Terms in this set (9)
Primary Products Price Depression
1. Engel's Law
2. Synthetic Substitutes
Primary Products Price Inflation
1. Natural Resource Limits
2. Slow Productivity growth in Primary Sector
1. Less Skilled Labor
2. Land Abundant
Challenges Facing Developing Countries
1. Capital Markets Less Efficient: More barriers to lending money, overcome higher interest rates.
2. Labor Markets Less Efficient: wage gaps, inelastic labor supply
Optimal Monopoly Mark-Up
Anti Cartel Policy
1. Sagging Demand-Demand sags, search for anti cartel products
2. New Competing Supply-Search for additional supplies in non cartel countries
3. Declining Market Share-cartel's world market share will fall over time
4. Cheating-incentive for members to chat on agreement price
Import Substituting Industrialization
(ISI)-identify large domestic markets as indicated by substantial imports, ensure technologies of production can be mastered by local manufacturers or supplied foreign investors, or to use subsidies to make it profitable for potential investors or state enterprises to set up high cost local production facilities.
Valid Arguments for ISI
Large economic and societal benefit. Replacing imports can improve the terms of trade. Replacing imports of manufacturers uses cheap, convenient market information.
1. Higher w/ less elastic demand for cartel sales
2. Higher MC, higher the price
3. Lower elasticity of demand, higher the price
4. Marginal Cost=Marginal Revenue (maximized profit)
5. Larger share of the world population controlled by cartel=higher price
6. larger elasticity of supply of non cartel producers= lower the price
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