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Finance & Accounting
Pages 8 (2008 words)
Significance of imperfect competition models for explaining the pattern of international trade Introduction International trade is growing day by day as a result of globalization and liberalization policies implemented by different countries at different parts of the world.
“Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia” (What Is International Trade?, 2003). Competition is growing immensely in the market as a result of the rapid growth of international trade. Ideally, all organizations would like to have some kind of monopoly or some kind of control over the price mechanisms in the market. However, growing competition prevent organizations from controlling the market effectively. Competition in the market can be labelled as perfect competition and imperfect competition. Perfectly competitive markets refer to the markets in which the firms do not possess any market power whereas in imperfectly competitive markets, some organizations definitely have control in the market as far as price mechanisms are concerned. “Competitive markets provide strong incentives for good performance - encouraging firms to improve productivity, to reduce prices and to innovate; whilst rewarding consumers with lower prices, higher quality, and wider choice” (Riley, 2006) whereas imperfect competition denies all these things. ...
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