and progressive suppliers are able to exploit new market opportunities;
(b) ECONOMIES OF SCALE. A larger ‘home’ market enables firms to take advantage of economies of large-scale production and distribution, thereby lowering supply costs and enhancing COMPARATIVE ADVANTAGE;
(c) TECHNOLOGICAL PROGRESSIVENESS. Wider market opportunities and exposure to greater competition can be expected to encourage firms to invest and innovate new techniques and products;
(d) INVESTMENT and ECONOMIC GROWTH. Finally, the virtuous circle of rising income per head, growing trade, increased productive efficiency and investment may be expected to combine to produce higher growth rates and real standards of living.
The EUROPEAN UNION is one example of a common market. See ANDEAN PACT.
communism a political and economic doctrine that advocates that the state should own all property and organize all the functions of PRODUCTION and EXCHANGE, including LABOUR. Karl MARX succinctly stated his idea of communism as ‘from each according to his ability, to each according to his needs’. Communism involves a CENTRALLY PLANNED ECONOMY where strategic decisions concerning production and distribution are taken by government as opposed to being determined by the PRICE SYSTEM, as in a market-based PRIVATE ENTERPRISE ECONOMY. China still organizes its economy along communist lines, but in recent years Russia and other former Soviet Union countries and various East European countries have moved away from communism to more market-based economies.
community charge see LOCAL TAX.
company see FIRM.
company formation the process of forming a JOINT-STOCK COMPANY, which involves a number of steps:
(a) the drawing up of a MEMORANDUM OF ASSOCIATION;
(b) the preparation of ARTICLES OF ASSOCIATION;
(c) application to the COMPANY REGISTRAR for a CERTIFICATE OF INCORPORATION;
(d) the issue of SHARE CAPITAL;
(e) the commencement of trading.
company laws a body of legislation providing for the regulation of JOINT-STOCK COMPANIES. British company law encouraged the development of joint-stock companies by establishing the principle of LIMITED LIABILITY and providing for the protection of SHAREHOLDERS’ interests by controlling the formation and financing of companies. The major provisions of UK company law are the 1948, 1976 and 1989 Companies Acts. See ARTICLES OF ASSOCIATION, MEMORANDUM OF ASSOCIATION, FIRM.
company registrar the officer of a JOINT-STOCK COMPANY who is responsible for maintaining an up-to-date SHARE REGISTER and for issuing new SHARE CERTIFICATES and cancelling old share certificates as shares are bought and sold on the STOCK EXCHANGE. Many companies, however, have chosen to subcontract these tasks to specialist institutions, often departments of commercial banks.
The role of the company registrar identified above should not be confused with that of the role of the government’s REGISTRAR OF COMPANIES, who is responsible for supervising all joint-stock companies.
comparability an approach to WAGE determination in which levels or increases in wages for a particular group of workers or for an industry are sought or offered through COLLECTIVE BARGAINING, which maintains a relationship to those for other occupations or industries. Comparability can lead to COST-PUSH INFLATION.
Fig. 24 Comparative advantage. The physical output of X and Y from a given factor input, and the opportunity cost of X in terms of Y. The opportunity cost of producing one more unit of X is 1Y in country A, and ⅔Y in country B. The opportunity cost of producing one more unit of Y is 1X in country A, and 1½X in country B.
comparative advantage the advantage possessed by a country engaged in INTERNATIONAL TRADE if it can produce a given good at a lower resource input cost than other countries. Also called comparative cost principle. This proposition is illustrated in Fig. 24 with respect to two countries (A and B) and two GOODS (X and Y).
The same given resource input in both countries enables them to produce either the quantity of Good X or the quantity of Good Y indicated in Fig. 24. It can be seen that Country B is absolutely more efficient than Country A since it can produce more of both goods. However, it is comparative advantage not ABSOLUTE ADVANTAGE that determines whether trade is beneficial or not. Comparative advantage arises because the marginal OPPORTUNITY COSTS of one good in terms of the other differ as between countries (see HECKSCHER-OHLIN FACTOR PROPORTIONS THEORY).
It can be seen that Country B has a comparative advantage in the production of Good X for it is able to produce it at a lower factor cost than Country A; the resource or opportunity cost of producing an additional unit of X is only ⅔ Y in Country B, whereas in Country A it is 1Y.
Country A has a comparative advantage in the production of Good Y for it is able to produce it at lower factor cost than Country B; the resource or opportunity cost of producing an additional unit of Y is only 1X, whereas in Country B it is 1½X.
Both countries, therefore, stand to increase their economic welfare if they specialize (see SPECIALIZATION) in the production of the good in which they have a comparative advantage (see GAINS FROM TRADE for an illustration of this important proposition). The extent to which each will benefit from trade will depend upon the real terms of trade at which they agree to exchange X andY.
A basic assumption of this presentation is that factor endowments, and hence comparative advantages, are ‘fixed’. Dynamically, however, comparative advantage may well change. It may do so in response to a number of influences, including:
(a) the initiation by a country’s government of structural programmes leading to resource redeployment. For example, a country that seemingly has a comparative advantage in the supply of primary products such as cotton and wheat may nevertheless abandon or de-emphasize it in favour of a drive towards industrialization and the establishment of comparative advantage in higher value-added manufactured goods;
(b) international capital movements and technology transfer, and relocation of production by MULTINATIONAL COMPANIES. For example, Malaysia developed a comparative advantage in the production of natural rubber only after UK entrepreneurs established and invested in rubber-tree plantations there. See COMPETITIVE ADVANTAGE (OF COUNTRIES).
comparative cost principle see COMPARATIVE ADVANTAGE.
comparative static equilibrium analysis a method of economic analysis that compares the differences between two or more equilibrium states that result from changes in EXOGENOUS VARIABLES. Consider, for example, the effect of a change in export demand on the EQUILIBRIUM LEVEL OF NATIONAL INCOME as shown in Fig. 25. Assume that foreigners demand more of the country’s products. Exports rise and the aggregate demand schedule shifts upwards to a new level (AD2), resulting in the establishment of a new equilibrium level of national income Y2 (at point H). The effect of the increase in exports can then be measured by comparing the original level of national income with that of the new level of national income. See DYNAMIC ANALYSIS, EQUILIBRIUM MARKET PRICE (CHANGES IN).
compensation principle see WELFARE ECONOMICS.
competition 1 a form of MARKET STRUCTURE in which the number of firms supplying the market is used to indicate the type of market it is, e.g.
