International Trade Pricing Strategy - Essay Example

Economics Paper Question one This company have to strategize on the basis of two market:- local and international market. International trade Pricingstrategy would be based on the prevailing foreign exchange rate, which is beyond the company control. However some other external cost must be considered so that the company doe not operate at a loss. Some of these cost include:- foreign or shipping cost, insurance cost, storage costs among others. All these will determine the price of the company's products sold across the border. Generally speaking, the foreign exchange rate will depend on the international forces of demand and supply of local currency. If the local currency is weak, the company will have to opt to export more of its products since their products will be cheap in international market which means the demand will be high. On the other hand if the local currency is strong, the foreign rate of exchange will be high thus making company's products to be expensive. At this situation, the company may opt for a domestic market for its products. Domestic market In domestic market, the company has some power to decide on the price of its products. However this will depend on market structure of its product i.e. Whether it is a perfect competition, monopoly, or duopoly. In perfect competition market, the pricing strategy will be based on the forces of demand and supply of its product, which will be determined by the level of competition from other players in the market. Perfect competition market has a perfect elastic demand curve. Here the market determines the equilibrium price level. At this equilibrium price, the company will sell as much as it can. A slight increase in price will mean the company will sell nothing. At equilibrium price P1 the company will sell as much product as it can at this price average revenue (AR) is equal to marginal revenue (MR) and it's the same as price. In monopoly market structure, the company has the sole power to decide on the price it will sell its product. That is why monopolist is known as notorious in charging higher price of their products. Monopoly can interfere with the demand of its product by lowering it's output here the prices will go up and make more profit. In case of the company being a duopoly, it may collude with the other company that produces the same type of product and charge high prices provided that, there is trust between them. Therefore pricing strategy here will be dependent on trust and cooperation among the two market participants. Question two Most companies are profit maximizing and therefore their core objective is to maximize profit. However others aim at maximizing their sales. Profit oriented searcher will aim to produce the quantity and charge the price given by the point where marginal revenue equals marginal cost. This is as illustrated in the diagram below Price searcher aiming at maximizing sales will produce as a point total cost curve (TC) cuts total revenue curve m (TR) i.e. at the highest point possible. This is as illustrated below. Price searcher aim at maximizing sales, if his intentions are to promote the welfare of the producers i.e. to create the market to the producer's products. In a nutshell, price searcher must therefore choose between maximizing profit and maximizing sales. Question three Elasticity refers to the responsiveness of quantity demanded or supplied due to change in prices or income i.e. Change in quantity demanded or supplied due to a unit change in price or income. In this scenario I would expect demand for a specific brand of running shoes to be less elastic than the demand for running shoes in general. This is because specific brand limits the taste and preferences of a customer. This in turn limits the ability of the customer choice from a wider variety. Therefore a change in price of that specific brand is likely to be highly elastic. Consumers do not have substitute. Demand for a general brand of shoes will be more elastic since customers have substitutes, which provide a wider variety of selection. Therefore in case of a change in price say an increase elasticity of that particular brand will be higher. i.e. less will be demanded since customers can always switch to other brand. Question four This is a case of industrial relations it's about trade unions and their operations in relation to the employers. From the New York Times we are told that one trade union: Elevators Operators always air and solve their differences with their employers without engaging in strikes. On the other hand, New York Times accuse Garbage Collectors trade union as belligerence, excessive demands and frequently opting for strikes. Elevator trade union and their employers practice the best industrial relations strategies when it comes to issues concerning labor and running of their industry. These involve among other things, their employers involving them in decision making of the company. Here the employee's feel as part and parcel for the company and any workers plight that need to be handled would be looked into with a possibility of solution so as to facilitate smooth operation of the company. In addition, the union must have diligent leaders who take the responsibility of solving their member's problem as a priority rather than wrestling with the company leadership for power. Moreover, they must be professionals who keep off from the political incitement hence handle their problems as a trade union. On the other hand, Garbage Collectors must be having poor industrial relations with their employer. The fact that the New York Times notice their belligerence and frequently opting for strikes indicate failed industrial relations between the union and the management. This might be as result of poor leadership of the trade unions who have failed to uphold their duties of engaging their employers in round table dialogue for amicable solution of their grievances. It can also be as a result of failure of the trade union leadership to seek the peaceful way of airing their grievances. This can also be aggravated by failure of the management to involve their employees into the decision making organ of the company. Thus the employees have no emotional or ethical connection to the company hence very susceptible to violent actions. In short, trade unions should adhere to the principles and duties of trade unions so as to facilitate smooth running of their industry. These principles include:- 1. Avoiding any activities contrary to the labor charter. 2. Discourage breach of peace or civil commotion by union members. 3. Ensure that their members do not engage in union activities during working hours. 4. Ensure that any agreement with the management is implemented as quickly as possible. In case of a conflict or misunderstanding both the union and management should:- 1. Settle disputes by mutual negotiations and voluntary arbitration. 2. Educate the management personnel and the employees on the obligation of each. 3. Respect each other's right and freedom of association. 4. No strike or work out without notice. 5. Undertake to settle disputes at the appropriate level. Read More