Econs essay.

Discuss whether such protections may be justified. (13)

Such protection may be practiced through tariffs, import quota, exchange control, embargoes (physical control) or subsidies to domestic industries. The motive behind is to limit free trade and its drawbacks such as undesirable foreign competition, over-specialisation and adverse balance of payment. However, free trade should be practiced in the long run so as to promote efficient utilization of scare resources.

International trade exposes home industries to foreign competition. Infant industries, being in the early stage of their development, are unable to compete with established foreign industries in the international market which are operating at much lower costs. This is especially so for developing countries such as Vietnam, Indonesia and even India where the fashion industry is unable to compete with the much sought-after dressing and fashion from developed countries such as U.S.A, and thus do not produce high-end fashion products. Other examples are high-value products which involve sophisticated production. Therefore, it is necessary to protect the infant industries as they have the potential to reap large economies of scale. Developing countries like China now reap economies of scale for producing many of the high-end fashion products like Adidas and Louis Vuitton.

However, protection of local infant industries should only be a temporary measure. It should be stopped when infant industries are large enough to enjoy cost-savings from large-scale protection and thus be competitive against their foreign rivals. Unfortunately, most industries come to rely as much on the protection that a tariff, once imposed, is not easily removed or never withdrawn. This has undesirable effects such as low-quality goods, high prices and limited variety of goods. In short, countries cannot reap the benefit of free trade. This will have a even disastrous effects on world economy as it wastes scarce resources and cultivate inefficiency, on the large scale. Thus protection should not be indiscriminately given to local industries for long term.

Furthermore, foreign companies may compete unfairly by getting rid of excess production by selling at very low prices, often below cost. This practice is known as dumping. If allowed, the cheaper imports will outsell the local goods. There will be a decrease in demand for local goods and local firms will have to close down. This leads to widespread unemployment. Europe over-produced its agricultural products and has to sell it below cost price in the international market, with the sole aim to get rid of its surplus and prevent further losses. Agricultural industries in developing will suffer if it is unable to compete by lowering its selling price through cost of production. This is especially difficult for infant firms which have yet to achieve economies of scale. This further worsens the prospect of agricultural industries in developing countries as it is already plagued with problems like poor technology and low-skilled labour.

However, by preventing dumping, inflation may occur when import duties such as tariff raise the prices of imported raw materials which will raise the prices of local products using these resources. Consequently, consumers will suffer because they will face higher prices.
Protection may be justified to maintain domestic employment and safeguard the interests of workers. When there is general depression in world trade, countries tend to place restrictions on imports in order to ensure that income is spent on home-produced goods, thus maintaining the level of employment in the home industries. Slowdown in the US economy due to global financial crisis and sub-prime fallout led to general pessimism in the world economy. Cost of a French or German car exported to Britain has increased, brought about by protectionism policies implemented by Britain. The government wishes to boost sales of domestic car industries and thus calm the emotions or rioters, fearful of losing their jobs.

However, this encourages inefficiency in home industries because they are producing goods in which they have no comparative advantage, and which can be imported more cheaply from their trading partners. By restricting imports from low-wage countries, demand for these imports will fall and this will drive wages in those countries even lower. Hence, by protecting their industries and employment, countries are merely passing their problems on to their trading partners who in turn, may retaliate, thus leading to an all round contraction in world trade.

Protection is justified so as to aid diversification of industries. Over-dependence on other countries for essential products for national survival such as strategic materials, food and weapons, makes a country especially vulnerable. Therefore, even a small country like Singapore devotes much resource on developing war craft technology through research and development, so as to safeguard its independence.

However, this works against the whole principle of comparative advantage and will lead to higher costs of production, misallocation of resources and decline in world output and trade.

Lastly, protection may be justified to correct an adverse balance of payments. When a balance of payments deficit is caused by excessive import expenditure over export revenue, then import expenditure has to be substantially reduced by tariffs, import quotas, etc, while exports need to be subsidized. Otherwise, the country foreign reserves may be depleted and the country will develop an external debt. An external debt, with accumulated interest lays claim on future generations. This problem is predominant in U.S where its trade deficit amounted to more than billions of US dollars and is known to be “living beyond their means”.

However, the policy of reducing imports is often referred to as a “beggar-thy-neighbor” policy, for the country solves its own problem by passing them on to others. Furthermore, the effectiveness of such policy depends on the price elasticity of demand and supply of the imported goods, If the demand for the imports is price inelastic, the balance of payments problem may not be corrected by increasing the prices of these imports.
As illustrated above are the arguments for and against protectionism.

Impt.

Hello all, after wad seems like a donkey years since I last blog.
Was so tied down with CNY preparations, mugging sessions, catching up with friends and last but not least, the gruelling dance practices.
Kind of miss the holiday but didnt even have enough time, to finish blogging about it.

Ok, so why am i blogging a mgt essay?
hmm...cuz a few classmates wants to read the essay, and perhaps more people wants to read it too. So, I would like to make use of the prowess of internet to enable all interested parties to look at my masterpiece of mgt essay. (!!!!) (*roll eyes*)
U know it's like the final year for all us, and I call it the "make it or loss it" year. No matter how hard or how slack one is for the past 2 years, everyone ought to put in their best effort this year.
I was actually tempted to "slack a bit" for this year, until the P's talk woke me up.
Slow and steady wins the race; don't be like the proud and ignorant rabbit.
Simply put, I wish for everyone esp my classmates to excel with me. So I'm trying to help ppl as much as possible, using the most convenient way out - Blogging.

However, there are some disclaimers I have to address.
1. My essay is not the perfect ans ! Don't memorise it and apply to every qns indiscriminately! Everyone has to claim responsibility for the things we write.
2. Don't copy word for word except for definitions. Plagiarism rules apply here just that conscience is being relied on.
3. I am not obliged to type every essays I've done. I am granted personal freedom too right?

Lastly, I don't expect to receive unneccesary attention or overwhelming "thks" through this, just hope that people won't complain or blame me if anything goes wrong. ( tt's why It best tt u don't copy wholesale). I dont know wad to say if sterotypes of me being selfish still persists. Worse still, wad if ppl think of your heartfelt words as moral craping? ? ( Just a imaginary scenario larh)

haha..how cool if here becomes a interactive forum like scene, instead of being so "dead"? Really wish to have more time to blog, but I need plenty of rest and effort to have a balance diet to keep myself healthy. Have been quite healthy so far, striving to keep it up man!

Cya again, ( God knows when how long tt will be ! haha..kiddin la).

The 17th marks essay...( 0.0 )

Pricing policy is important because the product price decided upon must be to cover the firm’s cost of producing and marketing the product and generate an acceptable level of profit. Getting the right price requires balancing between being competitive and being profitable. Therefore, the issue whether to lower the price of whisky B or not depends on these factors: elasticity of whisky B, marketing objectives, competition, nature pf whiskey and economic conditions.

Price elasticity of demand measures the responsiveness of demand following a change in price. Whisky B may has a inelastic demand whereby PED is between 0 and 1. It is measured by % change in quantity demanded over % change in price. Therefore, an increase in price will lead to a less than proportionate decrease in quantity. This rationalise for the raise of price as the firm will not lose much demand and still able to increase total revenue.
On the other hand, if whiskey B has a elastic demand where PED is between 1 and infinity – a percentage change in price will lead to a more than proportionate change in quantity demanded. Price of whisky B should not increase as it will lose much demand and will suffer from a loss in total revenue.

One factor affecting PED of whisky B is the number of substitutes. Whisky is a type of alcoholic drink where consumers may substitute it with other alcoholic drinks such as beer, brandy and red wine. In such cases, whisky B will have an elastic demand and thus its price should not be changed. However, consumers of some countries may have a strong preference for whisky, thus leading the demand to be inelastic.
Alternatively, whisky B may be one of the choices from many other companies that produce similar type of whisky, in consumers’ point of view. There is thus a high number of substitutes, contributing to high elasticity of whisky B. If Whisky B has done much marketing effort in positioning itself as a superior brand as compared to its competitors, it can increase price and enjoy higher total revenue as it enjoys the benefit of inelastic demand.

One of the marketing objectives which may be taken by whisky B is to capture as much market shares as possible especially when it has entered the global market, as a new product. To achieve its goal, it may adopt price penetration strategy which rationalizes for the decrease in price. This act as an incentive for potential customers to try out their new product and thus increase their competitiveness of whisky B. This is essential in a highly competitive, price sensitive market such as USA where it imports alcoholic drinks all around the world.
However, price penetration strategy should only be adopted for a short period of time after its promotion period as pricing it highly will ensure customers to perceive it as highly-valued and eventually one of the market leaders in the long run.
Whisky may belong to either shopping good or specialty good category. Shopping good is where consumers usually compare several brands or stores on styles, quality and prices before buying, while specialty good is where consumers are willing to search extensively and travel great distance for as they are reluctant to accept substitutes. Most shopping goods has a elastic demand where it has a significant number of substitutes and faces more competition by rival firms. Hence, price of whiskey B should be lower to reap higher total revenue. Conversely, if consumers view whisky B as a specialty good, it will most likely have a inelastic demand, where price should be raised instead of drop so as to increase total revenue.

Competition level varies for different countries and market whisky B has entered. If company of whisky B is the only one seller of whisky which has no close substitute in the market, it is a monopoly and thus enjoy more freedom in price setting. In this case, it will have a inelastic demand where it will make more returns when the price is raised. However, it can still lower its price as it enjoys freedom to do so.

In economic situations such as boom and inflation, purchasing power and desire of consumers increase and thus prices of whisky B can be increased to increase total revenue especially if it has a inelastic demand. On the other side, in situations such as recession and intense competition, purchasing power and desire decrease (for recession). The business objective to survive will override all other objectives and thus price should be set low to increase sales, especially for elastic demand.

As whisky B production is expanding to meet world demand, the firm will employ mass production to achieve economies of scale. This increases fixed cost incurred by the firm which needs a high demand to offset it. There might be a need for whisky B to reduce its price by offering discount especially in times of recession. On the other hand, if it incurs high variable cost, price needs to be raised to ensure revenue collected is able to offset high variable cost. Otherwise the company incurs losses and is not bale to meet its low fixed cost.
In conclusion, there are many factors which can affect the pricing policy of whisky B. The firm should weight the different factors before deciding the price. However, the price may have to change according to market conditions, time and at different countries. I would advise that price discrimination be practiced by whisky B as different markets have different elasticity and level of competition, etc. This is feasible as different prices can be set for the same product as it can separate the different groups of customers by geographical boundaries. The flexibility of price discrimination will ensure that the price will be tailored to suit different market, and thus work for the firm best interest.