States in comparison to production of the same products in other countries. Furthermore, it could be cheaper to produce the same products in other countries in comparison to the United States. The entity could be defined as having absolute advantage given the level of efficiency in the production of the products. This would enable the entity to deliver the products at lower market prices at reliable speed to consumers in the market.

Barriers of entry are usually an initial consideration before entry into a new market with reference to an international market. Such could include policies, which are instituted to tilt the odds into the favor of local entities and thus discourage entry of international entities into a market. Such policies could be the institution of taxes aimed at discouraging entry by new entities into the market, through taxation of international products at slightly higher rates than the local ones. This makes them appealing to the local consumers. Such could also take the presence of larger entities in the identified market taking advantage of the economies of scale in production of identical products. In addition, barriers of entry could be due to inadequate capital to establish the entity within the new market. This could be due to large costs of setting up presence in the identified market. Hence, an entity should give due consideration to the available funds and evaluate if such funds are sufficient to undertake such a venture.

In addition, another issue to be considered is the costs of operation in the new market before an entity gains ground within the identified market. Such also constitute to barriers of entry in that the startup costs and operational cost act as hindrances for operating in a market. Costs of operation depend on the instituted policies within a market, which vary from one market to another. Costs could be tilted to encourage entry of international entities in new markets or to discourage entry of multinational firms.

Socio-cultural consideration is also another issue, which should be considered carefully before entry into new markets. This is because consumption patterns are usually influenced or dictated by the societal judgments about the issues and products as well, as the cultural beliefs in relation to the product used. Societal and cultural judgments apply to Justcookbooks.com, by influencing the consumer decision. A defined market could be accustomed to the consumption of healthy foods or foods, which are acceptable to their society as well as culture (Addison & Schnabel, 2003).

This is a basic consideration in that the entity produces its products with respect to the societal and cultural considerations of the identified market, which vary from one market to another. Such consideration is relevant in the production of culturally sensitive and appealing products to an individual market. In addition, it is also aimed at production of goods that are sufficient for the satisfaction of the consumer needs and wants.

Another issue, which should be put into consideration before becoming a multinational entity, is the presence of varying market fundamentals from one country to another. This is essential in that the entity focuses on fundamentals of the individual countries identified for entry by the entity. This is a basic consideration that it enables the entity to formulate strategies with respect to the individual needs of the consumers within an identified market. Market fundamentals include the varying economical and financial variability in terms of policies instituted by different countries. Such determines the success of an entity within its identified market for entry. In addition, it also enables the entity to forecast its presence in the market. Such enables the entity to formulate market entry strategies in terms of the prices, promotion and other marketing mix activities to be used to enable the organization to improve its position within the market and attain eventual dominance within the market. (730Words)

Part V

Vedder and Galloway are of the opinion that labor unions result in unwanted economic effects. They claim that, from their empirical studies, the labor unions have resulted in reduced economic output of the American labor force. According to their works, they indicate that labor unions have had a negative effect in the number of employees in once large industries such as coal. In essence, they have decreased the number of workers who were present in these large industries due to their increasing levels of benefits and wages. Such resulted in the reduction of the numbers of workers with an aim of ensuring that the entities are able to sustain their operations and the increasingly expensive workforces.

Despite the decreased demand for employees by the organizations due to the costs of maintaining large workforces, entities reduced their productivity in order to survive with smaller workforces resulting in lower production of goods. Furthermore, this affects the consumer markets in that reduced output results in lower supply of goods thus a subsequent increase in the costs of products or services produced by the smaller workforce. Vedder and Galloway describe the wage rate or labor costs as payment for the service, which the laborer is employed to offer.

According to Vedder and Galloway there is what is considered as full employment, which is defined as the attained level of employment where there is an absence of recurring unemployment. Hence, unemployment could also be statistically measured to reflect actual levels of absence of work placement (Vedder, & Gallaway, 2002).

Deadweight welfare loss is usually because of increase in the prices of products or services. This is also an effect of labor unionization in that decreased output results, in undersupply of products in the market thus, the high prices for the products to cater for the expensive costs of labor. It is defined as the means of assessment of the dollar worth of consumers’ excesses lost. This loss is not usually transferred to the producer but is passed on to consumers in the market (Vedder, & Gallaway, 2002).

Elasticity from the literature provided by Vedder and Galloway indicates theta elasticity is a term used to give definition to the means of measurement of alteration of one economic variable, and the effects of such a variable on other economic variables. In the context of labor and unionization, the elasticity of demand for the various products decreases with the increase in costs. This is because the increased rate of unionization makes labor expensive and thus entities are only able to sustain smaller populations of labor. Furthermore, it results in increased supply of products, in the market, given that the increased costs of production are factored in the various commodities.

Real gross domestic product is express in economic terms as it is used to define the adjusted inflation measure used on expressing the vale of all goods and services produced in a year, which is expressed in the base-year price. Real GDP is sued to give a real account as implied by the term, of the actual changes in prices of all goods and services in a market. This is a good instrument for measurement of the economic growth or decline of the economy as it is reflected in the prices of all commodities. An increase could be used to illustrate increased inflation in the economy while decreased prices are an indicator of the declining rate of inflation and thus consumers have greater purchasing power on their levels of income (Vedder, & Gallaway, 2002).

Income per capita is defined in economic terms as the income accrued to a person within a defined place such as country or city. This measure in the writings of Vedder and Galloway is defined as income accrued by laborers with respect to unionization. The aspect of unionization has been essential in increasing the incomes and benefits of laborers specifically those belonging to unions. Labor unions have enabled laborers to increase their purchasing power, improve lifestyles, access to medical care and payment for social welfare programs such as insurance and schooling. In essence, labor unionization has enabled alleviation of problems within the labor sector by enabling laborers to make bargains for various issues unlike non-unionized laborers who are unable to make bargains as they lack what is considered as moral hazards (Durlauf, & Blume, 2008).

Population growth and aging has resulted in numerous cases of unemployment given the increase in the numbers of able bodied and younger individuals. In addition, the increase in population given the declining number of available opportunities eventually results in unemployment because organizations find it expensive to maintain a large labor force.
Marginal costs are defined as total costs, which arise from change in the quantity of a product, by a defined rate or level, whereas the marginal revenue is defined as the revenue accrued form increase in production by a single product unit. Profits are defined as surplus of the revenues less the costs of production, which is usually the driver of operations of an entity.

Unionization has some positive effects on the economy as well as the social welfare of the laborers. The aim of unionization enhances elimination of the aspect of inequality in the organizations in that the employees are able to access equal opportunities within their places of employment. Equity is the foremost visible effect of unionization in organizations. This also has a positive economic effect in that it results in contented laborers who value their work and thus resulting in the production of high quality products for the consumer market. Furthermore, unionization has an indirect effect on non-unionized employees in that it results in the need by non-unionized entities to strive for unionization. According to other studies, unionization also leads to higher productivity due the need to live up to the union standards of conduct and production of goods and services. In addition, good relations between labor unions and the industries could develop a sound and productive economy in that the employees and the employers ensure that their needs are met mutually by the other (859 Words).

The article focuses on harmful economic effects, but also mentions some positive aspects. What are they? Does moral hazard apply to unions? Why or why not?

Moral hazards are defined as the ability of laborers to undertake risks if they possess the incentives to do so. Labor unions are essential in the aspect of moral hazards. They are usually applied in what is described as the blue-collar level of employment, which is usually characterized by the lack of security of tenure of employment. Moral hazards apply to labor unions in that they engage in bargains for security of tenure for the laborers. This would be impossible for non-unionized employees because they lack a bargaining advantage.

Reference

Addison, J. T., & Schnabel, C. (2003). International handbook of trade unions. Cheltenham, UK: E. Elgar Pub.

Durlauf, S. N., & Blume, L. (2008). The new Palgrave dictionary of economics. Basingstoke, Hampshire: Palgrave Macmillan.

Henderson, D. R. (2008). The concise encyclopedia of economics. Indianapolis, Ind: Liberty Fund.

Perloff, J. M. (2004). Microeconomics. Boston: Pearson Addison Wesley.

Pindyck, R. S., & Rubinfeld, D. L. (2005). Microeconomics. Upper Saddle River, N.J: Pearson Prentice Hall.

Vedder, R. & Gallaway, L. (2002). “The Economic Effects of Labor Unions Revisited” Journal of Labor Research, 23(1), pp 105-130.