Structures: Market Integration *In economics research, globalization means
trade integration
What is global market integration?
*As market liberalization and trade integration
*Global market integration means that price
climb to the top of the economic policy agenda
differences between countries are eliminated as
in many countries, development economist
all markets become one.
increasingly focus their attention on market
*One way to the progress of globalization is to imperfections that may inhibit trade and create
look at trends how price converge or become welfare losses.
similar across countries.
*As economic integration unfolds, producers
The Law of one price become inserted directly into global markets on
the output side, through production of exports,
*State the prices of identical security, and/or on the input side, through imported
commodities or asset traded anywhere that are intermediate inputs, technologies, or factors.
exchanged in two or more markets must be the
same regardless of location and currency. Market Integration: Migration
*In an efficient market, there must be only one *Migration is the principal mechanism by which
price for commodities regardless of where they households in less developed countries (LDCs),
are traded. Identical goods must have identical especially in rural areas, become directly
prices. inserted into the global economy.
*For EXAMPLE: an ounce of gold must have the *Globalization is not internalization, but the
same price expressed in terms of dollars in effective erasure of national boundaries-
London as it does in Tokyo. opening the way not only the capital and goods
but also, in effect, to free movement (or
*The law of one price is a variation of uncontrolled migration) of vast labor tools from
Purchasing Power Parity that relates to a single the regions of rapid population growth and the
commodity as opposed to a basket of goods. impacts on national economies could be tragic.
*This theory postulates that the difference for Market Integration: Microeconomics
identical commodities in two countries is due to
the foreign exchange (FX) rate between the two * ”MICROECONOMICS OF GLOBALIZATION”
countries. refers also to the myriad ways in which
economic actors also may become inserted into
Market Integration in 21st century the global economy indirectly, through their
*Globalization—the integration of people with relations with other economic agents with local,
world markets—is perhaps the most significant regional, and national markets.
and pervasive economic development of the *It is the study of the economic behavior of
late 20th and early 21st Centuries. individuals, households and firms.
* It is the subject of small but growing body of *Where macroeconomics looks at the big
empirical economic research at the national and picture of the economy, microeconomics looks
multi-national levels. at the individual behaviors that drive economic
Market Integration processes.
EXAMPLE MICROECONOMICS
1 Demand *EX: a household that demand less of a good
when the prices increases due to the availability
2. Supply
of substitutes.
3. Prices
OPPOTRUNITY COST
4. Elasticity
*The tradeoffs that individuals and firms make
5. Opportunity Cost to manage constrained resource such as time,
money, capital and land.
6. Labor Economics
*EX: you spend time and money going to a
7. Competition movie, you cannot spend that time at home
8. Competitive Advantage reading a book, and you can’t spend the money
on something else.
9. Consumer Choices
Labor Economics
10. Consumer Confidence
*Modeling the supply and demand for labor.
11. Business Confidence
*Focus on human capital (referring to the skills
12. Information Economics that the workers possess, not the necessarily
13. Welfare Economics their actual work.
14. Productivity *EX: looking at how expectations for economic
growth impact the labor participation rate.
DEMAND
COMPETITION
*How demand for goods is influenced by
income, preferences, prices and other factors *Modeling competition in markets.
such as expectations. *3 Types of competition
SUPPLY 1) Direct Competitors
*How producers decide to enter markets, scale 2) Indirect Competitor
production and exit markets.
3) Phantom Competitors
PRICES
* EX: the use of game theory to model a price
*How individuals, households and firms react to war between competitors.
prices and influence price with their supply and
demand. COMPETITIVE ADVANTAGE
*EX: the observation that some customary *Competitive Advantage is the ability of certain
prices appear to be sticky in that consumers firms to outcompete all competition in a
resist buying above a particular historically particular area.
established price. 3 Tips to determine your competitive
ELASTICITY advantage
1 Price
*Elasticity is how supply and demand reacts to 2. Product
change. 3. Customer experience
*EX: a sporting goods company with superior
brand recognition and a positive brand image
that can charge premium prices and still enjoy
the high demand for its products.
CONSUMER CHOICE
*How needs, perceptions and information
shape consumer choices.
*2 influences on a person’s consumption
choice:
1 Their Income
2. Price of the Goods
*EX: The idea that consumers maximize their
expected utility of purchases meaning that they
buy the things they expect to be most useful to
them.
CONSUMER CONFIDENCE
*How consumer expectations for the future
influence spending, saving, investment and
labor participation.
*Is an economic indicator that measures the
degree of optimism that consumers feel about
the overall state of the economy and their
personal financial situation.
*EX: When consumer confidence is high,
consumers make more purchases.
BUSINESS CONFIDENCE
*How producer expectations for the future
influence hiring, capital investment and supply.
*Business Confidence Index (BCI) provides
information on future developments, based
upon opinion surveys on developments in
production, orders and stocks of finished goods
in the industry sector.
