UNITED STATES ECONOMY

The Implications of Globalization on the United States Economy

The Implications of Globalization on the United States Economy

1)Globalization changes power relationships. At the level of international relations, it changes the power of developing countries relative to that of developed countries. At the level of domestic politics, it changes the power relations among government, business, and civil society. Most fundamentally, it changes the prospects for peace--both within countries and between them.

Monopoly Market

Monopoly is an enterprise that is the only seller of a good or service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit.

Today, most important enduring monopolies or near monopolies in the United States rest on government policies. The government's support is responsible for fixing agricultural prices above competitive levels, for the exclusive ownership of cable television operating systems in most markets, for the exclusive franchises of public utilities and radio and TV channels, for the single postal service—the list goes on and on. Monopolies that exist independent of government support are likely to be due to smallness of markets (the only druggist in town) or to rest on temporary leadership in innovation (the Aluminum Company of America until World War II).

Externalities

An economic side-effect. Externalities are costs or benefits arising from an economic activity that affect somebody other than the people engaged in the economic activity and are not reflected fully in PRICES. For instance, smoke pumped out by a factory may impose clean-up costs on nearby residents; bees kept to produce honey may pollinate plants belonging to a nearby farmer, thus boosting his crop. Because these costs and benefits do not form part of the calculations of the people deciding whether to go ahead with the economic activity they are a form of MARKET FAILURE, since the amount of the activity carried out if left to the free market will be an inefficient use of resources. If the externality is beneficial, the market will provide too little; if it is a cost, the market will supply too much.

Consumer Surplus

The difference between the maximum price that consumers are willing to pay for a good and the market price that they actually pay for a good is referred to as the consumer surplus. The determination of consumer surplus is illustrated in Figure 1, which depicts the market demand curve for some good.

Figure 1: Calculation of consumer surplus

The market price is $5, and the equilibrium quantity demanded is 5 units of the good. The market demand curve reveals that consumers are willing to pay at least $9 for the first unit of the good, $8 for the second unit, $7 for the third unit, and $6 for the fourth unit.

The income elasticity of demand

The income elasticity of demand quantifies the theoretical relationship between income and demand identified by the buyers' income demand determinant. A positive income elasticity indicates a normal good and a negative income elasticity exists for an inferior ...