Price Elasticities in Asia Bruce Cadwallader, Kelsey Seeds, Mary Taylor, Gloria Tolson Ohio Dominican University MBA640 The Issue The issue at hand is the elasticity of imports and exports in Asian countries and why the import and export demand elasticities are not constant as one would think. Import and export demand can change the price and income variables of a country. The study found that in Asian countries, if imports are price inelastic there will be a rise in import prices and will lead to an increase in the import bill. If imports of these countries are income elastic, an increase in incomes will lead to a more proportionate increase in imports. If exports from Asian countries are price inelastic, export earnings will rise as the prices increase. If exports from these countries are income elastic, an increase in incomes worldwide will lease to a greater than proportionate increase in exports (Keat, Young & Erfle, 2013). The study consisted of five different Asian countries, India, Japan, Philippines, Sri Lanka, and Thailand. It was found that all five countries had inelastice price and income elasticities on import demand. Whereas, three of the five countries were price elastic on export demand, but only Japan was income elastic on export demand (Sinha, 2001). Table 1 Price Elasticities in Asia Country Imports Price Imports Income Exports Price Exports Income India -0.51 -0.11 -0.55 0.45 Japan -0.91 0.84 -0.80 2.84 Philippines -0.17 0.57
International trade affects the economy by increasing the Aggregate Demand (AD), and by becoming a source of inputs for production. International trade based on the theory of comparative advantage will improve efficiency in allocating resources, as well as allow businesses to reach economies of scale - "the situation in which costs per unit of output fall as output increases", consequently reaching competitive prices of international markets (Colander, 2004, p. 428). When an economy involves itself in trade, under the right circumstances, it is able to shift the Production Possibility Curve (PPC) curve outward, and achieve greater levels of output. This increase in production can be achieved through the use of more resources
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2a. Price Elasticity of Supply in the economics can demonstrate the supplier’s response of his or her production to the change in a commodity’s
Foreign demand for a primary product may also limit economic growth as demand for a particular commodity will cause an increase in demand for a country’s currency, thus resulting in the appreciation of the currency. This would reduce the competitiveness of the country’s manufactured exports, thus leading to a decrease in the financial resources gained from exports which could have enabled the country to raise the level of economic welfare to encourage development.
To begin with, elasticity means the response that is given in the supply and demand curve when there is a change in the price. This ranges anything from food, clothing, gas, oil and even tickets to a concert or game. For instance, an item is said to be elastic when there is a small change in the price but a significant change in the demand or supply of the good or service. An example of an elastic good is usually the luxury goods or the goods a person can find an alternative to. On the other hand, a good or service can also be inelastic if there is a significant change in the price but not much of a change in the supply or demand for it. Usually an item that is inelastic is gas or the necessary items, because regardless of price people will
After the end of the World War II the world faced the challenges of economic and social recovery. The majority of developing countries based their economies on Import Substitution Industrialization (ISI), the state-oriented approach to a trade and economic policy. ISI supports the replacement of import with domestic production in order to reduce foreign dependency. This protectionist policy dominated in developing countries, especially in Latin America and sub-Saharan Africa, during the first 30 years after the World War II. By 1980s, when the main gains of ISI were exhausted and it demonstrated its inefficiency, the countries of East Asia adopted a new development strategy. Consequently, this new export-oriented and market-friendly strategy, so-called East Asian model, has determined the successful economic and trade policy of East Asian countries during the next several decades. To understand the reasons of the shift from ISI to the East Asian model, it is needed to carefully examine and contrast these two approaches and their supporting theories.
In January 2008, gasoline prices were $3 a gallon with an increase of 33 percent price of gasoline was $4 a gallon in June 2008. Between the January and June 2008 time period the quantity of gasoline purchased decreased by 3 percent. After gathering the required information, the second step is to calculate the price elasticity of demand (PEoD) for gasoline is to calculate the percentage change in price which is done by using the following formula. [Price New-Price Old] / Price Old. The numbers plugged into the equation is [4-3] / 3=.3333 or 33 percent. The percentage change in price equals 33 percent. The third step is to calculate the percentage change in quantity demanded. This is done by using the following equation [Demand New-Demand Old] / Demand Old. The information provided above states that the percent change in quantity demand is 3 percent, which means that there is not a need to calculate the percent change in quantity demand. The final step of calculating the price elasticity of demand is done by completing the following formula of PEoD = (% Change in Quantity Demanded) / (% Change in Price). When the numbers are plugged into the equation it is 3% / 33% =.0909 or 9 percent. The price elasticity of demand for gasoline is 9 percent.
Some of the countries with surplus commodities may dumb them on international markets at a low price. Under such conditions, some of the efficient industries can might find difficulties in competing for long period. Furthermore, countries whose economies are mostly rural will face unfavourable terms of trade. For example, ration of export prices to import prices. Which means that their export income is more smaller than their import payments the make for high value added imports, as it leads to subsequently large foreign debt levels.
Elasticity of demand helps the sales manager in fixing the price of his product, deciding the sales, pricing policies and optimal price for their products. The evaluation of this measure is a useful tool for firms in making decisions about pricing and production which will determine the total
Gross domestic product per capita is good for measuring the economical level of a nation directly (Bloom & Finlay 2009). With higher GDP per capita, the country will have stronger economic capability and purchasing power (Bloom & Finlay 2009). In this way, this paper will provide a weighting of 1.5 with GDP per capita within evaluation. Specifically, countries with higher GDP per capita in Asia-Pacific region will have stronger purchasing power of buying agricultural tractors from the U.S. As shown by Figure 2, GDP per capita of Asia-Pacific countries varies from each other largely. In particular, Australia, Japan and New Zealand are the countries with three highest GDP per capita. Based on this, Australia, Japan and New Zealand
In the competitive world, growth of a business is based on its ability to generate revenue not just from the local market but also searching for opportunities in the international market. The similar can be magnified for a country, where some economies as whole are credit to International demand till a great extent. In case of few countries, namely Japan and South Korea, such export driven attitude is important to improve their growth since being endogenous can’t work well in small populated countries.
Structural adjustment programs have led to the increase in poverty by reinforcing the peripheral status of these countries within the capitalist system. The international system in characterized by the domination of peripheral countries by core, developed nations (Afriyie, 2009, 51). This system is being reinforced by structural adjustment policies that make these peripheral countries dependent and indebted to the core. The first policy that helps reinforce this system is currency devaluation. This policy makes the adjusting countries goods cheaper for foreigners to buy while increasing the price of foreign goods (Afriyie, 2009, 54). To counteract this these countries are given large foreign currency loans that encourage the purchase of
The international trade of goods across the world accounts for approximately 60% of the world Gross Domestic Product (The World Bank, 2014). A great proportion of goods transactions occur every second. The primary question is whether international trade benefits a country as an entirety, and, if so, why would a country implement protective trade policies to restrict particular exports? To address this question, this essay aims to explore the impact of trade on various economic stakeholders, including consumers, producers, labour and government and, furthermore, will compare models and theories with reality to ascertain the true winner/ loser in the international trade market.
Adam Smith outlined that the price mechanism in international trade is like an ‘invisible hand’ that coordinates the consumption and production decisions in a well-functioning market economy (Kerr and Gaisford 2007). However, there is need for the government to intervene in free market economies in order to implement trade regulations and avoid market failure that is associated with negative externalities. International trade is affected by government’s interventions that include direct participation in supply and purchase of essential goods and services, through regulation, taxation and other indirect participation influences. The free markets enhance market efficiency through ensuring that prices are determined by the
Elasticity of demand is shown when the demands for a service or goods vary according to the price. Cross-price elasticity is shown by a change in the demand for an item relative to the change in the price of another. For substitutes, when there is a price increase of an item, there is an increase in the demand for another item. When viewing complements, if there is an increase in the price of an item, the demand for another item decreases. Income elasticity is shown when there is a change in the demand for a good relative to a change in income. This concept is shown in how people will change their spending habits when their income levels change. For