http://econ-dt.blogspot.com/2009/04/chapter-8-blog.html
Summary:
The article I read is from the Economy Report by ANNA WILLARD Reuters about France's flaw in her economy act as a cushion to the recession. France has been able to avoid severe impact on her economy because her economy is not majorly active like that of export champion Germany or Britain. Even though this is an advantage right now, studies reveal that this safeguard will slow down the French economy in terms of recovery compared to the other European nations. President Nicholas Sarkozy suggest a more dynamic approach to France's economy. In truth, the French economy contracted 1.2 percent for the first three months of this year according to a Reuters poll. Yet compared to the 1.6 percent for the euro zone, and 1.4 percent for Britain, France has been able to cushion itself from the decline in GDP experienced in other European countries. Yet even with the side effects of a slower economic recovery, studies reveal that France, Britain, and Germany will be recovering at the same rate in 2010. The French economy has been cushioned from the recession because of disinflation and a wage structure that prevents salaries from being adjusted during economic downturns. In addition, strict employment laws prevents companies to lay-off workers in recessionary times. Also, France's economy is not base on exports. Hence, GDP changes would not affect their economy as much as those that do rely on exports ( Germany and Britain) to stimulate thier economy. Automatic Stabilizers have also helped those struggling under the recession with unemployment benefits. Because it is expected that economic recovery will be slower than the other European nations, President Sarkozy introduce the needs for reform, especially in the labour market.
Connection
I believe the connection of this article to our text is approaches to stabilization policy. When economic conditions change for better or worse, it is the government's job to re-establish equilibrium to the change. The actions that the French economy decided to take is an excellent example of stabilization. Because they realize that their economic recovery will be slower than the other European nations, reforms in their fiscal policies are made to compensate for the cushion effect on the recession. Had president Sarkozy not suggest a dynamic approach to the economy, a stagflation is likely to result. With unemployment insurance programs and other forms of benefits, the prosperity to spend and the circular flow of money is likely to increase causing the GDP to rise. Another factor taking place in France would be the decreasing price and the rise in unemployment. In terms of Phillips curve, unemployment and inflation is inversely proportional. Hence, in order to combat unemployment in France, series of unemployment program are created at the cost of higher rates of inflation in the future.
Reflection
Although the strict employment policies are preventing workers from being laid-off in the current recession, its disadvantage lies in the long run because it will increase employer's reluctance to hire.This can prove to be a major problem becuase as the global economy begins economic recovery, employees will still be struggling to find permanent jobs and this will become a set back to the French economy who are slower in terms of recovery. As mentioned in the article, GDP can actually contract and France could experience another period of negative GDP growth. Thus, I believe that reforms need to be made not only in the Fiscal Policy, but the employment programs as well. I understand the need for discpline and strictness in times of recession. Yet, I believe that a more flexilbe approach to employment will yield the best results in terms in economic recovery for France. In truth, France's economic policies may cushion the effects of recession and provide stability. However in the long run, it hinders growth and recovery of the economy.
Thursday, May 7, 2009
Thursday, April 2, 2009
Chapter 7 Money and the Canadian Banking System
http://www.humanevents.com/article.php?id=31117
Summary:
The article I read about is from Human Events by Newt Gingrich over the bailing out of the insurance bank AIG. Americans are outraged that they are being asked to share the debt for the reckless traders on Wall Street and reckless borrowers on Main Street. They believe AIG does not deserve the 165 million in planned bonus and the 170 billion in taxpayer funds AIG has received so far is ridiculous. In addition, majority of Americans believe that Treasury Secretary Timothy Geithner did not inherit the problem of throwing billions of tax payer money to bail out, but helped create it. Even before he was Treasury Secretary, he was strongly involved in the bail out Bearn stern followed by a series of other banks. Currently, American taxpayers are going to pay $170 billion to AIG; $1,224 per taxpayer. This sum could have been gone to better cause such as: doubling the Navy’s fleet of aircraft carriers, pay for a four-year education at a public university for more than two million Americans, or cover the electricity bill of every household in America for an entire year. When we reward failure, all we get is more failure in the future. As long as Washington backs them up, their mind set will not change and will never learn from the mistakes of this tragedy.
Connection:
I believe the connection of the article to our text is bankruptcy. The problem we see today is caused by the sub mortgage prime loans. Had the investment banks not decrease the bank rate for loans to such a low rate and only lend to those who have the ability to pay back, the problems might not have been as severe. In Everyday Economics 7.2 of our text, Canada under went a similar situation in which Canadian Commercial Banks made a series of bad loans and invested in real estate. CCB received a sum of 255 million bail out package but bank confidence drastically decreased from the consumer's perspective. If there were such case in the past already, why hasn't the investment take major precautions? Yet, the magnitude of the problem this time is at a whole different level. From the Fisher equation of exchange, GDP will decrease because money supply, and the velocity of circulation of money will decrease in the next 5 years. The value of the legal tender of American dollars face significant decrease as well since consumer lost confidence in banking and chose to keep save their money rather that invest in banks. It will take sometime before consumer confidence and the prosperity to spend recovers.
Reflection:
I believed that the rationale over the fact that the recession did not affect the Canadian economy as bad as the Americans is the different systems in which banks operate. Besides the Canadian branch banking system as opposed to American's unit banking, Canadian banks are more reserved in terms of investment and huge loans. It is due to this reason that when the world economy began to decline, the amount of bad loans made by Canadian banks are minimum compared to the United States. Moreover, Canadian banks are have regulations under the government and Charter banks while the US banks have limited government involvement. Before I also believe that AIG does not deserve bail out for the money could be put forward to better use. Yet from the text, I learned that the purpose of bail outs was to maintain taxpayer confidence in the banking system as a whole. If AIG was left for bankrupt, depositors will take out their savings out of fear. If the masses decided to take such actions at the same time, it will cause even more bankruptcies. Hence, Bail outs served the purpose of restoring confidence. By saving one bank, it may guarantee the survival of others. Yet, banks take advantage of that and issue a series of bad loans. I hope that through this economic crisis, banks and investors will learn their lesson.
Summary:
The article I read about is from Human Events by Newt Gingrich over the bailing out of the insurance bank AIG. Americans are outraged that they are being asked to share the debt for the reckless traders on Wall Street and reckless borrowers on Main Street. They believe AIG does not deserve the 165 million in planned bonus and the 170 billion in taxpayer funds AIG has received so far is ridiculous. In addition, majority of Americans believe that Treasury Secretary Timothy Geithner did not inherit the problem of throwing billions of tax payer money to bail out, but helped create it. Even before he was Treasury Secretary, he was strongly involved in the bail out Bearn stern followed by a series of other banks. Currently, American taxpayers are going to pay $170 billion to AIG; $1,224 per taxpayer. This sum could have been gone to better cause such as: doubling the Navy’s fleet of aircraft carriers, pay for a four-year education at a public university for more than two million Americans, or cover the electricity bill of every household in America for an entire year. When we reward failure, all we get is more failure in the future. As long as Washington backs them up, their mind set will not change and will never learn from the mistakes of this tragedy.
Connection:
I believe the connection of the article to our text is bankruptcy. The problem we see today is caused by the sub mortgage prime loans. Had the investment banks not decrease the bank rate for loans to such a low rate and only lend to those who have the ability to pay back, the problems might not have been as severe. In Everyday Economics 7.2 of our text, Canada under went a similar situation in which Canadian Commercial Banks made a series of bad loans and invested in real estate. CCB received a sum of 255 million bail out package but bank confidence drastically decreased from the consumer's perspective. If there were such case in the past already, why hasn't the investment take major precautions? Yet, the magnitude of the problem this time is at a whole different level. From the Fisher equation of exchange, GDP will decrease because money supply, and the velocity of circulation of money will decrease in the next 5 years. The value of the legal tender of American dollars face significant decrease as well since consumer lost confidence in banking and chose to keep save their money rather that invest in banks. It will take sometime before consumer confidence and the prosperity to spend recovers.
Reflection:
I believed that the rationale over the fact that the recession did not affect the Canadian economy as bad as the Americans is the different systems in which banks operate. Besides the Canadian branch banking system as opposed to American's unit banking, Canadian banks are more reserved in terms of investment and huge loans. It is due to this reason that when the world economy began to decline, the amount of bad loans made by Canadian banks are minimum compared to the United States. Moreover, Canadian banks are have regulations under the government and Charter banks while the US banks have limited government involvement. Before I also believe that AIG does not deserve bail out for the money could be put forward to better use. Yet from the text, I learned that the purpose of bail outs was to maintain taxpayer confidence in the banking system as a whole. If AIG was left for bankrupt, depositors will take out their savings out of fear. If the masses decided to take such actions at the same time, it will cause even more bankruptcies. Hence, Bail outs served the purpose of restoring confidence. By saving one bank, it may guarantee the survival of others. Yet, banks take advantage of that and issue a series of bad loans. I hope that through this economic crisis, banks and investors will learn their lesson.
Sunday, March 8, 2009
Chapter 6 Determination of National Income
http://www.consumerenergyreport.com/2009/02/21/survey-recession-causing-fewer-people-to-go-green/
Summary:
The article I read about is from the Consumer Energy Report about the relationship between consumer's buying habits as the world enters a recession. In America, a survey reflects that the average American is increasingly losing the tendency to spend due to their recessing economy. Americans are less interested in going ‘green’ during these uncertain financial times. Hence their tendency to save has increased. Even the gala celebration of the Oscars are reported to scale back on costs and seek alternatives that are less expensive. Moreover due to economic hardship, shoppers are struggling to provide for the family. The tendency to buy enviromental friendly products has escaped consumer's mind for the price is a burden to their income during this time. Today’s shopper is looking for value,” noted Marcia Mogelonsky. “Value doesn’t mean just low prices, but health and safety benefits, quality, convenience, appeal and trust, all at a reasonable cost. Though their is still opportunities for the green market over the next few years, the recession is expected to affect sales this year greatly.
Connection:
I believe the connection of this article to our text is disposable income and consumers tendency to save during this time of recession. Currently, the world economy is not at equilibrium GDP. Because of the recession, it is human nature for people to save money to protect themselves. Hence, because more people are saving, the amount of investment in the economy will decline resulting in a decrease in the GDP. Due to the recession, disposable income for the average worker will also decrease. Because the tendency to spend is declining, it will cause the aggregate demand for goods and services to decline as well. Consumers are concerned with their well being and are more likely to save. This creates a chain reaction of lay-offs and joblesses for people because as the demand for goods decreases, their is no longer a need to maintain a great level of production. Hence, it is natural for companies to to lay-off workers to reduce cost. Yet, such actions creates a paradox of thrift. As more people save, the circular flow of money in the economy declines causing the total income earned by the people to decrease. Wages drop and there is less disposal income so they end up saving even less through the tendency to save more.
Relfection:
I believe that even though the only way to save the economy is through reviving the circular flow of money, the people are not at fault for saving. It is human nature to protect oneself before others and people believe that through saving, they have more disposable income for the future ahead. The ones that are truly at fault are those who lent out the sub prime loans which crippled the economy. Had the American banks not become consumed by greed, the recession might have been prevented. Moreover, I believe that policy of dissaving is like living on the edge. Because Americans spend more then their disposable income, the money must come from borrowing or accumulative saving. Yet, when the time comes where they cannot pay back the money, it cripples the economy as we see now. People believe that because of the recession, the recessionary gap has furthered increase from a full-employment level of GDP. Yet others believe that this recession can push the economy to a new era in which things are given a fresh start to compensate for the mistakes of the past. I hope that this optimistic view will help people move on to a better future.
Summary:
The article I read about is from the Consumer Energy Report about the relationship between consumer's buying habits as the world enters a recession. In America, a survey reflects that the average American is increasingly losing the tendency to spend due to their recessing economy. Americans are less interested in going ‘green’ during these uncertain financial times. Hence their tendency to save has increased. Even the gala celebration of the Oscars are reported to scale back on costs and seek alternatives that are less expensive. Moreover due to economic hardship, shoppers are struggling to provide for the family. The tendency to buy enviromental friendly products has escaped consumer's mind for the price is a burden to their income during this time. Today’s shopper is looking for value,” noted Marcia Mogelonsky. “Value doesn’t mean just low prices, but health and safety benefits, quality, convenience, appeal and trust, all at a reasonable cost. Though their is still opportunities for the green market over the next few years, the recession is expected to affect sales this year greatly.
Connection:
I believe the connection of this article to our text is disposable income and consumers tendency to save during this time of recession. Currently, the world economy is not at equilibrium GDP. Because of the recession, it is human nature for people to save money to protect themselves. Hence, because more people are saving, the amount of investment in the economy will decline resulting in a decrease in the GDP. Due to the recession, disposable income for the average worker will also decrease. Because the tendency to spend is declining, it will cause the aggregate demand for goods and services to decline as well. Consumers are concerned with their well being and are more likely to save. This creates a chain reaction of lay-offs and joblesses for people because as the demand for goods decreases, their is no longer a need to maintain a great level of production. Hence, it is natural for companies to to lay-off workers to reduce cost. Yet, such actions creates a paradox of thrift. As more people save, the circular flow of money in the economy declines causing the total income earned by the people to decrease. Wages drop and there is less disposal income so they end up saving even less through the tendency to save more.
Relfection:
I believe that even though the only way to save the economy is through reviving the circular flow of money, the people are not at fault for saving. It is human nature to protect oneself before others and people believe that through saving, they have more disposable income for the future ahead. The ones that are truly at fault are those who lent out the sub prime loans which crippled the economy. Had the American banks not become consumed by greed, the recession might have been prevented. Moreover, I believe that policy of dissaving is like living on the edge. Because Americans spend more then their disposable income, the money must come from borrowing or accumulative saving. Yet, when the time comes where they cannot pay back the money, it cripples the economy as we see now. People believe that because of the recession, the recessionary gap has furthered increase from a full-employment level of GDP. Yet others believe that this recession can push the economy to a new era in which things are given a fresh start to compensate for the mistakes of the past. I hope that this optimistic view will help people move on to a better future.
Monday, February 23, 2009
Chapter 5 Economic Indicator
http://economics.about.com/od/inflationanddeflation/a/cpi_2004_sept_4.htm
Summary:
The article I read is about the relationship between oil prices and inflations by Mike Moffatt. The article suggest that the theory of oil supply running out does not hold entirely valid. Theoredically, oil prices are based on two factors;the number of barrels we can extract with existing technology ( supply) and the number of barrels used worldwide in a year ( demand). Yet, it is the existing technology that is limiting the supply of oil. Hence, the article suggest that There will still be oil in the ground 10 years 50 years or 500 years from now depending on if we take a pessimistic or optimistic view about the amount of oil still available to be extracted. Furthermore, the article state that due to the depleting supply of avaliable oil and the increase in it demand because of the growing population, it causes inflation in the oil prices. However, this inflation is a natural change as compared to the oil crisis in 1970. The hyper inflation in 1970 was caused by oil producing nations deliberately cutting back on production in order to raise the world price. The current situation is a slow natural decline in the supply of oil due to depletion so we won't see huge increases in the consumer price index.
Connection:
I believe the connection of this article to our text is inflation. In the article, it states that inflation is caused by the decrease in avaliable supply and the increase in public demand. in terms of our text, these two factors are known as demand-pull inflation, and cost- push inflation. In a demand pull inflation, the demand for a product increase due to factors such as: increased income and changing expectations. These factors shift the demand curve to the right causing an increase in price. In a cost push inflation, it is anything that causes supply to decrease and the factors that causes it are: wage increases, tax increases, depletion of raw materials and energy sources. these factors shift the supply curve to the left resulting an increase in price. In terms of oil price inflations, both factor plays a role. Because of the depleting supply of avaliable oil, the production cost of oil increases and this cost is passed down to the consumers causing an increase in oil price. This is an example of cost- push inflation. Moreover, becasue the world population is growing, the demand for oil will increase. In addition, we suspect that future oil prices will be even greater. Hence, we are more likely to purchase the neccessary goods and service now. This is an example of demand pull inflation. However, the current inflation will not become a hyperinflation like that of the 1970 oil crisis for this inflation is natural whereas the 1970's was caused by oil producing nations deliberately cutting back on production resulting prices to soar.
Reflection
I agree that the current over all inflation price is acceptable. However, I disagree with the governments action over removing petrolium oil from the basket of goods. The basket of goods is suppose to be a representation of what the average Canadian uses. In Canada, oil is an important product that most Canadians use. If such a high percentage of Canadians uses oil, it should not be disregarded in the Consumer Price Index. It makes me wonder if the government are removing this product because there is a need for such a purpose or is it because they want to adjust the numbers on the CPI so that average consumers will not be shocked by the inflation rates? I also learned that the consumer price index has its shortcomings for it is a representation of retail prices not the cost of living. But because it is impossible calculate the cost of living in terms of every individual, we use CPI as a reference for no other cost of living standard is avaliable. If the government purposely takes out certain products from the basket of goods for the sake of adjusting the numbers, it will make CPI even less accurate and what is deem to represent the average consumer will be misrepresented.
Summary:
The article I read is about the relationship between oil prices and inflations by Mike Moffatt. The article suggest that the theory of oil supply running out does not hold entirely valid. Theoredically, oil prices are based on two factors;the number of barrels we can extract with existing technology ( supply) and the number of barrels used worldwide in a year ( demand). Yet, it is the existing technology that is limiting the supply of oil. Hence, the article suggest that There will still be oil in the ground 10 years 50 years or 500 years from now depending on if we take a pessimistic or optimistic view about the amount of oil still available to be extracted. Furthermore, the article state that due to the depleting supply of avaliable oil and the increase in it demand because of the growing population, it causes inflation in the oil prices. However, this inflation is a natural change as compared to the oil crisis in 1970. The hyper inflation in 1970 was caused by oil producing nations deliberately cutting back on production in order to raise the world price. The current situation is a slow natural decline in the supply of oil due to depletion so we won't see huge increases in the consumer price index.
Connection:
I believe the connection of this article to our text is inflation. In the article, it states that inflation is caused by the decrease in avaliable supply and the increase in public demand. in terms of our text, these two factors are known as demand-pull inflation, and cost- push inflation. In a demand pull inflation, the demand for a product increase due to factors such as: increased income and changing expectations. These factors shift the demand curve to the right causing an increase in price. In a cost push inflation, it is anything that causes supply to decrease and the factors that causes it are: wage increases, tax increases, depletion of raw materials and energy sources. these factors shift the supply curve to the left resulting an increase in price. In terms of oil price inflations, both factor plays a role. Because of the depleting supply of avaliable oil, the production cost of oil increases and this cost is passed down to the consumers causing an increase in oil price. This is an example of cost- push inflation. Moreover, becasue the world population is growing, the demand for oil will increase. In addition, we suspect that future oil prices will be even greater. Hence, we are more likely to purchase the neccessary goods and service now. This is an example of demand pull inflation. However, the current inflation will not become a hyperinflation like that of the 1970 oil crisis for this inflation is natural whereas the 1970's was caused by oil producing nations deliberately cutting back on production resulting prices to soar.
Reflection
I agree that the current over all inflation price is acceptable. However, I disagree with the governments action over removing petrolium oil from the basket of goods. The basket of goods is suppose to be a representation of what the average Canadian uses. In Canada, oil is an important product that most Canadians use. If such a high percentage of Canadians uses oil, it should not be disregarded in the Consumer Price Index. It makes me wonder if the government are removing this product because there is a need for such a purpose or is it because they want to adjust the numbers on the CPI so that average consumers will not be shocked by the inflation rates? I also learned that the consumer price index has its shortcomings for it is a representation of retail prices not the cost of living. But because it is impossible calculate the cost of living in terms of every individual, we use CPI as a reference for no other cost of living standard is avaliable. If the government purposely takes out certain products from the basket of goods for the sake of adjusting the numbers, it will make CPI even less accurate and what is deem to represent the average consumer will be misrepresented.
Friday, January 23, 2009
Chapter 4 Government in Canada
http://forum.canucks.com/lofiversion/index.php/t214430.html
Summary:
This article is about the effects of the economic crisis and the use of equalization payments to help provinces in need. For the first time in history, Ontario will be receiving equalization payment; a sum of 347 million dollars, announced finance minister Jim Flaherty. Equalization payment was reserved for the have not provinces. For Ontario to receive it reflects the seriousness of the economic situation. Flaherty state that because of an unstable American dollar and a weak manufacturing industry, Ontario is forced into economic hardship and will be in the equaliztion program for a while. As of 2009, the provinces not receiving equalization payments are B.C., Alberta and Saskatchewan. Alberta is seen to be immune to the economic crisisfor they have oil resources. Yet they are pushing for a co-ordinated assistance plan for the province, investors and manufacturers. With the richest provinces also asking for aid prove the seriousness of the situation.
Connection
I believe the connection of this article to our text is the effects of equalization payments in Canada. Canada follows the federalist system where it is governed at the provincial and federal level. Equalization payments purpose is to ensure provincial governments having sufficient revenues to provide a reasonable level of service to the public. Normally, the equalization payment is reserved for the maritime provinces because their economy is weakened ever since they over exerted their Cod Fishery resources. They have also been receiving stabalization payments to prevent decline of provincial tax revenue. Both programs are gained through progressive tax and is redistributed to the provinces in need. Because of the economic crisis in America, Canada is also affected causing Ontario to join the equalization program for the first time. The unstability of the American dollars has dragged the Canadian economy down.
Summary:
This article is about the effects of the economic crisis and the use of equalization payments to help provinces in need. For the first time in history, Ontario will be receiving equalization payment; a sum of 347 million dollars, announced finance minister Jim Flaherty. Equalization payment was reserved for the have not provinces. For Ontario to receive it reflects the seriousness of the economic situation. Flaherty state that because of an unstable American dollar and a weak manufacturing industry, Ontario is forced into economic hardship and will be in the equaliztion program for a while. As of 2009, the provinces not receiving equalization payments are B.C., Alberta and Saskatchewan. Alberta is seen to be immune to the economic crisisfor they have oil resources. Yet they are pushing for a co-ordinated assistance plan for the province, investors and manufacturers. With the richest provinces also asking for aid prove the seriousness of the situation.
Connection
I believe the connection of this article to our text is the effects of equalization payments in Canada. Canada follows the federalist system where it is governed at the provincial and federal level. Equalization payments purpose is to ensure provincial governments having sufficient revenues to provide a reasonable level of service to the public. Normally, the equalization payment is reserved for the maritime provinces because their economy is weakened ever since they over exerted their Cod Fishery resources. They have also been receiving stabalization payments to prevent decline of provincial tax revenue. Both programs are gained through progressive tax and is redistributed to the provinces in need. Because of the economic crisis in America, Canada is also affected causing Ontario to join the equalization program for the first time. The unstability of the American dollars has dragged the Canadian economy down.
Reflection
I believe that equalization payment is only a short term solution for the current situation. Hence I agree with the finance minister Jim Flaherty that they must re-stimulate the economy through increasing job opportunities and international trade. Moreover, if Ontario continues to get equalization payments in the years to come, investors will lose faith in the Canadian economy. Hence I think that openly saying that Ontario will be requiring funding for the years to come is a huge mistake because this will cause investors to not trust the Canadian economy. if that happens, it will be hard for the Canadian economy to pick up causing poeverty and job losses. Immediate actions must be taken so that Canada does not recess into a depression.
Sunday, November 23, 2008
Chapter 3 Government Interventions in the Free Market System
http://mises.org/story/389
Summary
The article I read about is from the Daily Arcticle by Mark Brandly. This article talks about the reason for the huge increase in oil prices and solutions to decrease oil prices. In truth, the government is responsible for the high cost of oil. The article states that there is too much government involvement in the oil industry. OPEC responded with price controls, heavy taxes, and massive government meddling in energy markets in the past to keep prices down. As a result, producers produce less oil which becomes insufficient to meet the demand causing oil prices to increase even more. This time, OPEC decided to decrease regulations and taxations for oil producers. By doing so, it makes oil production more profitable and will increase production driving oil and fuel prices down. Generally the article states that government involvement drives up prices and creates inefficiencies in oil production. The solution to decreasing oil prices lies within tax cuts and less regulations on oil producers since such actions drives them to produce more for a greater profit could be obtained.
Connection
I believe the connection of this article to our text is the effects of government intervention in the free market. In this case, too much government involvement in the oil industry caused the price of oil to increase over the past years. OPEC has always manipulated the oil price market. As a result, a price ceiling situation has occured. In such a situation, a shortage of oil supply is created and the only way to solve the problem is to shift the supply or demand curve. This is only possible by the factors of Supply and Demand we learned in chapter 2. However, such actions will just result in further government intervention in the market which means more money needs to be spent inorder to solve the problem. Moreover, excise tax is placed on oil industries which increases the cost of oil even more. When control is established, equilibrium in the market is destroyed resulting a situation where price and quantity cannot be determined unless through further government intervention. If the government is not involve in the first place and allows the market to function naturally, such problems will not happen.
Reflection
I believe that the government has taken the correct action in reducing the taxation and regulations of oil. However, there has not been much change from the year 2000 to present day. Few months ago, oil prices were as high as $1.50 a litre. However, its only at $0.98 a litre now not due to the decrease in governement involvement, but of the poor economy at the time being. The stock market affected the economy globally. Because people have less to spend, the demand for oil and other resources decrease world wide. A decrease in demand decreases the price causing oil price to become less expensive. In truth, I believe that the government did not take any actions listed in the article to reduce oil prices during the pass 8 years. Because they want to make a profit through the heavy taxations and regulations, they didn't care about the poeple's suffering of high oil prices. All this time oil prices only increased. It proves to show that the government cannot be trusted for it is filled with empty promises. In the end, it was the free market system itself that decrease the price of oil by shifting the demand curve through hurting the stock market.
Summary
The article I read about is from the Daily Arcticle by Mark Brandly. This article talks about the reason for the huge increase in oil prices and solutions to decrease oil prices. In truth, the government is responsible for the high cost of oil. The article states that there is too much government involvement in the oil industry. OPEC responded with price controls, heavy taxes, and massive government meddling in energy markets in the past to keep prices down. As a result, producers produce less oil which becomes insufficient to meet the demand causing oil prices to increase even more. This time, OPEC decided to decrease regulations and taxations for oil producers. By doing so, it makes oil production more profitable and will increase production driving oil and fuel prices down. Generally the article states that government involvement drives up prices and creates inefficiencies in oil production. The solution to decreasing oil prices lies within tax cuts and less regulations on oil producers since such actions drives them to produce more for a greater profit could be obtained.
Connection
I believe the connection of this article to our text is the effects of government intervention in the free market. In this case, too much government involvement in the oil industry caused the price of oil to increase over the past years. OPEC has always manipulated the oil price market. As a result, a price ceiling situation has occured. In such a situation, a shortage of oil supply is created and the only way to solve the problem is to shift the supply or demand curve. This is only possible by the factors of Supply and Demand we learned in chapter 2. However, such actions will just result in further government intervention in the market which means more money needs to be spent inorder to solve the problem. Moreover, excise tax is placed on oil industries which increases the cost of oil even more. When control is established, equilibrium in the market is destroyed resulting a situation where price and quantity cannot be determined unless through further government intervention. If the government is not involve in the first place and allows the market to function naturally, such problems will not happen.
Reflection
I believe that the government has taken the correct action in reducing the taxation and regulations of oil. However, there has not been much change from the year 2000 to present day. Few months ago, oil prices were as high as $1.50 a litre. However, its only at $0.98 a litre now not due to the decrease in governement involvement, but of the poor economy at the time being. The stock market affected the economy globally. Because people have less to spend, the demand for oil and other resources decrease world wide. A decrease in demand decreases the price causing oil price to become less expensive. In truth, I believe that the government did not take any actions listed in the article to reduce oil prices during the pass 8 years. Because they want to make a profit through the heavy taxations and regulations, they didn't care about the poeple's suffering of high oil prices. All this time oil prices only increased. It proves to show that the government cannot be trusted for it is filled with empty promises. In the end, it was the free market system itself that decrease the price of oil by shifting the demand curve through hurting the stock market.
Monday, October 27, 2008
Chapter 2 .Effects of Supply and Demand
the article:http://www.tradingtoday.com/26-oil-supply-demand
Summary:
The article I read about is an economic report from " Trading Today". In the article, it states that the demand for oil will continue to increase despite the high prices of oil. This is because that major economic powers such as China and India are industrializing at an incredible rate. The economic growth of these two countries impacted oil demands greatly. However, as the demand for oil continue to rise, the supply has reached a point where it can no longer keep up with the demand. In many countries, their have been reports that the production of oil will decrease as the years progress. 2008 reports confirmed that the Cantarell fields in Mexico will only be able to produce 1 million barrel a day which is a steep decline for it was able to produce a lot more years before. Moreover, Canada has oil fields that contains 1.6 trillion barrels of oil. However, the extraction process is too expensive. Hence the article suggest we must turn our attention to using an alterantive to substitute for oil.
Connections:
I believe the connection of this article to our text is Supply and Demand. If we look at Demand alone, the factors affecting oil prices are the price of substitute, demographic of population and income. Electrical energy is a substitute for oil. However, because the battery's life span is short and expensive, it is hard to increase the demand for the substitute. Also, people find it more convenient to use oil for their cars. As for demographic of population, the worlds population continues to increase. China and India have population in the billions. Hence the demand for oil will only increase because with more people, there will be a greater consumption of the resource. Lastly, China and India are strong economic powers.They have strong income which allows them to spend on resources causing an increase in demand. When we look at Supply alone, factors affecting it are technology and production cost. Becuase technology has not reach a standard where it may meet the demand of the production of oil, supply decreases as time progresses. Also, because it is too costly to extract oil deep in the oil fields, production cost cause supply to decrease.
Reflection
I agree that oil prices have been increasing for the passed few months. However as of right now, the demand for oil has decreased. As the world economy crumbles, the demand for resources such as oil also decrease because people have less income to spend. China and India are not affected as much because they are an industrial base country. Hence, their focus is primarily base on the exchange of goods not finance and stocks. However, countries like America and parts of Europe focuses on service base that includes the stock market. Hence, when the stock market recesses, there economy is hurt. As of right now, oil prices are moderate; about a dollar a litre. I predict the value of oil will continue to decrease becase people are buying less oil and suppliers continue to produce the same amount per day. In order to prevent oil price from decreasing too much, they should reduce the production to balance out the current demand.
Summary:
The article I read about is an economic report from " Trading Today". In the article, it states that the demand for oil will continue to increase despite the high prices of oil. This is because that major economic powers such as China and India are industrializing at an incredible rate. The economic growth of these two countries impacted oil demands greatly. However, as the demand for oil continue to rise, the supply has reached a point where it can no longer keep up with the demand. In many countries, their have been reports that the production of oil will decrease as the years progress. 2008 reports confirmed that the Cantarell fields in Mexico will only be able to produce 1 million barrel a day which is a steep decline for it was able to produce a lot more years before. Moreover, Canada has oil fields that contains 1.6 trillion barrels of oil. However, the extraction process is too expensive. Hence the article suggest we must turn our attention to using an alterantive to substitute for oil.
Connections:
I believe the connection of this article to our text is Supply and Demand. If we look at Demand alone, the factors affecting oil prices are the price of substitute, demographic of population and income. Electrical energy is a substitute for oil. However, because the battery's life span is short and expensive, it is hard to increase the demand for the substitute. Also, people find it more convenient to use oil for their cars. As for demographic of population, the worlds population continues to increase. China and India have population in the billions. Hence the demand for oil will only increase because with more people, there will be a greater consumption of the resource. Lastly, China and India are strong economic powers.They have strong income which allows them to spend on resources causing an increase in demand. When we look at Supply alone, factors affecting it are technology and production cost. Becuase technology has not reach a standard where it may meet the demand of the production of oil, supply decreases as time progresses. Also, because it is too costly to extract oil deep in the oil fields, production cost cause supply to decrease.
Reflection
I agree that oil prices have been increasing for the passed few months. However as of right now, the demand for oil has decreased. As the world economy crumbles, the demand for resources such as oil also decrease because people have less income to spend. China and India are not affected as much because they are an industrial base country. Hence, their focus is primarily base on the exchange of goods not finance and stocks. However, countries like America and parts of Europe focuses on service base that includes the stock market. Hence, when the stock market recesses, there economy is hurt. As of right now, oil prices are moderate; about a dollar a litre. I predict the value of oil will continue to decrease becase people are buying less oil and suppliers continue to produce the same amount per day. In order to prevent oil price from decreasing too much, they should reduce the production to balance out the current demand.
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