Monopolistic Competition

26 01 2010

Monopolistic Competition is “An industry [that] is…made up of a large number of small firms who produce goods which are only slightly different from that of all other sellers. It is similar to perfect competition with freedom of entry and exit for firms and any supernormal profits earned in the short-run will be competed away in the long-run as new firms enter the industry and compete away the profits.” (triple A).  The main properties of this type of economy are as follows:  a few large firms with many smaller firms; similar products with a varying factor that sets your product apart from the others; loyal consumers (i.e. someone may only drink coca-cola and not pepsi); independence, thus they do not have to worry about their rivals.  In our groups presentation, we will be using coffee as an example of a product that would thrive in this type of environment.  Coffee is an extremely normal product, but with just a little addition it becomes a product to which people become very loyal (i.e. Starbucks).  Many food companies and other brand name products thrive in these economies.





Initiative: Haitian Economy

24 01 2010

Since the earthquake, countries from all over the world have sent money to Haiti. In all, over 1 billion dollars have been pledged to the small, island country. Even with this gigantic source off money flowing into the country, Haiti still seems to be the poorest country in the western hemisphere by far. To become a more wealthy country, Haiti citizens need permanent jobs. Haiti seems like the perfect place to be a point of interest: fresh mangos, coffee, white sandy beaches for tourists. But something is holding back. Since the earthquake, many opportunities have changed, but not all for the worse. Haiti is in a major need for cheep structures, such as roads, houses, bridges, etc. If american construction companies can provide this service, both Haiti and American companies can be better (in this time of recession for America.) The demand for these structures has gone up in Haiti. Since work in the USA has decreased, the workers are eager for work, therefore, the supply has increased. As shown in this graph, this situation can help both the Haitian and American Economies.  This is especially helpful for the Haitian economy because at shown on the graph, the new equilibrium point, is a much higher quantity supplied with just a slight increase in price.  This is exactly what Haiti needs in this time of need.





The Law of Diminishing Returns

15 01 2010

When a company increases its work force, the amount of total output will theoretically increase exponentially; that is until the workforce is too large.  After there are too many workers, the total output will start to decrease.  This is the concept of an economic law called the Law of Diminishing Returns.

To show an example of this, a game was played known as the tennis ball game.  In this game, it starts out with one person picking 1 tennis ball out of  a bag, running 5 meters, and placing the ball in the bucket at the end of the 5 meters.   At the end of 30 seconds, we count how many balls are in the bucket.  The next round, we clear the bucket and start over, only we add one person to help.  The 3rd round has 3 people helping, 4th round 4 people, and so on…

The first round 8 balls were placed in the bucket.  According to the law, we would assume more than 16 balls would be placed in the bucket the next round.  Unfortunately, there were only 11. So, the total output did increase, but not at as high of a rate as was hoped.  Though it only increased by 4 or 5 each time, the maximum was reached at the 7th or 8th round, with 25 balls.  Then, it started to decrease.  When there were 13 people helping, only 15 balls were placed in the bucket.  Too many workers=less total output.

Throughout the game innovations did help.  So, the total output is not only dependent on the number of workers, but the size of the labor force does have a great effect on the total output.