Global Strategy and ENtering Foreign Markets Essay

Table of Contents Executive Summary Often when a company is looking to expand its operations to foreign markets they have an overall goal to create revenue and increase profit. Entering new markets can be an excellent opportunity for companies to utilize core competencies and increase value to the company. This paper will define global strategy and research the best strategies to use when expanding operations to international markets. Recommendations and conclusions will also be defined for when entering a foreign market, thus expanding operations. Because of the increased competition in international markets global strategies are more important then ever. When developing a strategy not only does a company deal with lower cost pressures, but also pressures for local responsiveness, and a need to adapt to differences in consumer preferences. This also can change the way the business on a whole is carried out. A company must choose a strategy that will help it best adapt to those pressures, as well as one that stays aligned with its overall strategic goals. Entering into a new international market seems like a good idea for most businesses, but requires lots of research and planning to be successful. The first decision to be made is what market to enter. New emerging markets with large populations allow for continued economic growth and an opportunity to add value to a product. The timing and scale of entry into a market can be also very important, for many companies in a new market the first mover advantage is one that comes with lots of benefits, including capture of market share. If the company penetrates the market with a significant presence they are likely to send a message to consumers that they are in the market for the long-term. Selecting a mode of entry into a new market heavily relies on the company’s core competencies, and how much control is desired. For some companies, creating a strategic alliance with a competitor is the best entry method into a new market. By creating an alliance with a competitor allows a company to enter a new market with less risk, and also gives the opportunity to learn about the new market from the alliance partner. Introduction International markets have become increasingly competitive recently because of liberalization of trade and investment environments. Due to this, companies entering the global marketplace must be more strategic to make a profit. â€Å"A company must have a strategy to reduce costs and create value as well as to differentiate its products from others, in order to be profitable in today’s foreign markets.† It is highly important for a company to work to reduce costs while, at the same time increase the perceived value of its products and differentiate product offerings, in comparison to its competitors. By creating more value on a company’s products, the more its customers will be willing to spend. By creating a product that is more appealing to the consumer through design, functionality, and quality, as well as lowering costs to produce the product, a company can create value in the eyes of the consumer. The primary activities involved in creating value for a product are research and development, production of products, marketing and sales, and the service and support being provided to the customers. Because of differences between the markets in various countries it is potentially beneficial â€Å"for each value creation activity to be based where factor conditions are most conclusive to the performance of that activity,† otherwise know as location economies. By doing this, the company is working towards a low cost strategy for value creation. When a firm is considering entering a market in a foreign country, it must carefully decide what market to enter, when to enter, and at what scale it should enter. These decisions should be heavily based on long-run growth and profit potential within the market. A firm will often expand into international markets in an attempt to earn greater return from their technological or manager know-how; also know as a firm’s core competenc y. As well as being faced with many cost reduction pressures, a company expanding globally is also likely to be faced with pressures for local responsiveness. When doing business in another country there will likely be a difference in customer preferences that will need to be met, differences in infrastructure, and the way of doing business such as distribution channels. Lastly, any demands that may be made by the host government (regulations) must be taken into consideration as well. These are all factors that need to be considered when a company is contemplating expanding to foreign markets, and choosing a proper global strategy. Global Strategy Strategy is defined as any actions a manager takes to attain the company’s goals. The main goal for a company’s strategy is generally to maximize their profit. Due to increased competition in many foreign markets, companies are forced to look at all of these strategies and see which are best for them when moving forward in the global marketplace, to be most successful. Strategic Choices A firm will generally use one of four basic strategies to enter and compete within the global marketplace. They are as follows: International Strategy, Multi-domestic Strategy, Global Strategy, or a Transnational Strategy. The strategy a company chooses can depend upon how much it needs to cut costs, and the differences it must adapt to within the new market. A company choosing an International Strategy works to create value by bringing valuable skills and products to global markets where competitors don’t employ the same skills. The company will transfer successful products to foreign markets, while also creating some local customization. For a company following an international strategy, many decisions including manufacturing and marketing decisions, will be localized to the country that they are doing business in. An example of a company using an international strategy is McDonald’s. In Japan they offer old favorites as well as the Korean KBQ Burger. When a company chooses a Multi-domestic strategy many key responsibilities and decisions become localized. The product offerings, marketing strategy and business strategy are customized to be successful in each market. Along with this strategy comes a mentality where management sees all foreign operations as independent businesses within the firms’ portfolio. A drawback of this strategy is because new value creation activities are employed within each market. A company may not get advantage from the experience curve benefits, and end up with a high cost structure. Companies pursuing a Global Strategy are generally also pursuing a low-cost strategy. Because of this, the company generally will not customize the product offerings between different foreign markets. A global firm will prefer a standard set of products offered through all of its markets where  they can use the cost advantage to allow for aggressive pricing tactics in foreign marketplaces. Because of the competitive nature of many marketplaces around the world many companies have no choice but to employ a transnational strategy. For a company that employs this strategy, it involves focus on reducing costs, transferring skills and products to new markets, and increasing local responsiveness. Because of all of the pressures that are involved with a transnational strategy, they can be difficult and complex to implement. Strategic Alliances â€Å"As opposed to a firm entering a foreign market on it’s own, they may form a strategic alliance with a potential or actual competitor.† A strategic alliance is defined as a cooperative agreement among competitors from different countries. By creating a strategic alliance with a competitor, a company can more easily enter a new foreign market. Within a strategic alliance a company will share many fixed costs with the alliance partner company, which can also potentially reduce operational costs such as training and purchasing costs. Because of these factors a strategic alliance can be beneficial for a company striving for an overall goal of lowering costs. â€Å"The alliance is cooperation or collaboration, which aims for a synergy where each partner hopes that the benefits from the alliance, will be greater than those from individual efforts.† Although a strategic alliance has many benefits for a firm that is entering a market they have never competed in befo re, there are also risks that should be considered. There’s the possibility of giving competitors low-cost access to new technology and markets, which they may not have had access to before. It is also important for a company to choose the right partner to ensure they are benefiting equally from the alliance. The proper partner for a firm will help achieve its own strategic goals, but will also have a shared vision for the purpose of the alliance. Any company that is looking to enter a strategic alliance with a competing company should do a proper background checks with public sources, and anyone that has maybe worked with the other firm in the past. It is also important to get to know the potential partner before immediately creating an alliance to ensure the chemistry is right between the management teams. Once an alliance has been created it is important for it to be managed properly, in order to be successful in its  overall strategic goals. It is vital for the once competing companies involved in the strategic alliance, to build trust with one another. If there isn’t mutual trust built within the relationship it â€Å"†¦can lead to competition rather than cooperation, to loss of competitive knowledge, to conflicts resulting from incompatible cultures and objectives, and to reduced management control.† Sometimes building personal friendships between members of each partner can help to create stronger trust within the business relationship as well. Entering a Foreign Market Although there is no clear-cut choice on how a company should enter a new market there are guidelines of things that should be considered and done before entering into a new market. A firm must first decide which market they should enter, then how it will enter the market, and finally at what scale and time it should make its entry. Not only is it important to research whether or not a specific business has viability within the market, you also need to assess the value that will be added to the market you are looking into entering. â€Å"Greater value translates into an ability to charge higher prices and/or build sales volume more rapidly.† Choosing A Market When a firm is researching different countries and their marketplaces to determine what market to enter, the appeal of a certain country will depend on balancing benefits, costs and risks that come with doing business in that particular country. â€Å"The largest compiler of data about foreign markets in the world is the U.S. Department of Commerce. Some of this information is available free and some involves paying a small fee. Other federal agencies also provide significant amounts of data that is available on their websites.† There are also many private agencies that can help a company find information regarding a new market. â€Å"Such groups as industry & trade organizations, local chambers of commerce and other business development groups provide a wealth of information about foreign markets.† When searching for a new or emerging market to enter it is important for a company to look at nations which are politically stable, and that have free market systems. These qualities are more likely to provide long-term economic growth and a larger capacity for such growth. Many companies that have expanded operations globally have gone to China and India in order to  lower costs, as well to take advantage of the availability of growth, due to the large populations. Entry Timing Once a company has done its research and chosen a market to enter they must then decide an appropriate time to enter the said market. A major advantage for a firm is when they are the first foreign firm to enter an emerging market, also know as first mover advantage. When a company is the first to enter a market, it is given the opportunity to capture demand within the market, and establish a strong brand name and recognition, before any of its competitors move in. â€Å"The firm gains the opportunity to build up sales volume and ride down the experience curve before rivals have a chance, giving the firm a cost advantage that later entrants into the market wont have.† This will enable the firm to cut prices and increase profits. Emerging Markets For a business looking to move into an international market, an emerging economy within a large market could be a favorable option as there is likely to be more growth potential for companies that are early movers. Emerging markets often provide benefits to the company such as lower costs, and the opportunity to become industry specialists. It can be a major advantage for companies to enter countries with large emerging markets, such as China and India in an effort to reduce costs and in turn generate more profit. Although being an early mover within an emerging market comes with these advantages; there can also be the disadvantage of pioneering costs. If business in the foreign country is done differently then in the home country the firm will need to spend time, energy and money on learning the rules of doing business within the host country. A firm that enters later into a market can avoid some of these costs by learning from what other companies have done, implement stronger strategies. Scale of Entry Once it has been determined which market to enter, and when is the best time to enter, a company must decide whether to enter the market and slowly expand its operations, or enter in a big way, at one time. To make this decision the firm must examine any strategic commitments that may be involved when entering the market, as it could have long-term impact that  can’t be easily reversed. Entering a market in a big way can mean major strategic commitment and can be hard to reverse but could pay off. If a company is entering a market on a significant scale customers and distributors are more likely to believe the company will remain in the market long term and will in turn attract more customers. However if a company invests too much to enter one market at a significant scale it could mean not being able to expand to other markets. By entering small-scale to a foreign market, the firm has more opportunity to learn more about the market before creating any major risks to it. This will limit potential losses but could cause the company to miss out on all of the advantages reaped by the first movers. Modes of Entry to Foreign Markets â€Å"The mode of entry is a fundamental decision a firm makes when it enters a new market because the choice of entry automatically constrains the firm’s marketing and production strategy. The mode of entry also affects how a firm faces the challenges of entering a new country and deploying new skills to market its product successfully.† A company has many different modes of entry to choose from, all with their own advantages and disadvantages. Modes of Entry Alternatives Exporting – A company choosing to export will produce a good or service within the home country and sell it in the new market. Exporting can be low cost for the company as well as can be beneficial for the company to get experience doing business within the new market. Although the company may save money on manufacturing, they are also likely to be paying higher transportation costs to export the product to the new market. Manufacturing firms often begin with exporting products to enter a foreign market, before switching to another mode. Turkey projects – A company that chooses to develop a turnkey project will hire a contractor, who will handle all of the details on setting up a firm within the new market. Once the contract is complete the firm is handed the key to the business, which will be ready and full operational for the company to take over and begin work in the new market. When choosing a turnkey project the company should ensure that the new market is within a country with stable political and economic conditions, to make the investment less risky. Licensing – â€Å"A company  which chooses a licensing agreement will enter into an arrangement where a licensor grants the rights to intangible property to the company for a certain period of time. During this period the licensor receives a royalty fee from the company for the use of the property.† Licensing can be a good option for a firm with manager know-how as there is little control over technology, and also comes with little risk. Franchising – Franchising is a specialized form of licensing where the firm paying the royalty fee to use the property, must also follow a set of rules on how to run the business. This can be good for firms with management know-how. Joint venture – â€Å"A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms.† Joint ventures can be beneficial as there is often the opportunity to learn from your partner as well, as any risks are shared between the partners. Wholly owned subsidiaries – â€Å"Wholly owned subsidiaries occur when a firm owns 100 percent of its stock.† When establishing a wholly owned subsidiary in a new foreign market the company has the choice of setting up an entirely new business in the new market (Greenfield Venture), or it can acquire and already running business within the knew market and use its resources to promote the companies product line. Choosing an Entry Mode All modes of entry a company can chose from have both advantages and disadvantages. When attempting to choose the proper mode of entry a company will be forced to make a decision based on pressures of cost reductions, however the best entry mode for a company will depend mainly on that firms competitive advantage, whether it is technological know-how or management know-how. If a firm has a competitive advantage that is based on technological know-how, generally a wholly owned subsidiary is preferred, as control over technology is very necessary. By owning the whole subsidiary the company is giving up no aspect of control over their core competency. â€Å"The main competitive advantage of many service firms is that of the managers know how to run the business.† When this is the case, foreign franchises tend to be the preferred method of entry. By franchising the company has control over how the quality of the product or service. When choosing a mode of entry it could often depend on the amount a company gives control over its resources. Exporting offers the least amount of control,  and a wholly owned subsidiary offers the most control. Conclusion Although entering a new market and expanding a company globally can provide numerous benefits, it is something that needs to be done with proper strategic planning. Trade liberalization has caused heavy competition in many foreign markets and if proper research and planning isn’t flowed through, a company could fail in an international market. When choosing a new market, the company should loo at locations that will provide some benefit such as lower costs for manufacturing a product. â€Å"Create value for customers by lowering production costs and making products more attractive through superior design, functionality and quality.† Value creation is measure by the difference between what values a customer puts on a specific product, and the actual cost to make the product. The higher the value creation the more profit the business will make on that product. By reducing costs to increase revenue, the company is also increasing the value of the product, known as low cost strategy. Another way to increase value of a product value is through a differentiation strategy. By differentiating products from that of a company’s competitor, they are increasing the consumers perceived value of the product based, on its different features. When choosing an overall strategy it is important that it align with the company’s main goals and values, as well as with the host countries preferences. Generally a transnational global strategy provides companies with the most benefits, it is also the hardest and most complex strategy to implement. Once a strategy is chosen for the expansion across borders, the company then needs to research and choose which market to enter, when to enter the market, and at what scale to enter the market at. All three of these decisions are very important to the success of the business in the new market. The company should choose a market that will provide some cost benefit to it, such as cost savings manufacturing. Once a market is chosen, a time and scale need to be established for entry. The company needs to decide if it will enter with a large presence or if it will enter with limited exposure to better adapt to the new market. The company will pick between six modes of entry, mainly based on their core competencies. If the company has a lot of technological know- how they will likely chose a mode that offers more control such as a wholly owned subsidiary. If t is a  managerial know-how based competency, it will likely choose a mode with less control such as a franchise. It is important to consider every advantage weighed against the disadvantages when choosing a mode of entry. Works Cited Anca Gheorghiu, A. G. (2010). Entering New Markets – a Challenge in Times of Crisis. Retrieved June 2013, from Cornell University Library: http://arxiv.org/abs/1010.6050 Arnold, D. (2003, October 17). Strategies for Entering and Developing International Markets. Retrieved July 2013, from Financial Times Press: http://www.ftpress.com/articles/article.aspx?p=101588 Burher Business. (2011, October 20). Korean KBQ Burger is from McDonald’s, Not Food Truck. Retrieved July 2013, from Burger Business: http://www.burgerbusiness.com/?p=8303 Cebuc, G. (2007). The Role of Strategic Alliances in International Businesses. Romanian Economic and Business Review , 2 (4), 27-34. Charles W.L. Hill, T. M. (2009). Global Business Today. McGraw-Hill Ryerson. Cheong-A Lee, H.-Y. B. (2009). Culture and Foreign Market Entry into Korean Firms. International Journal of Business Strategy , 9 (2), 192-200. Enderwick, P. (2009). Large Emerging Markets (LEMs) and International Strategy. Internationa l Marketing Review , 26 (1), 7-16. Graham, J. P. (2004). Analyzing foreign Markets. (JPG Consulting) Retrieved July 2013, from Going Global: http://www.going-global.com/articles/analyzing_foreign_markets.htm Joseph Johnson, a. G. (2008). Drivers of Success for Market Entry into China and India. Journal of Marketing , 72, 1-13. Kate Gillespie, J.-P. J. (2007). Global Marketing (2nd Edition ed.). Boston, MA, USA: Houghton Mifflin.

Classifications of Restaurants

Restaurant Classification Restaurants are found throughout the United States as well as other countries. Restaurants are found in many different places such as street corners in mobile businesses, buffets found in mid-sized towns and cities, as well as upscale restaurants that are most always found in larger and more populated areas. All of these places serve one purpose in common; to aide to the desired food cravings of countless people. A person might say that there are no noticeable differences of each type of restaurant, but hidden beneath their common goals are various differences that set each apart. Mobile food businesses have become very popular in middle class areas and serve people of all kinds. Although the food may seem delicious, mobile food businesses such as taco wagons spend their time constantly traveling to different places for business. Their trucks can be unclean as it is a hassle to clean out a truck of grease and fallen food. Most people cannot see the inside of a taco truck because they are too high off the ground to see and each wagon has windows that are hard to see inside of. As a result, many people do not see the harm or realize these things and therefore do not care. There is also an inconvenience to customers as there is no formal seating are for dining, and if there is, it is found outdoors. Many people do not want to spend their time eating next to a busy street where everyone passing by can see them, while others may like to simply enjoy the outdoors. Mobile food businesses like these also have very few workers which may lead to food that is delayed in delivery. People that come to food trucks like their food to be delivered in a fast and timely manner so they can get to wherever they are going on time instead of having to wait in a line for their food to be done cooking. Aside from its downsides, there are also positives about mobile food businesses. If there were not any, they would not be in business and be as popular as they are. Many people chose these types of businesses because they are a cheap alternative to fast food places such as McDonald’s. Given the choice of a two pound burrito or a small burger and fries for the same price, most people would choose the burrito. Places such as taco wagons and others provide people with authentic food that may or may not be a part of their culture. Some of these places use ingredients that they would use in their own part of the world. This provides customers with a variety and a little taste of home. Being able to live in a place that provides anyone with a taste of home will bring good money, especially when a town’s population has a lot of diversity. A second type of restaurant that is found in many towns and cities is buffets. Some people see buffets as unsanitary places because of the fact that the food is left out in the open for others to touch or spread more germs. When someone is eating they do not want to think of themselves as in taking germs with every bite that they take, but rather eating food that is delicious and safe to eat. Buffets may also have long lines of people. Because there is no limited amount of food a person can get, hungry people come to these restaurants and go through lines multiple times to get numerous amounts of food. These types of restaurants could play a role in the obesity rate of families today and future families to come. Although eating a lot of food sounds amazing, it is unhealthy and bad for the body. The food that is sold in buffets made seem homemade, and not like a fast food restaurant, but that does not mean that it is healthy and good for the body. Eating mass amounts of food like this can lead to damage to the body over a long period of time. In the worst case scenario, it could lead to more than just obesity. People choose buffets because of their low flat rates. Seizing the opportunity to engulf unlimited amounts of entrees and desserts for about ten dollars is the best deal in the food industry. No other food place can beat a buffet’s deal. Buffets must know this because they would not be in business if they did not. Along with their low costs, buffets are very convenient to their customers. Buffets allow their customers to choose any kind of food they choose to consume, compared to other restaurants that have you choose a certain group of things. The cost from other restaurants includes only the entree. Anything else that someone wishes to choose would be an additional charge to the customer. With a buffet, the cost that it takes to eat there includes the beverage, entree, and dessert. People can mix and match their favorite foods until they are fully satisfied with their meal. The third type of restaurant is the upscale restaurants. These types of restaurants are found mainly in big cities where they can charge people hundreds of dollars for their meals. The meals may be smaller in size, but superior in quality. These places have a fancy and elegant feel to them. Their customers wear formal clothing and eat their meals by candlelight. The food is made of better quality ingredients so it is not unusual for food to take much longer to be prepared and finally arrive at the customers table. Most of the upscale restaurants are not family welcoming. Children of young ages are frowned upon as to not disturb the dining experiences of others. Children seem to not sit still and be noisy. They are also very messy. In high class restaurants it is not usual to see a child, although it is not a standalone rule, it is just a rule that is thought to be in place. These restaurants are more sophisticated and seem as though only a certain type of financially able people should dine there. It is unlikely that a person with little or no money would pay a hundred dollars for a steak and a potato. A person of wealth, on the other hand, would pay a large quantity of money for a simple, yet elegant meal. Although upscale restaurants may have standards, these restaurants have very friendly and inviting staff. It is only an expectation that if customers are willing to pay top dollar for their food, then they shall receive top dollar service. Waiters are usually always there to make sure that your glass is always full and you are happy with how your meal turned out. Along with their friendly and inviting service, most of these restaurants serve only the best and the freshest food available. These items are made fresh right when ordered as opposed to fast food restaurant’s food which is premade and heated to serve to customers. The food that is prepared at upscale restaurants is made to please its customers in the best way possible. Anyone can count on reliable food, service, and cleanliness from upscale restaurants. The goods must outweigh the bad in every area for this type of restaurant to still be popular and serving people to this day. Americans all over the world enjoy different types of restaurants. Mobile food businesses, buffets, and upscale restaurants mark just a few classifications of the restaurant businesses that are found throughout the country. Even with the obvious differences that they possess, the share one common goal; to serve the people who desire and yearn for their food. Although these places may leave drawbacks, they each possess a certain advantage that draws customers back time and time again.

Criminals are Made Not Born

One of the longest debates held in criminology concern the criminal behavior.   There are those who have been supporting the notion that criminals are born while other have been arguing that criminals are actually made no born.There is not side which can claim to have the correct answer for the question owing to the dimension of the issue and the amount of research that is used to back each claim.One of the most important factors about the debate is that they both try to explore the criminal behaviors. Past researches have proved that criminals can either be made while other has shown that criminals can be born. Based on the long standing debate in psychology on nurture vs. nature, the debate on criminal behavior has become more complicated and more confusing.   (Komiya, 1999)As early as 19th century, the debate had taken the centre stage in criminal psychology with high minded physician like Cesare Lombroso taking a number of skull measuring with an aim of proving that criminals usually have smaller brains compared to the law abiding citizens.This study elicited different feelings   with some giving it an interpretation that it showed criminals are actually born while others like Richard Herrnstein a Harvard Professor arguing that it showed that criminals are born with constitution factors which actually expose them to crime.The conclusions of most of these researches have shown that off render usually differs from non-offenders in different characteristics in physique, intelligence and the personality. (Hare and Forth, 2003)There are also a number of studies which have rooted on nurture rather than nature as the cause of crime. These studies have asserted that the environmental factors including the environment where one is brought up in contributes to the overall risk of one becoming criminals.These studies have been based on the increased patters of crime which have been identified on some places like where there is high poverty compared to areas wher e the families are well up. These studies therefore assert that criminals are actually made rather than born. (Bowling and Farrel, 1999)The nature and nurture debate  The nature verses nurture debated is pegged on the relative important that can be attached to   the personal innate qualities as opposed to the individual experiences in   the way they determine   the difference in physical and the behavior development of   the person.This debate can be traced back to the time Darwin published his book Origin of species which rooted for the individual traits as the main factor leading to the development in physical and behavioral traits. This means that the growth factors or genes which are inherited from parents are held responsible for determining the future of the individual person. (Meaney, 2001)On the other hand the Darwin view of the genetic factors being responsible for individual growth was opposed by behaviorist who argued that the environment rather than the inherit ed genetic factors should be held responsible for individual growth in physical and behavioral traits. This is the nurture side of the debate.Those proposing on this side argue that the environment under which we live has a great effect on our overall development. This is supported by a number of social theorists who came up with several social and conditioning theories to support their argument. (Jennie, 2003)The nurture and nature debate soon found its way into the world of criminology. The nature side of criminal behavior assert that criminal are born as criminals while the nurture side argues that criminals are made which means that the environment under which they live in   can be help responsible for   their criminal behaviors.Those asserting that criminals are born supports their view with the argument that crime tend to run in families and children who are born of   criminal parent have are three times more likely to become criminal in their adult life.On the other han d those asserting that criminals are made assert that there is a high level of crimes which are committed on some areas especially where there is rampant poverty compared to other well up areas. They also support the argument showing that some environmental factors like a high exposure to lead and other are likely to result of criminal adults. (Lykken, 2005)

Public & Social Housing PowerPoint Presentation Example | Topics and Well Written Essays - 750 words

Public & Social Housing - PowerPoint Presentation Example Kemney’s views are mostly based on the integration of the market based practices into the social housing practices and how the regulatory environment can be tailored to make suitable changes. Accordingly, the respective adjustment of the supply and demand mechanism in the market and the government intervention into the market through political management of the cost control mechanism can ensure the stability of the market. An alternative mechanism presented by Kemney discusses about the unitary model wherein the suppression of the cost renting can be achieved through a comparison between the cost renting as well as the profit renting in the social housing. Thus the use of unitary model attempts to combine both the profit as well as the non-profit motives in order to stabilize the market and ensure that both aspects of the market remain within acceptable limits and help achieve the policy objectives of the social housing. The implementation of the unitary model is therefore, believed to be not creating the rent differentials which may occur in case of dualist model. His arguments also tend to focus on the influence of different pressure groups and the corporatism in the social housing market. As such different countries have different rental systems in place owing to the overall nature of their culture. For example, the system in UK is relatively different as compared to the countries like Sweden.

Microeconomic Essay Example | Topics and Well Written Essays - 500 words

Microeconomic - Essay Example Policymakers intervene in the market by establishing market controls. When the government think that the prevailing market price if unfair to buyers and sellers, they enact price controls which involves setting a price ceiling or a price floor. This paper will look at how price ceiling affect market outcomes specifically focusing on the case of rent controls in the short and long run. A price ceiling is "a legal maximum on the price at which a good can be sold" Supply Demand and Government Policies 4). It should be noted that setting a price ceiling can bring two different outcomes in the economy. The price ceiling becomes not binding if it is set above the equilibrium price. The price ceiling is only binding if it is lower than the equilibrium price. However, this situation brings about shortages because quantity demanded is greater than quantity supplied. It should be noted that a binding price ceiling also leads to non-price rationing in the forms of long lines, black markets, and seller discrimination. The primary goal of rent control policy is to make housing more affordable to the less fortunate. Thus, the government enacts rent control which establishes the price ceiling that tenants can charge their landlords. However, as will be illustrated below, one economist says that rent control is "the best way to destroy a city other than bombing" (Mankiw 84). In the short run, both the demand and supply for housing is inelastic.