Economics Internal Assesment
COMMENTARY COVERSHEET Economics Commentary Number: HL Number 2 Title of Extract: India central bank cuts key interest rates Source of Extract: The International Herald Tribune Date of Extract: 07/12/2008 Word Count : Date the Commentary was written: 19/05/2009 Section of the Syllabus to which this commentary relates: Sections 3.3 Candidate Name: Abhishek Puri The impact of the global financial crisis on India has been export centric. As a consequence of the crisis, steeply diminishing export growth has resulted in low business confidence and a decrease in industrial production naturally, has been observed. As a result, India's economic growth decreased from roughly 9.0% to 5.3%. One must establish that Fiscal Policy is the set of a government's policies relating to its spending and taxation rates. Fiscal Policy is generally the preferred means to stimulate the economy as money is directly injected into the money supply of the economy. However, the Indian government doesn't have the capability to base the country's economic revival on fiscal policy due to large fiscal deficits. India has chosen to primarily use monetary policy, which is most effective in controlling an expansion rather than encouraging it. This is because the central bank can effectively force banks to cut lending but can't make banks lend out excess reserves or investors to borrow more money in
Aggregate Demand
Aggregate Demand Aggregate Demand: The total amount of spending on goods and services in a period of time at a given price level --> a change in price level will result in a movement along the AD curve; a change in any other components of aggregate demand will cause the AD curve to shift Consumption (C): The total spending by consumers on domestic goods and services --> we look at two different categories of goods, durable goods and non-durable goods What causes changes in consumption: a. Changes in income: The most significant determinant of consumption; as income rises, people have more money to spend, so consumption naturally rises b. Changes in interest rates: If there is an increase in interest rates, then there is likely to be less borrowing, and therefore less consumption --> people would rather put money in banks to earn money rather than spend it c. Changes in wealth: Wealth is the assets that people own --> if house prices or stock market prices go up, people might feel more confident and therefore increase consumption d. Changes in expectations/Consumer confidence: If people are optimistic about their economic future then they are likely to spend more money --> measured by "consumer confidence index" Investment (I): The addition of capital stock to the economy, investment is carried out by firms; it includes all goods that are made by people and are used to
Monopolies or Perfect Competition
What is better for the consumer: A Monopoly, or Perfect Competition? A Monopoly is a market structure in which only one firm controls the entire market without any close substitutes. In contrast, Perfect Competition is a market structure in which there are thousands of buyers and sellers where all firms are price takers and always make normal profit in the long run. In a monopoly however, because it has barriers to entry they have no competition for their product and firms tend to gain large abnormal profits in the long run which is bad for the consumer, but good for the firm. These barriers to entry are that they have very high Abnormal Profit is when any profit is gained over and above the normal profit level. Normal Profit is when a companies total revenue is equal to its total cost including opportunity cost. This means that consumers pay much more than necessary for their products because the price at which the firm sells them for is much higher than the cost of the actual production of that product. Although, monopolies can also be positive in that when only one firm controls a whole market because this causes economies of scale meaning that the average cost per unit can go down making the goods cheaper to produce meaning a lower price than there could have been had there been more firms producing because their average costs would be higher. Despite some of the
Commentary on six Economics Articles
Janaki Dasari Professor Mr. Mayer Microeconomics 102 2 November 2009 Microeconomics, the study of the economic behavior of small economic groups such as firms and families, is one of the largest subfields in economics. The general concern of microeconomics is the efficient allocation of scarce resources between alternative uses but more specifically it involves the determination of price through the optimizing behavior of economic agents, with consumers maximizing utility and firms maximizing profit. The following articles will discuss more about the economy of our nation as well as globally. Local articles: According to Patricia Daddona, in her article "State Jobless Numbers Up, But Local Area not So Bad" t across the state, six of 10 major employment sectors were hit with job losses, three gained, and one remained stable. The biggest losses occurred in the trade, transportation and utilities segments of the state economy, down a total of 3,400 jobs, and in professional and business services, down 2,900 jobs. Other losses were registered in education, health services, manufacturing and financial services. In contrast, leisure and hospitality gained 1,400 jobs, government added 1,300 jobs, and construction added 1,200 jobs and the information sector level stayed the same. Daddona says "We thought there was going to be some let up, so we were a bit surprised (at the
Economics Macro commentary
COMMENTARY 1 Title: Ferry operators ask for Subsidy Source: The Jakarta Post Date of publication: 06th February 2009 Section of the syllabus: Microeconomics Word Count: 711 The article talks about the Ferry operators in Indonesia asking for subsidy from the government due to several reasons. 27.5% of Ferry fare income was on fuel costs thus, the government decided to cut the fuel cost by 3.5% and expected a fare cut. However, the operators have other reasons to this; the cut in fuel simultaneously increased other costs such as maintenance and minimum wage hike. "If these four costs are added together, ferry fares should have not been cut by 3.5 percent but raised by 9.8 percent." If the government doesn't concede the ferry operators demand then they would be left with two options: ) Cut in wages cost: Ferry operators would have to reduce working hours from two 12-hour shifts a day to two 8-hour shifts which will result in a decrease in wage costs. Otherwise some workers will have to be laid off due to cost cuts causing unemployment. The other aspect to this is that some people might not get the service they want at that particular hour. 2) Cut on maintenance cost: 34% of the fare income is spending on maintenance of the ferry, and a high part of the income is spending on spare parts. Cutting down on maintenance cost would affect the safety of the customers.
Does supply or demand side economics work better?
Does supply or demand side economics work better? All these bailouts and now Obama is going to cut taxes for the middle and lower classes. Politics aside, I wonder if cutting taxes for employers would stimulate the economy more than cutting taxes for employees. Supply side economics is a forward looking approach to economics. It's widely agreed that long-term growth in the economy comes only from the supply side. Demand side fiscal policy is disputable in terms of how much it will work. monetary policy works pretty well but in the end demand can only be controlled for so long. In the long run the economy returns to a long run equilibrium, which is entirely determined by long run supply. Supply side policies are best going into the future. Cutting taxes for employers is a fantastic policy. Unfortunately as we've seen recently, most people only view that as being tax cuts for the rich. People forget that there is a difference between a rich person and a company. Finally though, there will be a supply side effect from all tax cuts, even if it is cuts to poorer people. It will effect the marginal cost of each hour they work, and therefore labour supply. If people are paying less tax they will be more inclined to take jobs, perhaps at lower wages. But yes your logic is sound. In the current situation it has to be demand side economics. Wikipedia: "To the supply-side
Failing Auto Industry In Detroit
This article is about the effect on the local Detroit auto suppliers when the October monthly demand for new vehicles from General Motors, Ford and Chrysler, dropped substantially compared with that of the same time last year. This article presents many interesting points about Economics, and the concept of demand1 and supply2, income elasticity of demand, can be applied to this situation. The supply failure of auto parts is mainly because of the remarkable drop in demand of the new vehicles due to the recession. Income elasticity of demand (YED) is a measure of how much the demand for a product changes when there is a change in the consumer's income. The income elasticity of demand for vehicles, which can be classified as a superior good, tends to be high. In this case, when the consumer's annual income decreased due to the recession, they stopped purchasing vehicles, which are non-essential, and shifted the demand curve for new vehicles from D to D1. Furthermore, consumers now have very negative expectations for the economy because of the recession. In this case, change in one of the determinants of demand called expectation, as when car buyers would not make such a commitment to own a vehicle when they can't even secure their jobs. The unwillingness to purchase new vehicles during the recession from any of the local Detroit automakers also shifted the demand curve from D
Commentary on News Article
COMMENTARY COVERSHEET Economics commentary number: (circle) SL: Practice 1 2 3 4 Title of extract: Biofuel demand makes food expensive Source of extract: BBC News, Chicago, http://news.bbc.co.uk/2/hi/business/6481029.stm Date of extract: 23 March 2007 Word count: 830 words of commentary Date the commentary was written: 20/01/2009 Commentary relates to these syllabus sections: Section(s) 1 2 3 4 5 Candidate name: Aleksandar Stupar Candidate number: n/a Commentary The article above talks about the increasing demand of corn, because more and more companies that are producing ethanol are demanding corn; since it has been discovered that corn can be used to produce biofuels, such as ethanol. However, this raising corn demand has had also a negative effect, as people who regularly used corn can not afford it's price anymore. There are many determinants which are now affecting the demand of corn, these include prices, rent, multiple uses, and preferences. The prices of corn have now gone higher then they were before, even for normal daily products where corn is involved. For example, now that corn is in high demand the prices on products such as "tortillas" mentioned in the article have gone up. This has a negative effect on the population, since some people can not afford anymore to buy the amount of tortillas they
Old IB Questions
Problem Set 3 Theory of a Firm Part A: Short Answer . Using a suitable diagram, predict what is likely to happen to efficiency when a competitive industry is monopolized. Perfect competition is a market structure in which there is large number of firms in the industry. Each firm has no control over the price at which it sells its product because of the large number of firms; each firm's output is a very small fraction of the total output of the industry, so it cannot influence price. All firms in the industry sell an undifferentiated product; from the consumers' point of view it makes no difference from which firm they buy the product, as it is exactly the same in all firms; and there are no brand names. There are no barriers to entry into the industry; any firm that would like to enter the industry and begin producing and selling the good or service can do so freely. Lastly, there is perfect knowledge in perfect competition; thus all firms and all consumers have complete information regarding products, prices, resources and methods of production. This assumption ensures that no firm has access to information not available to all others that would allow it to produce at a lower cost compared to its competitors. Monopoly is a market structure in which there is a single firm in the industry. That firm has significant control over the price at which its product is sold in
'Cigarette tax hike would benefit Tennessee residents' discuss.
Cigarette tax hike would benefit Tennessee residents ) a) indirect tax is when the firms collect the tax and then pay the government b) Specific tax is when the same amount of money is taxed for a specific unit of a good or service. 2) Today the indirect tax for a cigarette is the specific tax of 1 cent a cigarette; the consumers of cigarettes in Tennessee will not be paying a lot of tax for their consumption of the demerit good, a good which has a negative spill over on the society. Figure 1. However if the specific tax goes up, there will be a change in the supply curve to be steeper and the government revenue from sales of cigarettes. However because the good is assumed to be inelastic, the incidence of the tax will fall on the consumer as can be seen in Figure 1. Nevertheless the producer will also suffer from the tax raise; its total revenue was has shrunk. "In Tennessee, studies show 14,500 youths become regular smokers every year." This new legislation is thought to bring this number down and decrease the market for cigarettes. If there are less people who begin smoking than those who quit or die, then the market for cigarettes will gradually decrease until there is no demand for cigarettes left. 3) Because the government is raising tax for cigarettes, they are also lowering tax for food. If food is assumed to be elastic, its responsiveness to price is high,