3 May 2011
The main difference between the derived demand and dollar voting is the fact that in case of derived demand high or low demand for one commodity or service leads to increased or decreased demand for another commodity which is not substitute of the first one but is connected with it, e.g., if the demand for metal grows, metal businesses will tend to expand and buy new equipment, which increases the demand for foundry equipment. Dollar voting is somewhat different, for in this case the demand for the commodity defines whether it will still be produced or not and in what quantities, it does not deal with the influence of demand on other commodities.
If such barriers are imposed it will eliminate the competition, either increasing the prices on the commodities or preventing them from decreasing. The producers of these commodities will have no reason to be afraid of losing their segments of the market and no reason to modernize their businesses to decrease the production costs. As a result, the industry in question will stagnate. The situation will be profitable for in-country producers and workers within the industry at the expense of every other average US resident, who will have to pay higher prices for these commodities than he could have.
In monopolistically-competitive market all the substitutes of the commodity should be taken into account when the elasticity of demand is calculated – in case the price of the commodity is increased there is great possibility for the demand to move to its close substitute. Thus, the elasticity is higher than in case of monopoly but is not absolute because the producer is a monopoly on its segment of the market.
Critical Thinking On Basic Contemporary Economic
3 May 2011
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