Supply and Demand on the Market - Essay Example

Journal entry is Supply and Demand Cavallo, A., World oil production: focus on non-OPEC supplies: a summary of the recent National Academy of Science workshop on supply and demand World Oil, April, 2006 by Alfred Cavallo The petroleum that is hidden under the earth will not last forever. This is the doom’s day scenario that some countries are presently studying. The United States National Academy will hold a workshop on the trends in WORLD OIL SUPPLY AND DEMAND. The topic focused concentrate on peak petroleum production to supply the world’s hunger for fossil oil. The aim is to produce new petroleum supplies thereby reducing demand. Basic economics tells us that if there is abundant supply, the selling price of the resource, in our case petroleum oil, will go down. But if there is few supply, then the price of the commodity will go up. The organization of petroleum exporting countries decides by them the cost per barrel of petroleum. The present price of petroleum in the world market has skyrocketed in the last few years because the OPEC members have agreed to limit the output per country. Since the agreed output has been reduced, the prices of petroleum per barrel have skyrocketed for the past few years. A study of the non – OPEC member nations, government and other academic researchers have shown that the non OPEC member nations may have equal sales with the OPEC member states in 2010. The worst case scenario is predicted by some scientists showing the world’s population will squander the limited petroleum oil supply. When the petroleum will dry up, then the world’s population will have a feeling that we are approaching the end of the world. Crude oil production in the Continental USA reached it highest daily barrel production in the 1970s. But in the coming years, the number of barrels that can be Produced from its oil wells has greatly reduced. The population of the world, meanwhile has increased. Exxon has warned OPEC countries that the oil supply will not last forever. In some countries, solar energy research have been successful replacements for petroleum. Oil production can be subdividied between the OPEC member countries and the non OPEC. Countries have started looking for non-petroleum product replacements. An example is the electric power batteries. The solar powered homes and calculators are big successes. Petroleum substitutes that were successfully tested are fuels coming from heavy oil, tar (oil) sands, (oil) shale, natural gas (gas to liquids), coal (coal to liquids) and biomass The introduction of the substitutes will help lower the the increasing barrel cost of petroleum (fossil) fuel. In fact, “Many large-scale projects, such as shale processing and synfuels (e.g., coal to liquids), were begun in the early 1980s, but these were abandoned when the price of oil fell drastically in 1986. However, research has continued at a steady pace since that time. Even producing oil from tar sands is now a alternative major industry in Canada. Plants to produce liquids from natural gas are operational, and much larger plants are under construction. Ethanol production from sugar cane and corn is now done on an industrial scale. Thus, projections and evaluations of alternative fuel technologies can be made with much more confidence than was possible during the 1970s.”( Cavallo, 2006) Journal entry 2 is Inflation No author, Inflation warning hits Wall Street, Business Journal, June 5, 2006 Inflation is defined as the increase in the purchase price of goods. Inflation causes a domino effect where the price of one good causes the increase in prices of goods on the next transfer of ownership. A buyer will sell goods higher than the cost of his purchase. In fact, a mere WARNING of an impending inflation by the head of the US Federal Reserve has sent stock prices falling down the New York Stock exchange and other stock exchanges. Federal Reserve Chairman Ben Bernanke’s speech stating that “although the US economy is "entering a period of transition" toward lower growth, inflation has risen to "unwelcome" levels that would need vigilance” (No author, 2006) has caused the rise in the American interest rates upon his speech. Other factors that cause by his speech are “on the New York Stock Exchange, the Dow Jones industrial average has plunged 199 points. That is a decline of 1.8 per cent, leaving it at 11,049. The high-tech NASDAQ composite index is down 50 points to 2,170, a slide of 2.25 per cent. The British share market closed before the rout on Wall Street. Londons FT-100 index has slipped just 2.5 points to 5,762. Yesterday in Australia, energy and mining stocks climbed amid firmer copper and oil prices. The energy index jumped more than 2.5 per cent, while the materials index gained 1.1 per cent. The All Ordinaries index jumped 42 points to 5,082. Health and information technology stocks were also well supported.” (No author, 2006) The best way to remedy inflation is to go along with it. The company cannot complain about inflation but rather must find ways to see to it that the company generates income for the years that it will be operating its business. Simply put, if the cost of purchasing your raw materials that form part of the finished products which are then sold will increase because of inflation, then the company must now increase by the same percentage, more or less, its selling price. This is the best way to fight inflation. This also means that inflation will continue to increase from the current year to the next years to come. Another way to fight inflation is to look for other sources of raw materials that will be cheaper than the current cost of raw materials used. Still another way to fight inflation is to maximize the use of factory equipment and hire highly skilled workers to produce higher quality goods and lowering productions costs. Still another way to fight inflation is to reduce the number of employees and save on labor costs. The company then will not need to increase its selling prices when their competitors increase their sales prices. As a consequence, the company that has lowers sales prices and with the same quality products sold will generate more sales in the long run and for a long period of time. Journal entry 3 is Fiscal Policy Moore, S. & Slivinski, S., No author, Fiscal Policy Report Card on America’s Governors, Cato Institute, 2002 In its June 12, 2006 publication, Cato Institute disclosed that for the year 2002, many governors of the United States have made good and not so good fiscal policies. The Cato Institute’s sixth biennial fiscal policy report on the nation’s governors, the results showed the performances of the governors. The year 2002 was the year when the worst budget crunch had occurred. Many governors have cut taxes. This sounds fine for the taxpayers who are resident individuals or business establishments. But this does not sound so good for the state because it will lessen its cash inflows. The cash inflows will be used to defray the daily expenses of running a state. The state needs money to construct new roads and bridges as well as to repair previously constructed roads and bridges. The state needs money to pay for the salaries of state employees, government hired teachers, school books for schools that it maintains. Money is also needed for the state to pay for other necessary expenses for the state to spend so that the state can survive by itself. . Therefore, most of the citizens will give the governors another term or two to serve them as governor because of the lower taxes that he or she espouses. The governors that spent government money unnecessarily will have lesser possibilities of being reelected for the next term. Of the governors evaluated, for the year 2002, “two governors receive the highest grade of A: Bill Owens of Colorado and Jeb Bush of Florida. Four governors receive the lowest grade of F: Gray Davis of California, Don Sundquist of Tennessee, Bob Taft of Ohio, and John Kitzhaber of Oregon” (Moore & Slivinski, 2002) The governors of the very populated states are George Pataki of New York, John Engler of Michigan and George Ryan of Illinois. For the year 2002, the United States government had a combined budget difference amounting to more than forty million dollars. This is the result of spending more than what is the budgeted allowance of each state in the nineteen nineties. For the year 2003, the governor has to include in his or her budgeting and actual spending plans the deficit spending that it had incurred for the year 2002. The governor must now try to lessen his or her spending of government funds to more manageable levels. This could be done by scrutinizing whether the expenses it will need to purchase will be necessary and if necessary, the amount to be spent should be trimmed down to a more realizable amount. The governor has to increase taxes to increase the amount of spending money it will have. For if the state cannot pay its obligations when they fall due, this will cast a poor credit rating not only for the governor but it could have ripple effect reactions from creditors and that state’s residents individuals and companies as well. But raising taxes in order to cover its future debt obligations will create a bad impression on the taxpayers, especially the low income groups. This may, in all likelihood, create a slowing of the economy just like in the 1990s. Again, the best way to resolve the fiscal crisis of state spending more than the taxes that it will generate is to cut down government expenses to more important and necessary ones. Journal entry 4 The Federal Reserve Economic Research, Federal reserve bank of St. Louis U.K. Inflation Targeting and the Exchange Rate by Christopher Allsopp, Amit Kara, and Edward Nelson, June, 2006 According to the American Heritage dictionary “Federal Reserve System is a U.S. banking system that consists of 12 Federal Reserve banks, with each one serving member banks in its own district. This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the credit structure”. In the United Kingdom, the monetary policy is composed of strategies of floating the inflation forecasting and exchange rates where the consumer price index is involved in the complex Federal Reserve computation. The exchange rate is a serious monetary policy of the Federal Reserve because it has its advantages and disadvantages. For the exporter, if the exchange rate goes up, if payment is made before the increase in exchange rate, the exporter will not earn the difference between the increases in prices. (For example sale date and payment date by the buyer June 10, 2006 US $1,000. but on delivery on June 12, 2006 the exchange rate has increased by US $2 per European $. The exporter will still be paid the $1,000 and not the higher new amount of more than US $1,000. The Federal Reserve banks have to control the interest rates offered by banks for loans to its clients so that there will be a more or less uniform interest rate. Different bank interest rates may cause the economy of some business (especially banks with high interest rates) to slow down. Bank clients prefer to apply for loans in a bank where the interest rate is comparatively lower. The consumer price index is used in the computation of the inflation rate. The formula for inflation rate is the dividing the difference between the year’s consumer price index and the previous year’s consumer price index by the previous year’s consumer price index. This formula shows that as prices of goods go up, there is inflation. But as the prices of goods slide down, there is deflation. Most of the time there is inflation. The Federal Reserve therefore helps control inflation by instructing the banks to lower interest rates in order to allow businesses to borrow money to cope up with the inflationary situation. Therefore, the Federal Reserve board, or the central bank, can help lessen the inflation rate by helping lessen the increase in the consumer price index. The consumer price index is the cost goods that we buy like food and clothing. In order to fight inflation the company can buy alternative raw materials that are priced lower than the original raw factory materials used. Another way to fight inflation is to increase the selling price. The clients will be made to believe that the selling prices have increased because the price of raw materials input has increased due to inflation. Another way to fight inflation is to tighten the company’s belt. This means that the company will spend only necessary expenses. Another way to counter inflation is to export more goods than to import the raw materials to produce the export items. The company can now replace their imported raw materials with locally produced ones. Journal entry 5 International Finance Tech tank: the Mexican government helps homegrown tech companies reach international markets Latin Trade,  May, 2006  by Marisol Rueda According to investor dictionary.com “International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment, and how these affect international trade.” This means that whenever there are exports and imports, there is always an accompanying gain or loss from foreign exchange rates between countries. For the exporter, increase in the exchange rate between two currencies of the importer favors the exporters. On the other hand, when the exchange rates between two the exporter and importer decreases, the decrease in the exchange rate between two currencies favors the importers. Now the importers can pay lower for the same quantity and quality of goods than what they had paid a day ago or a month ago or a quarter ago. This Tijuana office has opened its office in another country. Medida, a Mexican company has opened its branch. It hires 13 people in its wireless technology enterprise. This Mexican company has invented the internet zero software which will revolutionize the internet business by leaps and bounds. It is being helped by the Mexican government. Another Mexican computer company has successfully set up a company in the very popular Silicon Valley. Since February 2005, when it joined the Technology Business Accelerator (TechBA), a program of the Mexican Secretariat of the Economy that tries to help high-tech companies get into international markets, mainly the United States. TechBA now has two such accelerators in the United States, one in Silicon Valley and the other in Austin, Texas, in operation since February and December of 2005, respectively. The program provides an office in either location, a group of skilled and specialized advisors, and financing, if needed, to participating companies.According to In Marisol Rueda’s 2006 journal Latin Trade entitled Tech tank: the Mexican government helps homegrown tech companies reach international markets, she said “ Thanks to TechBA contacts, Medida last year became a supplier for Japanese game maker XaviX, which develops and markets technology that allows human interaction with a given medium, for instance, an intelligent scale that measures weight, water content and fat percentage of up to four people, individually. ‘This information is sent through a console, so that users can see the data on a television screen, how the data changes over time, and plan their health in a more controlled way," Herrera says. In this case, the mexican company is helped by the Mexican government to generate sales. The mexican company is planning to put up a branch in the United tates. This is called international financing. The mexican company will generate income in United States dollars. The money will be used to, first pay its employees and the daily operating expenses of the business.sin the United States. then some of the money will returned to Mexico. The Mexican company will be successful in its expanstion to the United States and other countries because its new computer gadget has captive merket and being a Mexican company, there is very high probability that the selling price of its gadget is very reasonably priced. Besides, the Mexican company can hire American workers to do the software jobs and others. Therefore this international financing by Mexico benefits the United States also. BIBLIOGRAPHY Cavallo, A., World oil production: focus on non-OPEC supplies: a summary of the recent National Academy of Science workshop on supply and demand World Oil, April, 2006 No author, Inflation warning hits Wall Street, Business Journal, June 5, ,2006 Moore, S. & Slivinski, S., Fiscal Policy Report Card on America’s Governors, Cato Institute, 2002 Economic Research, Federal reserve bank of St. Louis Allsopp, Amit & Nelson, Allsopp &U.K. Inflation Targeting and the Exchange Rate by Christopher Allsopp, Amit Kara, and Edward Nelson, June, 2006 Rueda, M., Tech tank: the Mexican government helps homegrown tech companies reach international markets Latin Trade,  May, 2006 APPENDIX Articles Read More