This article is focusing on the BP Oil Spill in the Gulf of Mexico. Robert Dudley, BP’s chief executive, discusses the profit changes since the spill has occurred and where BP stands now, as opposed to before the spill and right after the spill. The article takes a closer look at the actual amount of money they have lost, as well as not being able to pay dividends to their shareholders.
In the beginning of the article, Dudley discusses the percentage of profit decrease. He said from the third quarter of 2009, until the third quarter this year, there has been a 66 percent drop in the profit. When I saw these numbers, my first thought was how BP is still in business at all. There are many competitors in the “oil” industry, but also many consumers. Gasoline is inelastic, which means people need it. Everyone basically uses a car, which takes gas, and no matter how high the prices go, we are willing to pay that amount. I think of BP as a substitute good, with the other oil companies. Since BP had a major oil spill and lost a lot of oil, their prices are going to rise. Therefore, the quantity demanded of BP gasoline will decrease, but the demand for other brands of gas will rise.
Colin McLean, managing director at SVM Asset Management in Edinburgh, stated that he wasn’t as concerned with the additional charges and recovery prices, as he was with the dividends. He states “The Company now needs to show that it can grow the business from its smaller capital base.” I found this interesting because it gives a clear view that since BP lost all of this money, they are at the bottom and must work their way back up. It kind of put an image in my head that BP was forced to shut down for a while, in some ways. They lost a lot of money and weren’t able to produce as much gas for the U.S. because they lost so much oil in the spill. Therefore, it wouldn’t be a complete shutdown, but it’s almost like they had to put everything on pause for a while, and pay the extra costs to get the spill cleaned up and fix the damages.
Robert Dudley concludes that BP has pushed ahead with the plan to sell $30 billion in assets by the end of 2011. This will help cover costs related to the oil spill. He said they were now starting to make good progress and that “BP is well on track for recovery after the tragic accident on the Deepwater Horizon drilling rig and subsequent oil spill.” This again shows how much extra costs they are faced with due to the unpredictable event. Companies never know when something like this will occur. Since gasoline is an inelastic product, meaning people have to have it, I agree that BP will slowly build their way back up in ratings. There are substitutes for the BP company itself, but I still think once BP gets some of their costs paid, they will start to even out with other companies.
http://www.nytimes.com/2010/11/03/business/global/03bp.html?_r=1&hp
Wednesday, November 3, 2010
Tuesday, November 2, 2010
Market Failure
The article I chose is a combination of the article from the Wall Street Journal and a response to the article. The article is from August 2, 2010 and deals with the BP oil spill in the gulf. The main connection between the article and our macro-economics class is a market failure. The definition for a market failure is an imperfection in a price system that prevents an efficient allocation of resources. The democrats in our government are purposing to remove the 75 million dollar cap that is on the cleanup fund for the gulf. They are purposing to make the amount of money spent for the cleanup efforts infinite. A republican senate member, Mr. Reid (his full name was never given) strongly opposes this ridding of the cap. Reid purposed a bill that in effect would make it so small to mid-sized oil companies could not drill in the gulf. Reid’s bill makes the government responsible for cleanups over a certain size. It also makes insurance very hard to get because the prices would be so high. So only large oil companies would be able afford the insurance when a small company could have a flawless safety record and not be approved.
This is a market failure because if the market cannot work the way it should, which would mean the insurance companies would approve the companies worthy of insurance. Then there needs to be some form of government intervention to solve the issue. I think that the market should be able to correct this market failure on its own though.
I think that insurance companies should be able to handle picking companies no matter how small or large and see their safety records and be able to determine who they can insure, and for what price. If insurance companies are able to do that there is no need for government intervention. So in conclusion I think that if this bill proposed by Reid is passed it will create a market failure and complicate things that do not need to be tampered with. But I do not believe that the senate should remove the 75 million dollar cap that has been put on the cleanup effort in the gulf. It is a tough situation for government officials to figure out.
http://www.tnr.com/blog/jonathan-chait/76713/the-wsj-edit-page-discovers-market-failure
This is a market failure because if the market cannot work the way it should, which would mean the insurance companies would approve the companies worthy of insurance. Then there needs to be some form of government intervention to solve the issue. I think that the market should be able to correct this market failure on its own though.
I think that insurance companies should be able to handle picking companies no matter how small or large and see their safety records and be able to determine who they can insure, and for what price. If insurance companies are able to do that there is no need for government intervention. So in conclusion I think that if this bill proposed by Reid is passed it will create a market failure and complicate things that do not need to be tampered with. But I do not believe that the senate should remove the 75 million dollar cap that has been put on the cleanup effort in the gulf. It is a tough situation for government officials to figure out.
http://www.tnr.com/blog/jonathan-chait/76713/the-wsj-edit-page-discovers-market-failure
Monday, November 1, 2010
U.S. Economy Grew at 2% Rate in Third Quarter
This article discussed the present state of the economy and the affect on consumers. The economy has only grown 2% in the third quarter, which the article says is only a small increase but better than zero. Our economy still has “High unemployment and soaring foreclosure numbers in the Midwest and West.” There are still millions unemployed and many jobless for two years. “Two percent growth, almost all economists agree, cannot produce nearly the demand needed to reduce the nation’s 9.6 percent unemployment rate.” In addition, the US is having many more imports from foreign countries than we are exporting to other countries. Josh Bivens states “The growth rate is just nowhere near enough to put downward pressure on unemployment.”
Our nation’s high unemployment means we have an extremely high supply of workers and a low demand for labor from companies which creates a surplus. The economy is not producing enough demand for jobs. In addition, the US is importing more than we are exporting, this creates more jobs in other countries and fewer jobs in the US. We are importing more because it can be cheaper. Our opportunity cost of importing more is US jobs. We are not creating enough jobs since we are importing more goods. If the United States is able to export more to other countries, that would create more jobs and it would help the economy.
The article continues saying “Demand is crucial to re-igniting the economy and demand remained flaccid in the third quarter, although there were hints of increased consumer spending.” Consumer confidence is the key to increase consumer spending, which will boost the economy and create more jobs to reduce to surplus of workers. But, consumer spending is hard to increase if the consumer’s incomes are not increased enough. The article states that income growth rose at 0.5% in the third quarter but prices, excluding food and energy, increased at 0.6% in the third quarter. With prices increases as income increasing makes it difficult for consumers to spend. The demand for many goods will not increase if the prices are increasing. Two of the determinants of demand are income and prices. High prices encourage production but reduce consumer’s purchases and low prices encourage consumption but discourage production. This makes it difficult to reach market equilibrium, a balance between buyers and sellers.
The article progresses to show that the economy is slowly getting better, “There have been fledgling signs of growth: home sales and chain store sales are up a bit; a swelling equities market has raised consumer confidence a few notches; and jobless claims fell noticeably last week, albeit they are still quite high.” All of these factors will increase consumer spending to help eliminate the surplus of workers. But, Steve Blitz says “There is certainly no sign that a normal cyclical upturn is taking hold. The consumer is still underemployed and overindebted, so the normal push won’t be there.”
Bernard Baumohl summarizes the article by stating, “The main message from this report is that the economic recovery is gathering fresh momentum from the sector that matters most to this recovery: consumer spending, slowly but surely, worries over job security and future income growth have subsided and households appear to be more at ease about shopping.” Increasing the demand for United States goods and increasing consumers spending will hopefully create for jobs and improve our economy.
http://www.nytimes.com/2010/10/30/business/economy/30econ.html?pagewanted=1&sq=Demand&st=Search&scp=10
Our nation’s high unemployment means we have an extremely high supply of workers and a low demand for labor from companies which creates a surplus. The economy is not producing enough demand for jobs. In addition, the US is importing more than we are exporting, this creates more jobs in other countries and fewer jobs in the US. We are importing more because it can be cheaper. Our opportunity cost of importing more is US jobs. We are not creating enough jobs since we are importing more goods. If the United States is able to export more to other countries, that would create more jobs and it would help the economy.
The article continues saying “Demand is crucial to re-igniting the economy and demand remained flaccid in the third quarter, although there were hints of increased consumer spending.” Consumer confidence is the key to increase consumer spending, which will boost the economy and create more jobs to reduce to surplus of workers. But, consumer spending is hard to increase if the consumer’s incomes are not increased enough. The article states that income growth rose at 0.5% in the third quarter but prices, excluding food and energy, increased at 0.6% in the third quarter. With prices increases as income increasing makes it difficult for consumers to spend. The demand for many goods will not increase if the prices are increasing. Two of the determinants of demand are income and prices. High prices encourage production but reduce consumer’s purchases and low prices encourage consumption but discourage production. This makes it difficult to reach market equilibrium, a balance between buyers and sellers.
The article progresses to show that the economy is slowly getting better, “There have been fledgling signs of growth: home sales and chain store sales are up a bit; a swelling equities market has raised consumer confidence a few notches; and jobless claims fell noticeably last week, albeit they are still quite high.” All of these factors will increase consumer spending to help eliminate the surplus of workers. But, Steve Blitz says “There is certainly no sign that a normal cyclical upturn is taking hold. The consumer is still underemployed and overindebted, so the normal push won’t be there.”
Bernard Baumohl summarizes the article by stating, “The main message from this report is that the economic recovery is gathering fresh momentum from the sector that matters most to this recovery: consumer spending, slowly but surely, worries over job security and future income growth have subsided and households appear to be more at ease about shopping.” Increasing the demand for United States goods and increasing consumers spending will hopefully create for jobs and improve our economy.
http://www.nytimes.com/2010/10/30/business/economy/30econ.html?pagewanted=1&sq=Demand&st=Search&scp=10
Thursday, October 28, 2010
The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food
This article discussed how the increasing problem of chronic diseases caused by diet-related issues has driven researchers to find different ways to improve peoples’ diets. They decided that one way to combat the issue is to change the prices of selected foods through a designed tax or subsidy policies. The researchers figured that lowering the price of healthier foods and raising the price of less healthy alternatives would change purchases toward the healthier options. Also, something such as adding a tax on certain products like sugar-sweetened beverages would turn people toward other, healthier beverage choices.
The researchers acquired all the studies conducted in the United States regarding food price elasticity of demand and combined the estimates into average price elasticities for sixteen food and beverage groups to figure out the food demand and consumption over the past seventy years. They focused on differences in price effects across income levels.
The price elasticity of demand is the percentage change in purchased quantity or demand with a change in price. It is determined by factors such as the availability of products, a persons’ income, and preferences. Price elasticities are more likely to be higher when the goods are luxuries, when there are substitutes for a good, and when consumers have more time to alter their behavior. Elasticities are lower for products that are necessary or goods with few substitutes. When the change in purchased quantity is below the change in price, this means the demand is inelastic and below 1.0. When changes in demand are above the price change, it means it is an elastic demand and is above 1.0.
The study resulted in all the mean price elasticities being inelastic ranging from .27 to .81. When income or prices changed, soft drinks, juice, meats, fruit, and cereal were relatively less inelastic and eggs, sweets, cheese, and fats were the most inelastic. Food away from home was the most responsive to changes and more elastic than the demand for food at home. Higher elasticity suggests a greater change in demand as prices shift.
This article really illustrated the effect of changes in the price of products on the elasticity of demand for that product. It included many factors that can account for changes in elasticity such as raising prices and changing incomes. I felt that this article related really well to what we learned in class about this topic.
http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=6&hid=15&sid=55679fae-4921-4d33-a784-0a7019da73bf%40sessionmgr13
The researchers acquired all the studies conducted in the United States regarding food price elasticity of demand and combined the estimates into average price elasticities for sixteen food and beverage groups to figure out the food demand and consumption over the past seventy years. They focused on differences in price effects across income levels.
The price elasticity of demand is the percentage change in purchased quantity or demand with a change in price. It is determined by factors such as the availability of products, a persons’ income, and preferences. Price elasticities are more likely to be higher when the goods are luxuries, when there are substitutes for a good, and when consumers have more time to alter their behavior. Elasticities are lower for products that are necessary or goods with few substitutes. When the change in purchased quantity is below the change in price, this means the demand is inelastic and below 1.0. When changes in demand are above the price change, it means it is an elastic demand and is above 1.0.
The study resulted in all the mean price elasticities being inelastic ranging from .27 to .81. When income or prices changed, soft drinks, juice, meats, fruit, and cereal were relatively less inelastic and eggs, sweets, cheese, and fats were the most inelastic. Food away from home was the most responsive to changes and more elastic than the demand for food at home. Higher elasticity suggests a greater change in demand as prices shift.
This article really illustrated the effect of changes in the price of products on the elasticity of demand for that product. It included many factors that can account for changes in elasticity such as raising prices and changing incomes. I felt that this article related really well to what we learned in class about this topic.
http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=6&hid=15&sid=55679fae-4921-4d33-a784-0a7019da73bf%40sessionmgr13
Critique Out With The Old In With The New
The author of the article “Out with the Old, in with the New” makes a very valid and compelling point about the existing fight against technology. As technology has spread more and more across the United Sates it has made manufacturers much more productive by having computers perform many simple and routine tasks. With this increase in technology comes the employment of fewer workers, lowering the price of production even more. I agree with the author that this increase in technology is awful and in no way beneficial for the workers who are losing their employment to new computers and machines, however I think numbers and statistics would have beneficial to his article. For example according to The Heritage Foundation the US manufacturing employment has dropped dramatically in just over twenty years. In 1987, 17.5 million workers were employed quarterly however in 2010 only 11.7 million workers were employed quarterly. This illustrates the vast change that technology has caused in our nation.
As the article states, the effect of adding more technology and firing workers comes full circle. This vast spread of technology would definitely lower the production price meaning the cost of the product would also decrease. As the author said this would increase the consumers demand and the supply of the product. I agree that the price of production will decrease and the production amount will increase, however will people have the money to buy the goods, since many of them may have been laid off? I believe this would make a small difference however I would not support the author’s beliefs in stating “Sure it is lowering prices of products which allows consumers to go out and spend money but with the decrease in (manufacturing) jobs it makes spending money very difficult.” I don’t think the author thought fully about this statement, as it would only affect a very small amount of income for the firm, since he is only referring to those who lost their job. This situation is also known as creative destruction, a term first linked to Joseph Schumpeter, an Austrian economist. Creative destruction, meaning something new kills or slowly takes over for something old, can be related to this loss of jobs due to the increase of technology. While technology has slowly crept into our society, it has been taking over for jobs more and more. This helps expand our knowledge for the subject and helps us better decide whether technology is beneficial to our society. I believe the author thought long and hard about the outcomes of technology especially if it keeps expanding. I believe it may be helping out nation economically as prices from the firms would be lower since the production costs are less. However my only concern which the author of the former article touched upon, would be if the consumers had the extra money to spend since so many were laid off.
I think this article was beneficial to the cartoon comic strip which stated “Meet our new factory manager.” Technology has become such an integrated part of our society that we no longer even think about it, we simply accept it. However should we be thinking about it more and be much more aware of its presence? I agree with the author that its time to become more conscious of technology and its ever present force on our society. If technology continues to take over our society and jobs who knows where our society will be in ten years or even 20 years.
http://www.heritage.org/research/reports/2010/10/technology-explains-drop-in-manufacturing-jobs
As the article states, the effect of adding more technology and firing workers comes full circle. This vast spread of technology would definitely lower the production price meaning the cost of the product would also decrease. As the author said this would increase the consumers demand and the supply of the product. I agree that the price of production will decrease and the production amount will increase, however will people have the money to buy the goods, since many of them may have been laid off? I believe this would make a small difference however I would not support the author’s beliefs in stating “Sure it is lowering prices of products which allows consumers to go out and spend money but with the decrease in (manufacturing) jobs it makes spending money very difficult.” I don’t think the author thought fully about this statement, as it would only affect a very small amount of income for the firm, since he is only referring to those who lost their job. This situation is also known as creative destruction, a term first linked to Joseph Schumpeter, an Austrian economist. Creative destruction, meaning something new kills or slowly takes over for something old, can be related to this loss of jobs due to the increase of technology. While technology has slowly crept into our society, it has been taking over for jobs more and more. This helps expand our knowledge for the subject and helps us better decide whether technology is beneficial to our society. I believe the author thought long and hard about the outcomes of technology especially if it keeps expanding. I believe it may be helping out nation economically as prices from the firms would be lower since the production costs are less. However my only concern which the author of the former article touched upon, would be if the consumers had the extra money to spend since so many were laid off.
I think this article was beneficial to the cartoon comic strip which stated “Meet our new factory manager.” Technology has become such an integrated part of our society that we no longer even think about it, we simply accept it. However should we be thinking about it more and be much more aware of its presence? I agree with the author that its time to become more conscious of technology and its ever present force on our society. If technology continues to take over our society and jobs who knows where our society will be in ten years or even 20 years.
http://www.heritage.org/research/reports/2010/10/technology-explains-drop-in-manufacturing-jobs
Extra Credit
Millie has an extra credit question for you:
I am working on a labor economics report and want to know what was the number of new jobless claims reported this week?
My report is due in 48 hours so I need your help by then.
Thanks - Millie Kassens
I am working on a labor economics report and want to know what was the number of new jobless claims reported this week?
My report is due in 48 hours so I need your help by then.
Thanks - Millie Kassens
Critique of Rising Gas Prices
The previous blog discussed the rise of gas prices in the past few weeks. This article discussed brought up a few issues that I would have to disagree with. The main points I disagree with in the blog and article are that the expectations that the Federal Reserve may increase the money supply is influencing the increase in gas prices, that the demand for gas in weak, and that gas is not considered inelastic.
I find it a stretch to contribute a rise in gas prices to an expectation that the money supply is going to be increased. I can understand why the prices may rise if the Federal Reserve did in fact decide to increase the money supply but I don’t believe that purely anticipation of the event is the cause for the rise in prices. Gas prices are constantly changing for a variety of reasons. We all have seen how gas stations will raise prices during high travel times, like Thanksgiving or Christmas, just to increase their profit margin. This is just one example of a reason gas prices can raise but a little over a 5 cent increase in price is not a large enough to assume that prices are raising because of a possible increase in the money supply.
Secondly, I strongly disagree that the demand for gasoline is weak and the supply is strong. If this was true there would not be such a push for new ways of transportation that do not rely on gasoline. America alone is very dependent upon oil and other countries, like China, are also increasing their consumption, raising the demand even more. Hurricane Katrina served as an example of how dependent we are on gasoline. When people heard that gas may be scarce due to the hurricane hitting the oil rigs consumers fled to gas stations making prices skyrocket. People panicked at the idea of not having enough gasoline to get them through their daily activities.
Lastly, I believe that gasoline is inelastic. Consumers may have been able to slightly reduce their consumption of gasoline during the recession by carpooling or using mass transportation but the demand can only be reduced so much. Everyone has places that they are expected to be at like work or school and they depend on gasoline in their cars to get them there. Consumers continue to buy gas regardless of the fluctuations in price. No one is going to tell their boss that they can’t be at work today because gasoline is too expensive.
Overall, I feel the article made broad assumptions about the rise in prices with disregard to many other influences. Americans are very dependent upon gas for their daily life making the demand for this product strong. The strong demand that is not affected by price also makes gasoline inelastic.
Subscribe to:
Posts (Atom)
