Ronald Coase (1937) was the first to reformulate the notion of the firm in orthodox economic theory from that conceived as a “black box” that transforms inputs (resources) into outputs (production). Instead, he conceived it as the neoclassical economics perspective of a system of relationships which directs production. This implies that a firm is more efficient at aligning resources with outputs than is the market. As Harold Demsetz (1983) observes, “it is a mistake to confuse the firm of economic theory with its real world namesake. The chief mission of neoclassical economics is to understand how the price system coordinates the use of resources, not the inner workings of real firms.” Similar to Coasian economics, procurement can be arranged through the market and regulated by the price mechanism with all of its attendant hidden costs to the procurement official, or the exchange transactions of procurement can be vertically integrated and ordered through the firm in a hierarchy where purchasing is integrated with the needs for the same products by other principals (and as we shall see, their agents).
Heckscher-Ohlin Theory Comparative advantage ascends from differences in national factor endowments, such as land, labour, or capital, as opposite to Ricardo’s theory which stresses productivity. This theory suggest that the country should focus on exporting products using its scarce resources and brings across a free trade principle where goods will be moving freely without any trade barriers implying that this would make flow of resources in and out more demand and more supply will increase the country’s economy(Eli Heckscher 1919 &Bertil
This model is also based on non- cooperative game and extension of Cournot model. Cournot model assume that firms make their output decision at the same time but this model assumes that if one firm sets its output first then this firm have an advantage over the another firm and this firm is known as first mover advantage. Assumptions of this model are: There are two firms only. They sell homogenous goods. Both firms have same demand and cost
However, with increasing returns to scale (decreasing costs), ie.,when Economies of Scale exist in production, mutually beneficial trade can take place even when the two nations are identical in every respect. Even if all countries are identical in their production abilities and have identical production possibility curves; there could be a basis for trade as long as there are Differences in Tastes. The Technological Gap between countries and the shift in the comparative cost advantage in production over the Product Cycle also give raise to international trade. According to the Availability Approach to the theory of international trade, a nation would tend to import those commodities which are not readily available domestically and export those whose domestic supply can be easily expanded beyond the quantity needed to satisfy the domestic demand. Modern theory of international trade differs from the classical comparative cost theory in many ways and is also superior to the
(David Ricardo, Theory of Free International Trade). The neoclassical economists believed that in a competitive market, prices would direct consumers and cause the most efficient allocation of resources, which will maximize society’s income. This believe had developed the pure theory of trade and this also present Adam Smith’s theory in the invisible hand of the market and competition. Also, it shows the benefits of laissez-faire policy in relation to international exchange. The neoclassical economists strongly agree that the comparative advantage theory by David Ricardo is much more relevant to international trade then the absolute advantage by Adam Smiths.
While coordinated effects refer to the scope of collusion, facilitated by the lower number of competitors, unilateral effects refer to the risk that the merged firm, acting independently of any remaining rivals, finds profitable to raise prices after the merger. Oligopoly models of competition regarding at merger unilateral effects predict that whenever the merging products are substitutes and the market is composed of symmetric firms, prices in whichever mode of competition will increase.In turn, the factors that would impede such adverse effect on prices are free entry, efficiency gains and product repositioning
Heckscher-Ohlin Theory Comparative advantage comes up from differences in national factor endowments, such as land, labour, or capital, as opposite to Neoclassical trade theory which stresses productivity of products being produced for consumption. This theory suggest that the country should focus on exporting products using its scarce resources and brings across a free trade principle where goods will be moving freely without any trade barriers implying that this would make flow of resources in and out more demand and more supply will increase the country’s economy(Eli Heckscher 1919 &Bertil Ohlin1933). 2.4. New Trade Theory Achievement of economies of in 1970’s scale, trade can increase the different sorts of goods available for consumption and those goods can be in a decreased affordable price. Further, the ability to capture economies of scale before anyone else is an important first-mover advantage.
In general, neorealist saw state’s anarchy more important than the neoliberal. The neorealist saw the anarchy as necessary concept for state’s motivation to survive and they often claim that neoliberalist are underestimated the importance of it. Charles Lipson saw the concept of anarchy as the Rosetta stone for international relations , however Lipson suggested that the idea of anarchy is overemphasized by the realist and Miler agree with him. Second, is the concept of ‘international cooperation’. Both of the approach agree upon that international cooperation is likely to be possible but its differences in how it’s implemented.
Microeconomic theory specifies that economic agents (mainly consumers) aim at maximizing utility given that they operate a fixed budget. Under the condition of utility-maximizing subject to fixed budget, the consumer must choose a commodity that best gives him the highest satisfaction. Economists rely on the concept of preferences and utility-maximization models to explain WTP. Conversely, people are able to buy fewer products if their income decreases or the price of goods increases. Yet as a general principle, people tend to buy goods and services that offer them the highest utility, or satisfaction, per dollar spent.
In Economics, Price Elasticity of Demand which is PED or Ed for short measures the responsiveness or elasticity of the quantity demanded of a good or service to the change in its price, ceteris paribus. Elasticity helps a firm to know the net effect of price and quantity effect. It gives the sellers the precise percentage change in quantity demanded in response to a one percent change in price with all other determinants of demand such as income (Y) held constant. Elasticity is useful because it measures relative magnitudes and not absolutes and helps firms to compare the responsiveness of demand across products, individuals and countries. This paper analyzes the concept of elasticities, its uses and application to our economy.