ADAM SMITH

A free market is a market without economic intervention and regulation by government except to regulate against force or fraud. Adam Smith (1723-1790) is one of the most famous economists. He was Scottish philosopher who believed in the free market system. Adam Smith spoke for democracy with his idea that self-interest, practiced by all classes of people, works to the benefit of society as a whole. Each person ought to be free to pursue their ambitions, and such freedom will benefit everyone with new markets, better products, and opportunities for greater wealth all around. Smith felt that the government should not interfere with the economy. Instead, he believed that the role of government should be to provide essential services such as defense, fire-fighting, and police protection, protect contracts under the law, grant patents and copyrights as incentives for invention, and provide public works such as roads that would benefit everyone.

"Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men." - Adam Smith

U.S MANUFACTURERS ARE LEAVING CHINA BEHIND

I read an article by Neil Reynolds in the Globe and Mail Report on Business that I found very interesting, it is related to employment and unemployment. Most people think that US and North American manufacturers are steadily moving all their factories and jobs from the US to China because labour costs are much cheaper in China. This has been true in the past and people in the USA have been steadily losing their well-paying manufacturing jobs. This contributes to unemployment. Some people find jobs to replace the ones they lost, but these are often in lesser paying service industries. What is interesting, is that reversal is now happening, and manufacturers are moving factories and jobs back to the USA from China! In fact, it is explained that the US have exported more goods and services in March of 2011 than ever in history. The author thinks this is significant and is part of a major process that will improve the economy by providing more manufacturing jobs in the USA.


The article points out that rising inflation costs in China have the effect of increasing manufacturing costs in China and making the pricing volatile. In the meantime, the US has become much more productive. This means that even is a person costs more, they are also capable of creating even more output at the same time. There have been tremendous gains in productivity in the US these past decades and manufacturers have noticed. 


In addition, the value of the US dollar has been declining; this makes US labour much less expensive relative to other currencies. So while the wages have been increasing in China, as unemployment starts to get very low, the Chinese have not been able to keep pace in productivity. It is now becoming cheaper to manufacture in the US because productivity is high.

The article looks at companies such as Caterpillar, who will build the next manufacturing plant in Texas instead of China. This means that not only will unemployment in Texas (as an example) be reduced, the quality of jobs related to manufacturing are much higher wage, and more rewarding than working at McDonalds.


I can only hope that what is happening in the US in the manufacturing business will also happen in Canada, since the economies are so closely related.

COMPETITION IN ECONOMICS

Competition in economics is a term that includes the concept of individuals and firms determined for a greater share of a market to sell or buy goods and services.

Competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products.

The greater selection typically causes lower prices for the products, compared to what the price would be if there was MONOPOLY or OLIGOPY
Monopoly: no competition
Oligopy: little competition  

Competition is seen as a state which produces gains for the whole economy, through promoting consumer sovereignty
Consumer Sovereignty: the desires and needs of consumers control the output of producers

In a small number of goods and services, the cost structure means that competition may be inefficient. These situations are known as NATURAL MONOPOLY and are usually publically provided or tightly regulated. The most common example is water supplies.

4 LEVELS OF ECONOMIC COMPETITION HAVE BEEN CLASSIFIED:

The most narrow form is direct competition (a.k.a category competition or brand competition), where products that perform the same function compete against each other. Sometimes two companies are rivals and one adds new products to theirline so that each company distributes the same thing and they compete.

The next form is substitute competition, where

products that are close substitutes for one

another compete. For example, coffee and tea

companies, or pepsi and coke.

   

           The broadest form of competition is typically called budget competition. Included in this category is anything that the consumer might want to spend their available money on. 

High Demand on Canada Goose This Winter!

Canada Goose brand jackets are an excellent example of a product with high demand. They are  very high quality products which are difficult to manufacture. They are also uniquely Canadian.

 The high demand causes problems because store owners and retailers have trouble keeping merchandise in stock. They spend an extraordinary amount of time handing calls from people and trying to satisfy irritated customers.

Canada Goose jackets are very warm, functional and durable. It was my best Christmas present this year and is my favourite jacket ever. Because of very effective consumer-driven marketing, the product is now very fashionable in Canada and Northern European countries. They are warm and cool at the same time!

Because demand is so high, there is never a reason for a Canada goose jacket to be on sale. So, if you ever see such a thing, don’t believe it. Although it is hard to counterfeit Canada Goose, unscrupulous manufacturers may still try. To make sure your jacket is real, the fur on the hood is made with real coyote fur and the Canada Goose Logo must look exactly like the website. Other details, such as the quality of the down, materials and sewing will take more time and expertise to spot. But once you own a real Canada Goose, you would never want a fake.

Having high demand and limited supply is a good problem to have if you are the manufacturer. But, it is still a problem. To solve the problem, business needs to increase manufacturing to a point where they meet or almost meets the demand. If they do not,  they face opportunity cost and increased competition. Also, you cannot sacrifice quality while trying to meet increase manufacturing or you will lose your customers and fans.

OPPORTUNITY COST IN BEIJING!

I recently read an article in the Economist titled “A course by any other name.” I thought it would be a perfect example to show scarcity and opportunity cost.

To sum up the article, there has been an acute shortage of water in Beijing, thus being an important reason for limiting the cities growth. Water scarcity has been extremely evident this winter; their first snowfall was on February 9^th, the latest in 60 years. When it comes to golf courses in Beijing, they are not taking into consideration this water scarcity. This is becoming an issue. Golf is a highly preferred sport in Beijing, but a profusion of golf courses is eating up scarce farmland. In 2004, the government banned the building of new courses, but there was still course being built illegally. For all the fretting about this winters drought, Beijing shows little sign of renewing this ban on golf courses, and doing little to save the water. The drought has hit eight provinces that produce much of Chinas wheat. Crop-damage could send food prices much higher then they already are.

It is clear that China is dealing with the scarcity of water. They have the decision to ban new golf courses from being built to save the farmland, or close some golf courses to save the water.  As for the opportunity cost, Beijing is finding it difficult to give up the sport they love in order to preserve the water. If they decide to close down golf courses and not build any more, they would preserve more water, and potentially save their crops.


Maybe once the price of food goes up, Beijing will realize that they will need to take their golf-craze down a notch, because food and water is much more valuable!