Economy Essay No. 10: The price of cocaine

The task: “Using supply and demand analysis, explain the reasons for a rise in the price of cocaine.”

In may of this year, the BBC covered a story on the decline in the market for the hard-drug cocaine. The Serious Organised Crime Agency claimed that the international cocaine market was “in retreat” as a result of a year of successful operations around the world. The price per kilo has risen from £39,000 in 2008 to £45,000 in 2009.

Those increases in price are a result of a huge decrease in supply. The supply has decreased as a result of intensive police and narcotic brigades against the traffic and selling of drugs. The intensity of their operations has caused a lower supply of cocaine.

A simply supply-demand curve can show us what happened in figure:

As shown, a decrease in supply causes a increase in price if everything else remains the same (ceteris paribus – remember?). So the increasing of anti-cocaine actions are the explanation for the rising prices of cocaine, as the supply decreases.

References:

http://articles.latimes.com/2007/nov/09/world/fg-drugs9

http://www.opposingviews.com/articles/opinion-phony-stats-on-cocaine-prices-hide-truth-about-war-on-drugs

http://news.bbc.co.uk/1/hi/uk/8044275.stm

http://kristianseconomics.blogspot.com/ (for supply-demand curve, nice graph Kristian!)

Economy Essay No. 8: What Happens If EF Doesn't Fix The WiFi In Jericho Residence...

As most of the students know, those unfortunate enough to live in the Jericho building, are still not receiving WiFi Internet! This might not sound like a big deal to you, but it could be terrible for our society and for EF! This is what COULD happen in the worst case scenario if EF didn't fix the WiFi for the students in Jericho building...

A worst case scenario...

The students don't have a connection to the internet, which will cause a lack of information & knowledge. The students won't be able to do their homework properly and therefore will not become as smart as they should. Not only will their brains stay underdeveloped they will also get depressed, as they won't be able to enjoy their spare time by playing games, listening to music and other stuff online. This combination (too little knowledge because of a lack of study possibilities and depression) will cause the students to fail their exams!

This lack of education will not only be bad for EF, as their good reputation will vanish like snow in the sun. They will lose a lot of customers as a result of the terribly bad marks on the A-levels and maybe even go bankrupt. They won't be able to win good places at great universities for their students any longer, so people will be badly educated. It is also VERY bad for our economy. The lack of education will cause less educated people to enter the job market. This will cause less suitable employees to go to work. This will cause a huge decrease in productivity worldwide. The low productivity causes losses for companies. As a result, the companies will fire it's poorly educated employees. This will cause a big increase in unemployment.

The unemployment will cause a lack of wealth for the poorly educated people. This will cause them to be unable to send their children to a good school and a good university. This will mean they too will be poorly educated. The circle will keep repeating itself until our entire economy collapses!

This all might happen if EF does not fix the WiFi in the Jericho building on residence..

Economy Essay No. 7: Homework Assignment

Let's discuss the benefits and costs of using the biggest cargo ship available.

The benefits:

I think there will be less pollution per unit carried. The capacity is massive because this ship can transport many containers at the same time. Also, transporting with the biggest ship available will reduce the price for the consumer. This is because the price for transportation per unit carried is less when there are more containers onboard. That is an result of the lower labour costs per unit carried and lower fuel costs per unit carried. As the amount of fuel being used does not increase as at the same rate as the amount of units carried does. The labour costs remain the same as you won't need more crew than you do on a regular sized cargo ship.

The costs:

The construction of the biggest ship will cost a lot of money. Also, if a ship has such an incredible large volume, it's speed will be reduced because when they want to pass a canal (i.e. the Suez Canal), it will take a lot of time. As we all know, time is money. So if a ship takes a long time getting from point A to point B, it costs a lot of money. Also, if you want to make (the highest possible) profit when transporting with a big ship, the ship must be filled up to it's maximum capacity. Otherwise the costs will increase.

The next thing I would like to discuss is the specific scenario in which trades are being made between the UK and China. When the UK trades with China, the UK can spend less money on import. This is due to the transportation costs. However, the need for transportation between those countries does create jobs. The Chinese goods are cheaper compared to their British variants, so importing from China reduces the inflation. But on the other hand, British manufacturers might go bankrupt because of the intense Chinese competition on the market.

Important Homework AS

As I read on the AS Economics blog, we had to do some important homework!

I read all the five pages (9-13) and I am quite positive I did not find any vocabulary that I didn't understand. This is mainly due to the fact that we handled all that vocabulary during the lessons in the past couple of weeks!

I hope this will do!

Economy Essay No. 6: My Once-In-A-While Blog

I know that I am supposed to write an article on my blog daily but sometimes I just don't have the inspiration! My apologizes for that! Today however, I pushed myself towards some fine inspiration! I searched for some interesting news on the Time's website and found just what I needed. The following article contains economical terminolgy that we have been handeling in the last couple of weeks. I will review the most important aspects of this article.

"Pound slips on Bank of England warning"

The pound (GBP) hit a five month low against the euro yesterday. This happened after the Bank of England admitted to expect a prolonged fall in the value of the pound against other currencies. This would be a result of the credit crisis. The Bank suspects the continious fall of the pound to possibly be a side-effect of the procress of rebalancing of the UK economy.

Britain currently has account deficits, financed by investors from other countries, who have been buying Britisch assets since the mid 90's. It is possible though, that the recession has forced those foreign investors to stop their investments. As a result, the financing of the UK trade deficit has been slowed down and possibly the long-run sterling exchange rate has fallen.

The trade deficit will make it harder for Britain to recover from this fall of the pound. As they won't have the financial powers to exploid the cheap export possibilities. The exports are cheap as the the pound is weak. Remember? S.P.I.C.E.D. stands for Strong Pound Import Cheap Export Dear. However, a decline in the trade deficits will make the pound go up again, together with the export prices!

The pound is facing difficult times!

Economy Essay No. 4: Real Madrid & Recession

"Real Madrid & Recession"

By Tom Binder.

This article was not in the first place written for an assignment. I like to write about things that I enjoy. In this specific situation that is the beautiful game of football! When I was thinking about a subject for a new blog post, I thought of the recession. This might seem like an obvious choice, as the recession is everywhere! Almost our entire society suffers from the economic crisis. Right?

Than I started daydreaming. While I lost my focus and my thoughts were sailing away to other directions, one of which the Champions League match that I would be watching in a pub later that night, I started thinking of the financial aspects of football. How does the recession affect the world of football? Since that most football clubs are either owned by or sponsored by big companies, the recession must be notable in their financial status. On the other hand, a few clubs are owned and funded by rich foreigners that got their money through oil. Those clubs might have a little less financial difficulties since the price elasticity of the demand of oil is very inelastic.

I continued my daydreaming again. I remembered the absolute bizarre financial status in which the Spanish royal football club Real Madrid has been for the past couple of years. I decided to google some information on their current financial position. The facts I stumbled upon are quite terrifying.

Real Madrid had been wrestling with their financials for the past couple of years. When they sold their entire training complex in 2002, which had a value of an astonishing 500 million Euro (about £ 445 million), the club used all that money to get rid of their debts with the banks. The debt they had with other clubs, for social revenues and for supplies, was still standing. On June 30th 2008, the total debt Real Madrid had, was 511 million Euro. With the arrival of a new club President on June 1st 2009, the debts of Real Madrid became even bigger.

Florentino Perez was responsible for the incredible new signings that Real Madrid would commit later that summer. Another 300 million Euro would be put to use to attract a handful of new players. Even though the real formula will be much more complicated, it does not take a mathematical genius to add those 300 million of debts up to the previously stated 500 million. However, I found one who did. José Maria Gay, Economics teacher at the University of Barcelona, presented a research which concluded that the debts of Real Madrid passed the 800 million Euro. I find this really amazing, especially in these times of recession!

Please note that I am aware of the fact that Real Madrid surely is not the only football / sports club that spends a lot of money in these times (think of Manchester City & Chelsea), but it certainly is a perfect example!

What is it that makes football clubs think they have the right to spend such incredible high amounts of money in these times. Times in which our entire society is in need of money! Especially if the money isn't even their own, but loaned from the banks! Should there be more strict rules when it comes to buying and selling players? Especially rules that state a maximum amount of money that may be spend by a club in a given period of time? In my opinion this would be the perfect way to make an end to these ridiculous transfers! That money could be way better spend by stimulating our economy! (How? That is a completely different subject)

In the past couple of weeks, over 100 - especially smaller - football clubs all over Europe, in cooperation with UEFA, agreed on an act of Financial Fair Play. This act states that all participating clubs are no longer allowed to spend more money than they produce. This would mean no more debts. However, at this moment, Real Madrid has not (yet) participated in this act...

Initiatives like these are the basics for a better world of football and a better economy. In my opinion, these initiatives should be turned into strict rules, in order to prevent such a waste of money by big football clubs.

The recession is not something to think lightly of. I really think that the big football clubs and especially Real Madrid should stop wasting loaned money in the way they do right now!

This money could be put to a way better use...

Sources:

http://www.fanatiek-fcbarcelona.be/nieuws/2455
http://www.guardian.co.uk/football/2009/jun/16/real-madrid-loans-debt
http://en.wikipedia.org/wiki/Real_Madrid_C.F.

http://www.sportweek.nl/voetbal/109245/Real_Madrid_kampt_met_torenhoge_schulden

Economy Essay No. 3: Record one in five young people out of work

“Record one in five young people out of work”

By Tom Binder

While browsing the Internet for the most recent economical news bulletins, I stumbled upon the following article written by Elizabeth Judge:

http://business.timesonline.co.uk/tol/business/economics/article6836570.ece

I started reading the text because I really felt related to the content. The article briefly tells about the consequences the recession has on the younger people of our society, aged 16 to 24. Some of the facts made me quite worried. This is my review of the main issue published in this article.

In July the amount of unemployed youth, in the age group of 16 to 24, reached an all-time high record* of 947.000. This made the total number of unemployed British citizens reach 2.47 million. If you’d translate these numbers into percentages, you’d find out that this means that 19,5% of all people in that age group are looking for a job.

You can conclude that the recession has a major impact on the lives of the younger citizens of Britain. Elizabeth Judge, author of the article, even spoke of the possibly “lost generation”. Some people are afraid that because of the lack of work, the unemployed will turn into the unemployables. Martina Milburn, chief executive of the Prince’s Trust, even warns us that this generation could fall out of the system.

This all does not worry me as much as the following result does. I am not looking for a job at the moment because I am a full time student here at EF, so I do not need to compete on the job market. However, as a result of this shortage in job opportunities, more and more people attend college / university these days. This means that I will be having a harder time getting a placement at university, simply because there is more competition. Also, after I eventually finish my study at university, it will be harder for me to get a job because there will be more highly educated people, with the same degrees as I have, looking for jobs.

So even if the recession does not seem to harm me (being a teenager who wants to go study at an university) that much at the moment, I will eventually have to face the misery.

Are there any solutions to this problem? Some people say that we should no longer have a minimum wage for teenagers, so that it becomes more attractive to have them as your employee. This will allow more young people to be employed again. On the other hand though, this will mean that others will loose their jobs! So this will not be the solution we are looking for, not the solution that our society and economy are looking for…

This matter will be discussed a lot in the coming future and so it should be.

* Recordings started in 1992.

Summary No. 3: Banks hold rates at record low.

Summary No. 2: Hasty action on public spending would jeopardise economic recovery

Prime minister Gordon Brown does not have any credible arguments left to deny it: Britain has some serious fiscal problems. Public borrowing exploded, which will not lead to any good (as we have seen in America) and the national debt will most likely double between 2005 and 2014. The question remains, though, how soon the English government should fight those growing fiscal problems. As many people agree on the opinion that it might be too early to start the reversion of the current stimulus programs.

Economy Essay No. 2: How useful is knowledge of elasticity for a business?

The knowledge of elasticity is of great importance for a business. The elasticity of an item shows if people will still buy the item when the price goes up, or if they would stop buying the item at that time. If an item is still being bought when the price goes up, it is an elastic item. If the item is not being bought anymore, it is an inelastic item. It is very important for a businessman to know whether the goods he is selling are elastic or inelastic, as his entire business plan should depend on it. Therefore knowledge of price elasticity, both of supply and demand, is very important.

Summary No. 1: Homework Assignment

Fighting the recession all across the globe.

By Tom Binder.

The economic crisis we are currently facing, also generally spoken of as the recession, is hanging over us like a dark cloud. In both America, where the unemployment levels are sky high, and Europe, where some of the countries that are struck the hardest by this crisis are situated, economists and politicians are heavily debating on how to turn this recession into a beloved economic growth.

America has opened the attack on the economic crisis by launching their fiscal stimulus packages and wishes for Europe to follow it’s example. In Europe however, the politicians and economists are not so sure about the effectiveness of these stimulus packages. The European governments want to see how the first wave of stimulus plans works, as there are people who think that these plans might trigger a so-called hyperinflation.

Also, European governments do not all have the very same interests, except for the one in which Europe as a continent needs to survive this recession. The economic problems differ per country, so asking all the European governments to take the very same actions against the crisis might not seem reasonable to everyone. If this happens, it might very well be that the inhabitants of one country will suffer financially for the problems another European country might have.

Especially the Dutch, who in general are having a relatively easy time during this recession (compared to other countries), would suffer financially from these stimulus packages. The Dutch individuals would have to give in order for Europe, as an economy, to grow. It is the task of the Dutch politicians to convince the people that the American way is indeed the right way and convince them that giving now will eventually turn out good for them. Will they succeed?

Economy Essay No. 1: What Is The Importance Of Economics

What is the importance of economics?

By Tom Binder

Economics is very important. Not only as the subject that you might or might not get in high school, but important in life. Economics is everywhere. Look around you and take notice of all the ordinary and insignificant things you see. They all have something to do with economics. The clothes that your neighbour is wearing, the coca cola you just drank, the pencil you use. You name it and it can be linked to economics. That is the exact reason that economics are so important: our lives consist of economics. If you would take away economics and all it’s utilizes, there would be nothing left. No more trading of goods and services, which would mean that everyone would stand on their own. Economics makes us share our knowledge and goods. Taking away economics from our society would be like taking away the air that we breathe. That is the importance of economics.