August 31 Workpoint 22.5

Domestic producers win by the imposition of the quota, because the amount that they supply has risen from Q1 to Q1 + (Q4-Q3). They also win because they are now selling at PQuota, which is more than the previous price (Pw). Why does this make them winners? Because their revenue increased from a to a+c+d+f+i+j.

Importers lose by the imposition of the quota, because they used to supply (Q2-Q1), but now only supply (Q3-Q1) due to the quota. Even though they charge more per unit, their revenue has gone from b+c+d+e to b+g+h. If this is a decrease in revenue, which it appears to be, then importers qualify to hold a position in the losers column. 

Consumers lose by the imposition of the quota, because they have to pay PQuota for textiles, as opposed to Pw if there was no quota. Thus, the consumers lose, because they need to spend more money on textiles.

The world loses by the imposition of the quota, because the area labeled as j represents the inefficiency of the domestic producers. This is a loss of world efficiency, because more resources are being used than are necessary to produce textiles in Europe. Inefficient use of the world's resources, in this situation, make the world one of the losers.

Xiaomi to Export Cheap Smartphones to Emerging Markets

This article relates to section 3 chapter 21 of the Economics book.

A Chinese smartphone firm by the name of Xiaomi is expanding into 10 new countries after successfully outselling Samsung and Apple in its domestic market during Christmas. The company was founded four years ago by Lei Jun, known as the Chinese Steve Jobs. The company aims to dominate its market by offering high-end smartphones at low costs.

Link to article: LINK

Figure 1.1

Figure 1.1 represents the smartphone market of one of the 10 countries Xiaomi is expanding into. In one of those countries, before Xiaomi's smartphones were available, the price per smartphone used to be PE, and the number of smartphones consumed was QE. With Xiaomi offering cheap high-end smartphones in their country, a world price PW is introduced to the consumers in that country. Since no one will want to pay PE for smartphones, the price will decrease to PW. Domestic industries will produce at a price of PW and a quantity of Q1. A domestic industry is one that operates in the country itself. A quantity of (Q2-Q1) will be supplied by non-domestic industries, such as Xiaomi, to match the demand of Q2 smartphones in the country. Consumers will now be able to consume (Q2-QE) more smartphones at a lower price of PW.

If the country wanted to support domestic firms, they could introduce a tariff. A tariff is a tax that is charged on imported goods. This would raise the world price up, increase the price and quantity at which domestic firms produce, and decrease the amount that is imported. As a result, domestic firms will have greater market power.

*End of article*

The date the article was published: 23 April 2014

The date the commentary was written: 30.08.2015

Word count of commentary: ~258 words

The section of the syllabus to which this article relates: "Why do countries trade?" and "Free trade and protectionism"

August 26, 2015

Advantages that occur from opening a market to free trade:

• Increased production:
• A firms market becomes a lot bigger, which lowers average costs and increases productivity.
• Consumer benefits.
• Greater variety of goods and services, as well as lower prices due to competition.
• Employment.
• Higher employment in exporting industries.
• Production efficiency.
• Increased competition promotes new innovations and technologies for producers to produce more with the resources they have.
• Economic growth.
• Living standards and real incomes increase due to competitive industries.
• Foreign exchange gains.
• Can get other country's currency by selling goods to then import goods.

Disadvantages that occur from opening a market to free trade:

• International trade cycles can cause domestic economic instability as economies become dependent on global markets.
• International markets are not a level playing field.
• Countries with a surplus of a product may offer it for a very small price which other countries might not be able to compete with.
• Developing/new industries might have difficulty competing with global competitors.
• Pollution
• As industries compete with the market price they might not include certain production costs.

Student Workpoint 21.2 (Why do countries trade? p263)

1. (See table)

2. (See figure 1.1)

3. Yes, trade should occur between China and Pakistan. China has an absolute advantage in producing both goods, however, it only has a comparative advantage in producing rice. For China the opportunity cost of producing 1 kilo of rice is 4/5, while for Pakistan it's 1. Pakistan has a comparative advantage in producing meters of cloth. For Pakistan the opportunity cost of producing 1 meter of cloth is 1, while for China it's 5/4. If a comparative/absolute advantage is present, then mutual benefit will occur through trade between the two countries.

4. Since China has a comparative advantage in producing rice, it should specialize in producing rice. China is more efficient at producing rice than Pakistan. As for Pakistan, it has a comparative advantage in producing meters of cloth, and therefore it should specialize in producing meters of cloth. The exact opportunity costs can be seen on the table and in the preceding sentences (#3).

UK retail sales volumes rise by 0.1%

The original article can be found here: LINK

This article from BBC relates to chapter 12 section 12.2 of the Economics book. One of the components of aggregate demand is consumption. "Aggregate demand (AD) is the total demand for the goods and services of a nation at a given price level and at a given period of time." (Maley, 258) Now that you know what aggregate demand is, let's define consumption. "Consumption measures all spending by domestic households on goods and services during a particular period of time." (Maley, 259). The primary determinant of consumption is the level of national income. I'm sure you can guess what that means. In the article, Ian Geddes says "With wages increasing, falling fuel prices and with a low interest rate environment, discretionary spending has been boosted by rising real incomes". To summarize, people in the UK have more money to spend because their wages are increasing faster than inflation. "People tend to increase their spending when their income improves" (Maley, 32). This increase in demand can be seen on the graph (figure 1.1)

Figure 1.1

In figure 1.1, we can see that the aggregate demand and aggregate supply lines shifted to the right. This resulted in Q1 moving to Q2, x representing the retail sales volume rise of 0.1%. Why this happened is explained in the article, as well as in the preceding paragraph.

So what does this retail sales volume rise of 0.1% mean for the future? What are the implications? The biggest growth in sales were in electrical goods and furniture. We can deduce that electrical goods and furniture are normal goods, because demand for them increased as consumer income increased. With this information, people that sell those goods could look into making their goods more affordable, since the demand is evident. That way, when consumer income is not as high there will still be a much higher demand (article mentioned a sales increase of almost 20% in both departments).

What would you do with your extra income?

*End of article*

The date the article was published: 20 August 2015

The date the commentary was written: 22.08.2015

Word count of commentary: 327 words

The section of the syllabus to which this article relates: aggregate demand and aggregate supply

References

Maley, Sean, and Jason Welker. Economics: Developed Specifically for the IB Diploma. Harlow: Pearson Education, 2011. Print.

"UK Retail Sales Volumes Rise by 0.1% - BBC News." BBC News. BBC, 20 Aug. 2015. Web. 23 Aug. 2015.