Economic Problems And Issues Essay Example for Free

Economic Problems And Issues Essay Does big business own by corporations synonymous with monopoly? Let us first check the nature of the capitalist market how large firms dominated the market. When only a number of large companies dominated a specific market, what resulted would be an oligopoly. This means that only the larger and selected companies had the command in the market thus excluding smaller firms. This resulted in reducing competitive pressures in the market. In this manner, there is a tendency that the price of commodities may rise above what would be the market level. The oligopolistic producers do not have rivals or competitors coming into their market circle because of relatively high capital costs. The domination of a trade commanded by few big firms especially when they are incorporated into one large organization may result in exploitation and monopoly. In the market economy, if a market is marked by an oligopolies practice, exploitation affects the consumers because they will be charged with higher prices as compared to the price in the competitive market. The Big Businesses therefore are having a bigger slice of the oligopolistic profits because of this unfair competition at the expense of smaller firm. To know more why big business gets more profits due to oligopoly and monopoly, we need to look into the economics of production and marketing in relation to capitalism. Capitalism comes in a way that it focuses on distribution not on fair production. Instead of equal trade, capitalism is guided by hierarchy and inequality to all business concerns. Usually the privately owned businesses do their production mainly for profit where investments, income, distribution and pricing of goods and services are estimated through the operation in a market economy. In the world of business economics, this is how capitalism makes an impact in the regulation of the price of the commodity. Unfortunately due to the potential of the big business to engage in capitalism, they sometimes monopolize the market. According to the economic theory of Malcom Sawyer, within the market trade there exists a certain degree of monopoly. This indicates that profits come to those businesses with monopolistic power. As always, an increase in the monopoly of large firm always directed the profit to them instead to the small businesses. This explains that the degree of monopoly within a market will determine how poorly the small firms will be able to survive as compared to those small firms who are earning more in a more competitive market. The degree of monopoly can be graded with few factors being exhibited by the big business in the market. Their market power is obvious in the volume of their market share, the extent of their advertising, the barriers that prevent small businesses to enter the mainstream and so on. The higher and stronger of these factors, the higher the degree of monopoly. There is however an argument of the monopolistic practice of big businesses. Accordingly they put up higher prices in their product because of the prices of the materials being purchased and used in the manufacturing of goods. Another reason was the unpredictable inflation and the need for sustaining the salaries of their employees. However, any reason would still result in profits for them. Such alibis only undermine the status of their employees as according to their profits. If these companies are forced to lower their prices the employees will suffer due to lower wages and compensations. Also, poor quality materials will be used which result in poor quality products and the demand will fall as well as its production. Basically large firms can always maintain their prices and profits more than the normal price in the market without assistance from the government due to their big financial back-up and market power. The existence of Big Businesses and their influence in the economy has their impact on every nation’s future. In some ways economist always compare them to be practical capitalist building their market world in their own hands. Another bad effect of capitalism and oligopoly is that when big business are lording it over other business, the tendency would be for the smaller firms to also merge and have a fight for a competition. This is to improve their market power and have larger slice of the profits. In effect there is another monopolistic tendency in the market. Although competition is also beneficial to the consumer since they would have many choices with products, and the price would temporarily go down, the competition will most affect smaller and weaker firms. The formation of oligopolies within capitalism will result in the loss of profits for small capitalist directing the profit to Big Business. For this reasons, small and medium sized businesses ends up detesting Big Business and will be blaming the government for unfair and unequal treatment of trade (Mattick, 1974). In conclusion, the capitalists always have the tendency to use monopoly power so they can manipulate the price, the quality and quantity of the commodities. There is no real opportunity for smaller firms when the trade is being ruled by the oligopolistic and monopolistic big businesses. Although there are few advantages with competition, the smaller firms are always outside the room full of opportunities. What they lack is the power to push the big blockade blocking their road to profiteering because of the giants in the trade. The answer to the question now would absolutely be, Yes. Free Trade against Ptotectionism? What is a Free trade and what is Protectionism? Free trade is defined as a market model in which trade in goods and services between or within countries flow freely by government to government laws and restrictions. Included on the restrictions are taxes (tariffs) and other non-tariff trade barriers. On the opposite side is Protectionism. Protectionism is the economic policy of controlling trade between nations or countries such as imposing high tariffs on imported goods, restrictive quotas and other government regulations made to discourage imports from other countries. It also includes anti-dumping laws to protect local industries from a certain foreign nation who could take-over the competition especially in business. Some people call protectionism as â€Å"fair trade† and it may sound alluring at first. Some supporters of protectionism agree that keeping out foreign commodities will save domestic jobs and give a chance for jobs to recover and enrich themselves. It will also sustain trade deficits as well. But are these claims have enough economic basis? Protectionism in effect raises tariffs and imposes quotas on the volume of commodities the government allows to come into the country. Although tariffs is one of the major financial resources of a country, such laws restriction control the choice of consumers to have freedom of choice as well as it also opens job to the trade. According to the US Department of Labor’s statistics, eight jobs are getting lost compared to one job saved in a protected industry due to protectionism Let us give an example, in Japan the government was protecting their own farmers against the influx of imported rice from other countries but in return they are paying five times more as compared with the rice in the world market. Even the European and U. S. consumers are paying more than double the price of their own commodities on certain products as compared to price in the world market take for example agricultural products such as sugar. When the U. S. Semiconductor Trade Pact pressured the Japanese to cut back production and exportation of their computer memory chips, the result was a worldwide shortage of this parts and the eventual rise of demand and short of supply. Eventually, this has caused price increase and the technology was badly hurt by such restriction. The laws of protectionism force you to pay more on taxes on foreign and imported commodities but also increase your domestic taxes as well. This happens when governments enlarge their Customs Department Bureaucracies to guard and enforce rules with trade restrictions. So if there is no benefit for protectionism, why is it being imposed and who gains from it? Those who gain specially from it are usually groups with their special interest. Such as big corporations, unions, and farmer’s groups whom they want to command higher prices as much as getting higher wages. Such groups are thought to have special political and influential clout to politicians which pass laws favorable to their counterpart. Who are the losers with protectionism? The answer would be very clear the people and their government. Then what are the benefits of a free trade? Substantially, all countries benefits from free trade. In the US, every agreement within the free trade must be checked and balanced critically. At present, the U. S. economy is being augmented by more than $12 trillion in gross income from tree trade. American exports in the 2005 has totaled to an estimated of $1. 2 trillion. Jobs that are connected with production of goods for export are 13 to 18 percent higher. The free trade policies have made competition today on a higher level in the open market. This led to better innovation and better products, higher salaries, new markets and more savings for the employees and the government. Free trade has been bolstering America’s high standard of living and there would be more opportunities and income if trade restrictions could be alleviated further. For the past 50 years, trade liberalization has made an extra $9,000 per year for each American household according to the study made by The Institute for International Economics. The relaxation of regulations by the North Atlantic Free Trade Agreement (NAFTA) and the Uruguay Round of the WTO—the two major agencies that impose agreements between nations has generated an annual additional benefits of $1,300–$2,000 for the standard American family of four. In conclusion to this, freer trade facilitates more goods and services to reach consumers at lower prices, providing families additional income which they can use to buy other consumer goods. It does not only help families but helps to widen global freedom, follows international law, and provide economic development especially on poor or third world countries. The World Bank also reported in 1990 that the per capita real income is three times bigger in developing countries that has opened their markets to free trade or loosen up strict regulations on certain imported products. Freer trade and market reforms have lifted more than 500 million people from poverty for the last 25 years. This in every opinion is enough to agree on trade liberalization rather than stayed embrace with the so called â€Å"fair trade† and remained stocked from a world full of opportunities (Markheim, 2007).