Thursday, September 13, 2007

Italy Jobless Rate Fell to Record Low in 1st Quarter


This analyzes Italy's steady decline in unemployment, citing economists' opinions on the causes. Strong economic growth combined with a more leniant political atmosphere have reportedly spurred companies in expanding their businesses and hiring more workers, which has lowered the unemployment rate.

Saturday, August 25, 2007

Tuesday, August 14, 2007

Summer Commentary #2

Abstract
This article is remarking on Toyota’s strong performance in the global automobile market. It notes the different reasons for this strong performance and comments how the performance has been so strong over not only the past months but over the past few years has led to Toyota replacing GM as the dominant global automaker force.
The article then ties its title to the body by connecting the strong performance with Toyota’s desire to expand its business into emerging economies such as Russia and China.

Analysis
Toyota has had much success in the past few months for a few reasons.
1. Increased pump prices around the world has increased the popularity of Toyota cars. Pump prices (gasoline) is a complement of an automobile. Thus, when the price of gas goes up, the demand for automobiles decreases. However, since Toyota’s cars are high-mileage (that is, little gas for many miles). Therefore, Toyota’s cars are marginally more popular because they are marginally more efficient.
2. Reminiscent of the Yuan-Dollar conflict, Detroit automakers (Big Three – GM, Ford and Chrystler), are working themselves up because of the weak Yen. They are claiming that the weakening Yen as compared to the Dollar is making Toyota’s exports cheaper in the States.

In the face of climate change, where China and Russia are slowly but surely becoming more conscious of their environment, Toyota’s efficient cars (the new Hybrid Prius, for example) are becoming more attractive choices. True that these cars are more expensive, but the very reason that Toyota wants to expand into these countries is because of their growing middle class. It also seems that Toyota might have an edge over the competition with the currency. The weakening Yen would make Japanese cars such as Toyota marginally cheaper than American cars such as GM or European cars such as Audi or Fiat.

Conclusion
In light of emerging auto-markets, where Toyota has the potential to tap a new middle class, it is only natural that they would try and expand. Considering the factors discussed in this analysis, I believe that they will be successful therein.

Wednesday, July 11, 2007

Summer Commentary #1

CNN: Can tainted toys spark U.S.-China trade tiff?

In this article, the US accuses China of neglecting safety and quality controls, opting for large economic growth instead. Calls in Washington for trade protectionism have now strengthened after poisoned pet food, faulty toys and sub-standard human food was found in the Chinese exports to the US. These strengthened calls come after the US goods trade deficit with China rose to $ 233 billion in 2006 and have come in the form of Senators’ outcry in Congress and ads on television.

This article is describing the call for trade protectionism on the part of the Americans. The reasons for trade protectionism are the infant industry argument, anti-dumping, protecting unemployment, balance of payments, externalities and demerit goods, strategic reasons and unrealistic assumptions of comparative advantage.


In this situation we can directly identify that the Americans want to adopt a policy of protectionism because of the externalities resulting from the trade. These externalities would come in the form of poor quality goods that have already “killed dozens of animals”. The reason why the poor quality goods are still being exported to the US is because of their lower price. However, if the US adopts trade protectionism, then the Chinese goods become more expensive and thus the consumers will be more inclined to buy the better quality American goods (tariff graph omitted due to technical difficulties).

Looking deeper into the situation, we can identify that the Washington is keen to adopt protectionism to stabilise the balance of payments. The trade protectionism would also be strategic. Prior to this incident, there was already concerned talk among Washington lawmakers about “the massive US trade gap [with China]”. This situation offers the excellent opportunity to “pressure China”. Pressuring China is exactly what some US lawmakers want to do. Many claim that the undervalued Chinese yuan gives Chinese goods an unfair comparative advantage.

Looking at it from this perspective, the protectionism is also strategic. As Merrill Weingrod points out in the article, "It [the tainted goods] fuels the anti-China lobby. The next time senators want to bring up protectionist trade regulations, they'll get a sympathetic hearing." It is the perfect chance for the US to slow down the runaway Chinese trade train.

However, trade protectionism also brings about a bigger cost to consumers. This may lead to higher inflation. It could also lead to a trade war with China. Some US lawmakers are weary of this, pointing out that China holds over $ 1 trillion in US assets, making “the US economy vulnerable if China decided to dump dollars in the event of a trade war.”


Although the tainted goods may just be a bit of poisoned pet food and faulty “Thomas the Tank engine trains”, but it signifies a much deeper problem in the trade relations between the US and China. As the article title suggests, this may be the final drop.

Tuesday, May 22, 2007

Chapter 13 Homework

Key Question 4
The components of M1 are;
- Currency
- All checkale deposits
The largest component is checkable deposits, by a small margin.
The face value of a coin is greater than its intrinsic value because the recipient is confident that they will be able to exchange the coin for a good of the same value.
Near-monies included in M2 are "certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into curreny or checkable deposits." (McConnell and Brue, 247)
M2 and M3 money supplies are distinguished by their lack of liquidity.

Key Question 6

D=1/P

D=1/1.25

D=0.8

If instead;
D=1/0.5

D=2

From this, we can draw the conclusion that there is an inverse relationship between the purchasing power of the dollar and the price level.

Key Question 7
The basic determinant for the transactions demand is the level of nomial GDP.
The basic determinant for the asset demand for money is the interest rate.
We can add these two, horizontally, to graphically show the asset demand against transaction demand. The result is a downwards sloping curve. The equilibirum interest rate is then determined at the intersection between this curve and the money supply.
a) the expanded use of credit cards may increase the demand for money, and thus the interest rate will decrease.
b) a shortening of worker pay period may increase the demand for money, and thus the interest rate will decrease.
c) an increase in nominal GDP signals an increase in the demand for money, and thus the interest rate will decrease.

Monday, May 14, 2007

Chapter 12 Homework (Part 2)

7. Key Question
The full-employment budget measures what the Federal budget deficit or surplus would be with existing tax rates and government spending levels if the economy had achieved its full-employment level of GDP in each year. It allows economists to adjust the actualy Federal budget deficits and surpluses to eliminate the automatic changes in tax-revenues.
It can differ from the actual budget if there is economic expansion or recession.

On page 219, figure 12.3, GDP2 reflects a zero deficit or surplus of full-employment budget. To further the country's GDP, I would raise government spending. In terms of the graph, this would cause an upward shift in G.

10. Key Question
The political business cycle is when politicians use expansionary fiscal policy right before an election, and contractionary fiscal policy right after an election, to dampen excessiev aggregate demand.

Thursday, May 10, 2007

Chapter 12 homework : Questions 2 and 3

2.
Multiplier = 1 / (1-0.8)
= 1/ 0.2
= 5

$25 Billion / 5 = necessary government spending

The government must spend $5 Billion to increase the GDP by $25 Billion



3.
To end severe demand pull inflation, contractionary fiscal policy may be in order. To do this, the government would have to decrease public spending, increase taxes, or somehow combine both. This would then cause an inward shift of AD, bringing down the price level.
Someone who would want to preserve the size of the government would increase taxes rather than decrease public spending, and someone who thinks the public sector is too large would do the opposite.

Saturday, May 5, 2007

High Unemployment Rates in Europe - Structural Problems or Deficient Aggregate Demand?

1)UNEMPLOYMENT IN EUROPE
After reading page 207 of McConnell and Brue's "Economics", I have come to the conclusion that the high rates of unemployment in Europe are not solely due to structural problems or deficient aggregate demand.

I find validity in both arguments. The idea that the high amount of social security in Europe, along with union contracts limiting the ways an employer can fire an employee, does indeed discourage workers from taking new jobs, which are not abundant because employers are weary of employing people. This is something I know first hand, as my father would come home with stories of incompetent people he could not fire because of labour laws.
However, the low aggregate demand does not make matters better. Although page 207 does not give this information, earlier in chapter 9, on page 156, we can see a table where the average propensity to consume of USA, Canada, UK, Netherlands, Germany, Italy, Japan and France are displayed. As is suggested by deficient aggregate demand, the mainland European countries had a substantially lower average propensity to consume. This may explain the reason why Europe isn't producing as much. They simply don't need as much.

Rather than state black and white which is the real cause, I would say that the low aggregate demand is what enables the government policies and union contracts to be imposed, without destructive effects to the economy.

2)US 1996-2000 ECONOMIC GROWTH WITH LOW INFLATION
The US was able to maintain low levels of inflation, with high levels of GDP and greater than full-employment between the years of 1996-2000, through strong aggregate supply. As the economy expands, represented aggregate demand shifting out and greater than full-employment, the rate of inflation should technically rise. However, seeing as aggregate supply also shifted out, the inflation rate was kept down.

Monday, April 30, 2007

Chapter 11 Homework

Key Quesiton 4
a) Equilibrium: $300 Billion. It is not neccesarily the full employment level of output, because the output has to be compatible with the demand.
b) These price levels will not be equilibrium because the amount of real GDP demanded and supplied do not match.
c) Some factors of aggregate demand are;
- consumer wealth,
- taxes,
- consumer expectations
- real interest rates

Key Question 5
a) Productivity

Thursday, April 26, 2007

Save Your Money At 4.25% - Charles Schwab's Formula To Success

Going after 'lazy money' with 4.25% checking

In his article, Mr. Charles Schwab has offered consumers an incredible deal; to deposit their money in his bank with 4.25% interest, no ATM costs, and free checking. Good deal, right? But as the article points out, "With the average interest-checking account now yielding only 2 percent, you wouldn't think Schwab would have to double that to make a splash."

Schwab identified that there is a lot of "lazy money" in the market: money that people want to invest, and watch 'grow'. With his interest rate at twice that of the average, he is attracting a lot of this money.

Consumers have two options;
1) Place the money in the bank (like Schwab's) and gain profits on the interest, or
2) Invest the money stocks and bonds and risk profit or loss or invest in capital.

The opportunity cost of putting the money in the bank is that you forego a potentially higher return in the stock market or wherever you have invested the money. The opportunity cost of investing the money is that you forego the stable, assured interest rate return.

Looking at the graph, where "The Y-axis represents the real interest rate, and since an increase in the real interest rate makes households and firms want to place more money in the bank (and more money in the bank means more money to loan out), there is a direct relationship between real interest rate and Supply of Loanable Funds," (Mr. Welker's Blog (Welker's Wikinomics)).

The direct relationship between the real interest rate and the Supply of Loanable Funds means that as the real interest goes up, as has happened in this article, so will the amount of money that people place in the banks. In other words, the higher interest rate means that people would rather place their money in Mr. Schwab's bank, than invest it. In addition to the costumers gained as transfers from other banks, due to the higher interest rate, this can account for Charles Schwab's success.

Wednesday, April 25, 2007

Infinite Growth Cannot Occur In A Finite Environment

In his recent posting, Mr. Welker made a reference to Julian Simon, an economist who claimed that infinite growth can occur in a finite environment due to constant technological progresses. This is in direct contradiction to several laws of physics, as we are already quickly approaching the limits of nano-technology, where nano-chips will become the size of atoms. Surely a piece of technology cannot be much smaller than an atom? Without getting into the details of science and technology, it is safe to say that E.F. Schumacher was correct in saying that "the illusion of unlimited powers, nourished by astonishing scientific and technological achievements, has produced the concurrent illusion of having solved the problem of production." (From his book "Small Is Beautiful"; Chapter 1, The Problem Of Production) He previously attempted to explain our obsession with technological advancements by stating the obvious which is seldom taken acknowledged or taken into consideration; "modern man does not experience himself as a part of nature but as an outside force destined to dominate and conquer it."
I could continue quoting Schumacher on his well-presented and argued ideas on how with nature "we are dealing with [irreplaceable] capital and not with income", and that we should allocate more time and attention to "improve 'the quality of life' and not merely ... increase the quantity of consumption." But this would only touch on the larger problem, a problem which, I feel, Mr. Welker has, knowingly or not, hit at its core.

"As Marco says, “we should not only perceive the world in terms of economics”. On this point I could not agree with him more. Indeed, economics may not provide you or me with answers to life’s most basic questions, like where I’ll go when I die; but one question this imperfect science will help answer is how will my basic needs be met while I’m here on this earth burdened with the curse of scarcity? The answer? Markets. Alas, the invisible hand of which Smith spoke may not be that of God, rather that of the Almighty Dollar."

Mr. Welker here claims that man's basic needs need to be met, and that markets solve this problem. True, markets have been around since the beginning of time, back to the Mesopotamians trading fish. But consider that man's basic needs; shelter, food, the various psychological needs of man, and their self-esteem, are not always tended to by the profit-maximizing methods of today. With large businesses following Adam Smith's principle of specialization, self-esteem is attacked. With corporations setting up shop in the less-developed world, they are still doing no favours for the people's self-esteem, and their exploitation is hurting the basic needs of the other three. Indeed, poor nourishment is not uncommon among sweatshop workers, as is lack of proper housing. That's right, a shanty town is not proper housing. And remind me again where the profits go?

Looking at much of the so-called 'developed world' (believe it or not, there is starvation and lack of proper shelter in the USA.), we have already achieved our basic needs. We also sustain-ably maintain them. What do we do now? The emerging trend is that of material accumulation. We have now become obsessed with how much we have. It cannot be articulated much better than E.F. Schumacher himself, who writes "It is no accident that successful businessmen are often astonishingly primitive; they live in a world made primitive by this process of reduction [where the sole goal in life is profit]," in the chapter "Socialism" of his book "Small Is Beautiful".

This is the problem that economics has created. It does not take into account whether "a particular action is conducive to the wealth and well-being of a society, whether it leads to moral, aesthetic, or cultural enrichment." Given, many governments attempt to maintain a certain degree of aesthetic beauty by giving scholarships to artists, and banning the destruction of old buildings, but the reason why the government intervention is necessary is that otherwise people would only pursue profits. True, government will always be necessary, I am not that naive, nor inclined to think that way. But the amount of purely profit-seeking activities going on in the world is really astonishing. Perhaps it shows not something wrong with economics as a field of study, but perhaps it highlights something inherently wrong with the way economics is being used, and thus the society of today, where we abuse everything we can to make money.

Quote Of The Day (April 25, 2007)

"Man, if you had a modem that was faster than 16 Kb/seconds, you were THE SH*T!!!"
-Mr. Welker, speaking about investment, and the technological advancements that result from it.

You can see Mr. Welker's blog at

www.welkerswikinomics.com

Monday, April 9, 2007

Class Discussion Continued

I would just like to make a few points on the discussion we were having in class.
As we were talking about cultural diversity, good environment, health, education and so on, comments were made on the realm of economics, and how economists should not be concerned with these things because economics is about money.

Is the study of economics not a study of the way our world deals with its problems? If this is indeed the case, it implies that we learn from these mistakes, taking them into account as we create models for dictating how one should act when future problems arise. Naturally, we must then place values on certain things in order to have a goal for the models to achieve. The problem is then that we have placed value precisely on that; things. Material things. There is an 'under-allocation' of value towards the finer things in life, as outlined when we talked about the short-comings of GDP.
This certainly does not make the study of economics redundant, but merely temporarily lost. Lost in the sense that we have lost sight of what is really important to us, what we truly value. Let's face it, the way economics has placed value on money and profits has led to increasingly Machiavellian and deceptive ways of living, the exact opposite of those virtues we used to value. Paradoxically, therefore, the more the present economic theories are used to maximize profits, the more the integrity of the study of economics is undermined.
In other words, no study of any sort should find good in a system such as "[t]he modern private enterprise system [which] ingeniously employs the human urges of greed and envy as its motive power," (Schumacher) such as we see today.

Needless to say, as a social study, economics studies society and the world around us. However, that does then not mean that we should only perceive the world in terms of economics, and economics today connotes profit maximization. Perhaps economics should find a new direction and set of values by learning from Aristotle's idea of metaphysics, cultural and religious values and human and physical geography.

Sunday, April 8, 2007

Homework: Due Monday, 9 April, 2007

1) The CIA director should take into account that GDP does not record the "underground economy". The "underground economy" is largely comprised of illegal activities, activities which the CIA likes to keep tabs on. It could be problematic for America's Intelligence Agency if they are not able to see this.

2) Prostitution, gambling, and some types of drug use are part of what has been labelled the "underground economy" in the previous question. It therefore stands to reason that countries that allow these activities take them into account when calculating their GDP, therefore making it seem larger than that of a country that does not allow such activities.

3)

4)
a) Out
b) Out
c) In
d) In
e) Out
f) Out

5)

Wednesday, March 14, 2007

Brainstorming Continues On The Extended Essay...

Lighting Up Rural India: Analysis

Mr. Harish Hande has been for the past few years been working to bring electricity to the countryside, through his solar-energy company Selco India. By servicing the poor rural population, he is "tapping an undesirable market", and doing something no one really dares to do. All this produces spillover benefits. In fact, these are so significant, that the same ideas are being implemented in the States, and in Europe, demand for solar cells are rising such that it is now threatening the existence of Selco India.

As mentioned, the firm's transactions have produced spillover benefits. Spillover benefits are a result of a transaction, and will benefit a third party. Usually, as in this case as well, this third party is society. It is a market failure, as there is an under-allocation of that product in the market. In this article specifically, we can see that the children of the rose pickers have increased study time due to the better lighting from the lights their parents bought. This will eventually lead to better educational standards in the region, and thus each individual will be able to contribute more entrepreneurship and intellectual resources to the society. Not only that, the families have to suffer from fewer fumes, which are created by gas lamps. But those are miniscule in comparison with the bigger picture.
Here is an opportunity to dealing with poverty. Although the firm still behaves like any other firm, as in they would like to maximize profits, Mr. Hande has a dream of eradicating poverty in his region. This is the reason that he has "tapped the undesirable market". However, as he ventured out, he was told that rural people don't pay their loans, and naturally they do not have the money to buy the captial right away. Acting on the principle that necessity is the mother of all invention, "innovative financial transactions" were called for.
His efforts have paid off, as now only "10% of his clients default". The spillover benefit here is the intellectual contribution made to the business world. We thus now have a model for future business dealings with the less-privileged. This type of innovation is good for the society and has a special economic term; technology spillover.
Further, those following his example have unleashed a wave of entrepreneurship, such as the rick-shaw driver in Bangalore who made considerably more when putting Hande's product to alternative use. This wave of entrepreneurship will ultimately lead to developments in all areas.

Thus, solar cells could be called a merit good. Merit goods are goods that are under-provided by the free market, and thus under-consumed by consumers. They are also deemed to be of positive benefit to the society, so their consumption should be increased. In this market the Selco India product is being under-provided, and as a result is under-consumed, and it is of positive benefit to society.

However, the company is being threatened by increased European demand for solar energy. Based on this information, it is safe to say that the solar-cell industry is an increasing cost industry (fig. 1.1).

This means that as more solar-cells are produced, the more expensive it becomes to produce them. Thus, when European demand goes up, so do the costs for Selco India. It is therefore only natural that they would experience losses of $63,000.

Evaluation

Naturally, as a positive externality in itself shows an under-allocation of resources in the market, and the competition from Europe, it looks as though Selco India may need some help in producing the cells that help so many. Here the government could come into play. Considering the costs for Selco India have increased dramatically due to increased European demand, and the already existing need to increase production, a subsidy appears to be in order. The subsidy would increase the output of Selco India and any other firm like it by helping the firm to cover the cost, such that it can produce at a desirable output. As shown in fig. 1.2, a subsidy would correct the market failure and bring solar energy, along with all its benefits, to rural India.

Tuesday, March 13, 2007

Lighting Up Rural India: Second Draft Analysis

Mr. Harish Hande has been for the past few years been working to bring electricity to the countryside, through his solar-energy company Selco India. By servicing the poor rural population, he is "tapping an undesirable market", and doing something no one really dares to do. All this has produced positive externalities and spillover benefits. In fact, these are so significant, that the same ideas are being implemented in the States, and in Europe, demand for solar cells are rising such that it is now threatening the existence of Selco India.

As mentioned, the firm's transactions have produced spillover benefits. Spillover benefits are a result of a transaction, and will be enjoyed by a third party. Usually, as in this case as well, this third party is society. It is a market failure, as there is an under-allocation of that product in the market. In this article specifically, we can see that the children of the rose pickers have increased study time due to the better lighting from the lights their parents bought. This will eventually lead to better educational standards in the region, and thus each individual will be able to contribute more entrepreneurship and intellectual resources to the society. Not only that, the families have to suffer from fewer fumes, which are created by gas lamps. But those are miniscule in comparison with the bigger picture.
Here is a possible start to dealing with poverty. Although the firm still behaves like any other firm, as in they would like to maximize profits, Mr. Hande has a dream of eradicating poverty in his region. This is the reason that he has "tapped the undesirable market". However, as he ventured out, he was told that rural people don't pay their loans, and naturally they do not have the money to buy the captial right away. Acting on the principle that necessity is the mother of all invention, "innovative financial transactions" were called for.
His efforts have paid off, as now only "10% of his clients default". The spillover benefit here is the intellectual contribution made to the business world. We now have a model for future business dealings with the less-privileged.
Also, those following his example have unleashed a wave of entrepreneurship, such as the rick-shaw driver in Bangalore who made considerably more when putting Hande's product to alternative use. This wave of entrepreneurship will ultimately lead to developments in all areas. This type of innovation is good for the society and has a special economic term; technology spillover.

Thus, solar cells could be called a merit good. Merit goods are goods that are under-provided by the market, and thus under-consumed by consumers. They are also deemed to be of positive benefit to the society, so their consumption should be increased. In this market the Selco India product is being under-provided, and as a result is under-consumed, and it is of positive benefit to society.

However, it is being threatened by increased European demand for solar energy. Based on this information, it is safe to say that the solar-cell industry is an increasing cost industry (fig. 1.1). This means that as more solar-cells are produced, the more expensive it becomes to produce them. Thus, when European demand goes up, so do the costs for Selco India. It is therefore only natural that they would experience losses of $63,000.

Naturally, as a positive externality in itself shows an under-allocation of resources in the market, and the competition from Europe, it looks as though Selco India may need some help in producing the cells that help so many. This is where the government could come into play. Seeing as the costs for Selco India have increased dramatically due to increased European demand, and the already existing need to increase production, a subsidy appears to be in order. The subsidy would increase the output of Selco India and any other firm like it by helping the firm to cover the cost, such that it can produce at a desirable output. As shown in fig. 1.2, a subsidy would correct the market failure and bring solar energy, along with all its benefits, to rural India.

Monday, March 12, 2007

Lighting Up Rural India: A Rough Draft [Analysis]

http://money.cnn.com/magazines/business2/business2_archive/2006/12/01/8394996/index.htm?postversion=2007030120

[THE GRAPHS WILL COME LATER. THEY HAVE BEEN MADE. CURRENT WORD COUNT WITHOUT CAPTIONS IS 591, SO WITH THE CAPTIONS I SHOULD BE OK]

Mr. Harish Hande has been for the past few years been working to bring electricity to the countryside, through his solar-energy company Selco India. By servicing the poor rural population, he is "tapping an undesirable market", and doing something no one really dares to do. All this has produced positive externalities and spill-over benefits. In fact, these are so significant, that the same ideas are being implemented in the States, and in Europe, demand for solar cells are rising such that it is now threatening the existence of Selco India.

As mentioned, the firm's transactions have produced spill-over benefits. Spill-over benefits are a result of a transaction, and will be enjoyed by a third party. Usually, as in this case as well, this third party is society. It is a market failure, as there is an under-allocation of that product in the market. In this article specifically, we can see that the children of the rose pickers have increased study time due to the better lighting from the lights their parents bought. This will eventually lead to better educational standards in the region, and thus each individual will be able to contribute more entrepreneurship and intellectual resources to the society. Not only that, the families have to suffer from fewer fumes, which are created by gas lamps. But those are miniscule in comparison with the bigger picture.
Here is a possible start to dealing with poverty. Although the firm still behaves like any other firm, as in they would like to maximize profits, Mr. Hande has a dream of eradicating poverty in his region. This is the reason that he has "tapped the undesirable market". However, as he ventured out, he was told that rural people don't pay their loans, and naturally they do not have the money to buy the captial right away. Acting on the principle that necessity is the mother of all invention, "innovative financial transactions" were called for.
However, he has defied those who discouraged him, as now only "10% of his clients default". This could also serve as a model for future business dealings with the less-privileged, thus benefiting society.
Also, those following his example have unleashed a wave of entrepreneurship, such as the rick-shaw driver in Bangalore who made considerably more when putting Hande's product to alternative use. This wave of entrepreneurship will ultimately lead to developments in all areas. This type of innovation is good for the society.

However, it is being threatened by increased European demand for solar energy. Based on this information, it is safe to say that the solar-cell industry is an increasing cost industry (fig. 1.1). This means that as more solar-cells are produced, the more expensive it becomes to produce them. Thus, when European demand goes up, so do the costs for Selco India. It is therefore only natural that they would experience losses of $63,000.

Naturally, as a positive externality in itself shows an under-allocation of resources in the market, and the competition from Europe, it looks as though Selco India may need some help in producing the cells that help so many. Thus we could even go so far as to claim that the solar-cells will become a merit good. A merit good is under-provided by the market, which the Selco India product is, and as a result will be under-consumed, as they are. This is where the government could come into play. As shown in fig. 1.2, a subsidy would correct the market failure and bring solar energy, along with all its benefits, to rural India.

Saturday, March 10, 2007

Marco's Extended Essay Kicks Off In Blog Form


Click Here To Go To Marco's Extended Essay


The Extended Essay is just around the corner.
Wait that's a lie.
It's here.
I'm prepared.
My Extended Essay Blog has been created, and now there's no way to stop it. And let's face it ... who wants to?

There will now be a permanent link to the Extended Essay page on the right hand side of this page.

Quick Preview:

Although I do not yet know what my Extended Essay will be about, I already know which direction it will go in, and who has led me there.

To read the entire post, click on the link above to go to the Extended Essay page.

Lighting Up Rural India: A Crude Analysis

http://money.cnn.com/magazines/business2/business2_archive/2006/12/01/8394996/index.htm?postversion=2007030120

In class, and in homework, we have defined an externality as a by-product of a transaction between two parties. In the case of my article, I would say that the transaction is between the company Selco India, and the poor people of the rural community. The externalities are positive ones, and come in various forms, which I will discuss.
However, the company Selco India is not a corporation. It is rather a company whose target is still to earn profits, but whose goal is to help the poor. This is what is meant by "tapping an undesirable market."
Now, for the spill-over benefits. These can be equated to positive externalities, as in, they are one and the same.
The positive externalities that I have identified from the article are;
- increased study time for the children of rural communities;
- better productivity of the rose pickers, as they can now use both hands to pick roses;
- more earnings due to the better productivity, but also to increased entrepreneurialism;
- fewer fumes from the gas lamps;
all due to the increased lighting gained from the solar panels.

However, the spill-over benefits also include 'business experience', as I like to name it. Dealing with people living on less than $4 a day means that "innovative financial transactions" are called for - an innovative way to allow poor people to take out a loan. This can then be taken into other situations, and used as a role-model for doing business with the less privileged.
Also, the idea is also being implemented in the US now. Labelling this a spill-over benefit assumes that the transaction does society good. In fact it does; solar energy is better than nuclear energy.

I also like the little rickshaw owner's anecdote. It shows clearly the infinite entrepreneurialism that exists in society, and how an idea, like the one that Selco India have, can have such a profound effect on so many people.

Finally, there are a few things I am worried about. Firstly, I am not sure whether increased European demand for solar energy is relevant or not. And secondly, I am not sure where to start graphing.

Tuesday, March 6, 2007

The Coase Theorem Is The Low Point Of Economic Study

Sorry to say it, but when doing my homework, I had to research what I believe to be an example of useless economic study. The idea of the Coase Theorem being in any way realistic or even ethically correct is morally wrong. The whole concept is completely preposterous.
In the reading packet, on page 211, they put forth the idea of Dick buying a dog which irritates Jane. Jane thus decides to enter negotiations with Dick with the intention to get rid of the dog. Already here there is a major flaw. Who says that Jane should pay anything for the dog that she didn't buy? If what the reading packet says is true, then Bill could just buy dogs that annoy Jane, and Jane would feel compelled to pay him for her peace. Morally wrong.
Regardless, the argument continues by saying that the dog is worth a certain value to Dick, say $500, and peace is worth a certain value to Jane, say $800. This is stupid. You can't put a value on things like these. They are not quantifiable. It would be incredibly cold and impersonal to place a financial value on something that is so priceless.

This theory goes wrong at every turn, making it the lowest form of economic study that I have encountered.

Monday, March 5, 2007

Lighting Up Rural India

http://money.cnn.com/magazines/business2/business2_archive/2006/12/01/8394996/index.htm?postversion=2007030120

Mr Welker,
Could this article be dealing with positive externalities, as the farmers have increased productivity, and could we argue that the solar power is a merit-good, as it is undersupplied in the market?