Recent Economic Articles

Recent Economic Articles
E-Portfolio
 
 
 
 
Table of Content

  • Introduction………………………………………………………….…………………….2

 

  • Article: ” Turkish Airlines set to challenge Etihad, Emirates and Qatar Airways” ………3

– A brief summary
– Concepts covered: Oligopoly
                      Application of concepts in the article
 

  • Article: ” New tech could help rice farmers Increase production”………………………4

– A brief summary
– Concepts covered:  shifting the supply curve
                       – Application of concept in the article (Appropriate diagram)
 

  • Article: ” Demand for gold in Dubai down as oil slump stifles sales “…………………..5

– A brief summary
– Concepts covered: Demand
Application of concept in the article (Appropriate diagram)
 

  • Article: “De Beers’ influence ‘causes unrealistic gem prices…………………………6

– A brief summary
– Concepts covered: Monopoly
                       – Application of concept in the article (Appropriate diagram)   
 

  • Reference List…………………………………………………………………………….9



 
 Preface:

Thinking like an economist
Observe Theorize  Test the theory

 
 
 
As we studied in the beginning of this course, economics is a Greek word which means, to manage a household.  Economics is the study of rational choices under scarce conditions. Scarcity means having unlimited needs but limited resources and economics teaches us how to manage these scare resources. Economics consists of two branches; Microeconomics and Macroeconomics.
Microeconomics deals with individual economic agents and covers three main questions:

  • What to produce?
  • How to produce?
  • Who will buy the products?

On the other hand, macroeconomics views the economy as a whole, and discusses concepts such as:

  • Inflation
  • Unemployment
  • Growth

In this paper, we will focus on some microeconomic concepts. An analysis will be presented on four chosen articles that provide an overview of an economic concept and include appropriate diagrams if required.
 
 
 
 
 

The National Business   4/03/2015 Title: Turkish Airlines set to challenge Etihad, Emirates and Qatar Airways   By: Shereen El Gazzar

The article states that Turkish Airlines plans to double its fleet to 450 aircrafts by 2023, more than its current 263. By the end of this year, it plans to operate 300 jets and the world’s biggest passenger aircraft. The airline states that they will focus on the Middle East region which will create competition against airlines such as Etihad, Emirates, and Qatar Airways. Turkish Airlines reported that its net profit increased and it plans to invest $3.74bn into its business this year.

Since Turkish Airlines intends to challenge Etihad, Emirates, and Qatar Airways, the firm will enter a market of a few airlines in the Middle East region. This refers to a concept economists call oligopoly.

The characteristics of oligopoly are the following:

  • Few firms control the market.
  • Barriers to entry – Oligopoly firms are large and benefit from economies of scale. It takes considerable know-how and capital to compete in this industry.
  • Interdependence – Oligopoly firms are large relative to the market in which they operate. If one oligopoly firm changes its price or its marketing strategy, it will significantly impact the competitor firm(s). For instance, if Turkish Airlines lowers its price by 80 cents per ticket, Etihad will be affected. If Etihad does not respond, it will lose significant market share. Therefore, Etihad will most likely lower its price, too.

Profit Maximizing condition for any firm (not only oligopoly) at the quantity where marginal Revenue equals marginal cost and they will gain economic profit as long as the price is greater than average variable cost (otherwise, shut down).Last week Turkish Airlines reported a near-tripling of 2014 net profit and said it planned to invest more than $3.74bn into its business this yearLast week Turkish Airlines reported a near-tripling of 2014 net profit and said it planned to invest more than $3.74bn into its business this yearLast week Turkish Airlines reported a near-tripling of 2014 net profit and said it planned to invest more than $3.74bn into its business this year.

Sci Dev Net News   17/09/14      Title: New tech could help rice farmers increase production              By: Christophe Assogba
The article explains why it’s important to develop a certain technology that would help rice farmers in Africa, increase their crop production and become more efficient. In Africa, rice farmers are not aware of modern agricultural technologies that could be applied to farms in other developed countries, thus members in a certain workshop in Africa mentioned how necessary it is to expand rice production by applying these technologies such as ‘smart valley’. Smart Valley is a device that helps control crops, water and sustains it. Another developed tool is the mobile application which is called the ‘Rice Advice’ which is an application that many people think is a brilliant idea and would help many farmers by decreasing the use of labor in rice production and give useful tips in nutrient management.
In class, we covered a chapter that explained how certain factors can shift the supply curve either to the left or to the right and those factors are the following:

  • Input prices
  • Technology
  • Expectations
  • The number of producers

However, the article summoned one specific factor, which concerns the factors that affect the supply curve, and that is technology. If Smart Valley applies the technology, it will decrease the costs of production; increase quantity supplied and shifts the supply curve to the right which will eventually make farmers work more efficiently.
 The following graph demonstrates the effects of Smart Valley implementing technology:
 
 
 
 


The National Business   30/4/2015     Title: Demand for gold in Dubai down as oil slump stifles sales     By: Bloomberg News
The article talks about how the demand for gold decreased dramatically across the middle-east. Gold traders noticed the decline and tourists can’t afford to purchase gold. It also talks about the history of the Bedouin nomads, their correlation to gold trading and how it was the center of trading. One of the reasons this decline occurred is, due to Russia and the Middle-east facing low oil prices and some political disorder. It was said a significant drop in the demand for gold occurred in the Middle East which lead to a 23% decrease and 36% decrease for Russian tourists.

In this article, one of the reasons why the demand for gold declined in the Middle East is due to the market facing low oil prices. Not only the demand for gold depends on oil prices, but also automobiles, computers, homes, and many other things.  From this scenario, we notice that there is a positive relationship between oil prices and gold. Also, this decline occurred due to some political issues raised. Therefore, the number of customers decreased.

The following graph demonstrates the decrease in the price of oil and the problems that occurred in the Middle East causing a decline in demand for gold:

 
 
 
 
 
 
 
 
Business Day Live   21 January 2015   Title: De Beers’ influence ‘causes unrealistic gem prices’ By: Alisa Odenheimer, Shoshanna Solomon and Thomas Biesheuvel.
De Beers has been the main controller of the diamond industry since the 20th century. Although it is no longer a monopolistic business, diamond buyers are feeling the impact of the company. Buyers have been unable to keep up with the price demanded by the company. According to Mordechai, the administration director of Diamonds, Precious Stones and Jewellery, he claimed that “De Beers dictates the prices and market of the gems” (Odenheimer, 2015). According to the article, the company supplies more than 30% of the rough gems a year. This market share is more than the set value (25%) for a monopolistic business. Therefore, they place high prices with the need to surge their profits. The market influence is affecting their shareholders, who desperately dare to give up the shares. They are extremely confident about the set prices with optimistic minds of demand to the point of “offering buyers the option to defer at the first sale” (Odenheimer, 2015). De Beers has made sales to shareholders unbearable with the fixed sum and the option of “take or leave the deal.” It has also “reduced the discount of its diamond selling price and the secondary market squeezing profit for its customers” (Odenheimer, 2015).
The article states that De Beers has been a monopoly for a long time. The characteristics of a Monopoly are the following:

  • One Firm
  • Price Makers
  • Product with no close substitutes
  • Barriers to entry

De Beer is the only seller of precious diamonds, they set the prices of certain gems and there are no products with close substitutes. Lastly, no other company can enter the market due to the barriers to entry which refers to external costs.
Therefore, the following graph indicates that monopoly enables a company to change the price from (P) to (P1) which will lead to deadweight loss (area ABC).
 

P0
  • To Maximize the profit, De Beers will produce where MR= MC which is Q1, and the price will be P1 ( we go from Q1 to the Demand Curve which is AR in this graph)
  • The equation for calculating the profit ( ) will be:
 = (P1- P0) x Q1
 

 
 
 
 
 
 
Reference list:
Assogba, C. (2014, 9 17). New tech could help rice farmers increase production. Retrieved 5 27, 2015, from Sci Dev Net News: http://www.scidev.net/sub-saharan-africa/farming/news/new-tech-increase-production.html
El-Gazzar, S. (2015, 3 4). Turkish Airlines set to challenge Etihad, Emirates and Qatar Airways. Retrieved 5 27, 2015, from The National: http://www.thenational.ae/business/aviation/turkish-airlines-set-to-challenge-etihad-emirates-and-qatar-airways
News, B. (2015, 4 30). Demand for gold in Dubai down as oil slump stifles sales. Retrieved 5 27, 2015, from The National: http://www.thenational.ae/business/economy/demand-for-gold-in-dubai-down-as-oil-slump-stifles-sales
Odenheimer, A., Solomon, S. & Biesheuvel, T. (2015, Jan 21). De Beers’ influence ‘causes unrealistic gem prices. Retrieved from http://www.bdlive.co.za/business/trade/2015/01/21/de-beers-influence-causes-unrealistic-gem-prices
 
 

 

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