Sunday, April 29, 2012

15 - Imports, Exports, and Exchange Rates

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Imports, Exports, and Exchange Rates - CrCo > .Could The Whole World Use Just One Currency? - EcEx > .

Devaluation Risks - X ..

a. Net exports - the annual difference between a country's exports and imports
b. Trade surplus - when a country exports more than it imports
c. Trade deficit - when a country imports more than it exports
1) International trade
+ It doesn't make sense to make everything on your own if you can trade with other countries that have a comparative advantage.
- Unsafe and unfair working conditions and environmental degradation.
2) NAFTA, 1994
- Dropped trade barriers between Canada, the US and Mexico.
- Increased US trade deficits. Decreased manufacturing jobs.
- Millions of jobs created. Reduced prices. Net positive impact on 3 countries.
3) Protectionism - Placing high tariffs on imports and limiting the number of foreign goods to protect local businesses. Limited by the WTO or World Trade Organization.
a. Exchange rate - how much your currency is worth when you trade it for another country's currency.
b. Currency appreciation - An increase in the value of one currency in terms of another.
c. Currency depreciation - A decrease in the level of a currency in a floating exchange rate system due to market forces. Foreign imports get more expensive, which makes them fall. Exports to other countries get cheaper, which makes them rise.
d. Floating exchange rates - they change based on supply and demand.
e. Balance of payments - accounting statement that records all International transactions in a country. It's made up of two sub-accounts, the current account and the financial account.
f. Current account - records the sale and purchase of goods and services, investment income earned abroad, and other transfers like donations and foreign aid.
g. Financial account - records the purchase and sale of financial assets like stocks and bonds. There is a reason why the flow of goods and the flow of money are symmetric. If consumers, businesses and the government want to buy more stuff than their country is producing symmetrically, they have to import it. So there's a trade deficit.

16 - Globalization and Trade and Poverty

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Globalization and Trade and Poverty - CrCo > .



- Poverty line: Minimum level of income deemed adequate in a particular country.
- Extreme poverty: Severe deprivation of basic needs including, food, safe drinking water, sanitation, health, shelter, education and information.
- UN definition of extreme poverty: People living under <1.25/day (836 mn people as of 2015, down from 1.9 bn in 1950)
- 1 in 7 people still live without electricity.
- Mobile phones are single most transformative technology to the developing world - Jeffrey Sachs
- Leapfrogging - Countries can skip straight to more efficient technology without significant costs
- Hans Rosling (statistician) - 1-2 bn suffer from globalization deficiency.
- Multiplier effect means more
- Paul Krugman, "The Bangladeshi apparel industry is going to consist of what we would consider sweatshops, or it won't exist at all."
- Outsourcing of jobs, exploitation and oppression, is a form of economic colonialism.
- Companies don't follow same rules as developing countries. To tackle this public awareness is growing. e.g. US produces annual publication on list of goods produced by child or forced labor.
- Many experts believe globalization isn't sustainable for the planet because of it's impact on climate change, deforestation and pollution.
- Microcredit, Muhammad Yunus, small loans ($100) enabled people (especially women) to participate in the economy.

17 - Income and Wealth Inequality

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Income and Wealth Inequality - CrCo > .
23-7-16 Inequality Becoming Problematic | EcEx > .
> Econopolitics > >


Two types of economic inequality
- Wealth (accumulated assets such as savings, pensions, real estate, and stocks minus the liabilities) inequality
- The unequal distribution of accumulated assets, minus liabilities
- North America and Europe host 20% of the population yet have 67% of the world’s wealth
- China hosts 20% of the population wet have 8% of the world’s wealth etcetera
- Income inequality
- The extent to which income is distributed in an uneven matter
- Economic Big Bang - “At first countries’ incomes were all bunched together, but with the Industrial Revolution the differences exploded,… [It] pushed some countries forward onto the path to higher incomes while others stayed where they had been for millennia.” - Branko Milanovic
- Industrial Revolution accelerated the gap between the richest and poorest
- Globalisation and international trade are further accelerating this disparity
- “The triumph of globalisation and market capitalism has improved living standards for billions while concentrating billions among the few.” - Richard Freeman
- Skill-biased technological change
- Skilled workers that have the education/skills best suited for technological work whereas it has served as a replacement for unskilled workers
- Further gap between the poor and the rich and the poor and they rocking class
- As economies develop and as manufacturing jobs move overseas, low skill low pay and high skill high pay work are the only jobs left
- Other factors in exacerbating widening gap
- Reduced influence of unions, tax policies that favour the wealthy, allowance for greater CEO salaries, gender, race
- Lorenz curve graph allows us to measure the depth of income inequality
- Can be used to calculate the GINI Index - the most commonly used measure of income equality (the size of the gap between the equal distribution of income and actual distribution) with 0 as complete quality and 100 as complete inequality
- Critiques of income inequality
- Claim all income brackets are making more money but the rich’s share is growing faster
- However in the last 20 years, their average income has been falling while the rich have continually gotten richer
- “Yes, some level of inequality is built in to capitalism… It is inherent to the system. The question is, what level of inequality is acceptable? And when does inequality start doing more harm than good?” - Bill Gates
- Some economists argue greater income inequality is associated with increased violence, drug abuse, incarceration, diluted political equality (rich have disproportionate say in what policies advance and in this have an incentive to promote their own self-interest)
- Solutions
- Education, increased minimum wage, affordable, high quality childcare, provide a social safety net, adjustment of tax code to redistribute income
- Increase income taxes and capital taxes on the rich
- Progressive tax - a tax in which the tax rate increases as the taxable amount increases
- “One idea is to fix loopholes that the rich use to avoid paying taxes. Other economists argue that taxing the rich won’t be as effective as reducing regulation and bureaucratic red tape.”
- No society can surely be flourishing and happy of which the far greater part of the members are poor and miserable - Adam Smith

18 - Marginal Analysis, Roller Coasters, Elasticity, and Van Gogh

.Marginal Analysis, Roller Coasters, Elasticity, and Van Gogh - CrCo > .

● Economic Principles ..

a. Microeconomics - Study of the economic behavior of individual units of an economy (such as a person, household, firm, or industry).
b. Marginal analysis - An analysis of how individuals, businesses and governments make decisions. Marginal = Additional
c. Utility - Satisfaction or happiness people get from consuming a good or service.
d. Law of Diminishing Marginal Utility = Law of Decreasing Additional Satisfaction
e. Utils - A unit used to quantify satisfaction; they are completely subjective.
Demand curve = Marginal benefit curve
Supply curve = Marginal cost curve
f. Law of supply - An increase in price gives producers an incentive to produce more.
g. Diamond-water paradox - Although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.
g. Substitution effect - As prices rise consumers will replace expensive items with less costly alternatives.
h. Elasticity of demand - a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price.
i. Elasticity of supply - a measure of the responsiveness of quantity supplied to a change in price.

19 - Markets, Efficiency, and Price Signals

.Markets, Efficiency, and Price Signals - CrCo > .


1. Central planning is not efficient
2. Two types of efficiency:
a) Productive Efficiency- The idea that products are made at lowest costs.
b) Allocative Efficiency- State of economy in which production represents consumer's preference.
3. Central planners are less likely to be allocatively efficient because they have a harder time getting feedback about what people want.
4. Price Signals tells you what consumers are willing to by at higher prices.
5. Price gouging: When sellers sells essential items (e.g water, food etc) at much higher price than reasonable.
6. Below-Cost Pricing: This is also called Predatory Pricing. It's when a business drive out competitors by charging lower prices even at a short-term loss. Competitors that can't sustain such low prices will be forced out of the market giving the surviving businesses more market share and ability to raise prices.
7. I'm Batman!!

sī vīs pācem, parā bellum

igitur quī dēsīderat pācem praeparet bellum    therefore, he who desires peace, let him prepare for war sī vīs pācem, parā bellum if you wan...