The recent drop in oil prices lends itself to fascinating analysis. OPEC members are finding it difficult to agree on a strategy to increase price and are more inclined to ‘cheat’ and sell more for less to protect revenues and market share. High expenditure projects in Venezuela and some Middle Eastern countries have placed greater emphasis on generating revenues to balance the books and, with the falling price of oil, they are perilously close to fiscal deficits. As an aside one of the articles below questions the motives for such spending and thus begs the question as to what may occur when such spending ceases?
The increase in US shale oil appears to exacerbate the situation further as supply is outstripping demand and on the face of it would signal the beginning of the end of OPEC. Combined with the latest UN backed report stating that the use of fossil fuels should be fazed out by the end of this century if irreversible damage to the planet is to be avoided, countries like Kuwait need to restructure their economies sooner rather than later.
Great opportunity for development of chains of analysis and evaluation with diagrams.
A World Without OPEC?
Fossil fuels to go!
As we know an opportunity cost is incurred in every decision we make but whether it is a high or low is often subjective. The article below calculates the time spent watching the music video ‘Gangnam Style’ was the equivalent to 16 000 years! What do you suppose could have been done with this time?
The hidden cost of Gangnam Style
Behavioural economics is gathering pace particularly in light of The Great Recession. How can we summarise behavioural economics? If we use the start point that traditional economic theory assumes people always maximise their utility by making rational decisions, we can say that behavioural economics uses psychology to criticise this assumption. This field of economics believes that ‘we’ do not react like robots on pure logic alone but have considerable emotional influences on our decision making. We have all experienced the feeling we get when we over eat yet how many times have we subjected ourselves to this feeling? Have you ever succumbed to an emotive advertisement or an appealing offer only to realise after that maybe you shouldn’t have purchased that product OR after realising this, you still justify the purchase knowing that it was an emotional purchase and not a rational one? Take the classical assumption, of rationality, further and see how markets ultimately clearing to the desired equilibrium is inherently incorrect, according to behavioural economists. Not from the social cost/benefit perspective but from the consumer behaving in an irrational manner one. Below are some links for you to peruse and get a taste of what this branch of economics is about. Also go the to Behavioural Economics page of Mark Johnston’s indispensable blog, email@example.com and you will find some fascinating reading including the ílliquid cow’ article below.
It covers many of the key graphs of microeconomics. You could also watch Lazy Econ and Rolling in the Green…
It is often easy to lose sight of the wood for the trees. In micro economics we study how the interaction of producers and consumers contribute to the allocation of resources. How much demand responds to changes in income, the price of substitutes and compliments as well as changes in the price of a particular product. We must have a sound knowledge of all of these concepts. However, we need to apply this theory to the reality of the market place to gain a deeper understanding. Below are several sources to enhance your learning of applied economics. (You only need to read the first few pages of the Wal-Mart paper to get the gist).
yED and strategies PED XED Wal-Mart
Producers outsource as a means of reducing average costs and gaining a competitive advantage. Abnormal profit and time saved can be reinvested on increasing innovation. Consumers gain through better quality products at more affordable prices . However, what is the opportunity cost, of this action, on the macro economy? Below is a video explaining the concept of the ‘jobs multiplier’ and it intimates how some major economies might benefit from rebalancing.