Economy World

Posts

Winners & Losers

Whatever the merits or demerits of various political proposal, what must be kept in mind when evaluating them is that the good fortunes and misfortunes of different sectors of the economy may be closely related as cause and effect - and that preventing bad effects may prevent good effects. It was not accidental that Smith Corona was losing millions of dollars on its typewriters while Dell was making millions on its computers. It was not accidental that Safeway surged to the top of the grocery business while A&P fell from its peak to virtual oblivion. The efficient allocation of scarce resources, which have alternative uses, means that some must lose their ability to use those resources in order that others can gain the ability to use them Typewriters were no longer what the public wanted after they had the option to achieve the same end result and more with computers. Scarcity implies that resources must be taken from some places, in order to go to other places.

Market Vs Non-Market Economies

Economics, in reality is the study of how a whole society uses scarce resources that have alternative uses. Economics is about how a society economizes and how individuals share, without even being aware of sharing. There are many other possible ways of allocating resources, and many of these alternatives are particularly attractive to those with political power. However, none of these alternative ways of organizing an economy has matched the track record of economies where prices direct what resources go where and in what quantities. Thus, when a hurricane, flood or other natural disaster strikes an area, emergency aid usually becomes both from FEMA and from private insurance companies whose customers’ homes and property have been damaged. Allstate cannot afford to be slower in getting money into the hands of its policy-holders than State Farm is in getting money into the hands of its policy holders. A government agency, however, faces no such pressure. There is no government rival

Efficiency and Its Implications

Production costs are reduced when the fixed overhead costs can be spread out over a large volume of output, adding little to the cost of each individual item. Scheduling also affects production costs. When a high-volume retailer signs a contract for a large order from a given manufacturer, that manufacturer can then schedule the work evenly throughout the year. This avoids the additional costs that go with ups and downs in the orders that come in unpredictably from the market, leaving the manufacturer’s workforce idle during some weeks. The fact that profits are contingent upon efficiency in producing what your customers want, at a price that customers are willing to pay – and that losses are an ever present threat if a business fails to provide that – explains much of the economic prosperity found in economics that operate under free market competition. Profits as a realized end-result are crucial to the individual business, but it is the Prospect of Profits – and the threat of loss

Monopolies

Fact: Most big businesses are not monopolies and not all monopolies are big business. Take cranberry juice. How do we know that the price being charged is not far above their costs of production? We don’t. We actually have no idea of how much it costs to produce a bottle or can of cranberry juice. Competition makes it unnecessary for us to know. If the price of apple juice is higher than necessary to compensate for the costs incurred in producing it, the result is a high rate of profit. Only, this is never done in a vacuum. Word gets out that there is a lot of money to be made in cranberry juice. This automatically attracts more investment into the cranberry juice industry creating more competition. Eventually, these additional competitors will drive prices down to a level that compensates the costs with the same average rate of return on similar investment available elsewhere. When that happens, the in-flow of investments from other sectors of the economy stop. The incentive of a hi

Eliminating the Middleman

Everyone always wants to eliminate the middleman but they can’t because of economic reality. Beyond some point, there are “middlemen” in the channel of getting your goods to the end customer who can perform the next step in the sequence more efficiently and more effectively than you can. At that point, it pays a firm to sell what it has produced to some other channel that can carry on the next part of the operation more efficiently. Oil companies discovered they can make more money by selling gasoline to local filling station operators. When they did, they no longer had the burden of getting their product to the public. It was out of their hands and not their problem. When a product becomes more valuable in the hands of somebody else, that somebody else will bid more for the product than it is worth to its current owner. Go back to the oil companies. The filling station operators see the product to be more valuable to them than it does to the oil companies because the oil companies

Imperialism

Genuine plunder of one nation or people by another has been all too common throughout human history. During the era before the First World War, when Germany had colonies in Africa, only 4 of its 22 enterprises with cocoa plantations there paid dividends, as did only 8 of 58 rubber plantations and only 3 out of 49 diamond mining companies. At the height of the British Empire in the early twentieth century, the British invested more in the United States than in all of Asia and Africa put together. Quite simply, there was more wealth to be made from rich countries than from poor countries. For similar reasons, throughout most of the twentieth century the United States invested more in Canada than in Asia and Africa put together. Only the rise of prosperous Asian industrial nations in the latter part of the twentieth century attracted more American investors in that part of the world. Perhaps the strongest evidence against the economic significance of colonies in the modern world is tha