Economics Analysis - Assignment Example

Student Name: Tutor: Title: Analysis for Economics Course: PART ONE Factors of production Factors of production describe elements that support industry growth and the commercial world. They are the various resources used in the process of creating finished goods and services. The factors of production consist of land, labour, capital and entrepreneur. It explains the role of the entrepreneur and how he organizes the other factors of production. Entrepreneur offers purpose and direction to the rest of factors (Kates, 2014, p.102). The factors of production enable a look into the relationship between the correlation between output and the inputs that are invested in production. The cost of production is discussed and how it affects the price of the output. The traditional factors of labour, land and capital are analyzed and how the impact on the production process. The initiation cost of production is attributed to these factors before other overheads like electricity, water, rent, interest rates, and postage are factored. It is the entrepreneur who organizes the other factors of production to come up with synergy that allows for the production process to take place. He pays salary and wages to labour, capital receives interest while land receives rent. The resources are limited and require careful use. Without these factors of production, the production process cannot start. Resources in a particular country or region have to be organized by the entrepreneur in order to be used in the production process (Kates, 2014, p.105). The entrepreneur takes the risk to invest in the resources of land, labour and capital used in creation of finished products. The human resource department in an organization is in charge of labour that works in exchange for salary or wages. Marginal analysis Marginal analysis is used to explain how products are priced. Marginal analysis is the foundation of what can be changed in the future. The past is the base of decision making but what can only be altered is included to be part of marginal analysis (Kates, 2014, p.169). Marginal analysis involves comparing of costs against benefits of any decision made in the business. The investor comes to know whether a certain activity is beneficial or profitable or costly to the company. Marginal analysis is the study of relationships in changes in economic variables that are related. Such ideas that come up in the analysis comprise of marginal revenue, marginal cost; marginal rate of substitution, marginal product, and marginal propensity to spend or save among others (Kates, 2014, p.171). Marginal analysis is important in aiding people to allocate their limited resources in the maximization of the benefits that accrue from the output realized. Consumers strive to maximize utility that they obtain from finished products. Marginal analysis shows impact of small changes in the input or output of any alternative. Marginal analysis looks at decision-making as a result of incremental changes or marginal changes to resources instead of looking at averages or totals. Marginal analysis provides the opportunity to investors to determine the extra benefits of a production activity alongside the costs incurred (Kates, 2014, p.189). This analysis is important in informing the owner whether a certain activity is profitable and making prudent decision having this information in mind. The investor understands when to invest more or change methods of production. The overall cost incurred by the investor will rise with every additional unit that is bought. An investment decision has to be made considering the extra cost that will be involved. Measuring economic growth Economic growth explains value adding activities. The output value has to go beyond the input used if economic growth has to be realized. Money is used a measure of value (Kates, 2014, p.200). National accounts describe the measure of overall economic activity. The statistics obtained are used in the comparison with the past and the present to determine the rate of economic growth in any given economy. Gross domestic product is used in determining economic growth. Increase in economic growth is attributed to efficient use of inputs. Growth is calculated inflation-adjusted for the purpose of removing distortion of inflation on the produced goods. Economic growth refers to changes in the value of goods and services by a given economy over a period of time. The common way of measuring economic growth is by use of real gross domestic product. The use of the term ‘Real’ means that the effects of inflation have to be removed from the total (Kates, 2014, p.219). Quality of life attributed to improved purchasing power is shows economic growth. Gross domestic product is the market value of final goods and services produced in a country within a particular time frame. Economic growth in a country can be measured by comparing the recent or current gross domestic product against the past gross domestic product. Measuring economic growth applies long-run series of data to calculate the growth rates. Goods and services are valued at their market price. Say’s Law and the classical theory of the cycle Says law suggests that production will always create its own demand. Economic growth is not based on increasing demand but the increase in production. Demand for a product is realized once the product is manufactured (Kates, 2014, p.419). A product produced automatically creates its own demand. Demand does not have to be realized before increase in production. The market adjusts to take up the increase in production. The classical theory of cycle suggests that a person cannot clearly understand the downturn nature unless one has to discern the boom that came before it. It explains recurrence of times of economic depression and the challenge of business cycle that is creates. The economy has to be always to full employment. Unemployment has to be due to wages being artificially placed above the equilibrium level or structural factors. For the purpose of increasing output people have to focus on increasing production as opposed to demand. Production is a source of demand (Kates, 2014, p.427). Someone who produces a service or product he gets paid for his work and he is able to use his reward to pay for other services and goods. The power to purchase goods and services from others comes from the income obtained by a person’s acts of production. Wealth is often created by production as opposed to consumption. Abundance of other products is responsible for sales. According to classical theory of cycle recession happens when miscalculation happen. The structure of demand is different from the structure of supply. When goods produced do not march the goods that investors and consumers wished to buy, some goods will remain unsold. Recessions are not as a result of failure in demand but by failure in the supply and demand structure. Recessions are as a result of producing not being accurate on what consumers want to buy then causing goods that are unsold to pile out. The relationship between saving and economic growth Saving and economic growth are all directly proportional. Economic growth leads to more savings as the income of individuals’ increases (Kates, 2014, p.412). Savings contributes to investment which leads to robust economic growth. People save so that they can invest at a future date. Saving forms the foundation for economic growth or a boom in the economy. The marginal propensity to save refers to increase in saving which comes with the increase in income. When the economic growth of a country increases, the amount being saved also increases. Governments provide saving and investment schemes to encourage individuals to save. Through use of such schemes, people can save a substantial amount of tax. On the other hand, the government in uses the money to invest in numerous development projects within the country that realize a better economy hence leading to more economic growth (Kates, 2014, p.411). Investment leads to increase in the aggregate wealth. However, the investment will not multiply without having a positive growth effect on savings in a nation. Saving plays a role in offering the national capability for investment as well as production which has an effect on the economic growth. A setback to economic growth can be due to low rate of saving in a country. Nevertheless, Excess savings will result into an economy stagnating. Hence there should be a balance between saving and investments which lead to economic growth. PART TWO Factors of production This news item highlighted the plight of child workers in the Seafood industry of Thailand. The children are exposed workplace dangers and have a double likelihood of being injured than others working in other industries. The children in the seafood industry in Thailand worked with gas, fire or flames at a higher percentage than other industries. Right groups have protested against the use of slave labour in the Thai Seafood industry. Fishermen from Myanmar and Cambodia are smuggled and forced to work on boats (Fis.com, 2015). Their children make up the majority of the children working in the industry. A person can question the continued use of child and slave labour despite of having abled manpower in the world. The understanding of factors of production theory is important in understanding this concept. Labour is among the important primary factors of production that consist of land, labour, capital and entrepreneur. The entrepreneur is charge of the other three factors of production that he engages to realize efficient production. The use of child labour is being done by the management in the seafood industry. Labour is paid salaries and wages hence the more use of the labour factor the more prepared a company is to pay more. Consequently many entrepreneurs look for ways of cutting down on labour costs by securing cheap labour. Children are vulnerable and have low bargaining power hence being the likely victims. Trafficked adults do not have legal travelling and working document hence they can be used as slave labourers against they wish since they fear deportation. Labour being among the three primary factors of production make some unscrupulous investors to use children as workers in their industry. They can pay the children less and force them to work longer hours since they are not protected by labour movements or unions. Trafficked adults also have less bargaining power because they due not have legal documents of being in Thailand. The seafood industry is notorious of using children because it wants to pay less for labour leading to increased profit. This is against is against the international standards of human right. Understanding factors of productions makes one to conceptualize why such exploitation of children and unwilling adults happen in the world. Marginal analysis The news item from News Age reports on a continued standoff between the Rail Union and the City’s Rail System. Public transport commuters in Melbourne will be faced with a looming rail and tram shut down that has continued to be witnessed in the recent past. The Fair Work Commission has given the Rail Union the green light to take industrial action against Metro and Yarra Trams (Carey, 2015). Metro offered a 17% pay rise that would be implemented over a period of four years; a deal which was rejected by the Rail workers’ union. According to Metro the deal means that the workers have to let go some of the workplace condition if it has to achieve the creation of a modern and metro-style rail network within Melbourne. Despite a series of meeting Metro continues to hold firm to its stand of reducing other benefits that the workers get in the face of a pay rise. The puzzle is why Metro continues to have a hardline against the demands of the workers’ union? Knowledge of marginal analysis helps to explain the reluctance by the company to offer the workers more pay. Without the understanding of Marginal analysis is not easy to comprehend why there is continued standoff between Metro and the Rail Union. One expects Metro to give the workers a pay rise and keep their working conditions to avoid more industrial strikes. However, with a clear understanding of marginal utility, it is clear to understand the reluctance of Metro to the Union’s demands. More pay for the workers means the company increase its production costs. Marginal utility explain that impact of changes input to the overall production. Marginal analysis provides the opportunity to investors to understand the extra benefits of a production activity alongside the costs incurred. More pay to the workers means that the input by Metro will increase. These marginal changes in the labour production factor have to have an impact on the production of the company. Metro is reluctant because it aims at investing more in creating more rail network in Melbourne and more pay to the workers will not be sustainable in the long term. The company has to look at the impact of incremental changes to the general output of its services within Melbourne. This news items shows the prudence of investors when it comes to adding inputs like human resource or other capital investment. The costs that accrue from the changes do not have to be a burden to the company but ensure further investment brings about the desired returns. Measuring economic growth Factory output and investment by China missed what was forecast in August which is an indication of a dip in the economy of the country that forces the country to act by providing more support measures. Inflation reading and weak trade indicated that the annual growth of the economy at 7% a year could dip further. Fixed-asset investment growth in China slowed to 10.9% in the first 8 months of this year as compared to a year before (Reuters, 2015). The fixed-asset investment is a crucial asset of the economy. The puzzle is how economic growth is determined. How can it be said Chinese economy grew at 10% and now is growing at 7%? Understanding the measuring of economic growth helps one to comprehend what it means when the economic growth changes from seven to ten percent. Gross domestic product is used to measure economic growth. This is the measure of the value of all finished goods and services that have been produced within the borders of a country at a particular time period. The GDP is determined on an annual basis. GDP is used a measure of economic performance. Chinese economy previous growth of 10% was determining by calculating its GDP on the annual basis and compared to earlier performance. The current 7% growth is obtained through determining the current GDP and comparing it to the previous performance. Commentators can therefore say the economy of China is not doing well by looking at the current GDP as compared to the previous GDP. Without the grasp of how economic growth is determined it is hard to tell whether there is any economic growth. Knowledge of how to measure economic growth enables different comparisons about the economy in a specific country or various parts of the world. GDP is used to measure the performance of the economy of an entire nation but can further be used to determine the contribution an industry sector. In the news article the retail saves seem to register positive growth 10.5% as compared to the projected of 10.5%. This is despite the dip in the Chinese economy. There could be other sectors that are doing well when the overall economy is slowing down. The knowledge of determining economic growth helps a country to know the investment policies that can be used to stimulate the economy. Without the measure of the GDP there will be no comparison of economic growth over periods or from one country or another or over regions. The inflation factor is considered when calculating the GDP in order to avoid distortion and present an accurate picture of the economic performance. Say’s Law and the classical theory of the cycle The news item reviews the drop in the Chinese economy in the recent past. The Lehman Brothers the global financial crisis seven years ago by bringing down the global financial system. The financial panic has been interpreted by many to be a sign of another crisis in a world economy that has not recovered fully from the 2007/8 Global Financial Crisis. Many commentators from the western world interpret the China issues to be a sing of another global firestorm. The past three decades have been punctuated by financial crises as well as systematic meltdown hence a creeping fear in the casino capitalism fallout. The economy of China is slowing down as it changes from export-led growth to consumption. The economy that had previous grown at a yearly average rate of 10% is now growing at 7% annually (Seumas, 2015). Three decades ago the growth the Chinese economy averaged at 10% annually. It is not easy to understand the ups and downs without a clear grasp of Say’s Law and the classic theory of cycle. The classic theory of cycle enables the understanding of why there are fluctuations in the growth of the economy all over the world. While some part of the world or country may be experiencing growth, another region may be in recessions. Periods of growth are likely to be followed by recession then recovery. The world panics with any crush in any stock market prices since the global economy has not yet recovered from the effect of the 2008 global financial crisis. China was not adversely affected but USA was banking and real estate sector suffered most. According to says law production creates its own demand. Without proper calculation by investors, there is a likelihood of them producing what the consumers do not need. Recessions are prompted by excess productions of items that end up being unsold since the investors produced what the market did not want. Classical theory of the cycle and Say’s law makes a person understand why their recessions or slow growth in the economy when the same economy has experienced robust growth in the past. It is important for investors to understand what the market needs before they go ahead and invest more in production. The change in the gross domestic product over time can be understood through the classic theory of cycles. Investors have to be accurate and prudent when they make a decision to invest. More investment cannot lead to growth when what is being produced is not needed in the market. Outdated products have to be discarded as the world adapts to modern items and easy way of doing things. The relationship between saving and economic growth This item reports that Auckland technology incubator has advised wealthy migrants to be compelled to invest their wealth a minimum of 20% of their wealth in high-growth companies that are riskier. The idea will pump more $50 million into potential firms. A consultancy company, KPMG, backs the report saying that the policy will match what has been in other places like Canada and Australia. 870 Migrants have been allowed to settle in New Zealand since 2009. Wealthy migrants are required to have $1.5 m of capital or $10m (Pullar-Strecker, 2015). The puzzle is why the migrants should be forced to invest their money? The understanding of the relationship between economic growth and saving helps to answer this question. Saving are very important since the money that is saved is invested leading to more production. Economic growth results to people having more income hence saving more. More income also means high purchasing power by consumers leading to companies to produce more to cater for the increased demand. The money saved is used as capital for further future investments. People are encouraged to save for a rainy day. However, excess saving leads to stagnation of the economy since more money is held as idle cash. While saving is important too much capital lying idle leads to economic stagnation. It is clear to understand why wealthy migrants intending to settle in New Zealand will be forced to invest at least 10% of their wealth in risk firms. In this event, the possibility of having excess saving will be avoided. Money that has been saved need to be invested in order to realize economic growth. Without understanding the relationship between economic growth and saving, it is not easy to comprehend why the wealthy migrants will be forced to invest at least 10 percent of their wealth. Excess saving is not good for economic growth. References Carey, A., 11th, Sept, 2015, Rail union gets green light to hold more train and tram strikes this month, The Age, Victoria, retrieved on 16th September, 2015 from: http://www.theage.com.au/victoria/rail-union-gets-green-light-to-hold-more-train-and-tram-strikes-this-month-20150911-gjkifx.html Fis.com, Sept. 15, 2015, New report warns on child labour in Thai's seafood industry, retrieved on 16th September, 2015, from: Kates, S., 2014, Free Market Economics, Second Edition: An Introduction for the General Reader, Edward Elgar Publishing, Northampton, USA. Pullar-Strecker T., 14th Sept. 2015, Migrant investors should be forced to invest in 'high growth' firms, says incubator, Stuff, retrieved on 16th September, 2015 from: http://www.stuff.co.nz/business/72017693/migrant-investors-should-be-forced-to-invest-in-high-growth-firms-says-incubator. Reuters, 13th Sept. 2015, Economic Growth in China Missed Forecasts in August, The New York Times, retrieved on 16th September, 2015 from: http://www.nytimes.com/2015/09/14/business/international/economic-growth-in-china-missed-forecasts-in-august.html Seumas M., 26th Aug. 2015, China can ride out this crisis. But we’re on course for another crash, The Guardian, retrieved on 16th Sept. 2015 from: http://www.theguardian.com/commentisfree/2015/aug/26/china-crisis-market-mayhem-aftershocks-2008-another-crash http://www.fis.com/fis/worldnews/worldnews.asp?monthyear=&day=15&id=79270&l=e&special=0&ndb=0 Read More