Archive forNovember, 2015

Supply and Demand in the Oil Market

Recently, the oil industry has been undergoing some interesting changes; the market has become increasingly dependent on supply and demand, rather than cartels. Saudi Arabia’s low prices and costs of production have resulted in Saudi Arabia’s increased distribution to other countries and the cancellation of investments. In the short run, because of lower prices, producers will pump more oil to compensate, but in the long run, output/production will decrease. In order to determine future prices, analysts are analyzing “peak demand” instead of “peak supply.”


Monopolizing Energy

Recently, news has come about that Lithuania will not be cold at all during their colder months. Since the middle of last year, a form of liquified gas called ‘Independence’ has helped several thousands of Lithuanians from “sudden cutoffs in gas supplies from Russia”. Independence has proven to be very successful due to Russia almost having a monopoly on energy.

The article mentions that in Russia, energy and politics are intertwined and that has become a problem and Lithuania has helped out many during a time that almost seemed problematic. Currently, it is looking like they are pairing up with Poland and eventually they want to create “an energy union” which will help all the countries who are currently stuck under Russia.

This article relates to what we’re learning in microeconomics because we often see that the oil market suffers some disagreements due to the high demand for it and the competitive firms that are supplying it. Also, we learned about monopolies in which firms want to keep all the profit but then other firms end up entering the market which affects the monopoly itself.

Below is the link to the article:

Monopolizing Energy NYT


NCAA the tax free monopoly

Every day we like to turn our televisions onto any sporting network to watch collegiate athletics. We seem to think that the NCAA (National Collegiate Athletic Association) is existing to help schedule events, provide a face to college sports, and most importantly to help student-athletes get to participate in any sport of their choosing. All these things may be true, but what people forget to acknowledge is that the NCAA is a multi-billion dollar firm. Their sources of income are 81% television and marketing, 11% collegiate championship profits, 4% investments, and 4% sales and services. The NCAA has a monopoly over all the revenue from college sports. There is no other firm like it. Also on top of it they are tax free in many cases. This firm has little to no regulation and has control over the media in many cases. This company is making billions of dollars off of the Student-Athletes that actually provide us with the real entertainment.




Should Government Control The Price Of Prescription Drugs?

The following article talks about setting a price control for prescription drugs due to the fact that more and more people can no longer continue affording the medication they need. What is the point of having prescribed if soon no one will be able to afford the medication ill people need in order to fight their illness/disease. A price ceiling would be the best option in order for the companies to continue making profit, but of course so those who are ill can continue to fight their sickness.


The Gucci Recovery

Gucci, one word is all you need to hear. The famous Parisian  luxury fashion hous has been going through a rough patch lately with an inability to capture the entry level buyer in the luxury market. As with any network good, the value of the product to one individual increases when other people are also using the product. If Gucci were able to sell an entry level luxury hand bag for $668, then they would be able to capture a larger section of the luxury market. With more exposure the value of their other handbags go up. Eventually they will be able to raise their prices even more to cope with the increase in demand. However, because it is a network good produced by what many would call an oligopoly, the value of older Gucci products increase when people buy new Gucci products.

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Con Edison monopoly

This article shows why a company with market power can be potentially dangerous to it’s consumers. It explains that “Astoria Energy build plants to meet demand because they face competitive pressure: if one company doesn’t build a plant, another will.” However in Con Ed’s case, they are under no pressure to build that extra plant. So even though there may be higher demand, Con Ed may not find it financially beneficial to build another plant, leaving a shortage of electricity. Because they have market power, Con Ed can charge higher prices, as well as provide less electricity than what is demanded without worry of another company providing better services.

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Uranium in economics

The price of Uranium will directly change corresponding with expectations for the future. The price of uranium has changed recently, as there has been an expected decrease in demand of Uranium. Uranium is produced in Canada, Kazakhstan, and Australia. In the macroeconomy various conditions of the Uranium market, or its projection can also affect the price of Uranium in the near term and in the long run.

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The True Price of Lululemon

The recent topic of class discussion has been monopolies and how they control the market price. Branding is a major contributor to the existence of monopolies, as fad culture encourages loyal spending in a market where one firm holds the power to control the market price.

Currently, the trendy yoga and running fitness wear company, Lululemon functions as a monopoly, with prices as high as $128 for a pair of tights, and $54 for a pair of running shorts. The incredibly inelastic demand for Lululemon apparel has allowed this firm to function much like a monopoly as its consumer population fails to decrease in the face of price increases. Although several other companies offer comparable products at lower prices, clients continue to favor Lululemon for the brand name. From the perspective of the buyers, there is only one firm that offers the brand name Lululemon, and this grants the firm monopoly power over the price.

It can be assumed that the average total cost curve is relatively low and nearly flat, as the price of mass-manufacturing an additional tank top or pair of leggings does not impose a large cost. The marginal cost curve can therefore be considered nearly zero, and this industry is generally considered a constant-cost industry.

Given these factors, Lululemon would be expected to function as a single-price, natural monopoly. The effect of a single-cost on a monopoly is deadweight loss from lost sales due to the inability to price discriminate. Although Lululemon cannot price discriminate by selecting and profiling its customers, the firm can utilize sales techniques to price-discriminate. Lululemon discretely reduces its prices on past season apparel, selling old patterns or designs at a reduced “sale” price. This technique enables the firm to increase the quantity of sold goods, while still maximizing profits, as a section of old inventory is sold to a sub-population at a reduced price. More sales occur, so total revenue and profits are subsequently increased. In this way, Lululemon curbs some of the deadweight loss incurred by a single-cost monopoly, and operates at a profit-maximizing level. The total surplus (consumer and produce combined) is increased when sale prices are offered.


Barriers to Entry: Nepal’s rickshaw market

This article and brief video highlights the impact of barriers to entry in Nepal’s rickshaw market. The costs fall heavily on those who would like to enter the market but are prevented from doing so.


Monopoly Ended by Technology

Back in the early to mid 1900’s if an American wanted telephone communication it had to use a Bell telephones as its provider. Bell telephones, which is now know as AT&T had a monopoly on the telephone market. As we have learned not all monopolies are bad, evidence of this can be seen the example of Bell Telephones. A major goal for Bell was to create universal service for everyone, meaning that all people have a phone, and that phone is serviced by Bell. According to this article found on AT&T’s website states Bell Telephones successfully got phones to 50 percent of the united states. The more people with phones means there is more national connection. With advancements in technology such as communications satellites, lead to the market having less cost associated with it, and some other competitive firms entered the market. Thus ending Bell telephone monopoly on them market and bringing us today, where we have a very competitive phone market with several firms.

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