The Euro. One Currency Many Cash Policies.

Grasping the Monetary policy concept with, the Euro Zone.   

The most ambitious project of the European Union much more profound than the EuroFighter is at risk today. Monetary policies are going to play a crucial role in revitalising the euro. This article is going to touch on the supply, interest rates and initiatives to boost economic growth that are taking place through this policy. These policies will have a major contribution to the current euro zone crises. Trying to understand the policies being adapted and linking monetary policy concept with this real case study.

The supply of the Euro is controlled by the European Central Bank (ECB).Currently headed by Mr Mario Draghi. This banker has an extremely challenging job on his hands. The graph below shows the money released into the market by ECB and its circulation. 

The graph above gives us an idea of the amount of bank notes in circulation.The data is from July 2009, keep in mind the euro crises surfaced at about the same time. As we take an overall view of the graph, take note of the general trend of increase in the circulation of the Euro. This indicated that from July 2009 to July 2012 the ECB was adopting an expansionary monetary policy. This sort of policy usually involves increasing the money supply. Take a look at the the line right after July 2012 you will notice there is a downward trend.This may be an indication that the ECB is now concerned about inflation.Its about time they put in some measures as the CPI for the third and fourth quarter was above the predicted level.The notorious riots by the Europeans have also made this very clear.

As of October 2012 the Euro-zone interest rates are at 0.75%.The prime reason to hold the rate is to curb inflation,specially the rise in CPI.Which for peculiar reasons is recently violently spiking.The reasons are not  that peculiar considering the rising commodity pressure and excessively weak aggregated demand.Among other reasons the ECB is also trying to promote economic growth by holding rates down.It hopes to make borrowing cheap which may convince people to start new business or increase consumption.The later will help deal with low aggregated demand.The hope of a much expected recovery in real terms in the coming quarter is now disintegrated with regards to Mr Draghi's decision to hold the interest rates.The graph below shows the Harmonised Index of Consumer Prices (HICP) on monthly bases from October 2008 to October 2011.

The above graph shows how the HICP is fluctuating and this directly impacts price stability.Price stability is another crucial component of the monetary policy.The ECB measures price stability as a year-on-year increase in the HICP. Currently the Index lies at 2.5 and has been fluctuation within 2.3 and 2.7 since the start of 2012.It is more or less the same as the CPI.The price stability in the euro zone is not very good. Price stability in the midst of a crises is something extremely difficult to attain.It is expected to worsen as oil prices will start to recover due to the winter.The general trend seems more or less in line with what you would expect while a crisis that seems to stretch on forever.

Google Ruled a Monopoly

Google is the famous search engine and become top choice of internet search engine for many years. It is hard to find another search engine which as accurate as Google. Despite all of that, Google just applied a monopoly market at some point.

Google manipulate other platforms to use their search engine too, and furthermore, google made other applications which is identical to other IT firm’s application like Google Docs (identical to Microsoft Office), Google + (identical to Facebook), or Google sites (identical to Blogspot) in order to fully control the internet market.

Google is considered a monopoly theory because it has very little subtitues. If you ask some internet users for a decent search engine, more than 6/10 of the people will state that Google is the only decent search engine they have ever used. They only use other search engine like Yahoo! Or Bing if they have other occasion other than searching and browsing. Moreover, some people who are new to the internet  dont even know other search engines than Google. Teachers usually educate their students who are new to the internet with Google search engine or Yahoo! E-mail services at first, so that the students won’t even bother to seek other search engines than Google or Yahoo!.

A monopoly is a market with firm that produces a good or service for which no close substitute exists and that it is protected by a barrier that prevents other firms from selling that good or service. Monopoly arises for two key reasons, one is due to where which there are no close substitute and secondly, due to barrier to entry. If a good has a close substitute, even though only one firm produces it, that firm effectively faces competition from the producers of the substitute. A monopoly sells a good or service that has no good substitute. For example, Google is brilliantly accurate at guessing at what people might want to search when they type something in the search box, and yet they set the searching preferences to the searcher’s country. So far, there are no other search engines that can be like Google. That is why Google is the perfect website for newcomers to study about the internet, and yet, new internet users are born each day.

Another reason why I think Google is considered a Monopoly theory is because Google applied to conquer the internet is providing a free “office documents” application similar to Microsoft Office. Rather than buy the expensive Microsoft Office to do the office sheets, Google are providing a simple, portable, easy to distribute, and free Google Docs, which is basically the same as Microsoft Office, but in a very convenient way. They even make the work sheets become accessible with Microsoft Office so people can edit their work without internet connection. This indicates that Google are trying to take control over the office work applications which is have been controlled by Microsoft for over the years.

From what I see, Google’s market monopoly practice has driven nearly all the internet users to become “brainwashed” to loyal and dependent to Google. When people are loyal to a particular brand, they share their loyalty with theor relatives, and then a chain of effect will be triggered. Moreover, Google creates an internet empire which contains commonly used websites in the name of their own brand. Majority of people use internet for browsing, email, social networking, and writing ideas, and yet Google provide all of those services in their own internet world. They have Google search engine for browsing, Google mail for email, Google + for social networking (which is unfortunately aren’t as successful as other social networking websites), and Google sites for sharing ideas and essays. They provide some other internet services too such as Google Docs, Google Maps, Google image search engines, Google calendars, and others. 

Because basically monopoly’s market demand curve is perfectly inelastic, Google are brave enough to do whatever it takes to gain maximum profit, even it’s inefficient for the social benefit. Even though they do so, people still using Google search engine because there are no substitue than this. The only thing that Google must fear is the government intervention or subdue attempt by other firms that want to go in the internet advertising market.

Last but not least, Google’s monopoly practice over the internet advertising market is still intact. It is the Google’s search engine uniqueness and simplicity that attracts people. But this is inefficient because of the Google’s attempt to control over the internet in the way of manipulating their search results for their own benefits. However, no firms can object this because basically internet is a free realm. The least suggestion i can offer is that we have a new internet policy so that the search results should not be diverted. Other than this, it’s up to the government intervention to reduce the influence of Google  

World Recession in 2012

The Impact of 2008, worldwide in 2012

The world has left behind the bitter memories of the financial turmoil of 2008 and moved on have we really moved on or is it just an imaginary assurance we keep giving our self? In this article I am going to give a bird’s eye view of the condition of the world from a macroeconomic prospective. We will see how active the recession still is and compare data on a broad scale to arrive at a comprehensive opinion. Let’s look at GDP on a broader more global scale.

Year	2007	2008	2009	2010	2011
World	5.2	3.0	-0.5	5.3	3.9
Advanced economies	2.7	0.6	-3.4	3.2	1.6
Euro zone	2.7	0.7	-4.1	1.9	1.5
USA	2.1	0.4	-2.6	3.0	1.7
Developing countries	8.3	6.0	2.8	7.5	6.2

Looking at the gross world product is the combined gross national product of all the countries in the world. The 2011 global rate is 3% and a low of 1.6 in advanced economies. The Eurozone showing a positive 1.5 and United States not far away at 1.7%.The developing countries indicating 5.6% is a healthy sign. The world employment figure according to International Labour Organisation is 202 million unemployed from the global labour force. This figure is likely to go down in Q4 of 2012 and Q1 of 2013 as drastic reforms within domestic markets in the Asian subcontinent. The unemployment in the west needs to be addressed and hopefully re-elected world leader and president of USA Mr Obama will look into that for USA. The UK and Euro area look grim and key reforms by Mr Draghi can push the figure down, but it’s easier said than done.

The world situation looks mixed but we can expect hope and progress even if it low. This is a good sign. A sigh everyone is relieved to see. As investors’ confidence is slowly building up we can only hope that tomorrow will be a brighter day than today.

Market Equilibrium: UK fish price.

It is to be said that the demand of fish in the United Kingdom has exceed the maximum amount of Europe sea supply. Annual UK fish supply can only fulfill UK consumers and UK would run out of fish stock if they only depend on its own fisheries. UK has also imported some other fishes from countries such as Iceland, Norway and even China. This indicates that the demand of fish in the UK is excessively high, which is even higher than the supply that can be produced by the country itself. If the quantity demanded is higher than quantity supplied, it indicates that there is a shortage and there is also an increase both in the equilibrium price and in the equilibrium quantity.

The United Kingdom can fix the disproportion between the quantity demanded and the quantity supplied of fish by elevating or forcing up the price of fish so that the quantity demanded of fish will drop. If the quantity demanded of fish becomes lower, UK’s supply of fish can fulfill the quantity demanded. Another alternative to resolve this problem is by revising the market by making a better way to manage the UK’s seas, which is to save its fish stocks from overfishing even UK could be a net fish exporter.

It is to be said that if UK can manage its sea well, UK can boost up the number of quantity fish supplied. When there is an increase in supply, there will be a movement down along the demand curve, which results in a drop in the equilibrium price, but will make the equilibrium quantity of fish becomes higher. When the total amount of quantity supplied of fish increases, it will fulfill the consumer’s need or the quantity demanded of fish. The producer does not have to make the price of fish higher because the supply of fish has already meet the consumer needs. When there is an increase in supply, there will be a surplus because the quantity supplied of fish is now bigger than the quantity demanded of fish. The producer will get more than it actually needs. The producer can also make the price lower because they still have a lot of fish stocks and according to the law of demand, the higher the price of a good, the smaller the quantity demanded and the lower the price of a good, the higher the quantity demanded. When the UK has excessive supplies, they can make the price lower or export it to other countries. Although the UK sells it with a lower price, the quantity demanded is increasing more than its markdown so that UK still can get bigger profit. I think this way seems more favorable for UK, rather than if they continue selling it with no change in price which will make the quantity demanded of fish remains the same. This situation shows that when the quantity demanded increases, the quantity supplied of fish increases too.

When UK has imported the fish, it means the stock of the fish will increase. As shown in the graph above, the increase in the change of supply will cause the supply curve to shift rightwards. It also changes the equilibrium point. Hence, there will be an increase in equilibrium quantity but a decrease in equilibrium price of the fish.

However, if there is any substitute for the fish, the demand will be elastic because people in the UK will be looking for substitutes such as chicken, beef, and etc. instead of fish which supply is low and hard to get if the government decides not to import it. Moreover, if the supply is low, it means that there will be scarcity of fish, which can make the fish price higher than before. In my opinion, I think it will be better if the people in UK look for other substitutes until the supply of fish that can be produced by UK itself can fulfill the demand of the consumers.

Supply & Demand of cigarettes in Malaysia

 


According to the current issues reported in Malaysia, the price of cigarettes is increased by 20 cents to RM 10.20 per packet, said by the Malaysian government. In my opinion, cigarettes is something that smokers would still buy even if the price increases.

Supply and demand is one of the key concepts of economics and it is considered as the backbone of a market economy. Demand refers to how much quantity of a product or service is required by buyers, whereas supply is referred to how much the market can offer. Hence, the price is a reflection of supply and demand. 

The relationship between demand and supply underlies the forces behind the distribution of resources. In market economy theories, demand and supply theory will distribute resources in the most efficient way.

One of the elements that affect demand is expectation of price that will be in the future. If buyers have expected the price will increase, they would have purchase more before the price is being raised. On the other hand, law of supply simply means that the suppliers are willing to produce more products at a higher price compared to a lower price. There is an inverse relationship between price and quantity demanded, hence when the price increases, the quantity of demand decreases. Hence, there will be more suppliers and the quantity supplied will be higher. Suppliers or producers try to produce more in that time period so that they can increase or maximize the profits that they earned. For example, when the price of cigarette is increasing, the quantity of supply will be increased while the quantity of demand will be decreased.

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price increases, so does the opportunity cost of buying that certain good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.

A, B and C are points on the demand curve. Each point on the curve reflects a direct distribution between quantities demanded (Q) and price (P). At point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C). 

 
When the price of cigarette is higher, the quantity of supply will be higher because supplier can earn more profit while the quantity of demand is low.

Last but not least, I think that government is using the concept of price ceiling to control the market of cigarettes. There are few reasons that the government uses price ceiling in the tobacco market. Firstly is to avoid black market as it is an illegal business of buying or selling goods or currency in violation of restrictions such as price controls or rationing. For example, some suppliers might be selling cigarettes with the price that higher than the government set to them.

Monopolistic Competition in the Gadgets Industry

Monopolistic Competition in the Gadgets Industry is not just the current issue that countries face nowadays, but it is an economical issue that is faced all year long by the retailers in the market. The gadget industry is comprised of thousands of different brands and companies. However each is defined by its quality of make and materials used. Apple, Blackberry, and Android are all well-known and respected brand names. However if prices were to exceed what people are willing to pay, then the consumers would alter their preferences and buy from another brand. Therefore we are dealing with a monopolistic competition.

Monopolistic competition is often defined as a common form of industry structure characterized by a large number of firms, none of which can influence market price by virtue of size alone, as some degree of market power is achieved by firms producing differentiated products. New firms can enter and established firms can exit with ease.

In monopolistic competition, the industry consists of a large number of firms. The presence of a large number of firms has three implications for the firms in the industry. First, it’s the small market share. Each firm supplies a small part of the total industry in monopolistic competition. Therefore, each firm has only limited power to influence the price of its product. Each firm’s price can deviate from the average price of other firms by only a relatively small amount. This implication is described as small market share.

An example for this is when the Blackberry Company attacked Apple indirectly in their television commercial where a blackberry went straight through an apple. Apple later on came up with a comeback via a television commercial as well, indirectly attacking them where the blackberry fell apart upon hitting the apple. A competitive competition such as so, leads many retailers to desperation for survival in the industry.

Apart from that, a firm might also alter the prices of their products according to the desirability of them based on the season and so on. This is determined by the elastic of the products that may be elastic, or inelastic.

Diagram 1 shows that as price increases, the percentage change in demand is lesser than the percentage change in price. This shows that during a peak season where people demand more for the firm’s product, a change in the price will not affect the demand for the product abruptly. 

Diagram 2 shows that as price increase, the percentage change in demand is greater than the percentage change in price. This shows that during a normal season, a change in price will affect the demand of the product greatly as compared to Diagram 1, during the peak season. A retail firm might increase the fare during the peak season because the elasticity of demand is inelastic and elastic when it is during the normal season.

Monopolistic Competition is a market structure where a large number of firms compete, each producing differentiated products based on the quality of the product, price, and marketing strategies. Firms are also free to enter and exit the industry. In this competitive market, firms compete with other using various ways and strategies, such as giving out free ‘goodies’, increasing discounts, also attacking each other indirectly or directly via commercials and advertisements. These are the ways for the firms to survive in the industry with the pressure from the competitive competition, but are only efficient to a certain extent.

To conclude, in Monopolistic Competition, retailers need a compelling offer in order to justify their existence in the retail industry. This pushes the retailers to come up with different, brilliant ideas and strategies to tackle the consumers and make the sale. Even though the competition is tough in the retail industry, this competitiveness pushes many retailers to go beyond their comfort zone, and over the consumers’ expectations to stand out in this industry. Some of the major brands we have today once started small, and then worked their way up to where they are today.