Chapter 10: Industrial Organization in Canada

http://www.vancouversun.com/technology/Wind+Mobile+launches+Vancouver/3110612/story.html

Summary:
This article talks about Wind Mobile joining Vancouver to provide lower-cost wireless service. Vancouver is the sixth city where Wind Mobile has launched its network. Wind will add competition in Canada’s wireless market because there are no contracts which allow customers to leave if they don’t appreciate the service that is provided. Wind is also offering features such as unlimited talk and data plans at no extra cost upon signing with them. They are also offering 50% off the first six months with the company prior to joining Wind Mobile before June 30. For each friend that a customer brings to Wind, one month of wireless service is provided for free.

Connection:
With Wind Mobile joining the wireless market in Vancouver, there would be a more competitive oligopoly. Oligopoly is a competitive situation characterized by an industry that is comprised of only a few firms. When Wind joins the oligopoly in the wireless industry, it will create competition between other companies. There will be mutual interdependence in this industry because other wireless companies in Vancouver will have to consider how Wind would affect them when there are cheaper plans in the market now. With Wind in the market now, the other companies will lose some of their market share to Wind. Wind is also using non-price competition such as sales promotion and service to get a position in the market. They offer unlimited talk and data plans at no extra cost and 50% off for the first six months. This would attract quite a bit of customers especially when they only offer plans and no contracts.

Reflection:
Wind coming to Vancouver to join the wireless market definitely benefits the consumers. There would be a cheaper plans provided by Wind and other companies would be forced to gain back some of the market share by making more attractive offers. In my opinion, these cheap plans provided by Wind are only temporary. Wind is only providing these offers to attract consumers and establish a position in the market. It would be quite difficult for Wind to maintain these low plans offer therefore they will eventually have to raise their prices to make a profit. Wind will be no different than the wireless companies that exist now.

Chapter 8: Stabilization Policy

http://www.vancouversun.com/business/Interest+rates+stay+CIBC+says/2782003/story.html

Summary:
With the Canadian economy doing well in the past six months, interest rates are expected to rise from the Bank of Canada. A reason for Canada to keep the interest rate low after July is because the United States will have a gradual approach to raising rates. Inflation is expected to slow down and government is expected to control our spending habits. The interest rates are promised to be kept at 0.25 percent until the end of June. In February, Canada’s inflation rate was at 2.1 percent when it was expected to be at 1.6 percent. The inflation rate is growing rather quickly.

Connection:
The Bank of Canada currently has a low interest rate which increases the money supply. The monetary policy is in effect right now because there is change in the money supply. The low interest rates influences consumer and business spending causing inflation. The banks are now expected to raise the interest rates to slow down the increase in the money supply. Since inflation is higher than expected, there should be low unemployment rates right now. The Phillips curve represents the negative relationship between rates of unemployment and rates of inflation. The government can also control the inflation rates of the economy by the fiscal policy. The fiscal policy changes the level of government spending and taxation to help stabilize economic conditions. With rapid growth of inflation rates, government can reduce their spending and increase the level of taxation. This would reduce the amount of spending by individuals and the growth of inflation rates would slow down.

Reflection:
The Canadian dollar overtaking the American dollar does not necessarily lead to a positive outcome. When the Canadian dollar has more value than the American dollar, it becomes more expensive to purchase things in Canada. Consumers would tend to purchase things from a cheaper provider. When this happens, the manufacturers in Canada lose consumers to the United States. The demand for Canadian companies decreases. As a result, the manufacturers in Canada have decrease in productivity and layoffs are a possibility. The Bank of Canada and the government play important roles to help maintain a stable inflation rate so that our dollar value does not raise or drop too much.

Canada’s consumers’ incomes not keeping up with debt levels

http://www.vancouversun.com/business/Canada+consumers+incomes+keeping+with+debt+levels+study+finds/2754124/story.html

Summary:
Consumers are spending more than they can afford for their lifestyle. Their incomes cannot keep up with their spending. The assets being purchased are not appreciating in value as quickly as the debt many people owe. The consumer capability index measures a consumer’s ability to spend. The factors affecting this are debt-to-income and debt-to-asset ratios, real income growth, the long-term unemployment rate, house price to income ratio, personal savings rate, and personal bankruptcy rate. More money is spent than a consumer’s income can support. For example, a mortgage debt is 147 percent of a person’s income. Consumers are still continuing to spend with an income growth and the low interest rates. The low interest encourages people to borrow and spend which is what helps bring the economy out of a recession. Increasing interest rates would put people in the position to pay back debts and build up savings.

Connection:
The article explains how consumers are spending more than they can afford because of the low interest rates and increased incomes. The low interest encourages people to borrow and spend therefore it would make spending easier for consumers. As a result, more money is going into the economy and the price would increase drastically. This would result in the demand for products to increase. As the demand continues to increase due to consumer spending, the aggregate demand for goods and services would eventually exceed the supply. When this happens, this causes a demand-pull inflation. When the demand-pull inflation occurs, the prices of consumer products will increase in the Consumer Price Index. Households are spending more and as a result, businesses experience an increase in revenue. The increase in revenue will allow business to afford increased wages which means households are earning more money than before. However, the increased wages in the circular flow of money does not make up for the debts that they owe. These excessive spending would cause a problem in the future.

Reflection:
I do not believe the current situation with the demand-pull inflation is a good thing. Consumers are taking on too much debt in order to satisfy their spending habits. In the short run, consumers may be fine with the low interest. However, in the long run, it would be difficult for them to pay off the debts due to inflation rates increasing higher than wages. In the worst case scenario, if consumers are unable to pay off their debt, it would lead to a recession. It is important for the inflation rate to be controlled so that the economy can be more stable.

American Airlines: Cash Is No Good

http://www.canada.com/business/Consumer+Confidential+Your+cash+good+here+airlines/2494495/story.html

Summary:
The American airlines are not accepting cash during their flights. People are forced to use credits cards regardless of how minor the purchase is. Despite American cash being legal tender for all debts, privately owned airlines would rather make transactions through credit cards. There is no law that require private businesses to accept currency or coins for their goods and services. Privately owned businesses can make up policies accepting the form of currency they want. Cashless flights make it more convenient for flight attendants because they don’t need to carry cash. There would have to be machines on the flight to make these transactions possible.

Connection:
The American airlines have the rights to reject cash on their flights. When currency such as the American banknotes is not accepted for repayment, it is not considered a legal tender. They can accept anything they want but they choose to receive their payments by credit cards. These private airline businesses can even choose to barter if they want. The barter system would allow an individual to trade a possession for a good or service. For example, a watch can be traded for 5 meals. Today, money is used as a medium of exchange and it acts as the unit of account. On flights, people are more familiar with the American dollar because most things are bought and sold with actual cash. The reason for this is because the American currency is fiat money, it is considered money because people believe it has value even though it’s just paper. But, for the convenience of electronic transactions American airlines prefer credit cards over cash.

Reflection:
I have seen restaurants that accept only cash, but I have never seen any place accepting only credit cards. The American airline prefers to make transactions electronically only but in my opinion this would reduce the circulation of money. Not every individual would have a credit card or they may be under age to even have a credit card. Gresham’s Law states that bad money forces good money out of circulation. In this case, the credit card is forcing American banknotes out of circulation on the flights. If the currency is not in circulation, it cannot be considered as money. In my opinion, paper currency is more convenient for the consumers because it is recognizable and readily accepted but American airlines do not have the same opinion about paper currency.

Olympic Athletes Village in Vancouver

http://www.cbc.ca/canada/british-columbia/story/2009/01/09/bc-council-olympic-village.html

Summary:
Vancouver is spending $875 million to complete Olympic Athletes Village project. This project was funded by the Fortress Investment Group. Now that they have stopped providing funds, the government needs to look for another financial source to complete this project. The Olympic Athletes Village was initially budgeting for about $750 million but increasing construction cost estimate for an additional $125 million on the project. If the government cannot get a loan or funding, they may have to resort to the taxpayers of Vancouver. The Millennium Development Corporation had paid $200 million for the land and the Vancouver taxpayers could be stuck with paying off $875 million for this project.

Connection:
This article is related to the government’s role in a market economy. The government decides how to use the taxpayer’s money. In this case, it is to be used to build the Olympic Athletes Village. The people of Vancouver are to be paying for the construction of this project. People may not like this because they aren’t going to be using this. The construction of this project does have a positive third party effect. It is that this project is for the Olympics therefore more tourists would visit because winter games are being held in Vancouver. If more tourists come, it would bring in more revenue and it would further expand our economy because more people are spending. This creates more jobs and it becomes beneficial to the taxpayers in the long run.

Reflection:
Like most people, I wouldn’t like to see our tax money spent on something that we wouldn’t be using. However this project is being built to shelter tourists because the Olympic is going to bring in a lot of revenue. Most people who come here to watch the winter games are probably high class. Knowing that they are wealthy, they can boost our economy by spending more. If they enjoy their stay here, they may even decide to revisit or invest in Canadian property. Our economy functions best when people spend their money. If wealthy people live here, then our economy will grow.

Oil Demand

http://abcnews.go.com/Business/fuel-efficient-cars-steady-oil-demand-rich-countries/story?id=8822971

This article mentions that the demand for oil in developed countries has increase to the maximum point. Many residences have their own vehicle because the standard of living is set quite high. Developed countries such as the United States are maintaining a steady demand of oil, whereas developing countries such as China have an expanding demand for oil. The reason is because the United States have reached its greatest possible amount of vehicle ownership. People assume that there will be a less demand of oil over time. The prices of oil are expensive and it will lead to a decrease in the demand for oil. Now the United States are aiming to achieve the creation of a more fuel efficient vehicle.

This article is directly related to the concept of demand. In this article, there is a steady demand for oil and is assumed to decrease. When the prices of oil rise, the quantity demanded will decrease while the quantity supplied will increase. A factor that will affect the demand would be the substitute products because prices of gasoline may be difficult to afford as the price increases. The demand for electric motored vehicles would increase because electricity is cheaper than gasoline. There would also be an affect on the demand for cars because when gasoline prices increases, the demand for cars would decrease. The preference of gas fueled cars over electric cars also affects the demand. Gas fueled cars can travel for longer distances and that makes it superior to the electric cars.

In our community, we are reliant on fueled vehicles for transportation. Gasoline is such an important factor in our life because cars are efficient and can transport us at a fast pace. The demand for gasoline is inelastic. The demand for gas is high even though the prices are rising. People are still consistently buying gas regardless of its price. Since the demand of gas is so high and there isn’t another efficient source of fuel to use for cars, it would be difficult to decrease the prices of gas. Constructing better fuel efficient cars would be a good idea because that would save some money with less fuel consumption.

Oil Scarcity Leads to Electric Cars

hmhttp://www.examiner.com/x-14333-Green-Transportation-Examiner~y2009m9d4-Oil-scarcity-leads-us-to-electric-cars-which-leads-us-to-Neodymium-scarcity

This article talks about how the shortage of oil leads to the development of electric cars. When there is a low supply of a limited resource, it becomes harder to extract and production would fall. The low supply of oil causes a problem for gas fueled cars and electric powered cars would be a solution for this. Electric cars use rare earth metals to make the electric motor. Neodymium, terbium and dysprosium are key components of an alloy used to make the high-power, lightweight magnets for lightweight powerful electric motors. All non-renewable resources such as oil and even neodymium are limited in supply.

This article presents a perfect example of scarcity. Scarcity is the reason why there is value to goods because there is a limited supply. The shortage of oil, due to the fall of production, means it is increasing scarcity which leads to an increase in price. As a result, consumers will have to sacrifice more in order to purchase oil which means their opportunity cost would increase. In which case, consumers would look for a cheaper alternative such as electric powered cars. Since consumers are the major determinant of resource use and as long as the consumers are willing to pay for the electric cars, the suppliers would increase the production of electric cars to meet the demands of the consumers.

In my opinion, electric cars are only a solution if the prices of oil, which is determined by its scarcity, increase to a point where consumers are unwilling to pay. In other words, the success of electric cars is determined by the price of the oil. However, due to the fact that the resources used to produce the electric car are also scarce, this is only a temporary solution. Another solution is that technology may improve consumption efficiency of the scarce resources so that the supply will not be depleted as quickly.