“Ukraine plan to raise import tariffs on range of goods alarms US” – Mini Internal Assessment

Tariffs, are the taxes imposed on imported goods and services. Tariffs are mainly used to restrict trade, creating barriers between countries that import and export goods.

In this article, it reports how as we are facing an economic slowdown around the globe, Ukraine is planning to increase tariffs on more than 350 goods, which includes vegetables, plants, meat, washing machines, and all the way to automobiles.These imports are said to be worth $4.6bn (£2.9bn) in total.

These implications by Ukraine has been a concern to the members of the World Trade Organisation (WTO), as well as giving concern to the US. By increasing tariffs, some fear the possible knock-on effect on other countries that are restricting trade.

The effect of tariffs on imported goods can be seen on this graph below:

As seen on the graph, imported goods have decreased from Q2 → Q1, as well as Q4 → Q3, due to the price increase from P(World) to P(World) + Tariffs. However, domestic producers have benefited from this. Producers have increased from Q1 → Q3, which means that the unemployment rate has decreased. In addition, the tax revenues for the Ukrainian government have increased, which means that there is an increase in competition against imported goods for domestic producers. The triangle marked “A” indicates the dead weight loss to society (DWLS). In this case, the DWLS is for the producers, who are not capable of producing anymore, due to the price raise. DWLS is the cost produced by market inefficiency. The triangle marked “B” indicates consumers who cannot consume the goods anymore.

In conclusion, the increase in tariff would be a positive change for the domestic producers, employees, economy, and the government. However, if Ukraine increases its tariffs, the foreign producers and domestic consumers will not benefit.

 

What were the primary causes of the Great Recession that started in 2008?

As of now, the great recession that started from 2008, is known to be the greatest recession recorded  in the UK, causing huge debts.

First of all to make things clear, I reviewed what a recession is, and why they occur. A recession is a period of two consecutive quarters of negative economic growth. For example, two consecutive quarters of failing the real GDP would become a recession. In the UK, there were three of these recessions in the past years, and one of them was the recession starting from 2008. Many discuss that this recession was to end in 2009, although went on until about bow, 2013. One of the reason to a recession is very simple.

The above graph shows the cycle of an economy, which would fairly be the same for all countries. This cycle, is one of the natural cause of a recession. The recession is expressed in an orange arrow, and the green shows recovery. The peak is said to be the boom of an economy. The boom is a period where the economy grows, at a rate above average. The trough on the graph is said to be the bust, which is the opposite to the boom; the economy grows negatively over an average rate. What every government tries to do with an economy, is that they try to maintain the cycle, growing, but without a large difference between the recession and the boom. The constant growth, which is shown as the straight line going across the graph is what a government is looking for.

The very main cause of this recession was due to low employment rate. Low employment rate can be said as a key to recession, since when this happens, the economy enters a period where it will become harder and harder to recover. This is because in order for the economy to recover, many consumers are needed, which means that many have to consume, spend their money more on products. However with low employment, not many people are getting paid. Which means that people do not have enough money to spend, and so the flow of money stops.  This is also what was and is happening in Japan, where people who are working still fear unemployment, and so decide to save money, decreasing consumer spending.

The other reason to the particular recession was because of the increase in debts and lending money within firms, and households. Debts and loans caused the recession to increase, also causing the aggregate demand to rise. The aggregate demand shows the quantity of goods or services demanded, at a given price. The aggregate demand is very similar to any demand curves, however it tells the total amount of what businesses, families, governments are willing to buy at various prices.

Economics blog post 6: More than £1bn to be spent for leading Railway

This article from BBC was updated on January 8th, 2013, explaining how more than one billion euros will be spent on reconstructing the railway network in the South and South West.  Network Railway announced new plans along with improvements that needs to be made on the Wessex route from London Waterloo, including renewals of tracks and signalling enhancements, and more. These large scaled plans are presented  as the five-year business plan of Network Rail, from 2014 to 2019. Consequently to these immense plans are the vast amount of money that is going to be used. These ‘trade-offs’ are going to be made in different areas for various reasons. At Basingstoke, a new signalling centre will be created, which will cost £50m. This is presented as a part of a long term plan in order to save £250m annually across the railway in signalling costs, explains the rail firm. Other than this, the other plans made by Network Rail include an investment of  £300m in order to increase the capacity for people coming into London Waterloo, which also includes platform extensions. The utmost consequence to all of these vast changes are that the ticket prices will continue to increase at a faster rate than the past ten years, since so much money is being used just to improve the railway. As improvements are being made, the number of challenges will increase as well.

The issue with the “trade-off” of improving the railway system and cost can be shown on a PPF (Production Possibility Frontier) graph. The y-axis of this graph shows how much the railway network was able to reduce the ticket prices. On the x-axis, it shows how much they have been working on improving the railway system, in this case the five-year plan. When looking at point B, it shows how the improvement of railways are being done very well, while the ticket prices are not being reduced, or could be rising in real life situation. This is what happens when a trade-off happens. An opportunity cost is made, in this case, money. If the railway get improved more and more, the profit could go down; putting effort into just one factor reduces the quantity being produced for the other factor. This goes the same for point A, which will be the opposite. By trying to reduce the ticket price as much as possible, there will be less money that could be spent to repair train stations or the cars, thus the railway system will not be at its best shape. Point C is said to be the best possible shape, where the two factors are equally balanced. It is also said that the closer you get to the edge of the curve (in this case point C), the company will be at its balanced productivity rate. This is why point D would not be at its maximum level of improving the railway or reducing the ticket price. A point representing the productivity will never be outside of the curve, since this is impossible.

 

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Economics Blog post 5: Rise in Cigarette Taxes

This article was published on November 29th 2012, delivering information on the recent data found by the Washington University School of Medicine in St.Louis. The data collected from a period of three years, showed how the rise in cigarette taxes made it much more likely for hard-core smokers to cut back on smoking. When the study started in 2001, they recorded that an average of 16 cigarettes were smoken by a typical smoker. However after three years, the amount of cigarettes being smoked decreased to an average of 14 cigarettes per day. This data conveys the tax situation, where in 2001, the average price for a pack was $3.96, and in 2004, it had increased to $4.41. Interestingly, they also found out that heavy smokers quit smoking more than light smokers, over the past three years while cigarette prices rose. The changes in price gave less effect to those who smoked less. This is thought to be because for heavy smokers, much of the money they spend in a day is spent more on cigarettes than light smokers. This means that consuming cigarettes are a bigger part of their day than light smokers. Thus, the more you smoke, the more you buy, and so heavy smokers are easier to realize the increase in their money loss.

 

The above graph shows the situation of the article. The point that is connected by P1 and Q1 is the market equilibrium at the stage of 2001. The supply curve is straighter than the usual graph because cigarettes are considered as an inelastic good. The sale of Inelastic goods are not effected as much when a change in price occurs. These goods are also called necessity goods, and examples include water, electricity, and various kinds of drugs. Opposing to this, the sales of elastic goods are effected more when a change in price occurs. When expressing an elastic good on a graph, the curve will become more horizontal. Elastic goods include luxury goods such as expensive cars, branded bags or clothes, and so on. Cigarettes are thought to be closer to an inelastic good, since it is a type of drug. For smokers, it is a necessity good. Thus, the supply curve is more vertical. Next, when there is an increase in the tax, the curve will shift inwards. This will make the price rise, shown as P2 on the graph. The point connecting P2 and Q2 is our new market equilibrium. The box between P1 and P2 is represented as the difference between the old price and the new tax price, and also is the consumer burden. Likewise, the box below is the producer burden. Both of these boxes together are called the whole Government revenue. The green shaded triangle is called the deadweight loss, which is the loss to welfare, utility or benefit to market participants.

 

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Economics Blog Post 4: Minimum Price Sets on Alcohol to End the Cheap Sales

This article from BBC was published on November 28th 2012, delivering a story on the ministers setting a minimum price of 45p a unit when selling alcohol in England and Wales. The very purpose of this plan is to tackle the increasing problems and crimes associated to consumers drinking in a disorderly way. The Home Office has decided 10 weeks of consultation on the plan, discussing the how it will reduce illness, crime, and accidents related to drinking. The ministers are also considering the banning of multi buy in shops; buying two for the price of one. The aim of this plan is to alter the alcohol price of heavily discounted shops, and to reduce heavy drinkers. Researchers say that these changes will not affect consumers who do not drink at a exceedingly fast pace. To make the data easier to understand for readers, the article shows a diagram explaining how much 45p is compared to common drinks consumed:

As seen on the diagram, a measure of 45p would mean that consumers will have to pay for £1.56 for a can of lager, and at its maximum, £16.88 for a bottle of Vodka.

Researchers from Sheffield University say that a minimum of 45p would make alcohol consumption decrease by 4.3%, resulting to 2,000 fewer deaths, and 66,000 people not being carried to the hospital.

Once the minimum price (in this case the amount) of 45p is set by the ministers, producers of alcohol will need to raise their previous price up to the minimum price. Therefore, when P1 is raised to P2, consumers who have been consuming vast amount of alcohol will not be able to consume as much anymore. This is exactly what the initial aim was by the government, and so the consumers will start buying less drinks. This has also been done with cigarettes, where the government thought cigarettes were a harm to consumers, and so they would add taxes to cigarettes, increasing its sales price.However this is a different story to the situation with this article, since taxes interfere. Going back to the graph, when the price is raised, the quantity demanded will decrease from Q1 to QD. However, according to the graph, as the price was raised, the producers are able to supply more of the product they are selling. This causes the quantity supplied to increase from Q1 to QS. Consequently, the quantity demanded ans supplied will not equal. Thus, there will be an excess in supply shown in blue, on the graph. In the end, the quantity consumed will be at Q2.

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Economics Blog Post 3: Fees rising to £9,000 in English Universities

This article from BBC was published on November 3rd, 2010. The article reports about how from 2012, English universities are going to be allowed to raise tuition fees up to £9,000. At the state of 2010, the average fee was recorded as of  £3,290 per year, and is predicted to rise up to  £6,000 after the proposal. With the fees doubling the amount, students have made banners and gathered other universities for protests. The National Union of Students have also said that this plan has been “an outrage”. Gareth Thomas, the Labour Co-operative politician explained how the sudden rise in fees cause a “tragedy for a whole generation of young people”. However,  The Universities Minister, David Willetts commented how the raise was supposed to be a “progressive” reform, in order to recreate better quality schools assembled with higher quality educators and produce higher skilled graduates. However, the real reason to this rise in the maximum price possible for tuition fees could be to do with the government’s increasing deficit over the years. By raising the tuition fees, this could lower the deficit in the next two to three years; I will be explaining more about this along with the graph below. 

As seen on the graph,  P1, Q1, and the point in the middle is the market equilibrium for this case. In this case, the initial fee was £3,290 per year. When the government proposed that the fees will rise to £6,000, and can go up to £9,000 per year in the next two years, this means that the minimum price that the government set was £6,000, and the maximum price was up to £9,000. Now, when the initial price is lower than the maximum price that the government sets, it usually does not affect as much. This is because both consumers and suppliers are satisfied with the current equilibrium price. However, in this case, the minimum price is set higher than the current price. This means that the current price needs to be raised up to the minimum price; the minimum price is a legally sanctioned level below which the market price cannot fall. When the current price rises up to the minimum price, this will be marked as P2. When the fees are higher than before, students will have to pay more than before, in fact, in this case, almost double the amount. Thus, producers will gain more money. Referring back to the article, David Willetts, from The Universities Minister says that the raise in price will be for raising the quality of education, and supplying better resources for students. By following this, Q1 will increase its supply to Qs. This is also an extended movement along the supply curve. However, even though the supplies increase, some students will not be able to afford the schools, or they will choose to attend cheaper schools. Therefore the quantity demanded will decrease to QD. Consequently, there will be an excess in supply, shown in the space between QD and QS. 

 

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Economics Blog Post 2: Water Shortage in Hyderabad, India

This article delivers information on the harsh situation India was in from mid April to October 2012, at the latest. This article was published June 5th 2012, and centers its story on  the capital and the largest city of southern India, Hyderabad, facing a severe water shortage, along with scheduled power cuts for every two hours, to fill up water tanks and distribute water supply. However the reality that the city faced, was how these water supplies were not even close to being enough for all the citizens. The city had gone severely dry, that Hyderabad’s water lifeline and the private tankers were out of water. Over the past week or so, tankers have put customers on “hold” for a while, resulting into 500 – 800 customers on the “waiting list”. While these customers wait for their turn, most tanker operators have shut the line, and switched off their phones, since it is impossible to meet all of the people’s demands. The article explains that the demand for water supply in India have gone up by more than 50% from before. Not only Hyderabad, but also areas of Begumpet, Ameerpet, Somajiguda, and the cities known as  “high-tech” cities, Madhapur and Kondapur are in the exact same situation.

Below is a graph, which I tried my best in expressing this situation.

 

The first point where the points P1 and Q1 meets, is where the market equilibrium is. Like said in the post before, the market equilibrium is where the quantity demanded and quantity supplied are equal. It can also be explained that it is the point in which all contrasting forces cancel each other out, bringing a balance of stability. The first point, P1 is said to be the initial cost of the product supplied, which is water in this case. The other point connecting the market equilibrium is Q1, which describes the quantity supplied and demanded for water in the beginning. Then by following the story on the article, the summer season strikes India’s weather with fewer and fewer rain. This causes water shortages, which means that the supply will shift inwards. A shift is made to the supply curve instead of a movement, since shifts are made when any other factor other than the price effects the quantity. In this case the water shortage is caused by natural disaster. Thus, a shift is made along the supply curve. Consequently, the price will rise when a product becomes scarce. This is the new point connected by P2, and QS. QS is the quantity supplied at this point. This means that the quantity supplied is lower than before. However, the demand for water only gets higher, which is point QD. This makes an excess in demand, between QS and QD, which means that there are not enough supplies. In conclusion, QS becomes the new ending point, which is Q2. 

 

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Economics Blog Post 1 : Anxiety in America’s Higher Education

This article from the Economist talks about the declining rate of graduate students and students with degrees. As what we all think of, getting into a good university, and a degree has always been  the key to success. However, it seems that this could change. With increasing school fees across the nation, it has been making it harder for students to afford the schools. The article explains that since 1983, the amount of fees that a student pays, have increased five times more, making it less affordable for students. From 2001 to 2010, it is said that university prices has rised from 23% of median annual earnings to 38%. This has caused the debt for students to double in the past 15 years. Consequently, more debts, results into more risk for the students. Because when facing the reality, the chances of an American student graduating university within four to six years, is only 57%. The main reason why fees are rising at a fast pace, is mostly said to do with reformation. Reforming old facilities, placing higher skilled educators are the causes of the rise in fees. The other significant reason is to with the advancing technology. Since we live in a time that is almost always dependent on technology, preparing the leading electronic devices for students are becoming crucial. These factors contribute to the raise in tuition fees.

When the students are faced with such a harsh situation to attend university, some students choose not to attend. It is also true that around 1/3 students these days do not choose courses with more than 40 pages to read for an entire semester. Some students also select classes known as “blow-off’ classes, which are classes that can be skipped without any effect on their grades. With skyrocketing tuition fees, many students have no choice, but to not attend university, or if not, they are pressured too much into leaving good results.

Below is a graph which I tried my best to explain the situation:

P1 on the graph states the initial price of the product, in this case the tuition fees of universities before it rose. When the fees were set at P1, the Quantity demanded and supplied were at Q1. These two points are the points that explain the original state. The point in the middle where they meet, is the initial market equilibrium. The market equilibrium is where the two factors, price and quantity demanded are equally set, where both the suppliers and consumers benefit. However, when the tuition fees of the universities rise, this will change as well. When the price rises, P1 increases to P2. This will cause an expansion of movement along the supply curve, which means that there will be a shift on the demand curve. These movements mean that with higher tuition fees, the suppliers are able to supply better quality education, or a better facility. This point is showed as QS; Quantity supplied. Consumers will then demand for more. However, the truth is that the consumers cannot afford much of these better facilities, because the price is just higher than what majority of the students can afford. Thus, what happens, is that the quantity of students  demanding acceptance in universities fall. This is shown as QD on the graph. However when the students only demand for an amount of QD, the amount of supplies that the suppliers provided will not be consumed. Thus, there will be an excess supply of the product. In this case, the excess supply  would probably be courses that haven’t reached the maximum amount of students they can teach. Then this point on the graph is settled as the second quantity supplied and demanded, as Q2.

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Survival Simulation – Economics

Did you survive?

1. What problems did the group face in round one?
 The common problem we all faced was how unorganised it was. Since we weren’t given any time to discuss or plan in the first round, we all went into action before talking it out. This caused issues such as two people doing the same thing, resulting with abundant amount of fishes whereas igloos were not enough.
2. What basic problem did the group try to solve during the planning period prior to round two?
Learning from our mistakes, we all decided on what each of us were in charge of, and we carefully planned out who will do the cutting, drawing, and so on.
3. What did you need to survive?
For the simulation, our resources for surviving were fishes for food, Igloos for shelter, and ponchos for clothing.
In order to survive the game, we all learnt that it was important to plan ahead of what could face us.
4. How did the group organise itself during the discussion period between rounds to increase production?
We discussed on who should produce what resource, since some of the resources were hard to draw or cut out. Although we ended up deciding that it would be a better idea for the person who made a certain resource before, to be in charge of the same one, since he/she would be more experienced.
5. How might you have organised yourselves so production was increased even further?
While producing resources, certain materials such as staplers were not enough for the whole group. Thus, many of us waited for that one stapler, when we could’ve made other resources while waiting.