Econ Discussion 2

A.
Producing in the inelastic portion of demand makes sense for a pure monopolist as it
has the power to set the price of its product with no change in quantity demanded.
This is because a pure monopoly is the only entity producing its good and thus has
market power with no substitutes. Because a change in price in the inelastic portion of
demand has little to no impact on the quantity demanded, the monopolist can raise
prices and still sell the same amount of goods. The idea that the demand for chocolate
is inelastic does make sense given that products with strong well-known brands tend
to be the consumers’ trusted preferences almost at all times. Through brand and
product differentiation, marketing strategies and overall brand equity those 3 major
U.S. brands have set themselves apart from any other manufacturer; even if they may
be selling similar or same products. Because of this, they will face little changes in
demand if they were to change their prices.
B. The charging of a per unit tax on the producer of the goods shifts the marginal cost to
the left because per each unit produced, the cost of production is now larger. Because
this is a monopoly in which the demand curve is the market demand curve, the effect
of the tax is the shift of the marginal cost curve by which the market price is then
increased. Additionally, this causes a slight decrease in the quantity demanded as a
monopoly is still inelastic; leaving consumers with little to no choice but to continue
purchase.
Tax on producers → marginal cost curve shift left → market price increase → demand
slightly decrease.
C. Slotting fees and cap and

trade permits are comparable in that they both address the issue of businesses having
only limited access to a certain thing. In the case of slotting fees it addresses
producer’s need for shelf space and cap n’ trade permits addresses producer’s need to
pollute. They both provide a way in which firms can internalise the external costs of
their production and also incentivize the decrease of those external costs. For cap n ‘
trade permits, there is a limited amount of how much pollution can be emitted and
firms must internalise their external cost of producing by attaining a permit. Similarly,
there is a limited amount of shelf space available, thus businesses must internalise the
external costs of production-such as taking up shelf space that could have been used
by another business or making the supermarket appear unattractive due to their
undesirable goods-by paying slotting fees; it can be thought of as compensation.
D.
Setting a price floor above

the equilibrium (assuming the positive aspects of it) would mean that the new
minimum price for cocoa is higher than the equilibrium price thus resulting in the
cocoa farmers in Ghana and Cote d'Ivoire receiving more money for their production
of cocoa. The cocoa farmer’s article speaks about how farmers are not even receiving
the amount for cost of production and are very pressured on their productivity; this
forces them to pull their children from school for help. If a price floor was
established, the benefit of it would not only increase their income but it would also
cause a lower quantity demanded than supplied thus causing a decrease in their need
to supply. Therefore, the farmers and their children would work less and have a better
quality of life. Although, there is a negative aspect in that the demand might drop if
the price increases. Overall the implementation of this price floor, if its positive
aspects blossom, can cause a higher and more stable income whilst also providing a
better quality of life for the West African farmers.
E. The prisoner's dilemma demonstrates the idea of acting on self-interests and benefits
which actually causes an overall negative result and leaves everyone worse off.
Considering the competition for customers between South American and West
African cocoa farmers, they too will have to perform actions that align with their own
self-interests; this may be effective short-term, but just like the prisoner’s dilemma,
the long-term effects are worse off. In order to gain an advantage over competitors
and keep market share, their actions could entail lowering prices. Lowering prices
would mean consumer surplus and higher demand which can correspond to economic
well-being. However, that won’t last for long. With lowering prices comes the damage
to the business itself as it faces a loss in profit which could lead to lowering the
income of the workers. Damage to the business itself could also bloom from the
cutting of prices thus leaving it unsustainable. The lowering of prices can be risky and
quite counter-productive. The farmers should find other methods by which they could
differentiate themselves from their competition and maintain an upperhand in the
market.

Econ Discussion 2

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A.

C. Slotting fees and cap and

Setting a price floor above

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