Explanation and evaluation of how the price system operates in determining what goods are produced, how goods are produced, who receives income, and how the price system is modified and influenced by private organizations and government policy.
Forbidden Overlap: Students may not receive credit for both ECON 1110 and HADM 1410. ECON 1110 is not a prerequisite for ECON 1120.
PREREQUISITES
The price system is a mechanism by which prices of goods and services are determined through the interaction of supply and demand in a market. The price system plays a crucial role in determining what goods are produced, how goods are produced, who receives income, and how the price system is modified and influenced by private organizations and government policy.
In a market economy, producers are guided by the signals provided by the price system to determine what goods and services to produce. Prices reflect the relative scarcity of resources and the preferences of consumers. Producers respond to these signals by allocating resources to the production of goods and services that are in high demand, and reducing production of goods and services that are in low demand.
The price system also determines how goods are produced, as producers are incentivized to use the most efficient methods of production that minimize costs and maximize profits. This incentivizes innovation and technological advancements in production methods.
Chapter 10: The Federal Reserve What is the primary role of the Federal Reserve? What is the significance of this role? What is deflation, and why is it worse than inflation?
问题 2.
Chapter 11: International Economics Explain the “dysfunctional economic” relationship between the United States and China. What are the significant risks for each side?
问题 3.
Chapter 12: Trade and Globalization How can free trade be good for everyone? What can we do to help developing nations? What do they need to do to help themselves?
问题 4.
Chapter 13: Development Economics After reading this chapter, what do you believe are the two biggest obstacles preventing poor countries from becoming rich?
Textbooks
• An Introduction to Stochastic Modeling, Fourth Edition by Pinsky and Karlin (freely available through the university library here) • Essentials of Stochastic Processes, Third Edition by Durrett (freely available through the university library here) To reiterate, the textbooks are freely available through the university library. Note that you must be connected to the university Wi-Fi or VPN to access the ebooks from the library links. Furthermore, the library links take some time to populate, so do not be alarmed if the webpage looks bare for a few seconds.
If the activities in foreign countries contribute a larger share to a company’s revenues and if these contributions come from many different foreign markets (10 or more), then the company can be called multinational. International and multinational markets cannot be distinguished by groups of contractors. While contractors have either an international or a multinational strategy, they compete on the same physical markets.
The companies that are multinational differ quite significantly from those who are international. Ethnocentricity is replaced be a polycentric behavior with strong orientations toward the different host countries. This, of course, implies a decentralized organization of the company with many top managers in the host countries having a local origin. Besides coordination of the international activities through an international department, the company also acquires foreign companies. A multinational company has many foreign subsidiaries. An example is Actividades de Construcción y Servicios (ACS, Table 14.14).
The ability to work in foreign environments and to build up networks in a score of different cultures is the main competence of the multinational company. Through its polycentric behavior such a company is prepared for and at ease in foreign environments.
However, much of ACS’s international revenue is produced locally. Turner was in 2021 the largest contractor in the USA, adding up most of its revenue in local projects all over the USA. These projects were managed and staffed by Americans; the owners were Americans as well as the suppliers and the equipment producers. Technology and culture were also American (Adolphus 2021). Since Turner is owned by ACS all these revenues count as international revenue for ACS. The rankings of the Engineering News Record for the biggest international contractors are based on the international revenue as shown in the books of the holding. Most of it is regionally produced with no foreign influence except the transfer of profits and an occasional meeting of top management representatives to determine the strategy.
The total value of construction spending has been estimated to be around $\$ 11.5$ trillion US dollars for the year 2020 (Business Research Company 2021). The top 250 international contractors had in 2019 a revenue of 473 billion US dollars from international operations (ENR 2021 – See the above Table 14.15), which is equivalent to $4 \%$ of total construction spending. While nobody knows how much revenue is generated by smaller international companies, it cannot be a big sum. The last 20 firms in that list all have only an international revenue of less than 100 million USD each.
经济代写|微观经济学代写Microeconomics代考|Global Players and Global Markets
Global players producing exchange goods (consumer goods) are not simply active in more foreign countries than the multinational company but they use standardization of their products to achieve the highest possible economies of scale. They profit from a network spanning the globe to organize production. Managers come from countries around the globe, factors of production are bought where cheapest, and production is set up where labor costs are low and the institutional environment reliable. The orientation of the company is not tied to any one national culture, it is global, the behavior is polycentric. The headquarter coordinates the activities of a multitude of affiliated and owned companies around the world. The important point for this strategy to work is, however, that the products can be standardized. An example of a global player is Apple. Some companies also follow a transglobal strategy where some parts of the product are global and others are national. This is the case for Coca-Cola which uses a global marketing approach but different tastes of their products in different countries.
It is out of question that the products of the construction sector can be standardized around the world. Global markets seem to be no option for the sector. Whether there are global players in construction remains an open question that I will analyze in the following paragraphs.
The five described markets – from regional to global – form a hierarchy. Any multinational company is still rooted in a multitude of reginal markets, it is active in a number of national markets. One of these is the home market, the others are international markets. Projects and companies in many foreign countries as well as the home country characterize the multinational company. Companies need time to develop from a local contractor to a multinational contractor or a global player. For each step on the market ladder upwards, additional resources are required (Section 12.3.3).
Megaprojects differ from international projects. Miller and Lessard (2000) have studied megaprojects around the world and the average contract size in their sample is 985 million US dollars. As such, they form another subgroup of all international projects. In addition to size, they require cutting-edge technology. Structures included in the sample are hydroelectric projects, thermal and nuclear power projects, urban transport, roads, tunnels, bridges, oil projects, and technology projects. Not included are buildings and manufacturing structures. Besides technological know-how, the companies undertaking megaprojects need the ability to deal with the extreme complexity of such projects which includes the ability to establish the necessary network around the project in any part of the world. Such networks need to incorporate a large number of stakeholders. Besides the typical project participants shown in Figures 14.4 and 14.5, we need to include governmental ministries, public works authorities, utility authorities, banks, lawyers, insurers, press, police, and the public.
跨国公司与国际公司有很大不同。种族中心主义被一种多中心行为所取代，这种行为强烈倾向于不同的东道国。当然，这意味着公司组织结构分散，东道国的许多高层管理人员都来自当地。除了通过国际部门协调国际活动外，公司还收购了外国公司。一家跨国公司有许多外国子公司。一个例子是 Actividades de Construcción y Servicios（ACS，表 14.14）。
Once a company has established a regional presence, it can add additional networks in other areas. At the end of such a process the company becomes a national competitor by being active in most of the important regional markets of a country. Since activities on the national market are the sum of regional activities, there can be no national strategy without regional activities. Since construction projects cannot guarantee continuous employment, most national companies diversify in order to ensure continuous production. National construction markets are defined by the building rules and regulations, the economy as well as by the national language and culture of the host country. These form a barrier to entry for contractors from other countries. The barriers are cumbersome but not insurmountable.
National companies have headquarters and many local subsidiaries. Intra-company services are concentrated at the headquarters, the contact with the owner is mostly organized on the regional level although there are also some national clients. Other than the regional company, the national company has gained the competence to grow into other markets and create separate networks, albeit this is limited within the set of national culture and regulations.
While there are no data on how many national companies are active on such a market, it can be said with the same reasoning as above, that it should be fewer than $2 \%$ of all companies. There will be variations to this order of magnitude from country to country, yet the picture will not change dramatically. This does not mean that competition in the national market is limited. Regional and national companies fight on the same markets, as was explained with regard to the market in Bremen. Large companies do not dominate the national market. The top five contractors in national markets do not share more than $10 \%$ of the market in industrialized countries, with Japan being the exception at ca. $11 \%$ (Bollinger 1996). A way to measure concentration in a market is the Herfindahl-Hirschman Index (HHI). The HHI is the sum of the squared market shares $\alpha_i^2$ in percent. With $i$ $(1, \ldots, n)$ firms in a sector it must by definition be: $$ \sum_{i=1}^n \alpha_i=1 $$
Thus, the HHI is defined as: $$ H H I=\sum_{i=1}^n \alpha_i^2 $$ If there is just one supplier, this adds up to $10,000\left(100 \%^2\right)$; if there are a thousand with a share of $0.1 \%$ each, then the HHI equals 10 . Values below 1500 signify no concentration in a market (Krugman and Wells 2018). Using data from the German Monopoly Commission in 2001, it is possible to determine an approximate value for the HHI in Germany (Monopolkommission 2003). Only an approximation is possible since the data are given for classes of companies and not for single companies (Table 14.9).
The $\mathrm{HHI}$ has a value 12.83 for construction in Germany, signifying a very competitive sector with no determinant players. The top 10 contractors just have a market share of $9.1 \%$. Including more than 100 companies will increase the $\mathrm{HHI}$ slightly. The tobacco industry might serve as a comparative industry. Here the $\mathrm{HHI}$ is 808.86 in Germany. Regional and national markets in construction are fragmented, and market share is not a competitive advantage. The ensuing question is, of course, why do construction firms not build up a larger market share? The Profit Impact of Marketing Strategies (PIMS) study claims that relative market share is one of the major reasons for higher profits (Buzzell and Gale 1987). I will discuss this topic in more detail in Section 14.7, and the argument will be that the maelstrom of the business cycle prohibits any firm from accumulating a commanding position based on market share.
An international market strategy is characterized by a large share of the revenues being generated in the home market and some additional activities in selected foreign markets. Construction performances offered on foreign markets are specialized and limited to few contracts. The number of countries served is also small and typically they are adjacent to the national market (border hopping). The behavior of the company is ethnocentric with a limited amount of knowledge of foreign markets. The international activities are coordinated from the national headquarters through an international department. Despite all limitations, international companies must have the know-how to form and manage the networks around their foreign sites responding to differences in culture and regulations. There is no scientific way of determining what means a “small” number of countries. For reasons of clarity, I propose here a cut-off point of less than 10 countries.
In 1993, 249 of all German contractors were active in international markets, which is equivalent to $0.3 \% .35$ companies (or $14 \%$ of 249 ) had a share of $90 \%$ of this market. The volume of international contracts was a mere $1.5 \%$ of the volume of the German market. The conclusion is that very few of all regional construction companies are interested and capable of leaving their home market. Many of them do the odd job just across a borderline, and some take a deeper interest in international markets (Russig et al. 1996). Although the data are quite old, there is no reason to assume that they have changed considerably. They still portray the market.
There are only three German firms among the top 250 international contractors (Engineering News Record 2021). The top firm is much larger than the next two (Table 14.12). Again, the picture emerges that international construction is not the breadand-butter business of contractors but rather a niche for very few.
Having provided data for the German construction market raises the question how this market compares with others. Table 14.13 provides data for the top international nations and the structure of their construction business. With the exception of China and Spain, Germany is a rather typical example of the international involvement of national companies.
Explanation and evaluation of how the price system operates in determining what goods are produced, how goods are produced, who receives income, and how the price system is modified and influenced by private organizations and government policy.
Forbidden Overlap: Students may not receive credit for both ECON 1110 and HADM 1410. ECON 1110 is not a prerequisite for ECON 1120.
PREREQUISITES
The price system is a mechanism by which prices of goods and services are determined through the interaction of supply and demand in a market. The price system plays a crucial role in determining what goods are produced, how goods are produced, who receives income, and how the price system is modified and influenced by private organizations and government policy.
In a market economy, producers are guided by the signals provided by the price system to determine what goods and services to produce. Prices reflect the relative scarcity of resources and the preferences of consumers. Producers respond to these signals by allocating resources to the production of goods and services that are in high demand, and reducing production of goods and services that are in low demand.
The price system also determines how goods are produced, as producers are incentivized to use the most efficient methods of production that minimize costs and maximize profits. This incentivizes innovation and technological advancements in production methods.
What advice about investing in the stock market did you find most interesting and/or useful? Why?
问题 2.
What is the idea behind a subsidy? How does this help the economy? Why have mohair farmers earned a subsidy from the federal government for decades?
问题 3.
Summarize each of the following indicators: unemployment, poverty, income inequality, government, deficits/surplus, savings, demographics.
问题 4.
What is the primary role of the Federal Reserve? What is the significance of this role? What is deflation, and why is it worse than inflation?
Textbooks
• An Introduction to Stochastic Modeling, Fourth Edition by Pinsky and Karlin (freely available through the university library here) • Essentials of Stochastic Processes, Third Edition by Durrett (freely available through the university library here) To reiterate, the textbooks are freely available through the university library. Note that you must be connected to the university Wi-Fi or VPN to access the ebooks from the library links. Furthermore, the library links take some time to populate, so do not be alarmed if the webpage looks bare for a few seconds.
Today’s markets (not only in construction) are mostly buyers’ markets. The buyers decide about the success of a firm. In times of product scarcity, markets can become sellers’ markets. This used to be the general case in communist countries and directly after the Second World War in Europe. The idea of supply and demand simultaneously determining quantity and price focuses on the interaction between buyer and seller. This balance shifts in construction toward the owner’s product design. Figure 12.11 describes how the product design determines the contractor’s output; the transformation direction is not from inputs (factors of production) to outputs (structure) but the inverse.
The production characteristics for contractors differ considerably from those for manufacturing of exchange goods (Table 12.4).
Separation of headquarters and sites lead to information and controlling problems. Assembly work requires daily transport of the workforce or on-site accommodation with impacts on private lives; transportation costs additional money and time; motivational influences are possible. Low equity puts constraints on financing factors of production; consequentially not the best but the available equipment is used. Differences in accounts sometimes lead to incomparable data sets. Small-batch, short-term purchases with delivery to variable sites increase costs and make logistics more complicated. Marketing (acquisition) before production is typical for contract goods and leads to all problems connected with asymmetric information, including opportunism. Project organizations are often more complex, do not allow to spread fixed costs, and as a consequence, do not warrant detailed planning nor purchase of specific asset. On demand, single batch and site production all increase production complexity; site production also depends on the weather. The integration of the owner causes multiple problems. He has to be aware of his contributions (process evidence) and must provide them on time. From the contractor’s point of view, the owner is a production factor from the owner’s perspective it is the opposite. Labor intensity of construction processes leads to an increased importance of motivation, skills, and information.
Some things are out of the contractors’ control. Owner behavior, soil conditions, and weather all influence the production process in unpredictable ways. The production results are stochastically distributed due to these outside influences. Motivation of the workforce also has a high and variable impact on production. Supply chain fragmentation affects production to a much larger degree than in manufacturing. The main influences on production are shown in Figure 12.12.
These process-oriented determinants are influenced by the location of production and the possibilities to support production. Features of these determinants are provided in Table 12.5.
The production line features a product that is assembled while moving from workstation to workstation. While the product moves, labor and equipment are stationary. Production lines require detailed planning and high investments. The activities at each workstation are repetitive. We can find production lines in construction only on megaprojects such as tunnels or bridges with a large number of similar elements (tunnel or bridge segments).
Production lines are exemplary for mass production in manufacturing but unusual in construction.
Products are stationary in workshops and the required equipment and labor are brought to the product as required. The consecutive activities vary in type and intensity. A typical example is a garage where cars are repaired. A workshop in construction might be a room in a building where different activities are carried out by different trades. In a garage, the mechanics are doing all the work; in a constructed room we find first the concrete and rebar people, then electricians, plumbers, tilers, joiners, and painters.
A construction site encompasses many workshops and the activities at the different ones are interlinked; coordination thus becomes a problem. While production lines feature technical coordination, management coordination is the choice on construction sites. The output per site does not allow the magnitude of investment that is characteristic of mass production.
One management answer to the coordination problem is scheduling, another lean construction. In lean construction, the sequence of activities is fixed (same as scheduling) but the resources are also aligned in such a way that all successive activities in one area take the same amount of time. Thus, a production train with an engine and coupled trades as wagons pass through the building or structure at constant speed. There are similarities to the production line (constant speed) while in contrast, labor and equipment are mobile and the product remains stationary.
These determinants influence productivity, flexibility, and susceptibility to interference. There is a trade-off between productivity on the one side and flexibility/susceptibility to interference on the other side. Mass production in a factory is shielded against interference. On the other hand, an owner who is present on the construction site every day will frequently interfere to achieve the intended results. Other potential causes of interferences in construction are the soil conditions, the embeddedness of the construction site into the social and ecological environment, as well as weather conditions: production in construction must be flexible.
经济代写|微观经济学代写Microeconomics代考|Information of the Contractor
Contractors can only react to the demand from owners. Typically, they are well informed about the owners’ activities in their area. This is part of the acquisition efforts. It is also in the interest of the owner to make their intentions known to create a thick market. Through participation in submissions, contractors usually know very well the general price level of their competitors. They do not know the details of the competitors’ estimates, nor their underlying chosen construction technology.
During contract negotiations, a contractor faces an owner with access to detailed information from all submitted estimates, while he only knows his own estimate. In contract negotiations, an owner will typically pressure a contractor to lower the price by referring to the overall price of competitors or the comparative prices of certain items. The contractor is in no position to ascertain the truth of the owner’s statements and cannot talk to the other competitors (collusion). This is an especially unbalanced situation so the estimate is just that: a price idea without certainty. The information of the contractor is much more limited and ambiguous than that of the owner. Contractors drop out of the bargaining process when they feel that the price does not cover the costs; they are not sure about it.
Figure 11.3 sums up the information situation of the owner with full and detailed information about all offers. The contractor is not in a similar situation; he has only part of the information that the owner has and all other possible projects on the market are just that possibilities or prospects (Figure 12.8). Contractors must decide under highly ambiguous circumstances.
Once the two parties sign the contract, the information advantage shifts to the contractor. Even if the owner or a couple of his representatives supervise the site continuously, they will not have all the full information that the contractor can access. The breadth and depth of information that is available to the contractor is not obtainable to the owner. Labor productivity is one example. Many contractors use a reporting system with daily updates for the work completed by each worker, which in turn allows calculating productivity (output/ hour). This information remains privy to the contractor.
经济代写|微观经济学代写Microeconomics代考|Contractor Pricing
The practice of estimating varies across the world and among firms in a given country. Every firm can determine the submission price in any way it deems suitable.
Having stated this, there are probably three main approaches: (i) parametric pricing, (ii) unit pricing, and (iii) resource pricing. The degree of detailing increases from (i) to (iii) and the information requirements also increase in the same direction.
Parametric pricing uses information from completed projects and is only tentatively adjusted to the project at hand. It is based on a price per unit, most often $\$ / \mathrm{m}^2$, sometimes $\$ / \mathrm{m}^3$. Minimal adjustments are made according to the required quality.
Unit pricing refers to the prices of parts of the structure such as walls, slabs, windows, or heating systems. Prices are again per unit of wall $\left(\mathrm{m}^2\right)$ or door (piece). Quality adjustments can now be made on the level of units. There is no need for an average quality assumption for the structure. Again, the price information is taken from the past and not much adjusted to a specific project.
Resource pricing still requires more information. A wall consists maybe of ready-made concrete, rebars, and tying wire. Formwork with ties and supports guarantees the required shape. Labor is necessary to erect the formwork, to cut, fix, and tie the rebars and to pour and compact the concrete. A crane transports the heavier materials, a pump might place the concrete and vibrators will compact it. In resource pricing, all this is considered separately, including loading, storage, and transportation costs. A single item such as labor for pouring concrete cannot be estimated with greater accuracy than parameters, but misjudgments will tend to cancel each other out. The secret of resource pricing lies in the fact that the project is broken down into as many items as possible and each item will be priced independently to the best knowledge of the estimator. The prices will be inaccurate but if there is no bias, they will also be uniformly distributed. Overall, this enforces the tendency to determine costs in such a way that the overall difference between planned (estimate) and actual (execution on site) becomes small.
Several studies at the University of Applied Sciences Bremen showed that for all single units there were differences between planned and actual costs typically by $\pm 20 \%$. However, the variation of the contract price was in the range of $\pm 2 \%$. The projects were typical building projects of no great complexity. Depending on complexity, these variations can be much larger. I have participated in a tunnel project where the construction costs to the contractor were more than three times higher than the contract price; another tunnel project had a cost difference of $€ 100$ million and a transportation project a loss of $€ 400$ million to the contractor. Such data are typically private, the press publishes only cost overruns for the owner (Flyvbjerg et al. 2003).
Explanation and evaluation of how the price system operates in determining what goods are produced, how goods are produced, who receives income, and how the price system is modified and influenced by private organizations and government policy.
Forbidden Overlap: Students may not receive credit for both ECON 1110 and HADM 1410. ECON 1110 is not a prerequisite for ECON 1120.
PREREQUISITES
The price system is a mechanism by which prices of goods and services are determined through the interaction of supply and demand in a market. The price system plays a crucial role in determining what goods are produced, how goods are produced, who receives income, and how the price system is modified and influenced by private organizations and government policy.
In a market economy, producers are guided by the signals provided by the price system to determine what goods and services to produce. Prices reflect the relative scarcity of resources and the preferences of consumers. Producers respond to these signals by allocating resources to the production of goods and services that are in high demand, and reducing production of goods and services that are in low demand.
The price system also determines how goods are produced, as producers are incentivized to use the most efficient methods of production that minimize costs and maximize profits. This incentivizes innovation and technological advancements in production methods.
What does Wheelan mean by “perfect information”? Explain why branding is very important, and why it is so profitable.
Charles Wheelan is an economist and the author of the book “Naked Economics.” In his book, he uses the term “perfect information” to describe a theoretical state in which all market participants have access to all relevant information necessary to make informed decisions.
In a perfect information scenario, buyers and sellers would have complete knowledge of the quality, price, and availability of goods and services. In reality, however, information is often incomplete, asymmetric, or difficult to obtain, which can lead to inefficiencies and market failures.
Regarding branding, it refers to the process of creating a unique name and image for a product or service in the consumer’s mind. Effective branding can establish trust, differentiate products from competitors, and generate loyal customers.
Branding is important because it allows companies to differentiate their products from those of their competitors, creating a unique identity that resonates with consumers. This, in turn, can help increase customer loyalty, build brand equity, and generate higher profits.
A well-known brand can also command a premium price, as consumers are often willing to pay more for products or services that they perceive as high quality or prestigious. This means that branding can be very profitable for companies that can successfully create and market their brands to consumers.
问题 2.
The underlying problem of poverty is the lack of what? Explain. After reading Wheelan’s argument, do you agree that Bill Gates should be so much richer than you? Explain.
The underlying problem of poverty is the lack of resources necessary to meet basic needs, such as food, water, shelter, healthcare, and education. Poverty can also be exacerbated by factors such as inequality, discrimination, lack of access to economic opportunities, and political instability.
The lack of these resources can have significant negative effects on individuals and their communities, including increased morbidity and mortality, reduced economic growth and development, and decreased social cohesion and stability.
Regarding Bill Gates and his wealth, Wheelan’s argument is that wealth is not a zero-sum game, and that individuals can become very rich without necessarily making others poorer. This is because wealth can be generated through innovation, entrepreneurship, and value creation, rather than just through redistribution.
However, this argument does not address the issue of wealth inequality, which is a significant concern for many people. While it is true that Bill Gates has created value and wealth through his innovations and business ventures, the fact remains that his personal wealth is vastly disproportionate to that of the average person.
Whether or not this is justifiable is a matter of personal opinion and values. Some may argue that Gates’ wealth is deserved, given his contributions to the technology industry and philanthropic efforts. Others may argue that such extreme wealth disparities are inherently unfair and perpetuate systemic inequality.
Overall, the question of whether Bill Gates should be so much richer than the average person is a complex and multifaceted issue that requires consideration of a range of economic, social, and moral factors.
Textbooks
• An Introduction to Stochastic Modeling, Fourth Edition by Pinsky and Karlin (freely available through the university library here) • Essentials of Stochastic Processes, Third Edition by Durrett (freely available through the university library here) To reiterate, the textbooks are freely available through the university library. Note that you must be connected to the university Wi-Fi or VPN to access the ebooks from the library links. Furthermore, the library links take some time to populate, so do not be alarmed if the webpage looks bare for a few seconds.
In an oligopoly a few producers satisfy the demand of many consumers. Different to perfectly competitive markets or monopolies, these producers pay attention to the behavior of the other oligopolists. As such, strategies play an important role in oligopolies and game theory is the foremost tool to study the behavior. Quantity and price in an oligopoly will be somewhere between monopoly and perfect competition.
In many cases, economists study oligopolies with the help of game theory. Game theory analyzes strategic interactions between rational decision-makers with the help of mathematical models. Founding fathers of game theory were von Neumann and Morgenstern (1944). Nash (1951) defined an equilibrium solution to a noncooperative game which later became known as Nash equilibrium. This is a situation where no player can change his strategy without becoming worse off if all other players keep their strategy.
A simple form of an oligopoly is a duopoly, the competition between two producers. Cournot (1838) developed a solution to the problem implying that producer A chooses his output by assuming a fixed output from producer $B$ (and vice versa) without further adjustments. This provides a stable equilibrium at a level below monopoly price and above monopoly quantity. The behavior of the two producers can be described as a simultaneous competition for quantities.
In the Stackelberg model (1934), producer A would anticipate the move of B and factor this outcome into his strategy in order to increase his own profit (and decrease the profit of B). The total profit of both producers will be smaller than the profits in the Cournot model and the monopoly but higher than in perfectly competitive markets. We are looking in difference to the Cournot model at a sequential competition for quantities.
The market outcomes are often suboptimal from the point of view of the oligopolists; the solutions do not reach an equilibrium. They might in such cases be tempted to collude by fixing prices. While this happens in real life and also in construction, it is illegal.
Oligopolies make use of advertising. These activities increase the costs of the producers and they are called transaction costs. Oligopolists and others facing such transaction costs will have to consider these in addition to the rule $M R=M C$. They create a gap between buying and selling price reducing the market quantity (Hirshleifer and Hirshleifer 1998, p. 410).
Specific market conditions need to be looked at to find a solution for an oligopoly since there are otherwise infinite possibilities of strategic behaviors. It seems to be advisable to look at the construction market in detail before advancing the theory of oligopolies (Chapter 14). We will find that oligopolies play a negligible role in construction.
经济代写|微观经济学代写Microeconomics代考|Factor Supply of Households
Households need money in order to be able to purchase necessary and luxury goods. The only chance for the majority is to offer their labor in the labor market and to earn a wage. To this end, individuals and households make decisions how they use their time. Time is a limited resource as the day has invariably 24 hours. An individual can choose how much time to spend working $(W)$ and economists call the remaining part of the day leisure $(L)$ whether it is used for cleaning, cooking, learning, or relaxing. The less an individual works, the less money he has for consumption and the more time for other activities. Instead of a budget constraint, the individual faces now a time constraint. Instead of choosing between a number of different goods, we are now looking at the time preferences of the individual. As before, constraints and preferences determine the decision of the individual in the neoclassical model (Figure 7.2).
A person can theoretically work 24 hours, and this provides the $y$-intercept for the time constraint; it also can work 0 hours and spend all day on leisure ( $x$-intercept). This way we can construct the time constraint in Figure 7.2. The explanations for the construction of indifference lines and utility maximization in Section 3.3 on consumer behavior are also valid for time preferences and maximizing decisions on the use of time.
It should be clear that most people are not free to decide how many hours to work, but looking at a total work life, there certainly is some flexibility for many. Changes in preferences lead to different choices. In some Western countries, young engineers today value leisure more than the generations before them. In other words, they prefer spending time with family and friends. Figure 7.3 shows the different preferences and outcomes.
The daily income $(y)$ is the product of work hours $\left(h_{\mathrm{W}}\right)$ and wage, and if we consider theoretically 24 hours as the maximum available time, then the choice of leisure hours $\left(h_{\mathrm{L}}\right)$ influences this income: $$ y=w \cdot h_{\mathrm{W}}=w\left(24-h_{\mathrm{L}}\right) $$ Differentiating Eq. (7.1) for $h_{\mathrm{L}}$ gives: $$ d y / d h_L=-w $$ Thus, the income-leisure combination has a slope of $-w$. An increase in income due to a higher wage can shift the choice toward more leisure time (Figure 7.4). This depends, of course, on the shape of the preference curves, but it is one possible outcome.
Monopolistic competition is the most prevalent market configuration besides heterogenous oligopolies. Under these conditions, producers offer differentiated products – and not homogenous goods – that serve the same purpose such as T-shirts, and consumers have preferences for certain products. This allows some space for producers to set prices. They are no longer price-takers but they also do not have the freedom of normal monopolists. Their market power is more limited. Producers can differentiate products mainly by style, location, or quality. The more a producer is able to differentiate the products, the stronger the market power. Each producer provides only a relatively small quantity of goods to the market so that its actions have no impact on other producers. Thus, if a producer raises the price of a product, it will lose some customers but not all, as under the conditions of perfect competition.
However, the producer is threatened by new firms who can enter the market and attack the differentiated product. The possibility of free market entry reduces profits to zero in the long run. This result is the same as for perfect competition, but other results are different, as we will see.
The excess capacity theorem assumes a classical production function and corresponding cost curves as well as the same costs for all producers. Figure 6.4 illustrates the situation. The demand curve is again downward sloping and the slope of marginal revenue curve is twice as much as the demand curve. The marginal cost curve (supply) is upward sloping. As there are some fixed costs, total average costs are U-shaped. Profit maximizing is the quantity $q^{m c}$ where marginal costs equal marginal revenue and the corresponding price is $p^{m c}$. If the average total cost curve lies below the demand curve, the monopolistic competitor generates a profit.
The strength of consumer preferences for a differentiated product is represented in the elasticity of the demand curve. The stronger the preference, the more inelastic will be the demand curve (Figure 6.4, right).
In the short run, the monopolistic competitor will act as monopolist dealing with cost curves from the classical production function (Figure 6.5, left). With market entry, the demand and marginal revenue curves will swivel around point $\mathrm{A}$ and become more elastic. The $y$-intercept moves from B to B’ (Figure 6.5, right). The price is lowered and the offered quantity is also reduced. This reduces the monopolistic profit.
经济代写|微观经济学代写Microeconomics代考|Monopsony
Monopsonies play a role in the construction sector. The government or government agencies act sometimes as the sole buyer in a market. In many countries, it is the exclusive right and duty of the government to provide public roads. As these are by far the majority of all roads, the government acts as monopsonist. The same often holds true for railroads. Thus, monopsonies are of interest. The owner in construction will not be a consumer (one-family home) but an investor and will thus act on factor markets (Chapter 7).
A typical case in the microeconomic literature to explain monopsonies is one employer looking for labor (Nicholson and Snyder 2014). This could be a large firm in a small town. If one producer is the asking for the by-far-largest supply of labor from a relatively large number of workers, then that producer holds a monopsony position. This is the inverse of a monopoly.
If we call $p \cdot \partial q / \partial L$ the marginal value product of labor $\left(M V P_L\right)$, then we know that this must equal the wage if the producer is maximizing the profit in perfectly competitive markets. If we assume diminishing marginal labor productivity, then the $\mathrm{MVP}_{\mathrm{L}}$ curve is downward sloping (Figure 6.8).
The labor supply curve is sloping upward because the monopsonist is not facing a negligible quantity of labor but the majority of the labor supply in a regional market. If the monpsonist hires one more worker, this worker is only willing to accept above market price. If all workers receive the same wage, this means that adding one more worker increases total cost by the pay for the worker and the increase for all other workers. The cost of hiring one more worker is always higher than the market price. Consequently, the marginal expense curve will always be above the labor supply curve.
A producer in a perfectly competitive market will hire more labor until the additional marginal costs $M E_{\mathrm{L}}$ are equal to the additional marginal revenue $M R_{\mathrm{L}}$. If the costs were higher, then the producer would lose money; if the costs were lower, it would forgo the opportunity to increase its profit: $$ M E_{\mathrm{L}}=M R_{\mathrm{L}} $$ The monopsonist will add labor until the marginal revenue of labor equals the MVP: $$ M R_{\mathrm{L}}=M V P_{\mathrm{L}} $$ If the producer were a price taker, then the intersection of the downward-sloping demand curve and the upward-sloping supply curve would provide the market equilibrium. This is marked as $L_{\mathrm{C}}$ and $w_{\mathrm{C}}$ in Figure 6.9. Since a monopsonist is not a price taker, the marginal revenue curve (expense curve) lies above the supply curve and this determines actual labor demand by $M R_{\mathrm{L}}=M V P_{\mathrm{L}}$. Thus, the monopsonist demands less labor $\left(L_{\mathrm{M}}\right)$ at a lower wage $\left(w_M\right)$ by using its market power.
The more inelastic the labor supply curve is, the lower will the wage be. To see this effect, you just have to rotate the supply curve more upward around the point $L_{\mathrm{C}} / w_{\mathrm{C}}$.
垄断竞争是除异质寡头垄断之外最普遍的市场配置。在这些条件下，生产商提供差异化产品——而不是同质产品——服务于相同的目的，例如 T 恤，消费者对某些产品有偏好。这为生产商设定价格提供了一些空间。他们不再是价格接受者，但他们也没有正常垄断者的自由。他们的市场力量更加有限。生产商可以主要通过风格、位置或质量来区分产品。生产者越能够区分产品，市场力量就越强。每个生产者只向市场提供相对少量的商品，因此其行为不会影响其他生产者。因此，如果生产者提高产品价格，
经济代写|微观经济学代写Microeconomics代考|Descriptive and Normative Economics
The last sentence in the discussion about regularities stated that the study of (micro-) economics allows us to understand the functioning of the economy. This is the result of descriptive or positive economics as approach. The findings are typically expressed as conclusions of models. These models are based on assumptions, and the conclusions follow by strict logic from the assumptions. Mathematics serve as a tool to guarantee stringency. Thus, descriptive economics are based on the rationality of science, and the goal is to find answers that are right or wrong. The model of supply and demand gives us correct answers if and only if the assumptions hold. Descriptive economics work with hypotheses, data collection, falsification, theories, and models.
In normative economics, values play a prominent role. This approach tries to find solutions to everyday problems. When I began writing this book, the COVID-19 pandemic was still taking its toll around the world. Schools or businesses struggled with how to open in the usual way, and that depended on many values – how much weight we give to scientific knowledge, how much we care about the lives of others, how much we fear becoming infected, how important material goods are, how important social contacts are, and more. It should not come as a surprise that there were disagreements on those values. Normative economics gives advise often based on descriptive models by including values.
For example, an answer to the question of how rent controls will affect supply on the housing market and the quality of housing can be answered by descriptive models. In the future we can check whether the predictions were right or wrong. The question of whether rent controls are a good approach in cities where rents continuously increase, so that people with smaller incomes are driven out of desirable neighborhoods, involves ethical values as well as how rent controls affect the supply and cost of housing.
Industrial organization focuses on the interaction between firms, industries, and markets. Bain (1968) contributed strongly to what is known as the Harvard tradition with the structure/conduct/performance paradigm (SCP). According to this paradigm, the specific market structure of an industry – with its level of competition, product differentiation, cost, and degree of vertical integration – determines the conduct of firms (pricing, innovation, investment, advertising), and from this follows market performance (efficiency, profit, innovation rate). Director and Stigler, on the other hand, started the Chicago tradition stressing the functioning of markets with enough real or potential competition. This leads to a strong mistrust of government intervention. Success, according to the Chicago tradition, is not a question of SCP with low competition but of excellence of some outstanding firms (Tirole 2000 ).
Important aspects of SCP are monopoly power of a single firm in a market or oligopolistic structures with few competitors. Such structures lead to strategic behavior of the firms when setting prices. They are deviations from the ideal model of a perfectly competitive market, the only one guaranteeing an efficient market outcome. It should be clear that the proponents of the Harvard tradition worry much more about the competition in actual markets than the proponents of the Chicago tradition.
This definition clarifies that game theory can be a preferred means for the analysis of institutions. There are five different types of rules (or regularities): 1) There are conventions observed by self-control. 2) We have ethical rules with which we comply by imperative obligation; Kant’s categorical imperative is an example with regard to generally applicable laws. 3) Others impose the observation of customs. 4) Control by others enforces following private formal rules; organizational rules belong to this group. 5) Law enforcement agencies demand observance of public laws. The degree of observance of rules or institutions can explain differences in welfare between countries (Acemoglu and Robinson 2012).
Neoclassical economics work with a model of man called homo economicus. This actor knows the future and because of this knowledge can choose the best alternative without spending time or resources. Few economists see this as a realistic description but models like supply and demand provide reasonable results based on the behavior of a homo economicus.
NIE assumes different characteristics for economic actors. They do not know the future and accordingly must rely on incomplete information. In addition, limited rationality describes their behavior and decision-making. They try to act rationally but sometimes fail. Maximising benefits becomes impossible; instead, the actors of NIE employ satisficing, the choice of an acceptable solution (Simon 1955). Furthermore, market exchanges are no longer without price; there are transaction costs (Williamson 1985). Anyone who has been an economic actor will feel much more comfortable with the assumptions of NIE. Behavioral economics nudge the model of man in an even more realistic direction by describing in which ways we fail to behave rationally (Thaler 2015).
NIE 假设经济参与者具有不同的特征。他们不知道未来，因此必须依赖不完整的信息。此外，有限理性描述了他们的行为和决策。他们试图理性行事，但有时会失败。利益最大化变得不可能；相反，NIE 的参与者使用令人满意的方法，选择可接受的解决方案 (Simon 1955)。此外，市场交易不再没有价格；存在交易成本（Williamson 1985）。任何当过经济参与者的人都会对 NIE 的假设感到舒服得多。行为经济学通过描述我们无法理性行事的方式，将人的模型推向更现实的方向（Thaler 2015）。
