Article - Banks in China still need to keep reforming (Nov 23)

The article in CNN Money says that banks in China still need to keep reforming! In the review conducted by the International Monetary Fund (IMF), they found out that even though China's banks made a remarkable progress, the banks still have to rely less on the government. China's banks still rely far too heavily on the government and need to enact a series of reforms to avoid building asset bubbles in real estate, for example. The 126-page report by IMF notes that a large share of China's banks are state-owned and most of the management in the banks is appointed by the government. IMF says that the heavy involvement of the government reduces market discipline, weakens corporate governance, and is likely to create budget constraints. This means that the government intervention can cause disruption of the free-market principles and can bring bigger profit. One of the central banks in China, People's Bank of China, responded to the IMF Report by saying that it was "positive and constructive." They even believe that after years of reform, China's financial system has made considerable progress towards commercialization.
The Chinese economy grew 9.1% year-over-year in the third quarter, marking a slight slowdown from earlier this year, as the Beijing government focuses on curbing (stopping) rapid inflation. Overall, this article gives an thorough analysis of China's banks saying that they might do better if they lowered the government intervention.
From this article, I learned that a large government intervention in the banks can cause hindering of the banks themselves. The government that oversees "everything" can for example cause limitations on the bank lending. Therefore, the banks can not fully exercise the principles of free-market and loose a profit which they could have made. 

Elasticity

Elasticity is a measure of responsiveness of customers. It measures how much of something changes when there is a change in one of the factors that determine it.

Elasticity of demand
It measures how much of the quantity demanded changes when the price of that product changes. The formula for price elasticity is PED= % ΔQd / % ΔP
This basically says that the price elasticity is the percent change of the quantity demanded divided by the percent change in the price.

If PED =  ∞ , it is perfectly elastic  

If PED=0 , it is perfectly inelastic

               vs.

If 1< PED < ∞  , it is elastic and the customers respond              

to the price change a lot.                                                       

If 0< PED< 1, it is inelastic and customers  don't respond to the price change that much.

A real world example of elasticity:

In the ice-cream shop "Ice-world" there are trying to increase the revenue. The original price of one scoop of ice-cream is $0.80. The quantity demanded of ice-cream at this price is 120. The manager of "Ice-world" decided to raise the price, so now the price will be $1.10. The quantity demanded at this price will drop to 90. 

% ΔQd = (120-90)/120 * 100 = 30/120 * 100 = 25%

 % ΔP = (1.10-0.80)/0.80 * 100 = 0.30/0.80 * 100 = 37.5%

PED= % ΔQd / % ΔP

PED= 25 % / 37.5 %

PED= 0.66    -----> it is inelastic because it is less than 1

Original revenue :  0.80 * 120 = $96

New revenue : 1.10 * 90 = $99   ----> "Ice-world" is going to make $3 more after raising the price

This means that it was beneficial to raise the price because "Ice-world" is going to make $3 more than before. We found out that the price elasticity of this particular example is inelastic which means that customers do not respond to the price change that much. 

           

                                                                         

Supply and Demand in the Stock Market

First of all, let's start with explanation of what stock actually is. Basically, stock is a partial ownership of a company. Companies usually sell stocks to the public when they want to raise money for research and development, exploration, promotion, expansion or whatever else a company might need money for. A stock exchange is a is a marketplace where people and companies can buy and sell stocks. The people handling these transactions are called brokers. The value and the price of a stock is determined by what is the potential profit for the company. Supply and demand are felt in the stock market in a very real bidding war by buyers and sellers negotiating transactions. Therefore, it is really important to understand the factors that affect the supply and demand of a stock.

Supply

If the supply of a stock goes up (shifts to the right), the value of the stock will fall, all other things being equal. If the supply drops, the price goes up. 

Some of the factors that affect supply are: 

• If a new share offering is conducted to raise additional capital, this increases the supply of shares on the market.
• If a company has a stock split, this increases the supply of shares on the market.
• If a company buys back its shares and cancels them (called a normal course issuer bid), the supply of shares decreases.
• If employee stock options are granted, this has the potential to increase the supply of shares when the options are exercised.

Demand

If the stock becomes more attractive to investors (increased demand), the stock goes up in price. If investors lose interest, demand falls and so do prices.

Some of the factors that affect demand of stocks are: 

• If profits reported are greater than expected, demand increases.
• If profits reported are less than expected, demand decreases.
• Sales are also drivers of demand. Important new contracts will send demand up while shortfalls in sales will send demand down.
• The company’s debt load can affect demand. If the company takes on too much debt, demand could fall if the public believes the debt to be unmanageable.
• News about a company can change the demand for its shares. Good news increases demand. Bad news lowers demand.
• Mass psychology can play a huge role in demand. Individual stocks as well as whole markets can move quickly if there is a general belief among investors that the stock or the market will go up or down even if there is no rational basis for such movement.

The relationship between supply and demand can be depicted graphically by stock charts. Stock charts are basically the dynamic snapshots of supply and demand in action. Every change in price causes shifts in supply and demand and therefore also setting a new equilibrium. The great thing about the free market system is that prices and quantities tend to move toward equilibrium and, for the most part, keep the market stable. 

Article - Health System Reflects Greece's Ills (Nov 12)

As you may know there is a crisis going on in Greece. The article in Wall Street Journal says that the crisis also affected the life in the country and in particular the healthcare. Greece's constitution obliges the state to provide health care to citizens. It actually kind of does but the system is a mess. It is stuffed with debt, plagued with corruption and hobbled by inefficiency and inequity. In some way the current healthcare in Greece represents the country itself right now. A slight problem now is that Greece on Friday swore in Prime Minister Lucas Papademos's caretaker government, which is expected to continue the path toward austerity that includes health-spending cuts that have been demanded by the international monitors of its bailout deal. The impact of this may be that pharmaceutical organizations can just cut off the public hospitals because they see all the bills on medicine that still remained unpaid. Because of this bad situation, public health care have created a large private system, widely used by wealthier Greeks, as well as a shadow system built heavily on bribes—the envelopes of cash known in Greece as fakelaki. These bribes can range from 20€ for a basic office visit to about 1000€ for a surgery. Of course, these kind of "gifts" are forbidden and in some hospitals there are even signs on which is a crossed hand giving an envelope. A study by Mr. Liaropoulos found that Greeks spend nearly as much on bribes and other "informal" payments as they do on "formal" costs such as insurance co-pays. Many doctors and policy makers suggest legalizing

the forbidden payments to help finance the hospitals. Another problem in the healthcare is that doctors prescribe medicine that is unnecessary. Some people say that the fakelaki are a consequence of low salaries. "Above all, the state needs to make clear what kind of health care it wants to provide its citizens," Dr. Patoulis said. "When it says the system should be free, it should be free. That means payment for the doctors who carry this out."
From this article, I learned that the economic situation in the country can easily affect the life in the country. For example, in Greece the economic crisis affected the healthcare. I also learnt that corruption is not always that bad. In Greece, most of the hospitals are in debt and they all need money. By getting money from the patients, they are actually getting out of the debt.

Article - Making the Most of Our Financial Winter (Oct 16)

This time of high unemployment in America can be referred to a 'Financial Winter.' Article in New York Times compares the 'Financial Winter' to a winter on a traditional farm. During the winter when there is no need for planting, fertilizing or harvesting, it is time for infrastructure projects such as fixing the barns, building fences or digging wells - important tasks that could have been done in any season if there weren't other jobs that needed to be done. Even if the winter is unusually long, people do not usually sit around and do nothing. They use their time  to get the important things done. The farm doesn't usually go to debt while undertaking these additional infrastructure projects because all the people on the farm are expected to contribute to these projects with their labor which is viewed as an informal tax. Later on everyone on the farm enjoys the benefits of all that work and the farm is economically growing. 
The 'American Jobs Act', proposed by President Obama but blocked by the Senate last week, would do the same thing for U.S. during the current 'Financial Winter.' The plan proposes undertaking various infrastructure projects such as school modernization, airport and highway improvements - modern equivalents to fixing the barn and building a fence on the farm as already mentioned. And these projects would be made possible by taxes. As Mr. Obama said in his speech last month: “Everything in this bill will be paid for. Everything.” The bill would start public improvement projects in 2012, and raise taxes, in the form of a 5.6 percent additional surtax on millionaires, in 2013. Therefore the infrastructure development projects suggested in President Obama's proposal would have been fully paid for by the tax surcharge so the national debt would not be raised temporarily. This plan of spending money on infrastructure projects to create jobs for unemployed has also been proven successful in the times of Great Depression in 1930s. A revolution in economic thinking, led by John Maynard Keynes, enabled us to think of the economy as "something that can spontaneously fail, that the government can stimulate to get going again and make everyone better off." This government stimulus has also been proven by other economist. For example, Walter S. Salant and Paul A. Samuelson realized that during a depression or in near-depression conditions, any government expenditure fully funded by taxes will increase national income approximately one for one, without raising national debt. This is known as the balanced-budget multiplier. 

From this article I learned a lot about how the 'Financial Winter' works and how can it be possibly used for the country's own benefit. I learned that the time of economy crisis, people should not just wait and do nothing. Government should spend this time by working on infrastructure projects which will also bring jobs for the unemployed people in the country. I also learned that these projects do not necessarily have to cause raise of the national debt. In this particular example, the projects can be paid by the increased tax on millionaires. The example of a farm really helped me to imagine this situation better and it contributed to my overall understanding of this topic. 
This topic does not really relate to the topics that we have studied in the class so far. However, I still learned a lot from this article and maybe some time in the future I would be able to relate this topic to something that we will be studying in class.

Article - Rising prices of peanut butter (Oct 9)

CNN Money article suggests "Get your peanut butter -- before prices soar" ! After one of the worst peanut harvest seasons, price of peanuts is going to noticeably go up. The intense heat and drought that hit the southern U.S. this year cause that U.S. peanut production will only hit 3.6 billion pounds which is 13% less than last year according to Department of Agriculture Report released this week. Since there is less peanuts harvested the price is going to rise to $1200 per ton on peanuts. That's a huge jump from last year when it was only $450 per ton of peanuts. The rising prices of peanuts are also going to affect the companies that are making peanut butter. For example, Kraft will raise prices for its Planters brand peanut butter by 40% starting October 31. Another well-known company that makes peanut butter, ConAgra, expects to increase the price of its Peter Pan brand by more than 20%. Other companies are planning to increase the price of their peanut butters too. Even though the prices of peanut butter are going to dramatically rise, Marion Nestle, a nutrition professor at New York University, says that "a shift in peanut butter consumption shouldn't make a huge difference to the nutritional quality of most Americans' diets." She also says that "for the average person in America it would be a good idea to eat less of almost everything."

One of the things I learned from this article is to what extent can the price of resources affect the price of goods. Here we can see that now as the price of peanuts rose, the price of peanut butter is going to rise too. Moreover, I was really impressed that a slight rise of peanut price can cause that peanut butter is going to be nearly twice as expensive. Of course I knew that the price of peanut butter is going to go up but I would never think that it's going to rise to that huge extent.I also learnt that laws of supply work in real life too.

This topic closely relates to law of supply that we are now studying in class. The law of supply says that as the price increases the quantity supplied increases and as the price decreases the quantity demanded decreases too. It is also true that as the cost of resources changes there is going to be a shift to either right or left; to the right when the cost of resources decreases an to the left when it increases. This particular example of peanuts perfectly shows a shift to the left because the price of peanuts, the material used in peanut butter, rose so the price of peanut butter rises too. It also shows that peanuts and peanut butter have a positive relationship and as price of peanuts  increases the price of peanut butter increases too and as price of peanuts decreases the price of peanut butter decreases too.

Article - 'Missoni for Target' sales (Sep 30)

Demand at Target for Fashion Line Crashes Web Site ! On Tuesday, September 13, sales of one of the most exclusive Italian fashion clothes caused a chaos. Missoni’s clothing usually costs about hundreds or thousands of dollars, but it had designed a number of cheaper items for 'Target', like for example a $40 skirt in its signature zigzag design or a $600 patio set. The sale of limited edition of 'Missoni for Target line' brought with it an unexpectedly high demand. The company even said that demand for items was higher than it was on a day after Thanksgiving, and that is usually the biggest shopping day of the year. Since the company was not prepared for so many customers, its website crashed for a number of hours. 

From this article I learned that the basic principles of demand also work in real life. As the prices of 'Missoni for Target' significantly dropped, the quantity demanded rose. However, I was very surprised that the demand was as high that it caused crash of Target's website. I also found it interesting that the demand for Target's goods was higher that the demand on the day after Thanksgiving which is known as the biggest shopping day of the year. I am glad that I found this article because it applies to the topic that we are now studying in class, Laws of Demand. Laws of Demand say that as the price rises the quantity demanded drops and as the price drops the quantity demanded rises. The prices of Missoni for Target line show that as the prices drop the quantity demanded noticeably increased. This example helped me to understand this topic.