Friday, 23 November 2012

What is Economics?



Resources are scarce. At the level of the individual, time and earnings are insufficient to satisfy all that an individual wants and desires to consume. At the level of a nation, production inputs necessary to satisfy the goods and services citizens want are scarce. Accordingly, nations as well as individuals have to make difficult decisions regarding the use of scarce resources in the production of goods and services that are demanded.


Every choice individuals make involve an opportunity cost. Every choice made by communities and by nations involves opportunity costs.

Choices are necessitated because we as individuals and collectively as communities and nations, always want and desire more relative to the availability of resources to satisfy those wants.

The Production Possibilities Model is a powerful tool that illustrates scarcity and the need to make choices and opportunity cost.







Choosing more of one alternative involves greater opportunity cost principally because increasingly more resources must be given up that could have been used to satisfy other demands. For example, going to graduate school becomes more expensive than attending college as an undergraduate because earnings as graduate with a bachelor’s degree are foregone. Another example would be a nation that moves resources in the direction of fighting cancer and away from funding education finds that foregone education becomes increasingly costly as fewer individuals possess the skills to be productive workers.


Economic growth moves the production possibilities curve rightward and while not eliminating scarcity, does permit the consumption of more; economic decline moves the production possibilities curve leftward and implies less consumption.

Economics is a study of rational choice, example, the selection of options that maximize the value created by scarce resources at the lowest possible cost. Microeconomics concerns decision-making by the micro units of the economy: individuals as consumers, workers, and savers; businesses as suppliers/producers, investors, and purchasers of the services of capital, raw materials, and labor skills. Macroeconomics concerns decision-making by the collective of the domestic micro units, or by foreigners, and how those choices may result in inefficiencies which move the macro-economy to under-produce relative to potential, or may result in inflationary pressures. Government exercises major influences in the decisions made at both micro and macro levels, and the study of economics accordingly includes a study of those influences.

By Anson :)

Thursday, 22 November 2012


Black Market

We used to hear the word ‘Black-market’ in every country. What is black market? How they sell in black market
Definition:
Black market is defined as illegal economic; it is a type of economic activity which takes place out of the government approval channel. They always appear when the government controls all those exchange rates which used to prevent the use of the natural exchange rates in the markets. Those things may be drugs, firearms or stolen goods which are bought and re-sold.

Actually, black market doesn't only mean that selling something illegal but also mean that selling different prices in the market too. 

For an example, before the government set a price ceiling in the market, a particular shop keep goods in stock till the price ceiling is set up and re-sold in a different price than the price ceiling.

Of course, if the seller cannot obtain the needed goods it’s because price ceiling reduces the quantity and it may return to the black market

Those sellers who are better luck or better management, receive goods in short supply can be profit by illegally selling in a higher price than the free market allows. 

Compare black market and free market, black market is higher as the quantity is less than the free market transaction, more sellers could afford to sell their product. Sometimes they may forced to buy at the higher prices when there is a shortage happens and no other place to receive these.

Command System

All  societies on Earth have developed economic systems be it in America, Asia, Europe or in Africa. An economic system is a particular set of institutional arrangements and a coordinating mechanism -- to respond to the economizing problem. The economic system determines the types of goods produced, how they get produced, who obtains them, what changes are taken into effect, and all manner of technological advances.
Economic systems have two polar extremes: the command system and the market system. I shall be writing about the command system this time around.


Command System a.k.a. Socialism
This is the symbol of the USSR, the Union of Soviet Socialist Republics. They range from countries such as Russia, Kazakhstan and Ukraine. As was the Soviet system, all of the USSR adhere to the command system. The command system is also know as socialism and communism. It was only until the end of the Cold War, that they began to reform and slowly adopted a more democratic rule in the countries. There are a few countries which still use the command system, such as                North Korea and Cuba, a small South American country.

Historical background of the communist ways right below.
Although the term communism did not come into use until the 1840's—it is derived from the Latin communis, meaning “shared” or “common”—visions of a society that may be considered communist appeared as long ago as the 4th century BC. In the ideal state described in Plato's Republic, the governing class of guardians devotes itself to serving the interests of the whole community. Because private ownership of goods would corrupt their owners by encouraging selfishness, Plato argued, the guardians must live as a large family that shares common ownership not only of material goods but also of spouses and children.

A little insight on the ways of the command system......

  • The government is the top priority. It controls basically everything in the country economically. Most property resources and economic decisions are decided via a central economic plan.
  • A central planning board is appointed by the government, making most major decisions of resource usage, output and production.
  • The board sets a quota for enterprises and allocates required resources to reach its production goals.
  • The goal of central planning is to enable planners to take advantage of more perfect information through a consolidation of economic resources when making decisions regarding investment and the allocation of economic inputs within production.
  • The implementation of this kind of economic system is sometimes regarded as planification.



Are transitions from communism to more liberal rulings possible ?

Suffice to say that, the transition from a command system to a market system has been difficult. A transition that many consider successful from a command to a market system would be the People's Republic of China. China has managed to decrease its central planning drastically and many economic decisions are now done by the people instead of a centralized government. By contrast, the Soviet Union's transition was much more problematic and its successor republics faced a sharp decline in GDP during the early 1990's. One of the suggested causes is that under Soviet planning, price ceilings created major problems (shortages, queuing for bread, households hoarding money) which made the transition to an unplanned economy more difficult.

So is it good or bad ?
Well, the good thing is that the government can harness land, labor and capital to serve the economic objectives of the state. Consumer demand can be restrained in return for greater investment for economic development in a desired manner. The country will be able to commence on large projects in an undeveloped economy instead of waiting for years and years to accumulate enough capital through light industry expansion. The state also does not need to rely on external financing.
Unfortunately, there most likely will be inefficient resource distribution. This leads to either a surplus or a shortage in a product. Most researches state that the central planners are unable to detect consumer preferences, shortages and surpluses accurately. In a market system, a free-trade price is practiced to counter these problems. According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals. Suppression of economic development and self-management also occur. This is because the planners, managers and workers do not have any incentive to actually make advancements toward higher productivity of the enterprises. They only fulfill the quota give to them by the government and that's it for them.


How did the people live then ? Was it similar to how it is now ?
A drastic difference between the lifestyles of North Korea, a country practicing the command system and South Korea, one that practices the market system.

North Korea focuses heavily on their military capabilities,
ignoring worldwide disarmament sanctions.

In North Korea......

North Korean flag




And in South Korea....


The city Seoul. Notice the citizens walking on the streets with
many product choices.



South Korean flag





Be prepared to be shocked at the financial status of these two countries :



Based on the above scales, it can be seen that the Gross National Income of South Korea far outweighs its counterpart. The difference is simply staggering.... My first expression upon discovering this :

It can be safely inferred that lifestyles of people in planned economies enjoy a huge improvement in their lifestyles when the country makes a transition to a market system. This is true in all the reformed countries so far.

                                                                                                                                                                      

Eric

BRIC - Backgrounds, Economic Growth, Future Forecasting and Science and Technology

Background


BRIC are formed by four countries, Brazil, Russia, India and China. This concept was proposed by economist, Jim O'Neil. In this four country, land coverage of both are big, total up coverage encompass over 25% of the world's land coverage. Not only that, BRIC also holding almost 40% of the world's population. A country population and demographic among other factors, directly affects the potential size of its economy and its capacity to function. So, large land coverages plus large population bring up their holding an account for more than 25% of global GDP.

Statistics
CategoriesBrazilRussiaIndiaChina
Area5th1st7th3rd
Population5th9th2nd1st


BRIC Countries: Path to 2050

As early as 2003, The Goldman Sachs, an American Multination Investment Banking forecasted that China and India would became the first and the third largest economies by 2050, while Brazil and Russia capturing the fifth and sixth spots. So that, China and India will become the dominant global suppliers of manufactured goods and services. Brazil and Russia beat the two countries with their abundance, Brazil has the largest area of farmland and forest in their world. As for Russia, the country has the richest content of natural gas, according to the data of EIA in 2007, its real reserves also rank second in the world.


Follow-up report of BRIC in 2004

The Goldman Sachs global economic team show that, in BRIC nations, the number of an annual income over a threshold of $3000 - a level consistent with an entry into the 'middle class' - could nearly double in the next three years and reach 800 million people with a decade may have crossed that threshold.


Second Follow-up report in 2007

This report complied by lead authors Tushar Poddar and Eva Yi to investigate into ' India's rising growth potential ' . In front we got said that a population could direct affect the potential size of its country's economy. Currently India has a total population of 1.1 billion and in 2030, it will surpass China to become the most populated country of the world.

CategoriesBrazilRussiaIndiaChina





Population5th9th2nd1st
Population growth rate107th221st90th156th
Labour force5th7th2nd1st

In the revised 2007 figures, based an increased and sustaining growth, more inflows into foreign direct investment. Goldman Sachs predicts that from 2007 to 2020, India's GDP per capita in US terms will quadruple and will surpass by US by 2043.

A Changing Landscape ( Report in 2010)

In late 2010, China had surpassed Japan's GDP for the first time with China's GDP standing $4667 billions compared to Japan's $4604 billion. So China thus became the world's second - largest economy after US. The next targe of China is surpass US become the number one. So according the report from Goldman Sachs , by 2030 China will became the single largest equity market in the world.

According to the NIESR based on IMF, in 2011 Brazil has become the seventh biggest economy in the world by overtaking UK with $2.28 trillion and %2.21 trillion.

List by the International Monetary Fund (2011)
RankCountryGDP (PPP) $Million
 World78,969,782[4]
 European Union15,852,690[4]
1 United States15,075,675
2 China11,299,987
3 Japan4,444,139
4 India4,420,563
5 Germany3,113,927
6 Russia2,383,364
7 Brazil2,294,178
8 United Kingdom2,287,865
9 France2,213,780
10 Italy1,846,922
11 Mexico1,666,531
12 South Korea1,554,124
13 Spain1,405,787
14 Canada1,395,374
15 Indonesia1,124,631


Billionaires Center flow form Europe to BRIC


Based on Forbes report, the number of billionaires among their combined populations are exceeding the number of billionaires in Europe, which 301 over to 300 in 2011. China has 115 and Russian has 101 billionaires, the rest 85 person are distributed in India, 61 person and Brazil which has 24 persons.

Science and Technology in BRICS 



Since year 2020, global spending on science R&D has increased by 45 percent to more than one trillion dolar. But from 2002 to 2007, BRIC had more than double their spending on this industry. India has established world-class science research institutions as well as universities to provide excellent and training for its young populations. This action is to ensure that the quality of people will increase and also increase their knowledge in this industry.

Conclusion

Until today 2012, we can discover that BRIC countries are using the rocket footstep to sync or overpass the Europe country. Especially India and China. In previous generation, people would not be hoped for this two country became the economy boss in countries Asia.

Lets said China. After Dynasty Qing of it became steadily deteriorate because they need to pay the large indemnity to Europe Country after the war. Plus, China in previous generation trust that they can be able to support oneself ( and supply one's own needs). So the foreign trade policies is not too strong. After Deng XiaoPing and the new Chinese leadership began to reform the economy then foreign trade was focused upon as a major vehicle of growth, leading to the creation of Special Economic Zones and first in ShenZhen. For India, P.V Narasimbu Rau and Nanntan Singh had official started the economy free reformation by the year 1991. They abolish the licence Raj, terminated the monopoly of government corporation, and moreover encourage the foreign trade in India. So with this kind of method, economy of India growing faster from 1991.

Brazil and Russia, they also got their own dominant position in the world although they are not the top strong economy countries in South American and Europe area. Brazil has the largest area of farmland and forest in the world, inside country got 3 hundred million tons land can be crop, it is over China's 3 times many. So that Brazil become the world largest producer of coffee, cocoa and cane. Hence, it has become the world third farm produce export country.

In BRIC, u will recognise that all of them got one collaborate point, by changing the political and economic systems to embase global capitalism. If country only got the dominant position but dont have any effective political and economic system, it's useless to have all of abundant of these. The country's economy worse or good, one of the factor will be depend on how they use their dominant position to developing. Some country like Singapore, it dont get any advantages in their land, but they can get the good GDP results compare to other countries which got more land coverage, natural resources and etc. So, having the robust political and economic system are the important point to affect the countries's GDP.

Additional Information of BRIC - Why Mexico, South Korea, Indonesia and South Africa will not include in BRIC

Mexico and South Korea

Mexico and South Korea are the two countries which considered  to ' have the capacity to become as important globally as the BRIC'. Both did not included in BRIC group because of they were already too much farther along in their economic development then the BRIC and were not likely to attain the economic stature or global influence of the original four BRIC countries.

Indonesia and South Africa

Indonesia and South Africa compare to Brazil ( the smallest GDP amount in BRIC by year 2011) , first , one of the BRIC requirement  is large population. South Africa's population of 51 million people, a fraction of Brazil's 193 millian and China's 1.34 billion people, is too small for BRIC status. Besides that, South Africa's GDP at roughly 554 million in 2011 was less than one quarter that of Brazil's about 2.29 billion.

Indonesia with a great population in 237 million in 2010 was more than 4 larger than South Africa, and briefly more than Brazil. Besides that GDP of Indonesia with 1.12 billion in 2011 was double that of South Africa. But , the only reason he cant include in BRIC is compare to Brazil, it was still less than half size of Brazil's economy.

List of countries by population
RankCountry (or dependent territory)PopulationDate % of world
population
Source
1 China[7]1,347,350,000December 31, 201119.1%Official estimate
2 India1,210,193,422March 1, 201117.16%2011 census
3 United States314,785,000November 18, 20124.46%Official population clock
4 Indonesia237,641,326May 1, 20103.37%2010 census
5 Brazil193,946,886July 1, 20122.75%Official estimate
6 Pakistan181,255,000November 18, 20122.57%Official population clock
7 Nigeria166,629,000July 1, 20122.36%UN estimate
8 Bangladesh152,518,015July 16, 20122.16%Official estimate
9 Russia143,228,300September 1, 20122.03%Official estimate
10 Japan127,530,000October 1, 20121.81%Monthly official estimate
11 Mexico112,336,538June 12, 20101.59%2010 census
12 Philippines92,337,852May 1, 20101.31%2010 census
13 Vietnam87,840,000July 1, 20111.25%Official estimate
14 Ethiopia84,320,987July 1, 20121.2%Official estimate
15 Egypt82,846,000November 18, 20121.17%Official population clock
16 Germany81,857,000April 30, 20121.16%Monthly official estimate
17 Iran75,149,669October 24, 20111.07%2011 census
18 Turkey74,724,269December 31, 20111.06%Official estimate
19 Democratic Republic of the Congo69,575,000July 1, 20120.99%UN estimate
20 Thailand65,479,453September 1, 20100.93%2010 census
21 France[8]65,350,000January 1, 20120.93%Official estimate
22 United Kingdom62,262,000July 1, 20100.88%Official estimate
23 Italy60,849,247March 31, 20120.86%Official estimate
24 South Africa51,770,560October 9, 20110.73%2011 census
25 South Korea50,004,441July 1, 20120.71%Official estimate