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.
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
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"
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"
