We are talking about globalisation and the recent
manufacturing and construction slowdown. We present a novel globalisation model
consisting of two countries, X and Y, each with domestic and foreign
open-market systems. In each nation, we compare two pricing policies: short-run
marginal cost, SRMC, versus fixed prices, P, over the business cycle. We are
presenting a proposition and proof. With graphs for each country, we give a
detailed numerical example. The key consequence is that P increases the
volatility of Q demand over the cycle during the business cycle and increases
market surplus in both countries under certain conditions. The numerical
example shows a drawback of SRMC pricing under demand fluctuations—that the
required price in high-demand times to balance accounts becomes extremely high.
Consumers are better off with P , paying a small increase over SRMC in the
off-peak, 6/7th of the time, to avoid the extremely large required price of
SRMC in the peak times, because it’s only 1/7 of the time. The surprising point
is that though peak times are infrequent, the prices and quantities at peak
times, determine which pricing arrangement is better for consumers. The
significance of my mathematical proof is to urge social focus on increasing and
prolonging cyclical peaks.
Author(s)
Details
Gerald Aranoff
Professor
of Accounting, Ariel University, Ariel 40700 Israel.
View Book :- https://bp.bookpi.org/index.php/bpi/catalog/book/276
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