Test 2 - Cordeiro Samuel A Cordeiro Eco 101 04 8:00 am Prof...

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Cordeiro Samuel A. Cordeiro Eco 101- 04 8:00 am Prof. Yves A. Isidor October 30, 2007 Mid-Term 4) Barriers to entry are impediments to the entry of new firms into a market, such as product differentiation and government licensing, usually used by monopolists to protect their favored positions. This refers to hindrances that an individual may face while trying to gain entrance into a profession or trade . It also, more commonly, refers to hindrances that a firm may face (or even a country ) while trying to enter an industry or trade grouping.There are two major barriers of entry. They can be classified conveniently into (1) private barriers, and (2) government barriers. Private entry barriers arise from the nature of markets themselves or from marketplace actions of the firms that enjoy their fruits. They have the ability to control prices, advertisement and employment. Government barriers arise for the sake of the common people. Government regulations may make entry more difficult or impossible. In the extreme case, a government may make competition illegal and establish a statutory monopoly . Requirements for licenses and permits, for example, may raise the investment needed to enter a market. I believe the government barriers give rise to monopoly that is socially justifiable.
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5) Comparative Advantage is the ability of a country to produce a good or service with a smaller sacrifice of alternative goods and services than can the rest of the trading world. Comparative vs. Competitive Advantage Comparative Advantage is characterized by: Low-cost labor Low-cost land Presence of natural resources Foreign distribution channels Copying of technology Competitive Advantage is characterized by: Unique products Unique processes Creating distribution channels Internal development of technology A country’s consumption possibilities are greater when it trades with other countries than when it does not. By concentrating on the production of goods in which it has a comparative advantage and trading for goods in which it has a comparative disadvantage, the population of the country will have a larger GDP to consume and/or invest. International exchange markets arise from international transactions. A country’s demands for foreign exchange are generated by imports of goods, investments in other countries, and any other transactions that result in payments made abroad. Supplies of foreign exchange are created by exports, foreign investments in the country, and by any other transactions that cause payments to be made to the country. Exchange rates are determined by the forces of demand for and supply of currencies used in international trade.
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6) Companies engage in “Predatory Pricing” very often. It is the deliberately losing money to keep competitors out of their industry. It is the is the practice of a firm selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entry into the market for potential new competitors. If the other firms
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