Unit 9- Comparing Market Structures



The information for this table and the graphs below came from The Principles of Microeconomics by Sayre and Morris.




This is a perfect competition graph. It shows that total profit is the distance between the AR and AC.



This is a monopoly graph. It shows that output between the points where AC meets AR is profit, AR=AC, and that maximum output is where MC= MR. 

This is a monopolistic competition graph. The area shaded in light purple is the economic profit.

This is an oligopoly graph with a kink in its demand curve because the MR is discontinued. Prices above where P meets Q rivals will not match but prices below this point rivals will match.

Unit 8- Defining Oligopoly and Game Theory

Game theory was developed in 1940 by John Neumann and Oskar Morgenstern to analyse strategic behaviour, Sayre and Morris Principles of Microeconomics. It is the situation where a firm analyses other firms to figure out the best possible outcome for a situation.

From the following video, game theory, we learn that game theory was first introduced because of the game of poker. Economists would play poker and would mathematically analyse the game and other players to put together the best move that they should play by figuring out what others will do. Game theory is for personal advantage and personal gain.

I came across a website that presents the Game Theory in a different way by actually using such games that present the theory as the main objective to the game. Click here to visit the site. .

The outcomes are presented in a payoff matrix, which is a matrix to show the different payoffs for each situation. The payoff will be the outcome of that the firm will receive depending on the way they choose to go. There are 4 different types of payoffs which I have presented in a diagram below using an example to help illustrate them (similar to the examples found in Principles of Microeconomics).

	Don't Cheat/ Collusion	Cheat
Don't Cheat/ Collusion	200/200	50/100
Cheat	100/50	125/125

In this example we can see that is the firms both don't cheat that will get the bigger payoff, this is also called collusion which is when firms have an agreement where they set a price or quantity limit on the products(Sayre and Morris 2009). We can also see that if one of the firms cheats they will have a lower payoff then if no one cheats but a higher payoff then if they didn't cheat but the other did. And finally we see the outcome if both firms cheat.

Collusive is when firms have an agreement that they will not compete and instead they will somehow divide the market. They are cooperating with one another so that both firms will benefit. Sayre and Morris describe the formal agreement for collusion as a cartel, which is literally the sellers coming together to form an agreement.

A recent example of an illegal cartel was in 2011 between Unilever and Proctor and Gamble when they were caught fixing prices in the UK on laundry soap. They were found guilty and had to pay $457 million (combined amount) in fines.
Unilver and P&G cartel

Unit 7- Defining Monopolistic Competition

For this blog entry we were required to fill in the table below with examples of companies that fit the features column:

Monopolistic Competitive Companies

Size:	Small Company	Medium Company	Large Company
Features:
Differentiated products	Beer Revolution- Local restaurant that specializes in craft beer and pizza	Sunterra Market- Offers fresh quality meals to downtown Calgary and Edmonton	IKEA- Global flat pack furniture store.
Control over price	Wurst- A German/ Bavarian style restaurant. Supplies a niche product with little competition.	Saddledome- Control the venue so they control their prices and promotions.	Ferrari- Exclusive Italian sports car manufacturer.
Mass advertising	Ski Cellar Snowboard Shop- 3 locations in Calgary. Advertised by newspaper, online, and billboards.	American Apparel- Clothing store that advertises on television, billboards, magazines, and online.	WestJet- Major Canadian airline with advertising through television, radio, internet, and sponsored events.
Brand name goods	deVille Luxury Coffee & Pastries- Brand name and high end coffee and pastries in 2  downtown Calgary locations	Lulu lemon- Popular athletic wear in 40+ Stores in Canada and 38 locations in the US.	BMW- Established global auto manufacturer.

A Monopolistic company are large numbers of companies that produce very similar products. The companies can come and go into the industry easily and they have control over the price, advertising, differentiated their products to encourage more products being sold. The companies that come into this type of competition know their products and know how and what makes them sell. Some examples of monopolistic companies are grocery stores, convenience stores, clothing stores, and restaurants.


Differentiation plays a role in the market structure because for a company with lots of competition, like in a monopolistic industry, they are trying to get costumers to buy their products but they need that little something that makes their product more appealing.

Unit 6- Competing as Starbucks

Starbucks is a well-known coffee shop around the world. Starting in Seattle it did not take it long to branch out everywhere. However, the path that Starbucks has taken does not seem like that was the full intention of the company when it first started out. According to an email from Howard Schultz (Chairman) to the CEO and some others, click here for full story, the intention was to be a neighbourhood store but this has lost its appeal, "one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store". They wanted customers to experience all of the sensations of being in a coffee shop; from the smell of freshly ground beans to the sound of the barista's scooping the beans out of bins and grinding them up, all the while well you are watching the show from behind the counter. This is no longer the case, "...the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista." And for the convenience and speed they have replaced slower machines with automatic espresso machines and bagged coffee sealed to stay fresher longer. It is clear from this email that Howard is not impressed by the decisions that he and the other members have made just to increase profits faster.


Starbucks can be looked at as a perfect competition market because it conforms (to a certain extent) to the four conditions. There are 16,226 around the world, meaning there are a large number of sellers, and for a company to have that many stores they need to have a large number of customers to sell to but all stores are fairly small. The second condition that customers don't show a preference is true because all of the coffee is the same and so if the customer was to go to any Starbucks they would receive the exact same product. The third condition that entry and exit from the market is easy is true to Starbucks because as we have seen from the articles they are able to close many stores and it does not impact the business by much. They open and close stores regularly and this does not seem to have a huge impact on the other stores. The final condition that producers should not have an advantage over other purchasing producers is true because all of the stores operate exactly the same and if a new technology came out then eventually all stores would be required to use it.

With all those new improvements to technology and other time saving mechanisms Starbucks grew quite quickly and is definitely no longer just a neighbourhood store. In March of 2008 there were 16,226 stores across the world, according to an article by CBC News, with 7,257 of these stores located in the United States. But the plans changed and Starbucks realized that there was a recession happening in the US, and still is, and people were not purchasing their tall, non-fat, skinny Lattes as often. This led to the closing of 600 stores and layoffs of 12,000 employees in the US, with Florida and California being the hardest hit. Although Starbucks intended on continuing to open stores in other places they still needed to close these stores. The long-run costs for closing the stores would save them money in time but in order to shut the stores down they were required to pay out $8 million in severance pay and upward to $140 million in termination penalties of leases and rent. In one of the articles, Seattle Times, they talk about how "many of the unprofitable stores were being cannibalized by nearby Starbucks locations". From my own experience of travelling to certain Provinces and States I have noticed the number of stores that are within short walks from each other. It was as if a Starbucks was on every corner in some places. I can't see them loosing too much profit from the stores that are close to other Starbucks' but they have to lay off employees who could potentially have a hard time finding more work.

I am not a coffee drinking myself but a lot of my friends are and they drink Starbucks on occasion. I have gone in there with them and purchased overpriced tea but being in the stores I get the feel of a chain store every time I am in one. They are popping up everywhere just like Tim Horton's and McDonalds. There is nothing that is unique about any one store but apparently their coffee is better than Tim Horton's. I once heard a friend say that if they were to offer coffee to a client in a building that had both Tim Horton's and Starbucks they would have to buy them Starbucks because it is considered a higher end coffee. For this reason I think they can charge more for their drinks. They also offer more options than a simple coffee shop like Tim Horton's. If they were to lower prices I think their sales would increase and they would be a lot busier but eventually they would start to lose money.

Unit 5B- Long Run Costs and Economies of Scale

We will consider a business idea and look at the different costs associated with it. The potential business idea I choose is Specialty Cakes. In the last few years the cake industry has grown quite a bit. With the introduction of TV shows that involve business' making extreme cakes for all occasions. The cake business will make specialty cakes to order for any and all occasions, wedding, birthday, holidays, retirements, etc. The business would be somewhat small, meaning that it would not require a large building or a ton of staff. A few keys employees to start would be sufficient but management will have to keep an eye on orders to ensure that the company does not become a diseconomy of scale by not fixing the inefficiencies soon enough.


There are so many different occasions that a cake is appropriate for the potential size and type of the market is fairly large but not everyone in this market will be looking to purchase a specialty cake. These sorts of cakes will be more expensive than a typical grocery store cake because of the variety in ingredients, decorations, and the skills that are required to produce these cakes.



Some of the fixed costs associated with this type of business are the rent for the business location, the equipment, such as industrial sized oven, fridge, freezer, display case, and any other pieces of equipment that is needed. The variable costs involved would be the ingredients and decorations that are preferred by the specific customers, the size of the cake, the detail, and the required labour that goes into each cake will vary, if the company offers delivery the gas, and if the bakery's and cake decorators require up to date training to keep up with the latest trends, as well as the tools required for the different techniques.

The business will need there shop to be in an area that offers other sort of speciality items. The location for a business like this is very important in order to gain and keep clients. But also offering delivery will help the business obtain customers from outside the neighbourhood. Advertising at wedding shows, at events like Christmas fairs, or charity events will help to build the customer base as well.

A similar business like this in Calgary is Sassy Cakes, found here, which offers specialty cakes made the way you want them. Just like the idea above you choose the design, the size, the flavor, and anything else that will make the cake fit the occasion. The disadvantage that Sassy Cakes has at this time is that they have become so popular that they are only accommodating previous customers and are not taking on new clients at this time. They are still continuing to get the business and sales that is needed to continue with the business but it the expanded they would be able to take on the new customers and grow even more!

Unit 5A- Law of Diminishing Returns

The article "The Diminishing Returns to Tobacco Legislation" by Pierre Lemieux is about the European government trying to reduce the number of smokers. Since the 1950's they have been warning consumers of the effects and risks that smoking will have on your health. But the issue that the government is having is that these advertisements against smoking aren't having the same effect as they had in the beginning. A quote from the article that I think best describes the diminishing returns is that the "...intervention against smoking becomes less effective is that smokers who were the most easily persuaded have already quit."

Lemieux makes many good points in his article that I believe helps show the main message of diminishing returns on tobacco:

1) "…the diminishing returns to government intervention, i.e., the fast that additional reductions in tobacco consumption require more and more potent interventions."

Governments all over the world have tried a lot of different advertising schemes to bring awareness to the harmful effects of smoking, from written messages to pictures of diseased organs on the packages of cigarettes, hoping that the messages would register to smokers and they would quite. But smoking is an addiction and there are many reasons why people continue to smoke.

2) According to the article when they rose prices in the US in 1985-1995 by 52% there was a drop in sales by 18%, in 1995-1999 the increased the prices again by 48% but this time they only saw a decrease in sales by 11%.

The pattern (even only with 2 major price increases) is starting to show the diminishing returns for tobacco sales. The government is showing these people messages of how it is harming and killing their bodies to try to persuade them to quit but when that doesn't work they try increasing prices so they can't afford to smoke. But even with the large increase so far there has not been a huge reduction in sales- they will have to introduce "larger tax increases...to achieve the same results as previously."

3) "One reason why government intervention against smoking becomes less effective is that smokers who were the most easily persuaded have already quit. The remaining ones are those who value smoking more and, therefore require higher disincentive before they quit (or reduce their consumption)."

This statement is very true because if the images and messages were going to have an effect on smokers it would have happened from the start. I have two main comments about this message: a) People become immune to things when they are continuously exposed to them. Like war, horrible accidents, and swearing, violence and sex on television and movies. The things we see on TV or in the movies would never have been shown years ago. People are becoming immune to them so it does not have the same effect on them. Just like the images and messages- smokers see them and read them but because they are used to seeing them everywhere. They turn a blind eye to them and do not register the message that is meant to be shown.


b) Children and teens are a good example to add to the latter part of the quote from the article because even though they are lectured and shown the effects of smoking a lot of them continue to try it and potentially become addicted. They see it as being cool and rebellious and then become addicted so it's harder to quit when they are older and realize that what they were told when they were younger is true.

4) "Too much information may also kill information"

This goes along with my comments from the previous point. When the government floods the media and advertisements with messages about the harmful effects of smoking people become immune to the message and start ignoring what is being said.

"In Quebec, the new panic warnings mandated by the Canadian government have brought entrepreneurs to distribute pack covers featuring neutral drawings, art forms, and even ironic warnings." I feel that this portion of the article did not add much to the debate. It does show that people are finding ways to hide the packaging but I felt like this was a very small part of the debate and if left out it would not have been missed.

The Government is having issues with their current form of intervention so it is time that they take a look at new ways of decreasing the number of smokers. One way that could help, which goes along the same lines as the current advertisements with the photos on the packaging is by printing messages on the actual cigarettes such as "Smoking Kills". This could persuade people to quit or at least smoke in private for the fear of humiliation. Another way that could have an impact on the numbers is by banning smoking in public all together. Smokers will have to smoke in their own homes or there could be designated areas in public that are away from the general public. Walking down the street after just working out at the gym for an hour is one of the times where I feel that smoking should be banned the most. I worked out to better my health and then within 5 minutes of getting out of the gym I am greeted by second hand smoke. I am no longer a smoker and if I wanted to smoke I would take it up again.

Smoking is one of the best examples of a product with a sin tax. Sin taxes are applied to products that governments can continue to raise the tax on and the product will continue to sell. These products have an inelastic demand. As mentioned above the government has raised prices on these products by 50% at least twice now in the past 25 years but both times the decrease in consumers did not decline that much.

The intervention from the government has a diminishing return and unless something drastic is done there won't be much more that will help reduce the numbers. Hopefully, people will eventually start seeing the benefits of not smoking and quit but it will take time and a lot more of the government and consumer’s money before that happens!

Unit 4- The Tourism Industry in Canada

For exercise 4.3 I chose to talk about tourism in Canada. The article I chose is from the CBC news website, click here to read. The article was short and sweet but had all the appropriate information. The main point was that Canada's tourism rose 0.9 percent in the 4th quarter of 2011; this is up 9.5 percent since 2009. The fact that we recently got out of a recession is a strong indicator that tourism would increase because of the increase in income there is an increase in tourism.

To give you a better idea of what this increase looks like compared to other years and quarters I would also like to reference an additional article, click here, that included the same information found on the CBC website but also talked about how tourism spending in Canada has increased for the 10th consecutive quarter. The graph below found in this article shows us the pattern of tourism spending since 2002:

The condition of Canadian tourism is improving not just because of Canadians but also visitors from around the world; last year there was an increase of 0.8 percent in foreign visitors. As indicated in the article this occurred despite the value of dollar- which is still holding strong! When the value of money is high in another country it tends to ward off visitors from other countries because they are not getting the best value when they exchange their own currency for Canadian dollars.

Canadian tourism has a high degree of elasticity because when people have more disposable income they are more likely to travel and take part in tourist activities, whether it is in their home town or another city, province, or country.

Unit 4- Elasticity Revenue

The article I chose for this exercise is about the increase in tuition fees for universities in the UK. Click here to read the article on the BBC news website.
The information that is given in the article shows an increase in tuition fees from £3,350 to £9,000. As at January 15 there were 462,507 applicants for September up from 508,295. When looking at one country in particular to get a better idea of the effect that this is having, England alone had a decrease in applicants by 9.9%. (In order to plot the data I used an article published by The Guardian, found here, to show the original university fee of £3,350.)

Below you will find a graph plotting the tuition fees and number of applicants (I have used a combination of values found in my articles as well as values I added to help plot my points). The last values (£500, 200, 1.615385) were not included in the graph but were added to demonstrate the elasticity if the tuition fees dropped even lower and the number of applicants increase dramatically.



(Quantity is valued in thousands)

TR at 9,000 & 462,507= 4.2 million
TR at 3,350 & 508,295= 1.7 million

The maximum revenue is at approximately 400 applicants with the total revenue being approximately 5.2 million. Applicants increase when the price decreases but total revenue also decreases when the price decreases. Universities need to set their tuitions fees at a price that will still encourage applicants and will continue earning them a profit.

Unit 3- Market Equilibrium

For this exercise we were required to answer the self-test question on page 45 in our text books. The data that we were required to plot is as follows:

P          D     S
$2.00   60   30
2.50     56   36
3.00     52   42
3.50     48   48
4.00     44   54

Equilibrium price is $3.50 and equilibrium demand and supply are equal to 48 (in hundreds of thousands per day). When the price increase over $3.50 than there will be a surplus in eggs ($4= demand of 44 but a supply of 54) but when the price decreases there is a shortage in eggs ($2= demand of 60 but a supply of only 30).

I have included a graph below to illustrate the results:

Unit 2- Games On!

I chose to play the McDonalds game for Exercise 2.2. It was an interesting game considering the options that were given to improve sales. It allowed you to add hormones and animal parts to the feed, genetically enhance the soy, bribe different people and organizations, and a few other options. It took me a few times to learn the game and to figure out the process and what my goal was but overall it was a fun and addictive game.

The prices definitely determined what I would buy and how much. Because everything came at a cost, whether it was buying land to grow soy or firing employees, there were a lot of areas that you had to pay attention to. Not only were you responsible for the selling of the burgers but also how much soy you would produce, how many cattle to raise, what hormones would be added, who to pay off in order to keep organizations happy, and which marketing schemes were to be used. When I was making lots of money it really felt good and I felt like my hard work as a manager was paying off but when I lost the game by going bankrupt after decades of being in business it was sort of sad that I failed.

Overall I think after getting a feel for the game it was fun and I enjoyed seeing how my classmates did as well.

Unit 1- Production Possibilities

There are 4 figures in chapter 1 that represent production possibility curves which are made up of different combinations that output can be produced depending on the availability of resources and technology. The graphs can be inturpreted by looking at three different areas: scarcity, choice, and opportunity costs. Scarcity plays a role in the graphs because it is not possible to produce all the productions that society wants because there are limited resources. Choice plays a role in the graphs because a choice needs to be made in order to decide what will be produced and opportunity costs plays a role in the graphs because certain products must be sacrificed in order to produce other products that have been choosen and that there are sufficient resources to produce.

In everyday life we all have to make decisions based on scarcity and choice. A few areas that top my list are income, time, and vacation days. Income is probably a main concern in a lot of peoples lives but for me specifically I have to make sacrifices and choices daily to manage my income so I can afford the things that I need and the things i choose to buy that I don't necessarily need but that I want. Time is another big concern when it comes to choice and scarifices. A lot of people comment on how there are not enough hours in a day; with the amount of things that we have on our plate it is very common to try to jam pack as many tasks and activities into a day or a few hours. For me vacation time is another big one because I have family that live on the other side of the country so evern though i want to see them as often as i can i also want to see the world so I have to divide my vacation time between the two.

When going back to school the one significant opportunity cost  that I have experienced is my spare time and how I choose to spend it. Between school, a full time job (which requires overtime during busy times), my boyfriend, and my friends I have to choose what i do in with my evenings and weekends. Taking courses means that I need to drop my plans and do my school work before I can have fun. I think that most things in life involve giving something up in order to have something else in it's place.

Hello

Hi Everyone,

I am really interested in this whole blogging for class thing! This is my second time blogging but my first for a class. I think it's a great idea and I think it will help when it comes to study time.

I am looking forward to blogging and to read what my classmates write on their blogs too.

Happy Blogging and Learning!