Archive for March, 2010

Reflection on Data Response

March 31, 2010 · Filed under 3. Macroeconomics · Tagged , , ,

For this Data Response, I got 20 out 20. I think that diagrams and graphs were crucial in the data response. I have labled the graphs appropriately and had apt explanations for the graphs. I think that is how I got an unusually high score. However, there was one drawback of my data response. My handwritng was too illegible. The IB grader might have been angry when he/she was grading me. So, I thought that I had to improve my handwriting so that it easy to write swiftly, but it is illegible to the grader.

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Intro to Macroeconomics

March 29, 2010 · Filed under 3. Macroeconomics · Tagged , , , , , , , , , , , , , , , ,

Today in the class, we have learned simple diagrams about the economic transactions between firms and households. As you see in the diagram, the households provide factors of production (FoP) to the firms. Firms gives wages or rent for the factors of production provided by the households. The firm then provides the service or good by using these factors of production to the households. The households in reture gives payment to the firms for the service or the good.

We have learned about several economic terms such as GDP. GDP means Gross Domestic Product and it is the Total Value of all Spending in an Economy. It is the Total Value of all final Goods and Services in an Economy regardless of who owns the productive assets.

Unlike GDP, GNP encounters for the total income earned by a nation’s factors of production regardless of where the assets are located. For example, lets say that there is one British businessperson doing business in Japan. His buisness is part of Japan’s GDP, but it is not part of Japan’s GNP. It is the part of UK’s GNP.

GDP per capita is GDP divided by population of that country. It is often used to show how much wealth each person has. However, there is one flaw with this index. If there is a huge disparity between the rich and the poor, like in United States, this value means less compared to when there is less disparity between rich and poor. According to Ms. Q in the class, only 1% of United State’s population owns 49% of financial wealth. So, GDP per capita is not always accurate.

GDP per capita is often used to evaluate one country’s standard of living, however, as it was stated, it is not always accurate. For example, there could be several trillionares and billions of poor in a country. As an alternative, many scholars use HDI to evalute standar of living of countries. It encounters for life expectancy, literacy rate, education, public health system, and etc. It looks at the different point of view compared to GDP per capita. According to the lecture today, Cuba has less thant 5000$ per capita, however, it has almost 100% literacy rate, which shows that it has high standard of living.

Extra Info: GDP can vary according to the country’s currency exchange rate to USD. As GDP is in US dollar, other foreign countries have to convert their currency to USD. For example, if the exchange rate goes down (value: Foreign currency<USD) the total GDP of the nation decreases. On contrary, if the exchange rate goes up, the total GDP of the nation increases dramatically. So this is one drawback to GDP.

There is an economic index called PPP that covers up the problem of GDP. “Purchasing power parity exchange rate is the exchange rate based on the purchasing power parity (PPP) of a currency relative to a selected standard (usually the United States dollar)” (wikipedia.org) So it gets rid of the exchange rate drawback of GDP and gives more reliable data. However, there is one problem with this also. It is very difficult to measure the differences in quality of goods.

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Japan’s Victory Against Bluefin Tuna Ban – Negative Externality

March 19, 2010 · Filed under Current Issues · Tagged , , , , , , ,

Yahoo News: Click Here

Al Jazeera English: Click Here

Financial Times: Click Here

According to Yahoo News, Japanese fish dealers on Friday welcomed the rejection of a proposed trade ban on Atlantic bluefin tuna — a prized ingredient of sushi — while urging that existing quotas be more strictly enforced to protect the species from overfishing.

When I saw the news on NHK, the Japanese national television channel, it reported how Japanese people sighed with relief.

Japan consumes about 80% of bluefin tunas caught in the world, and this has created the problem of possibility of extinction of bluefin tuna. In fact, according to Financial Times,  scientists estimated that bluefin stocks have fallen by 75 per cent since the 1950s. Large fish now sell for tens of thousands of dollars.

Japan’s consumption of bluefin tuna had the negative externality of decrease in the number of bluefin tuna and the possible extinction of the tuna. This will be explained a lot better if you loot at a diagram.

As you see the Diagram, Japanese consumption of bluefin tuna is creating a negative externality of decrease in the number of the species and possible extinction of the species. The current consumption curve is on MPB which should be on MSB that reflects these negative externalities. Point(Q*,P*) is the optimum point where it is considered appropriate for the price and the quantity consumed for the bluefin tuna. The US and the European countries tried to ban the consumption of bluefin tuna in order to overcome this negative externality, but they were defeated by Japanese lobbyists and many bluefin tuna fans.

Personally, I am a great fan of tuna and sushi so I was grateful for what Japanese have done. But, I wasn’t that happy because I realized that there were these kinds of negative externalities associated with my lovely consumption of tunas 😦 I think that Japanese should increase the number of bluefin tunas by making a tuna farm. That way, it’ll increase the quantity the supply of tunas and decrease the price of it making it happy for the consumers like me 🙂 I’ve heard that it is hard to ‘cultivate’ or raise these big fish in a isolated pools, but I hope that Japanese fishery industries develop a way to ‘cultivate’ (I don’t know other apt vocabulary to replace this) them.

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Kim Jong-Ill’s Furtive $4bn ‘Emergency Fund’

March 17, 2010 · Filed under Current Issues · Tagged , , , , , , , , , , , , , ,

Kim, Jong-Ill with his gang

The Daily Telegraph: Click Here

According to Telegraph, Kim Jong-il, the Supreme Leader of North Korea, has a $4 billion (£2.6 billion) “emergency fund” hidden in secret accounts in European banks that he will use to continue his lavish way of life if he is forced to flee the country.

South Korean intelligences announced that the most of the money was held in Swiss banks, however, Kim Jong-Ill started to transfer them to banks in Luxembourg.

Most of the money is gained from the selling its nuclear and missile technology, making narcotics, insurance swindle, the use of forced labour in its vast gulag system, and the counterfeiting of foreign currency.

I used to live in Kuwait located across the gulf of Middle East, and I remember lots of North Korean laborers working outside under 45~50° Celsius of heat building roads. At the time I thought that they were rightfully paid. However, I realized now that they were actually being exploited to satisfy the pocket of North Korean dictator Kim Jong-Ill.

Let’s get the question of why these banks are ‘hiding’ this unlawful money for Kim Jong-Ill. Ken Kato, the director of Human Rights in Asia answers this well.

“Somewhere in the world, there are bankers who are earning a large sum of money by concealing and managing Kim Jong-il’s secret funds, and at the same time, almost nine million people in North Korea are suffering from food shortages,” he said. “I believe the secret bank accounts are now in Luxembourg, or have recently been transferred from Luxembourg to other tax havens.”

So what Ken Kato basically say is that these banks are making profit from hiding Kim Jong-Ill’s secret fund. They can invest, speculate, and profit by using this illicit money. This was the case for banks in Swiss also until they strengthened the regulations related to it. The so-called ‘black money’ from dictators around the world has made these banks’ pocket full of money.

Kim Jong-I’ll is surely the cruel traitor of the Korean people. He could have used 4 billion dollars to recover the economy and most importantly he could have used it for feeding 9 million North Koreans who are starving. It really doesn’t take that much of money (looking at Kim Jong-Ill’s pocket full of money) to buy the rice to feed the people.

Let’s look at the international rice price.

Rice Export Prices

(US $/tonne)

Thailand

Vietnam

California

Pakistan

Egypt

332

407

1102

380

760

<The FAO Rice Price Update – January 2010: Click Here>

As you see in the chart above, the cheapest rice you can get is for $332 per one ton of Thailand rice. Okay, lets calculate how much money is needed to feed the poor undernourished North Korean people. According to South Korean standard, people in average eat less than 10 kg of rice per month.  So we are going to assume that the normal nourishment required for North Korean people will be 10 kg per person. $332/1000kg = $3.32/10kg. So it requires 3.32 dollars to feed a person for a month. Multiply 3.32 by the North Korean population. 3.32 x 23,110,000 = 76,725,200.

So you only need about 77 million dollars to feed the starving people. Compare 77 million to 4 billion. It only costs 0.02% of the furtive emergency fund that Kim Jong-I’ll is hiding in those banks in Europe.

Using 0.02% of this ’emergency fund’ to buy food supply will not only save the people from starvation, but also helps them to recover economy significantly. How could this help the North Korea economy to recover? Simply by feeding the people, the factories could operate properly by having nourished labor force. It’ll will also be a great incentive for the laborers to work hard as their standard of living is obviously extremely low. They’d be smiling not with one of those ‘forced, unnatural smiles’ but with genuine smiles of happiness even with meager amounts of rice. (it is sad, however).

Or, he could just sell one of those cruises and he’ll be able to feed millions. He will be forever remembered as a traitor of his people if he keeps billions of dollars rotting in European banks. Also, the banks that are ‘hiding’ Kim Jong-Ill’s money will be difficult for them avoid criticism for letting 9 million people die from starvation. These banks should freeze his unrighteous money and should follow the UN’s economic sanctions on North Korea.

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US vs. China – Currency Dispute

March 15, 2010 · Filed under Current Issues · Tagged , , , , , , , , , , ,

New York Times: Click Here

BBC News: Click Here

According to New York Times, the Obama administration is pressuring China to stop the devaluation of yuan, a policy that fuels its persistent trade gap with the United States.

Obama administration claims that China is artificially manipulating its currency to boost up its export to US. However, Chinese premier Wen Jiabao has denied that its currency is artificially devaluated.

Why are United States and China growling at each other for this issue? It is all about trade: Export and Import.

As many of you know, China is one of the biggest exporters. You may at least have a random product that is made from China. China gets all the ‘income’ or money from exporting its goods to other foreign countries, especially United States. So it is important for China to have yuan to USD exchange rate lower in order to export a lot of their stuffs to United States. It makes their products cheaper, so they gain a great price advantage over United States.

In United States point of view, this could be disturbing to them. Obama administration has promised to make like 2 million job places for its people. However, excessive import from China is one obstacle to their economic recovery. Also, United States have lots of exporting companies that are losing the price competition to Chinese exporting companies. So, Obama administration is pressuring China to raise their exchange rate. Obama administration also fears that China is stealing American jobs.

As for China, there is no way that they are going to reevaluate their currency even if they are artificially manipulating it. The export is the main steam engine of China’s economic development so it will most unlikely give up on the low yuan. For United States, their ‘precious’ money goes into Chinese government’s pocket, which they think it should be used in order to recover their economy. They are importing more than what they are exporting to China.

In conclusion, I don’t think China will ever reevaluate its currency even if they are actually manipulating it. This dispute is just aggravating the US-Chinese relationship.

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Data Response: Trees

March 15, 2010 · Filed under 2. Microeconomics · Tagged , , , , , , , , , ,

What are the external costs/benefits of trees?

(a) (i) Negative externality are the bad effects that are suffered by a third party when a good or service is produced or consumed.

(ii) Positive externalities are beneficial effects that are enjoyed by a third party when a good or service is produced or consumed.

(b) Graph 1: Negative Externality of Tree Branch

Branches falling in a neighbor’s yard could be considered a negative externality looking at several points. If branches from trees fall in a neighbor’s yard, the neighbor would have to take his/her time to clean the branches up. Many business people think of time as money. The time the neighbor has to take to clean up the branches could be converted to a monetary value. Also, the ‘labor’ of cleaning up the branches also could be converted to a monetary value. In addition, if a neighbor suffered psycologically by the constant falling of branches from his/her neighbor tree can be conpensated by money. However, many ‘modest’ or ‘ordinary’ neighbors would not complain about it fearing the relationship with his/her neighbor could get bad. As it is illustrated in the graph, the time, labor, and psycological suffering of falling branches is not reflected in the graph. So this falling of branches from the nieghbor’s tree could be considered a negative externality.

(c) Graph 2: Government Intervention to Stop Negative Externality

Government could intervene if a neighbor complains to the local authorities about this annoying branches. A government could put a tax on a neighbor’s tree for having these ‘significant’ negative externalities and put a curve of MPC up to MSC in the graph 1. Or, the government could persuade the neighbor to cut down trees or clean up the branches him/herself and move the curve of MPB down to MSB in graph 2.

(d) If a government taxes on the neighbor for the falling of branches, it eventually lower the number of branches falling on the poor neighbor’s garden, however there are some drawbacks. The neighbor getting taxed would have monetary loss for his/her tree’s wrongful acts. To explain this graphically, in the graph 1, the number of branches falling decreases, however, cost of branches falling increases. Therefore, it is hurting the neighbor of the wrongful tree. However, if the government persuades the person to either cut down trees or clean up the branches him/herself, it will both let both neighbors to benefit. The owner of the tree can still keep the tree and the neighbor would not have to suffer from the branches falling of the tree. As illustrated in graph 2, it both lowers the cost and quantity of falling branches. So the best way for the government to do is to persuade the owener of the tree to clean up the branches falling off from the trees.

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China’s Skyrocketing Oil Consupmtion

March 14, 2010 · Filed under Current Issues · Tagged , , , , ,

China’s Astonishing Rate of Oil Consumption

BBC News: Click Here

The Heat Zone: Click Here

According to BBC News, China’s demand for oil jumped by an ‘astonishing’ 28% in January compared with the same month a year earlier. As the headline tells us, China’s consumption of oil is skyrocketing as it tries to fulfill the energy hunger engendered by rapid economic growth. There are many concerned voices that this ‘astonishing’ (for some, ‘horrifying’) consumption of oil could stir up several ecological and economcial problems.

First off, many are concerned that this incredible rate of oil consumption will eventually result in depletion of oil. The concern for the depletion of oil was an old issue for industrial countries, however, this issue recently became an hot potato because of China’s increasing consumption of  oil. Some analystist say that as China’s consumption of oil increases tremendously the world supply of oil can be depleted earlier than expected. It would certaintly stir up sever problems if the supply of oil depletes. It might be difficult for both developing and developed countries to even sustain itself.

Secondly, China’s tremendous consumption of oil has several negative externalities. For example, it could emit tons and tons of CO2 in the atmoshpere which in turn will aggravate the global warming. In the graph above, the external cost to the society is not reflected in the current oil market price. It is at the curve of MPB, which should be at MSB. In my opinion, even though the market price for oil reflects the external cost and the curve on MSB, China’s consumption of oil is so high that it will do no good.

As you see in the graph above, the demand for oil is much higher than the supply. The demand is always higher than the supply and that is why market price of oil is high (about 80$ or above for a barrel). However, with higher demand by China, the price for the oil will increase significantly. Therefore, with extremely high market price for oil, many developing countries (other than China) will have a great difficulty in their economic growth and development. It will also affect the developed countries by some extent. In my opinion, the countries importing oil, like Japan, will be hurt the most.

In conclusion, China’s increase in consumption of oil could stir up many problems such as depletion of oil, global warming, and high market price for oil.

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Data Response: Clean Coal

March 13, 2010 · Filed under 2. Microeconomics · Tagged , , , , , , , , , , , , , , ,

(a) (i) Negative externality occurs when the production or the consumption of a product creates external cost to the society. For example, consumption of cigarettes can result in high possibility of cancer and air pollution.

(ii) Welfare loss occurs when there is a negative externality in the market. There is a loss of welfare when this negative externality is not reflected in the price mechanism.

(b) Graph 1:

Coal fired power stations produce negative externalities such as air pollution and acid rain. As you see in the graph, external costs of air pollution and acid rain are not reflected on the price. The production of electricity by usage of coal should be on the curve MSC, which rightfully reflects the negative externalities of the production. Instead, the curve is on MPC, which does not reflect the negative externaltities. Therefore, this engenders the welfare loss which is colored black in the middle of the graph.

(c) Graph 2:

In order to solve this problem, the government must intervene to overcome this market failure. The best solution to overcome this problem is for the demand for such polluting energy to go down. As you see in the graph 2, as demand goes down, the product becomes much cheaper and the consumption lowers down lessening the negative externalities of air pollution. The government could advertise not to excessively use the energy produced by the coal. However, this sometimes this method would not work. If this method does not work, government should use the last method of taxation on the production of the electricity by coal. This method is less-desirable than the first method. Although the consumption goes down, the price for the electricity goes up. So this would hurt the consumers.

(d) If the government taxes on the power stations producing electricity by coal, it will raise the price up from P1 to P* in the graph 1. This method will hurt the consumers. However, if the government tries to persuade the consumers to lower their consumption of electricity by advertisement, it will both lower the price of the electricity and the consumption. The best way for the government is to persuade the consumers not to consume electricity too much. The method of taxation should be considered as a last resort.

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Reflection on the Seminar

March 12, 2010 · Filed under 2. Microeconomics · Tagged , , , ,

Seminar Question: Is capitalism so deeply flawed that all attempts to ensure the public good are doomed to failure?

I personally thought that I was not ready enough to be able to participate in the discussion. I was prepared with the health care system, however, I found out that the discussion did not carry out as I wanted it to be. So I was speechless for 10 minutes. I barely said some few words when the discussion was somewhat close to what I have been preparing for. I thought that the discussion would surely include health care issue because I thought it was one of the great example for public good (closer to merit good however). But, the discussion went to how capitalism created disparity between poor and rich. So I was completely unprepared.

I think that I should have been prepared for any subject that might be discussed in the seminar. I felt that I was not efficiently participating in the seminar.

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Disadvantages of Private Health Care

March 11, 2010 · Filed under Current Issues · Tagged , , , , , , , ,

Economics Help: Click Here

1. Inequality

People who are low in income will have greater burden of medical fees than those with high income. Also, people with high income usually have medical insurance covered by their employing company. But, people with low income usually don’t have a medical insurance covered by their employers.

Children, students, or those with no jobs will not have a medical insurance. Some companies cover medical insurance for the employee’s children, however, majority of companies simple do not because of its expensive cost. So, children or student are vulnerable to injuries or disease as the medical fee will be so expensive for them.

2. Health Care is is a Merit Good and it has positive externalities.

Health care is indeed a merit good. However, in a country with many privatized hospitals, the consumption or usage of medical service is lower than the optimum consumption. So medical market fails due to under-consumption of medical services. So governments should intervene and support the health care.

Also, many people know that health care creates some positive externalities. A good medical system can contribute to a successful economy. An economy will be improved by people being treated quickly/efficiently which will help the improvement of labor productivity. In free-market system, this positive externality is ignored and therefore the health care market fails.

3. It is expensive.

Private hospitals do have motives to make profit out of medical services. You can quote on Adam Smith that all human beings are motivated by private profits. So, usually privatized hospitals charge its patients higher than government-owned hospitals. It is because the medical fee is not supported by the government. Also, they must have marginal profit so they would have raise the medial fee.

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