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.