A Numerical Example Illustrating Globalization: Focus should be on Supply for the Peaks

We discuss globalization and the current recession in manufacturing and construction. We present a
novel model of globalization, of two countries, X and Y, each with open-market systems domestically
and internationally. We compare two pricing policies in each country: short-run marginal cost, SRMC,
versus prices fixed, P, over the business cycle. We present a proposition and proof. We give a
detailed numerical example with graphs for each country. The main result is that P over the business
cycle increases the volatility of Q demand over the cycle and increases consumer 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.