World Trade Business Price Descrimination

Question: Describe about the World Trade for Business Price Descrimination. Answer: 1.(i) Introduction The monopoly uses the price discrimination strategies to charge different prices for the same product to different persons, places, and usage to meet the goal of increased revenue. A monopoly will use the price discrimination to gain the market advantage or capture market position. The conditions that make a single seller to lower the price will be determined by whether lowering the price will; Upsurge the demand for the commodity hence raising the sales revenue of the firm Reduce the price individual are willing to pay when buying a good at the higher price. (ii) Analysis Based on the concept of demand and supply, lowering the price increases demand but reduce supply while increasing the prices decrease the demand but increase supply. This can be illustrated bellow: From the above diagram, it is possible that the single seller can discriminate using the first-degree price discrimination. This is done by splitting the market up into two. Those people with more wealth are charged higher while the poor people are charged low. The aim is to draw from every consumer the amount they can pay for the product. Therefore, where a monopoly wants to increase the demand for a commodity, he will lower the price to discriminatively charge different price say based on individuals, places or use of a product. On the other hand, the monopoly will increase the price by supplying less of the good but still get increased revenue due to the high prices charged (Varian, 2009). A personal price discrimination is used where there are two groups of individuals with different levels of economic (financial) status or wealth. Here, the single seller will lower the price for those who are considered poor to sell more goods but increase the price to the wealthy people but still increase revenue be by selling less at a high price. (iii) Conclusion It is concluded that a single seller can price discriminate based on wealth or economic status of people but still meet the goal of increased revenue. The seller will charge a lower price for poor people but increase demand and charge a high price for the rich by lowering demand, but revenue will still increase due to high price charged. 2. (i) Introduction Specialization increase efficiency in international trade where a country only produce what it can make best and trade to get the other commodities. No single country can produce all goods more efficiently than any other country and hence the need for specialization and trade. Countries have varying natural, capital, human resources besides varying strategies of combining such resources. The bottom line is that countries are not equally efficient at the production of commodities demanded by their citizens. There is always an opportunity attached to any decision to produce a given good. This cost describes the amount of another service or good that could otherwise have been produced (Hummels, Ishii Yi, 2001). (ii) Analysis Presented with a choice of producing one commodity or another, specialization dictates a country that it is more efficient to produce that commodity with the lower opportunity cost. The country should use the increased production of that product to trade for the product with the higher opportunity cost. In case an economy can produce more of product with the same resources which another economy can, it is understood to have an absolute advantage in the production of that particular product (Schott, 2004). One the other, where the second nation has an absolute advantage in the manufacture of a product which the first economy wants, the two countries will both better off specializing and trading. Conclusion Trade is, therefore, beneficial to both economies even where one nation has an absolute advantage in producing both goods to be traded. Presented with any two goods, an economy has a comparative advantage in the good that has a lower opportunity cost. They should make sure that the terms of trade are such that both economies lower the opportunity cost of the products being acquired from a trade. References Hummels, D., Ishii, J., Yi, K. M. (2001). The nature and growth of vertical specialization in world trade. Journal of international Economics, 54(1), 75-96. Schmalensee, R. (2011). Output and welfare implications of monopolistic third-degree price discrimination. The American Economic Review, 71(1), 242-247. Schott, P. K. (2004). Across-product versus within-product specialization in international trade. The Quarterly Journal of Economics, 647-678. Varian, H. R. (2009). Price discrimination. Handbook of industrial organization, 1, 597-654.