Price Elasticity in the Real World

Price elasticity is also concerned with the amount people will be willing to pay for a product. If somebody has a low income they may be only willing to pay less for a product than somebody with a higher income. The person with the low income could be described as having low price elasticity because they are limited in the amount of money they can spend. Alternatively the individual can be said to have high price elasticity because they can afford to spend a lot more money on a product.

An understanding of price elasticity can greatly help our understanding of how things happen in the real world. If there are many similar products available then increasing price of one brand will usually lead to a fall in demand. This is because consumers can see that they can get a similar product for a cheaper price. If the item has a unique place in the market then price elasticity can have a different effect. A good example of this is gasoline. Even when prices increase at the pump the demand will stay almost constant. This is because there are no alternatives and people feel that buying this fuel is a necessity. If a unique item isn’t a necessity then people may respond to a price increase by just not using it anymore.

The Importance of Price Elasticity

An understanding of price elasticity can be very important for anyone who intends to sell products. They will want to know what is likely to happen should they decide to increase or decrease the price for their goods. There are complex mathematical formulas that can allow good predictions of price elasticity and these can be very useful. If a manufacturer can see that by raising their prices they will earn more money it will be a good path to follow. So long as the profits from the price increase outweigh any drop in demand it will be a good move. In fact with some products a price increase can actually increase demand because it makes them appear more exclusive.

The manufacturer or seller will also want to know what will happen if they reduce their prices. If this were to lead to an increase in demand then it could be a very shrewd move. If price elasticity is high the company may be able to make a lot more money by reducing the amount they charge for their products. Alternatively if decreasing the price of products is unlikely to have much impact on demand the company will want to know this before they make such a move.

There are both similarities and differences between NAFTA and the European Union. The main similarity is that both of these agreements involve a single approach to trade between the countries. The way that the agreements differ is that most of the European Union now has a single currency.

How NAFTA Works

The North America Free Trade Agreement has been in place since 1994. It was a controversial idea, but the plan was that such a move would not only promote prosperity but also bring the countries closer together. Since the time of its introduction there has been an additional two agreements added to it; the North American Agreement for Economic Cooperation (NAAEC) and the North American Agreement for Labor Cooperation (NAALC). All these different agreements share the same basic motive which is to make it easier for business to flourish within North America.

Before NAFTA there were many complaints about the rate of tariffs between different countries in North America. This made moving products from one country to another less attractive because there would be less profit to be made. By removing many of these tariffs it encouraged businesses to sell their goods and services across the whole of North America. This is good news because it greatly increases the number of potential customers that any business will have.

The Impact of NAFTA

Even those people who were initially critical of the North America Free Trade Agreement have needed to admit that it has been successful. The increase in trade between the US and Mexico has risen dramatically in recent years as a result of this legislation. By removing high costs associated with moving products between countries a lot of businesses have been able to expand their operations. It is great for the consumer because it means that they now have access to a lot more products that are available at reasonable prices. As part of the NAFTA agreement it is now necessary to provide labels on ship goods that appear in English, Spanish, and French. This makes it a lot easier for those people dealing with the goods who don’t have English as their first language.

As well of the great successes of NAFTA there have also been some less welcome results. The rise in the number of illegal immigrants coming to the US from Mexico has been blamed on this legislation. This sudden influx of undocumented workers has led to raising concerns in some parts of the US. It has become a highly politicized topic and emotions can run high about what should be done about it.

Frictional Unemployment Defined

Almost everyone will go through at least one period of frictional unemployment during their work career. Those people who leave school will generally have to spend a bit of time searching for suitable work. If people work on a contract basis they will tend to have gaps in-between contracts that could also fall into this category of unemployment. Those who have a gap in-between one job and starting the next one can also be described in this way. In many instances people like contract workers will be prepared for this period with no work so it will be no great hardship.

The Benefits of Frictional Unemployment

It is normal for us to consider any period without work to be a bad thing, but frictional unemployment can actually be a good thing. It encourages the individual to find work that is going to be best suited to their needs and skills. This not only benefits them but also benefits society as a whole as it is a mechanism that encourages the best people to end up in the most suitable jobs. It is also good for the employers as it means there is a constant flow of people who are looking for new opportunities. So far from it being a bad thing these periods where people are without work might be crucial for a successful economy.

What Influences Frictional Unemployment?

This type of unemployment is influenced by a number of different factors. The time of year can have a huge impact on the number of people seeking work for the first time. After graduation there will be a whole new cohort of young adults looking for their first opportunities in the business world. The rate of this type of unemployment can also go up depending on location. For example, in rural areas there can be a surge in the number of people looking for work during the winter; this is when there is less to do on the land.

Frictional unemployment is also influenced by structural unemployment. There can often be a difference in the number of people who want to work in a certain industry and the number of job opportunities available. A good example of this is the construction industry where a slowdown can leave a lot of people desperate to find any type of work. Structural unemployment can be particularly hard to deal with and it may force people to retrain so as to get work in a completely different industry.

Sustainability means to keep something going or alive. When you’re sustaining something, you’re making sure that it has a future and that is able to function in that future. Just as people eat food, exercise and sleep in order to keep healthy and fit (sustain themselves) countries have to take care of themselves too. They need to have the ability to sustain themselves.

Economic

In order to understand what economic is, the concept of wealth and resources needs to be examined. Every country has resources (e.g. gold, oil, diamonds, tourism etc.) to help it make money. The more money the country (and its people) makes, the wealthier the country becomes.

Economy is therefore the use of the resources of a country in order to create wealth and well-being.

Economic Sustainability

If you consider the two brief explanations above, it becomes clear that there is more to economic sustainability than meets the eye. In order for a country to make itself economically sustainable, it should be able to use its resources. If the country is at war or there are any other negative factors threatening the country, it will be unable to fully utilize its resources. In fact, its resources may have to be used to counter the threat instead of creating wealth.

It is therefore important that countries have a plan for the use of resources, as well as a contingency plan for the possibility of a threat to the country. However, not all threats are necessarily a disaster. Some countries make a lot of money out of wars (for instance) by supplying the warring countries with weapons. There are other disasters that can also create wealth for a country e.g. famine, hurricane disasters etc. Remember, there is always money to be made when there is a demand for and a supply of a certain resource.

In short, economic sustainability means that a country has to look at its resources. The government and citizens of that country have to decide how and when to use these resources and what they want to achieve by using the resources. Then they have to think about ways of making the resources produce wealth and prosperity to the country and its citizens on an ongoing basis. If they can achieve a healthy balance between usage and money creation, the use of those resources can be described as sustainable. If the resource also produces wealth and prosperity and can continue doing so for the foreseeable future, the resource/development/project that the country has embarked on can be called economically sustainable. This is the desired state that all countries and developments aim to achieve.

When writing a white paper, the consultants for the organization or government should consult widely and not take any of the issues or proposed solutions at face value. Part of the reason for a white paper is to state the issues and elaborate on where they come from. Then solutions to the problem can be proposed with detailed explanations of why these solutions would be effective and how they should be implemented.

The Implementation of a White Paper

The implementation of a white paper is also quite complex. Should the proposals in the white paper be accepted, there also has to be an investigation into the possible impact and repercussions these solutions would have on the various stakeholders. If you’ve written a white paper on an environmental issue, you might have to consider the impact your proposed solution could have on development work already underway, or proposed development work. There are far-reaching repercussions if development work is halted. That’s just one example of a topic for a white paper.

It is because the stakeholders could be affected severely by the suggestions made in a white paper that they should all be consulted in the formulation of a solution to the issue under discussion. Stakeholders should be given time to read the white paper and make comments on the discussion, as well as contribute their views of the issue and how it should be dealt with. Only when all the stakeholders have given their input can the author(s) of the white paper confidently present their report to the client/government.

Not Just Governments and Organizations

White papers are not always commissioned by an organization or government. Many activist groups write white papers in order to bring the issues that they are lobbying for to the fore and to make people take notice and think of not only the issues, but also the proposed solutions. These white papers are presented at Congressional meetings or any other forum where it would be appropriate to discuss the matters raised in the white paper.

Often white papers are used as the foundation for new legislation or regulations that benefit the community and the country as a whole. These white papers then become a definitive resource for students, academics and stakeholders in that industry to refer to when needed. Although the solutions are not always implemented exactly as proposed, the majority of the issue(s) could have been addressed and the implementation is sufficient at the level where it is needed.

White papers are very useful and influential tools to use in order to sway political opinion, or to get large corporations to change their practices for the greater good of all the stakeholders. If written with careful consideration the white paper can be a powerful tool of change and development.

Purchasing Power Parity in the Real World

There are plenty of good examples in the real world that demonstrate how PPP works. The Economist magazine provided the most talked about example of PPP back in 1986. They compared the price of a Big Mac in 120 different countries. The aim was to use the PPP between the prices of this food item in different countries to determine what the actual exchange rate should really be. They found some interesting examples of PPP. For example, where comparing the price of a Big Mac between the UK and the United States they found that the burger was a lot more expensive in the UK. This implied the currency of the country was overvalued.

One of the main benefits of looking at purchasing power parity is it gives a much more realistic idea about Gross Domestic Product. As currencies fluctuate it creates a misleading picture of what is going on with the country’s GDP. It could be that while the GDP is growing on paper it doesn’t actually mean that the standard of living for people is improving. It is well known that GDP is not that reliable and this is why using PPP can provide a much clearer picture of what is going on when comparing two countries.

If we only use one item for PPP it is not going to be a very reliable indicator of what is going on with the relative value of currencies between two countries. In order to get a clearer picture it is necessary to use a number of different commodities that are relevant. A PPP that was only based on the price of the Big Mac would be of very limited value indeed.

Problems with PPP

There are a number of problems with determining exchange rates using PPP. One of the most notable of these is the fact that we aren’t always comparing like with like. For instance, if we have the price of shoes as a comparison we will be treating all shoes as if they were the same. This is obviously not the case as there can be a huge difference in how shoes are made and the quality of the materials used to put them together.

Although a lot of the work on modernization theory has occurred since the sixties it has actually been around for much longer than this. It was during the Age of Enlightenment (the eighteenth century) that philosophers began to discuss how societies develop. This was a time when a lot of change was occurring and much of this was due to emerging technologies. These early philosophers believed that a society could almost completely change within a generation, and there is a lot of evidence to support this assertion.

The Influence of Modernization Theory

These days a lot of the focus of modernization theory is on how improvements in communication technology have impacted our world. The rise of the internet has without doubt completely changed the world we live in; almost every society has been impacted by this new technology. One interesting idea is that we are developing a universal culture because of the fact that we now communicate so much with other people around the world. Not only are we learning about different cultures but we are being influenced by them as well.

Modernization theory is interested in both the negative and positive effects of changes within society. One interesting consequence of the modern world is that there seems to be a growing gap between the rich and the poor. There is also the argument that while technology can bring huge benefits to a society it can also just lead to a new form of misery for the disadvantaged.

Some supporters of modernization claim that forcing a society to change might not be such a bad thing. Traditions can be viewed as an obstacle to progress and so eliminating them could turn out to be beneficial.

Criticisms of Modernization Theory

Modernization theory has been the subject of a lot of criticism over the years. A lot of the criticism stems from the fact that it has been focused on a certain type of modernization; those societies that emerged in Western Europe during the eighteenth century. Many proponents of the theory work under the assumption that those countries that have developed in a different way than their model are behind.

Despite the criticism of modernization theory it is important to emphasize that it is considered value free. While some may use the knowledge provided within this theory to justify controversial arguments this is not the purpose of this field of study; the aim is to examine both the benefits and disadvantages of modernization.

Modernization theory provides an interesting look at our world and this is why it continues to be studied today. It helps us understand our modern world a bit better and contains predictions of how we can expect things to be in the future.

What is Socialism?

Socialism starts with the assumption that if an economy is not somehow controlled it will lead to a situation where the rich get richer and the poor will have much less opportunities in life. Socialism does not believe that market forces by themselves are fair, but rather view them as only benefiting the rich and powerful. Socialist philosophy argues that the resources in a country should be owned by the government or the public and that they should be controlled by cooperation between humans rather than any type of market force. The ideas of socialism grew out of the unfairness that many saw in society in previous centuries; where the rich had everything and the poor struggled to get through each day.

Another crucial difference between socialism and capitalism is in regards to wealth. Capitalists believe the individual should work for their own wealth and get to enjoy what they work for. In a socialist economy though, the aim is to work to make society richer and then this is divided among all the members of that society. In a socialist society it is usually the government that decides who get what, but the emphasis is on each individual working for the benefit of the group rather than themselves.

What is Capitalism?

The fundamental basis of capitalism is that it is competition that makes a society rich and ensures fairness. This drive to succeed creates market forces and it is this that decides how goods are distributed and who gets to receive the larger slice of the cake. Supporters of this philosophy believe that it is crucial that the individual be able to create wealth for themselves as this is what drives competition. It is also generally believed that any attempt to interfere with market forces is a bad thing. In a capitalist society the individual will own different resources and the only real role of the government is to ensure that people play using the agreed upon rules.

Supply and demand is what capitalists believe encourages fairness in this type of system.  This will not only determine the price of goods and services but also the price of labor – the wages that people get for their work. It is argued that if the supply and demand are not interfered with they will create the fairest situation.

It is unlikely that the debate between socialist and capitalist supporters will end any time soon. Both sides can provide a compelling argument and this is why people can be so passionate about their beliefs in this regard.

The existence of free trade around the world is hindered in many different ways. Most countries will have tariffs on at least some imports, and this tax can make these good less competitive. The usual reason why a government will impose this type of tax is that they want to protect local industry or dissuade people from purchasing certain products – the governments also use tariffs to raise funds. Of course there are also a lot of limitations on the free movement of labor.

The Argument for Free Trade

The argument for free trade goes something like this; it makes industries more competitive and it is a better deal for the consumer. If country A is able to produce a product cheaper than country B then the citizens in the latter will get a better deal by importing it from the former. The fact that similar industries in country B now have a fierce competitor will force them to work harder to please the consumer and become more productive. The argument for free trade is based on the idea that market forces are self regulating and that any attempt at interference will just damage the economy.

There is also the argument that free trade leads to improved relations between different countries. They will develop common interests and it will encourage joint projects and cooperation. If labor is allowed to flow between different countries then the argument is that this will further improve international relationships. It can also mean that each nation can provide training to the workforce of their trading partners in an area where they excel.

The Argument against Free Trade

Those who are against free trade don’t tend to be so trusting of market forces to create the best deals for people. If a foreign entity can come in and undercut local businesses then this could easily destroy these businesses. It could also suck a lot of money out of a country as imports start to rise higher than exports. There is also the persuasive argument that the reason why some countries are able to produce things more cheaply is that they have unfair labor laws or may rely on child labor. By opening up the doors to free international trade then this will only increase the exploitation of workers in foreign countries, and make things harder for workers at home. If unemployment goes up because of industries going under due to unfair competition then this will mean that consumers won’t have money to buy even the cheaper products.

What is Poverty?

The truth about poverty is that it is hard define and depending on who you talk to you might get a different definition. This is problematic because it means that two people might be having a conversation about poverty yet talking about completely different things. Governments around the world will usually have goals for tackling poverty but these countries will define it in different ways. In some places around the world if you have food in your belly and a roof over your head then you would not be considered to be in poverty. In some other countries though there will be a far higher expectations and a much higher poverty line.

The Reasons Why Defining Poverty is Important

Defining the word ‘poverty’ is a political issue that can have a huge influence on government policy. Depending on how it is defined it will determine if people are to be considered disadvantaged or not. For example, if the government decides that not having a computer in the home puts you below the poverty line then this will classify a lot more people as disadvantaged than if this wasn’t the case. Some countries will impose a poverty line that is very high and citizens would have to be practically dying of hunger before they would be viewed as in need of assistance.

An important aspect of poverty is the idea of the ‘working poor’. These are people who are below the poverty line yet have full-time jobs. The existence of so many people who are in this position can put a lot of pressure on governments to introduce a minimum wage. There is a lot at stake when it comes to determining the poverty line and this is why there are a lot of pressure groups around to argue the definition of who is poor and who isn’t. Those who are against the minimum wage may argue quite forcibly that the poverty line is too high.

Defining poverty might seem to be an easy task but it is something that continues to cause much debate. There is unlikely to be any resolution to this soon and so poverty will remain subjective for most of us. There is no doubt that poverty exists but we do find it hard to agree on exactly what it is.