Archive forDecember, 2014

Russia plans new measures to stabilise the rouble


The price of oil fall greatly in recent months and right now the price is lower than 70 dollars. For  Russia, a country mainly depend on oil export, it is a bad news.

On Tuesday, one US dollar can buy 79 Rouble. To solve this problem, Russian ask banks to raise the interests up to 17%. The market reflects quickly, today one US dollar can only buy 62 Rouble. However, high interest rate can not solve the problem in long run. The weakness in manufacturing industry and monopolistic economy are the inside problem of Russian economics.

What’s more, US President Barack Obama is expected to sign legislation this week authorising new economic sanctions on Russia.

When currency devalue quickly, it will cause inflation and panic in the society. It is interesting to say what kind of methods Russian government will do to make the economic better.


China’s Advantages in Production

In our day to day lives, the majority of the things we use are made in China. Whether its a computer, a piece of clothing, or a microwave; its made in China. This is attributed to a number of reasons. In our class, we have seen that understanding labor markets is essential to achieving efficiency. Countries will trade with the countries that produce goods at the cheapest costs that retain quality in their products. China has become the hub of manufacturing because it has cheap labor, low taxes on exports, and an efficient business ecosystem.

Since China is a very populated country, the supply of workers is greater than the demand for labor. As a result, wages are very low and production costs are lower than other countries. Additionally, China is not very strict on things such as child labor, safety regulations, and long shifts regulation. Low tax rates on exports further China’s advantage in manufacturing goods. To conclude, it is likely that China will remain “The world’s factory” due to the many advantages it has in manufacturing.

Comments (1)

Airlines get $1 billion from baggage fees

Airlines get $1 billion from baggage fees

This article portrays the idea of marginal cost. Because these airlines are beginning to charge more for extra checked bags and extra pounds of weight from these checked bags, travelers have to determine how much they are willing to pay to bring their belongings. Those who do not bring so many belongings will not have to pay the extra fees because they will not check bags or as many bags. The marginal cost for those who do bring quite a load of items may not be worth it to them to bring these items in the first place.

Comments (1)

Dean Patton blog post


In this article it talks about whether or not division 1 athletes in America should be getting paid, along with scholarships. What most people do not understand is that the scholarships that these athletes have basically is like getting paid. Most of these athletes, especially with football, do not have to pay for school. I am indifferent whether they should get paid or not. D1 sports, especially football at any SEC school, is like a job. When you sign your letter of intent you sign a contract basically giving yourself to the coach. They own you, which gives very little free time. Players are not able to get jobs outside of school and sports, which explains why people want to pay the athletes. These players also get professional trainers, equipment, regimens and other perks that the football and basketball players would have to pay $2,000-$3,000 per week leading up to their pre-draft workouts. Adding this with the tuition, room and board costs, it is basically like they are getting paid as it is….having said that, I don’t think they should get a salary, making them a staff of the university. But I do not know what it is like to be a division 1 athlete. I am a division 3 athlete and it is pretty strenuous, so I can only imagine what D1 is like, thus my indifference on this issue.



Comments (1)

Weak Yen Helping Japan’s Economic Recovery

According to this Bloomberg article, Japanese Yen has hit a six year low after the government imposed a higher consumption tax. Political advisors feel that this will in fact aid in the economic recovery process for the country. This article claims that since the yen has gotten weaker, international imports have in turn become more expensive, thus encouraging large corporations to remodel their business plan in preparation for a weaker yen.


International trade

International trade is about purchasing and selling goods or services across countries or international boundaries. The article talks about China and India influence the pattern of international trade. According to the article “Emerging economies like India, China and Brazil are no longer “policy takers” but are significantly influencing the pattern and scope of international trade”, which means countries like China, India or Brazil is not passivity anymore in trading, they have the power to influence other developing countries by trading.

There are some advantages of international trade including increases in domestic production and consumption because of specialization. This is a way to increase efficiency. If a country is good at producing some goods or services at a lower cost, the country can specialize in producing that kind of goods or services to exchange some other goods or services it is not available in the domestic range. For example, the two countries that the article mentioned, China and India, they have huge population, which means the price of labor force is cheaper compare to other countries such as UK or US. This is why some developed countries set the factories in China or India and hire local workers. Thus, by trading, the country can produce a grater quantity of products without wasting resources on producing products at a higher cost.

Another advantage of international trade is that it develops source of foreign exchange. In the article, it says, “Trade between China and Africa will likely hit upwards of $ 200 billion in 2012, up 25 per cent year on year.” the increasing trade between China and Africa requires those countries to use each others’ currencies, thus increase the source of foreign exchange. Further more, international trade allows the flow of new ideas and technology. In China, the government decided to open the international trade 30 years ago, since then, people are benefit from the new ideas and technology, thus the productivity is increased.

The article said “This is no longer the world of the twentieth century dominated by the US pillar on one side and the European pillar on the other. We are in a twenty-first century multi-polar world… emergence of some developing countries as key players and as “real contributors” to global dialogue on trade and economics is a fundamental feature of this new geo-political reality” in the past, the trade pattern is North to South paradigm, which is relatively inefficient. However, the developing countries, including China and India, increase the economy tie to countries like Africa breaks the old pattern, thus achieve a higher efficiency. The further research shows that China export products to Africa includes clothes, electronic products, corn, tea, to exchange oil, diamond, natural gas and so on. This process, again, demonstrate the advantage of international trade. Take two products as example, diamond and corn. On the graph, it shows that China has absolute advantage in corn, while Africa has the absolute advantage in diamond. Absolute advantage refers to the ability of one country to produce a good using fewer resources than another country.

According to the graphs, consumption with trade has a higher quantity than consumption with no trade.

The increase of trading between China and Africa or India and Africa will also provide greater choice for consumers. Consumers cannot only purchase domestic goods and services; they can also choose the foreign goods, which might have better quality. This lead to the increased competition in domestic goods and services. And the competition force the domestic firms and companies to produce goods and services with high quality and high efficiency.

However, because those trades between China and Arica of India and Africa are not exactly free trade, which means there will be government intervention imposing restrictions on trade to protect domestic goods, the advantages of trades might not show their best outcomes. The government might use quota, setting the limit on the number or value of goods that can be imported into a country and set subsidy to protect domestic industry. And according to the article “Trade between China and Africa will likely hit upwards of $ 200 billion in 2012, up 25 per cent year on year. If this trend continues, reports are that Africa could surpass the EU and the US to become China’s largest trade partner in three to five years”, the trend might not continues because the government might want to use protectionism to make sure that the domestic industry is not under threat.

Comments (1)

Chinese employment
The China’s labor market is facing big pressure from exceeding supply of labor. In 2012, there are nearly 7 million college graduates enter the job market, yet there is no new job created for the majority of urbanities and migrant workers. According to the official data, the unemployment rate in September is 4.1 percent, which is lower than the official ceiling 4.6 percent this year. In other to reduce the unemployment problem the country created 10.24 million new jobs in urban areas in the first nine months, and the government now is encouraging college students to work in the central-western regions or start their own businesses, on the other hand offer training for unskilled workers.

Unemployment refers to people of working age who are actively looking for a job but who are not employed. In China’s labor market, the unemployment group takes a big part of the labor force, which means the unemployment rate is high, since unemployment rate=(number of unemployed)/(labor force)×100%. In the article, it says, China will continue to face the problem of labor oversupply for a long time. This can be explained in the following diagram. After the college student graduate, they enter the job market, which increase the supply of the labor market. That shifts the supply curve from S1 to S2. However since the article says, “the new job growth slows”, we can assume that the demand curve of labor stays the same. So, before the large amount of labor enters the market, the supply curve and demand curve meet at point a, which provide Q1 quantity of employment at price P1. But since the supply curve shift to the right, the supply curve and demand curve meet at point b, which only provide Q2 amount of employment at price P2. There will be Q2-Q1amount of unemployment occur. The article also says “the government will encourage college students to work in the central-western regions or start their own businesses”. By starting their own businesses, college students will not compete in the existing job market, in stead create new jobs for the market, thus shift the demand curve to the left and increase the quantity of demand in labor market.

The article mentions that “migrant workers and unemployed urbanites still have difficulty getting full employment”, which is the typical structural unemployment. More and more job require particular types of labor skills, so that the producers are more likely to hire college students who have better educational background and might be more skillful in stead of hiring migrant workers and urbanites. In this case, workers lacking the necessary skills to work in industry or services, including the China’s migrant workers and urbanites, might be structural unemployed. In order to solve the structural unemployment, the government decided to use supply-side policies.

The government is going to increase spending on training workers to improve their skills, which is interventionist supply-side policy. Because more and better training and education lead to improvements in the quality of labor resources, the productivity of labor will be increased, thus encourage economic growth. If the government spends more money to train the migrant workers and urbanites, they will be able to do the work that require some level of skills, thus decrease the structural unemployment. The most obvious advantage of this policy is that it not only can solve the unemployment issue but also increases economic growth because it increases the labor’s productivity. However there are some disadvantages of this policy. First, the supply-side policy takes long time to show effect. Even though the government spends money to train workers, it still takes time for the workers to apply what they’ve learned during production. If the government wants to reduce the unemployment rate in short time, supply-side policy might not show significant outcomes. Second, supply-side policy is expensive. If the governments spend money to train unskilled workers, they need to cut spending on other program, that is when opportunity cost occurs. For example the money that could be used on military defense need to be reduced, so that the interventionist supply-side policy can be supported. So personally, I suggest the government combine the demand-side policies and supply-side policies, so that the cyclical unemployment problem can be solve most efficiently.



Comments (1)

Oligopoly and theme parks

Theme parks industry is very similar to the oligopoly structure: small numbers of large firms, high barrier to entry, products differentiation. In this article clash of the theme parks, it describes the competition between two major firms in this oligopoly structure industry. From this article, we can see how oligopoly firms compete with each other since the price is relatively stable.

The two major competitors in the theme park industry are Universal and Disney, and they are two of the large firms in this industry. According to the article, “Parks can be vulnerable to swings in the economy and require costly and continuous investments in new rides; escalating labor costs threaten margins.” This is because the operators of the park must fix the instruments regularly to make sure they are safe to use. Not a lot of company can afford the extremely high cost to open a theme park. “A major 3-D ride themed to Michael Bay’s “Transformers” movies opens this Friday at Universal Studios Hollywood, at an estimated cost of $100 million.” It cost Universal $100 million to open a new theme park, and that indicate the high barrier to entry this industry. The high barrier decreases the number of competitor, so that Universal and Disney have much power to decide the price. However, in oligopoly, in this case, the non-collusive oligopoly, the firms are unlikely to compete with each other on price, even though the two theme park operators do not make agreement on prices. This is due to the kinked demand curve of non-collusive oligopoly. On the graph, it shows a kinked demand curve facing each firm. And the marginal revenue curve is a broken one, and the broken point is exactly the kink in the demand curve. Suppose Universal and Disney want to compete with each other on price: if Universal raise its price, Disney and other theme park operators may not increase their prices. If the other operators continue charge at P1, they will attract more consumers thus gain more market share., which Universal will not be happy to see. And the demand curve above P1 is relatively elastic, so each unit of price the Universal increases, a large number of demand will decrees. On the contrary, if Universal decreases its price, even though it might gain more market share, but since the demand curve is relatively inelastic under P1, so the firms need to decrease its price a lot to only increase demand a little. So, the non-collusive oligopoly structure has a stable price.

Since Universal can Disney cannot compete on price, they will have to differentiate their products. Disney has eight parks in California and Florida that attract over 73 million visitors each year, while Universal operates three parks, with annual attendance totaling about 18 million. In order to gain more market share, Universal invests $265 million on the Harry Potter theme park, which does attract a lot of consumers. On the other hand “Competition with Universal, for instance, factored into Disney’s decision to beef up a previously planned expansion to its Magic Kingdom park in Orlando and spend an estimated $500 million on an “Avatar”-themed addition to its nearby Animal Kingdom park.” Disney provides new facilities too, in responding to the Universal increased products. “New draws at Universal Orlando include a refurbished Spider-Man ride, a lavish parade, a high-tech fountain and pyrotechnics show and a ride based on “Despicable Me.” And again, the Universal provide new products. “The rivalry between the two parks operators, which dates to the late 1980s, when Disney scrambled to open its Hollywood Studios park here to beat Universal’s planned arrival, next moves to California. Universal will soon open its “Transformers” ride; Disney will unveil a $450 million “Cars”-themed addition to its California Adventure park in Anaheim on June 15.” The long history of competition between these two major theme park operators indicate that in the theme park industry, the basic strategy to attract more market share is to increase new facilities, and it is the “product” that the two major theme park operators are competing on, instead of price. And the firms invest their abnormal profit to the research on new projects so that the new projects can attract more consumers thus allowing them to gain more market share. Since the price is relatively stable in oligopoly, market share is the key point of gaining more revenue.

Comments (1)

The Rise of Corn Futures

This article describes the price increase of corn and how farmers are reacting to the situation. The price of corn futures is finally above $4 to the relief of farmers who harvest the crop. This was a more delayed reaction than expected due to the fact that they have been lowering their supplies due to the surplus of corn that farmers have experienced in the recent years. The prices of corn over the past year and a half have been at an all-time low because of unexpected crop years because of good weather and ideal growing conditions. Farmers have become more firm with their prices forcing the market to comply with their demands, forcing others to pay more in order to get the crop. So far this tactic has worked as they will finally be receiving a reasonable profit from harvesting corn, which they have not seen in recent years.


Falling oil prices

According to this New York Times article, falling oil prices is a sign of a slowing global economy. Investors are losing confidence and it is showing in our stock market. Does this mean that another global crisis is brewing?


« Previous entries