Economics of multinational enterprise Term Paper

Economics of multinational enterprise - Term Paper Example If the terms of trade of a country are much closer to one country pre-trade price ratio the greater the gains than the other country hence such a country is likely to specialize in the production of such a commodity. Increase in production will employ a large labor force hence a rise in real income of the favored country’s citizens making them raise their consumption as a result (Beg & Manoj pg41-3). Perfect competition model produces products which are naturally homogenous and identical by definition having no brand name or trademarks hence consumers only choose on the basis of price. The industry has infinite number of firms hence the fewer the firms the larger is each firm. Firms can freely enter and exit the market since there are no legal or artificial barriers. All the participants in the market have perfect knowledge or complete information about the market hence farmers are aware of the demand and supply changes conditions. The firms are in return able to predict the future prices, demand and supply conditions. Such a market is not dwelt on much by economists as it is not realistic. In between PC and monopoly lies the oligopoly which means few sellers hence each firm is relatively large or giant in size. The degree of oligopoly is actually measured by the percentage of industry output. Products here are differentiated hence can be easily distinguished. Though they are open markets but they can at times be closed by some government regulation (Beg & Manoj pg 174-8). (a) Price elasticity demand is the extent to which demand can change with reference to the changes in prices, depending on the type of elasticity change in demand may be high or low. If changes in price do not affect demand negatively then demand may increase to an extent that multinationalization is realized. (b) Trade costs are additions to the overall costs of operations while market shares depend on the ability of firm to