I am not altogether sure how relevant this post will be, but since VBC (Virtual Business Challenge) is a Hwa Chong- initiated entrepreneuship game that intends to simulate the real business world, I would like to talk a little bit about it. Having played both the preliminary round and semi-final round, I think there is much to be learned from the economic's point of view. The following address is the link to a VBC forum where the leading team shared their invaluable insights over maket analysis. So just in case if you are interested (http://www.hcine2twork.org/vbc/main.php?topic=17).
Okay, back the original topic. The learning points of VBC: 1. Cartel In the preliminary round of the game, there existed a cartel that basically co-monopolised all four makets. Since free trading of technology was allowed, the cartel was working well in the sense that once one of the cartel members buys develops technology, it can share with the rest in no time, which means that the whole cartel can enjoy cutting-edge advantage in R&D while only one fifth of the money is spent (five of them took turns to buy tech in the game). So together, they were able to monopolise the market and earn supernormal profit. However, in the game/and most probably in the real world, ideal situation never occurs. I noticed that it is usually the case when one company develops a new tech and only shared with its cartel members after it had 'owned' the market for some time. So does it violate the agreement inside the cartel? I am not sure, but you may want to dig out more from law books. (maybe?) At the same time, the idea of cartel may not work well in all circumstances. Firstly, there will be an optimum number of members for the cartel. That is because the more the members, the smaller market share each company is to have, as well as the less profit it is to enjoy. Also, a large cartel means that it is more difficult to oversee all its members' activities, so violating the agreement due to tempetation to earn greater maket share (by lowering its price) may be possible. That is to say, a cartel will only work well when all its members are cooperative.
2. Optimum profit Optimum profit is not gained when you own the market, but when you achive the point where MC=MR. In VBC, we were not required to draw graphs to see where MC=MR, but rather to find an optimum point for profit from price and quantity. I am not altogether sure whether that is what happened in the real world as some companies seem wish to expand itself continously. One possible explanation is that its start-up cost is so high that it has a far-reach downward slope for its LRAC/LRMC. That is why the type of companies I mentioned just now are mainly low cost industries like fast food industry.
3. Small companies Even though for the both rounds, the markets were monopolised quite early in the game (around one third of the total game period). However, that does not necessarily mean the end of the game for small companies like us. Indeed, in times when the markets are monopolised, most of the companies are facing the same situation as us, so whether to win or lose largely depend on how one switches its focus. Econs notes teaches us that in such situations, small companies need to differentiate their products so that they enjoy a niche market that few companies can compete with them. That is the same for VBC. Since the big companies have already developed various technologies, it is almost impossible for us to compete with them technologicalwise, meaning the tech we develop may not win us back enough money to compensate the amount it is paid at the first place. So what we did was to adjust promotion rate to optimum (something like differentiate product).
by Paul A. Samuelson 1970 Laureate in Economics 5 September 2003 intro
From one point of view my studying economics was the result of accidental blind chance. Prior to graduating from high school I was born again at 8:00 a.m., January 2, 1932, when I first walked into the University of Chicago lecture hall. That day's lecture was on Malthus's theory that human populations would reproduce like rabbits until their density per acre of land reduced their wage to a bare subsistence level where an increased death rate came to equal the birth rate. So easy was it to understand all this simple differential equation stuff that I suspected (wrongly) that I was missing out on some mysterious complexity.
Luck? Yes. And all my life I have been at the right place at the right time. Chicago was at that period the top center for old-fashioned neoclassical micro-economic study. But I didn't know that; my reason for entering there was simply because the University of Chicago was close to my high school and home. Later when I was bribed to leave the Eden of the Chicago womb, choice boiled down to either the Harvard or the Columbia Graduate School. My revered Chicago mentors--Frank Knight, Jacob Viner, Henry Simons, Paul Douglas, ...--without exception said, "Pick Columbia." Never one to blindly accept adult advice, I picked Harvard. I picked it by miscalculation, expecting that it would be a little oasis on rolling green hills.
Thanks in part to the evils of Adolph Hitler, my 1935-40 sojourn at Harvard coincided with its economics renaissance under Joseph Schumpeter, Wassily Leontief, Gottfried Haberler, and the "American Keynes" Alvin Hansen. (Also, for me, I was able to become the sole protegé of the polymath Edwin Bidwell Wilson, who had himself been the sole protegé of Yale's great physicist Willard Gibbs.) Contemporary Harvard graduate students came to match in brilliance the new Harvard faculty. Richard Musgrave, Wolfgang Stolper, Abram Bergson, Joe Bain, Lloyd Metzler, Richard Goodwin, Robert Triffin, James Tobin, Robert Solow,... --all of them my pals--became the 1950-2000 era stars in world frontier economics. Harvard made us, yes. But as I have written many times, we made Harvard.
The Duke of Wellington said, "The battle of Waterloo was won on the playing fields of Eton." I can say, "World War II was won in the seminar rooms of Cambridge, Princeton, and Los Alamos."
Perhaps more important than the causal role of casual luck was the salutary fact that economics was just right for me. This field was then entering a mathematical phase in both theory and statistics. As a precocious youngster I had always been good at logical manipulations and puzzle-solving IQ tests. So if economics was made for me, it can be said that I too was made for economics. Never underestimate the vital importance of finding early in life the work that for you is play. This turns possible underachievers into happy warriors.
1932 was the bottom point of the Great Depression. That was a good time to be not yet in the labor market. Just when I had completed my advanced training, World War II came, followed by fifty years of exploding college economics enrollments. My generation had a strong wind at its back. My famous teachers had become full professors only after 40. Wunderkinds in my generation could become anointed before age 30. Outside the Ivory Tower, economists were sought out by governments, corporations, Wall Street traders, and textbook publishers.
One comes to understand the importance of biography in a scholar's research contributions. Before university, I never opened the copy of Adam Smith on my father's bookshelf. But I did experience first hand, in my virtual infancy, the disappearance of the horse economy, the arrival of indoor plumbing and electric lighting. After that radio waves through the air or TV pictures left one blasé.
More important it was to see with my own eyes the First War's induced boom in the U.S. Steel-planned Gary, Indiana: East European workers were overjoyed to be able to work 12-hour shifts, seven days a week. I saw, too, and my family learned the hard way, how recession follows the boom the way sparrows used to follow the horse. Also, when I was age 10 and we lived in Miami Beach, Florida, I experienced first hand what a real estate mania was like. And what it was like when the bubble burst.
All that prepared me for the Great Depression and for post-war inflations. My Chicago-trained mind resisted tenaciously the Keynesian revolution; but reason won out over tradition and dogma.
Hello, here is the wordsearch (Sorry I just discovered that I mixed up "crossword" and "wordsearch") So here is the wordsearch Iwrote about previously. It's not very clear though. I've uploaded a copy of it in the class e-group.
This wordsearch is based on the key concepts of internal and external economies & diseconomies of scale. There are a total of 12 words/ phrases inside. ( Hint: MRFAT)
UPPOSE that, five years ago, George Bush had asked every American household to stump up $25,000 to pay for an imminent war on Iraq. How would they have responded?
That money, suitably husbanded, would have paid for arming, provisioning and remunerating the troops; treating the wounded; and restoring the army's strength in the aftermath. It would have paid just compensation for the death and injury of American servicemen and contractors, and it would have covered America's outlays on reconstruction. It would also have allowed America to subsidise the price of oil by $10 a barrel—offsetting the disruption to Iraq's supply.
Mr Bush never asked, of course. But this hefty sum is nonetheless just part of the toll the war may take on America by the time it is over, according to a new book by Joseph Stiglitz, a Nobel prize-winner in economics, and Linda Bilmes, a budget and public finance expert at Harvard's Kennedy School of Government.
How do the authors arrive at the $3 trillion figure of the title, and the still bigger numbers they report inside? To the administration's own requests for money they add other costs to the taxpayer that either appear elsewhere in the budget (such as the bonuses required to attract recruits put off by the war) or do not yet appear at all (such as the future disability claims of wounded veterans). They put a dollar figure on the American lives lost or damaged by debilitating injury. And they also estimate the damage the war has done to the American economy, by raising the price of oil and diverting spending from domestic investment to foreign adventures.
Along the way, they accuse the administration of both mortgaging the nation's future and short-changing the troops and of deceiving the public and deluding itself. The administration still treats a five-year war as an unforeseen contingency to be paid for by an extra, emergency appropriation outside its regular budget request. And it has indulged in false economies that shave the cash requirements of the war today—by, for example, hesitating to purchase mine-resistant vehicles—only to store up much bigger burdens for the future, such as the cost of caring for veterans injured by roadside bombs.
Critics have questioned some of the authors' estimates, since these were first rehearsed in an academic paper in 2006. The head of the non-partisan Congressional Budget Office, for example, thinks that paper overestimated the burden of brain injuries, overstated the cost of replacing munitions and equipment, and misattributed other military expenses. But the authors have taken pains to answer those quibbles, and they disclose their sources so that readers can add or subtract as they see fit.
They go on to pursue the war's trail through every twist and turn of the macroeconomic labyrinth. Here, their reasoning is a bit too ingenious. They argue, for example, that the government's spending abroad prevented it from giving America a needed fiscal boost at home. Even if you believe America has suffered from a shortfall of demand in the past five years, surely the blame cannot be pinned on the Iraq war. It must lie instead with the Federal Reserve, which is supposed to maintain full employment as best it can.
Indeed, what is remarkable is how small a macroeconomic price America has paid for its adventure. Not only has the war been financed by borrowing rather than taxes, but also the borrowing has been dirt cheap. Neo-imperialists worry that America has the responsibilities of a global superpower, but an electorate unwilling to shoulder them. For better or worse, though, the combination of volunteer soldiers, hired guns and Asian creditors has lightened the load.
Unlike some other economists, Mr Stiglitz and Ms Bilmes do not weigh the cost of the war against the obvious counterfactual: the cost of containing Saddam Hussein. (They do subtract the cost of enforcing the no-fly zones over the country). Keeping a big force in the region—big enough to cow the dictator into letting weapons inspectors do their job—would not have been cheap, although with hindsight the strategy looks like a bargain. Nor do they pay much attention to the benefits of the invasion, however meagre. For example, the world now knows for sure that Saddam will never lay his hands on weapons of mass destruction. That knowledge may not be worth $3 trillion. But it is surely worth something.
The book mixes the patience of an auditor with the passion of a polemicist; it combines forensic intelligence with prosecutorial zeal. This reviewer responded more to its quieter virtues. As the authors say, the book is not just about the big number on the cover. More importantly, “by examining the costs, we come to understand better the implications of the war.”
Great powers almost never pay for their wars up front. Even in America's war of independence, the revolutionaries printed money to finance their campaign. But a government contemplating war should surely provide a credible advance estimate of the final bill, akin to what Mr Stiglitz and Ms Bilmes have done. If they cannot, it is a good sign they have not fully weighed the implications of their venture. If so, perhaps they should not undertake it at all.
Economics focus Feet, dollars and inches Apr 3rd 2008From The Economist print edition The intriguing relationship between height and income Summary - It talks about the the relationship between height, and income (or standard of living, to be more precise). The study is sparked off by Britain's factory laws in the 1800s, where medical inspectors had to certify that a child was old enough and strong enough to work. To cut costs, manufacturers tried to propose a cheaper shortcut: measuring a child's height to establish age and stamina.
However, the variation of height across individuals means that it cannot be used to identify the individual, or to make any further inference. "Mr Roberts could say that the average height of 11-year-old boys was 52½ inches, but not that this boy of 52½ inches was 11."
Yet, two recent studies have shown that the "tallest quarter of the population earns 9-10% more than the shortest quarter", so the manufacturer's were somewhat right to say that taller people were on average more employable. This is true even in today's knowledge-based economy in developed countries like America.
It seems that height adds to income, and the converse applies as well. There are, however, exceptions, such as when Uganda citizens are compared to those in India, where the former are poorer and taller than the latter. The article explains this by saying that height rises with prosperity, but at a diminishing rate, tracing an arc as income rises. "Stature is hence a good measure of deprivation but not of opulence", since "earning enough to buy plentiful calories and protein makes a big difference to stature", but once this is reached, the marginal increase in income makes less of a difference. It seems that height is also positively related to equality among Man.
Analysis/Reflections: I thought this was a really interesting article, on many economics-related levels actually. Firstly, height-income arc reminds me of the Law of Diminishing Marginal Returns! Like, the extra unit of income results in decreasing marginal increases to height, like how the extra unit of the variable factors results in decreasing amounts of marginal product. However, in this article's context, the marginal 'returns' will not be negative, just decreasing.
Secondly, it's an interesting facet of Economics, using economic data to correlate with biological, physical data. This article does exemplify cross-discipline research, and it seems even more important for us to acknowledge the existence of such research/studies since we are Science students taking an Arts subject, even though this demarcation is quite arbitrary. Maybe seeing the (possible) relevance of Economics in the fields we seem to be more inclined to/interested in currently will inspire us to study Econs even more! Haha.
Thirdly, the whole cause-effect relationship that is attempted to be stablished here between height and income/standard of living is a quite an important concept in Economics. Look at Theory of Demand and Supply, it's all about cause and effects. In Size of Firms, the advantages acrrued to firms when they are big or small are both the causes and effects of their size. For example, being big allows you to increase revenue, since you can sell higher quantity of output, so this is an effect of being big. However, this is also somewhat a cause/incentive to be big, since increased revenue helps you to increase quantity sold through product innovation (R&D) and advertisements and such.
Hence, this article may seem a bit frivalous and maybe pointless. And you may be wondering why on earth is it in The Economist. Well, I hope my few thoughts may have helped to enlighten you and help us see things from a different perspective! :)
Hello, I’ve found a write-up discussing how the Beijing Olympics will have an impact on China’s economy. Enjoy:)
Article: Economic Impact of Beijing Olympics
The Olympic Games will affect the Chinese economy in the following way.
Increase in Tourism. This is a short term effect but will help increase spending in the economy. It will come from the athletes, spectators and media who will travel to Beijing. It is argued the Olympics will also provide a long term boost in repeat tourism; this could be quite significant for China as the tourist industry is largely underdeveloped.
Increased Investment in Infrastructure. To prepare the economy for the Olympics, the Chinese authorities have attempted to improved infrastructure and transport links, these will have some effect in increasing the productive capacity.
Macro Economic Effects of the Olympics
Higher Economic Growth. The increase in spending related to the Olympics will help to boost Aggregate Demand and economic growth.
However, the increased spending will only represent a relatively small % of GDP. Some estimates suggest around 0.5% of GDP. Also the Chinese economy is already growing very quickly so it is debatable whether a further boost will help. Inflation. The extra spending could help fuel inflation, which is already a problem in the Chinese economy. The Olympics will certainly create some localised inflation.
Exchange Rate. The influx of tourists could put more upward pressure on the Chinese Yuan. The government have been trying to hold the exchange rate down, but the influx of foreign visitors will only cause further increases in demand.
How Significant will the Olympics be?
From a macro economic point of view it is not clear how important the Olympics will be. There is a definite increase in AD, but, it remains a relatively small % of total GDP.
There could be a multiplier effect though and the initial increase in AD could be magnified. Similarly, the investment improvements could lead to future economic growth.
Problems of the Olympics. -Does nothing to address the regional inequality in China. It is the Northern regions of China which need investment and growth not Beijing and the South - Inflation. -Cost. The cost of the Olympics is very high and it is not certain whether they will get their investment back
Recently, there has been a debate going on about whether the Beijing Olympics will be more of a benefit or a burden to China’s economy. In the write-up above, it focused more on describing the economic benefits that the Beijing Olympics will bring to China.
Firstly, by hosting the Olympic games, Beijing will be able to earn revenue through tourism, since athletes, spectators, and tourists from all over the world will gather in Beijing, China to witness the Olympic games. Thus, there will be an increase in business of the tourist sector in China, and consumption of tourist goods and services will increase, hence increasing the total revenue. This is beneficial to the country’s economy since more taxes will be paid through the consumption of the goods and services, and its increase will allow more revenue to be earned by China.
The article also mentioned that this boost to the tourism industry is a long-term one. I feel that an explanation to this statement is that being the host city of the Olympics increases the repuation of China and fame of Beijing as the capital of China, which will make an indelible mark in the people’s minds. Also, by attracting more people to go to China, the various Chinese products will be more well-known to the people, and people may still buy these products even after Olympic games have ended.
Indeed, throughout history, the Log Angeles Games is the first-ever money-making Olympics. (1) Other hosting countries, such as Athens in 2004, have spent an amount that far exceeded that of the budget, resulting in a large loss made. (1) So will Beijing Olympics suffer from the same fate?
According to National Bureau of Statistics spokesperson Ye Zhen, over the next seven years, Olympic effects would add an average of 0.3 to 0.4 percentage points a year to national gross domestic product (GDP). (1) Since the main cost of hosting Olympics comes from building the infrastructures, the numerous investments from other countries should have helped to lessen the burden of the costs. Sponsorships are also provided by large companies to build some of the facilities. Also, the large amount of revenue earned from the tourist and investment industry will hopefully make up for the cost. Moreover, the long term benefits of hosting Olympics will benefit the economy as well.
In addition, the mascot of Beijing Olympics, “Fuwa”, will allow the Beijing Olympics Committee, who are the ones producing it, to be at a monopoly, as it is currently only sold in China. This allows the product to be also relatively inelastic as there is no close substitutes. Thus, price can be increased to increase revenue, and hence profits assuming that production costs remain the same.
Organising the Olympic games is an invaluable learning experience for China. This Olympic games has created a platform for people of different nationalities to come together for a friendly competition, and enhance interactions across cultures. This is definitely an important advantage that Olympic games brings.
I think there's lots to learn from this video :) It sure explains a lot about the formation of cartels & the considerations that the government & other organisations take when dissolving cartels. Perhaps more to consider when writing about oligopolies & monopolies! It's a little different because he's working with a horizontal MC, but that's a assumption that makes everything easier.
Cartels only really work when everyone's working together and there's a pretty small group so they can enjoy the supernormal profits more. But the lure of undercutting the agreement is really huge and with the number of people increasing, the share of profit gets smaller and it gets much harder to police.
This should apply to most other cartels. With the OPEC, though, I don't really see how the product's differentiated but with the power they yield and market share they hold they're pretty powerful. They can enjoy the benefits of working as a cartel & having their slice of the pie. It's beneficial to all producers (but really in this case not consumers!) and with the OPEC they actually work together.
I think a cartel's a pretty clear-cut case for when monopoly's NOT beneficial to the consumers because they're really going to be cutting down output for the sake of raising up prices and maximising their profits. But they are beneficial for the welfare of the workers in the company if the profits mean good wages for the staff. So it might have some benefit after all!
I find that there are lots of these cool videos on Youtube :) You can check out the channel that this is on for other really helpful videos.
Ang Qi Yan
Chan Yi
Chew Yi Peng Lisa
Chiu Howard
Chua Xin Yu
Dong Yang Zi
Ee Ying Hui Dina
Han Nuomin
Hu Yiqing
Hwang Yi Kun
Lee Jun Jie Jonathan
Lee Ying Mao Eugene
Li Wen
Lim Jia Wei
Lim Ying Zhen Sylvia
Lim Yu
Shao Yue
Sun Mengyuan
Tan Wei Han
Tran Thi Xuan Hong
Wang Sicheng
Wei Huayi
Wu Hong
Ye Xiaoyang
Zhang Jia Qun
