World Market

      Today modern transport is so extensive and so rapid that many commodities have a world market: that is, a change in the price of the commodity in one part of the world affects the price in the rest of the world. Such commodities are wheat, coffee, oils, and the basic raw materials such as wool, cotton, mineral oil, rubber, tin, lead, zinc, and uranium. What are the necessary requirements for a commodity to have such a wide market?

First, there must be a wide demand. The basic necessities of life (e.g. wheat, vegetable oils, wool, cotton) answer this requirement. In contrast, such goods as national costumes, books translated into little-used languages, souvenirs, postcards of local views and foods which satisfy local tastes, have only a local demand.

Second, commodities must be physically capable of being transported. Land and buildings are almost impossible to transport. A customer may require a personal service from the producer, but the distance he can travel is usually limited. Labor, too, is practically immobile, workers being loath, in spite of the attraction of a higher wage, to move to a different country or even to a different locality. Closely connected with, this is the action of governments, which by tariff policy or import quotas, may effectively prevent certain commodities from entering the country.

Third, the cost of transport must not be prohibitive; they must be small in relation to the value of the commodity.  Thus the market for bricks is small, while that for diamonds is world-wide. Similarly, wheat and oil are cheap to transport compared with coal because they are more easily handled, though as sea transport is the cheapest form of transport, coal mined near the coast can be sent long distances.

Last, the commodity must be durable. Goods which perish quickly, such as milk, bread, fresh cream and strawberry, can not be sent long distances. Nevertheless, modern developments, such as refrigeration, canning and air freight transport, are extending the market even for these goods.

 James and the Giant Peach

by Roald Dahl

It was quite a large hole, the sort of thing an animal about the size of a fox might have made.

James knelt down in front of it and poked his head and shoulders inside.

He crawled in.

He kept on crawling.

This isn't just a hole, he thought excitedly. It's a tunnel!

The tunnel was damp and murky, and all around him there was the curious bittersweet smell of fresh peach. The floor was soggy under his knees, the walls were wet and sticky, and peach juice was dripping from the ceiling. James opened his mouth and caught some of it on his tongue. It tasted delicious.

He was crawling uphill now, as though the tunnel were leading straight toward the very center of the gigantic fruit. Every few seconds he paused and took a bite out of the wall. The peach flesh was sweet and juicy, and marvelously refreshing.

He crawled on for several more yards, and then suddenly -- bang - -the top of his head bumped into something extremely hard blocking his way. He glanced up. In front of him there was a solid wall that seemed at first as though it were made of wood. He touched it with his fingers. It certainly felt like wood, except that it was very jagged and full of deep grooves.

"Good heavens!" he said. "I know what this is! I've come to the stone in the middle of the peach!"

Then he noticed that there was a small door cut into the face of the peach stone. He gave a push. It swung open. He crawled through it, and before he had time to glance up and see where he was, he heard a voice saying, "Look who's here!" And another one said, "We've been waiting for you!

Economics

Economics is the science of production, exchange, and consumption in economic systems. It shows how scarce resources can be used to increase human wealth and welfare.           

Its central focus is on scarcity and choice. Scarcity is the fundamental economic condition of human life. The resources available to produce goods are limited, so that the goods themselves are scarce. Economic scarcity requires people to make economic choices, and economics is about comparing alternatives and choosing among them.

The need for choices is evident at all levels of life, from personal affairs to matters of worldwide urgency. On personal level, one might like to have excellent food and clothes, spacious living quarters furnished in style, frequent travel and so on. Yet because their incomes will provide only modest amounts of these goods, most people must always choose among them. For example, the price of a new coat may equal 50 gallons of gasoline, a weekend trip home, 10 restaurant meals, or a 2 degrees warmer room temperature all winter. Each purchase may foreclose buying the others. Such decisions are made routinely by everyone because scarcity requires an endless series of choices.

Companies are also forced by scarcity to make careful choices among alternatives as they convert inputs into outputs.  Both a local baker and the huge General Motors Corporation, for example, must decide each day and week how many workers and other inputs to employ, and then use them efficiently in producing bread and automobiles.

At the national level, there are also important economic choices to be made. For example, an increase in the nation's military forces and weaponry might make the country more secure from attack. But the added military spending might have to be obtained by cutting back on programs to inoculate children against disease and to provide medical care to the aged. Better roads may entail worse libraries; more funds for health care may mean less for education. Even more broadly, actions to reduce price inflation may cause national output to fall and unemployment to rise.

To all such small and large choices, economists apply economic analysis, a system of concepts and logical hypotheses that has been developed over more than two centuries in debates among generations of economists. The debates continue, and economics itself is still changing.        

Inflation

Today the control of inflation is given priority in governments’ policy. To appreciate why, we have to look at the effects of rising prices or - what is the same thing- a fall in the value of money. It is then necessary to consider the causes of inflation and the possible remedies that can be applied.

Possible Benefits

At one time a gently rising price level was not viewed with too much concern. It improved the climate for investment and so helped to maintain aggregate demand. Moreover, it tended to reduce the real burden of servicing the national debt: while interest payments are fixed in money terms, receipts from taxation increase as money national income rise.

            The snag, however, is that, once started, the rise in prices is difficult to contain. At first it becomes uncomfortable, producing undesirable results, both internal and external. Eventually the rate of inflation increases. The situation is then serious, for it is much more difficult to reverse the trend. Indeed it can develop into runaway inflation.

Internal Disadvantage

1. Income is redistributed arbitrary. Not only does inflation reduce the standard of living of persons dependent on fixed incomes, e.g. pensioners, but it benefits debtors and penalizes lenders (unless the loan is inflation-proofed). Thus the stability upon which all lending and borrowing depends is undermined.
2.  Interest rates rise, both because people require a higher reward for lending money which is falling in value and also because the government is forced to take disinflationary measures.
3. Investment is discouraged by government anti-inflation policy. In practice, controls imposed on prices are more effective than those on costs, particularly wages. The result is an erosion of profits and a disincentive to invest.
4. Saving is discouraged because postponing consumption simply means that goods cost more if bought later.
5. Inflation generates industrial and social unrest since there is competition for higher incomes. Thus, because of rising prices, trade unions ask for annual wage rises. Often, demands exceed the rate of inflation, anticipating future rises or seeking a larger share of the national cake to improve their members’ real standard of living. Those with the most muscle gain at the expense of weaker groups.
6. The rate of inflation tends to increase, largely because high wage settlements in anticipation of higher future prices help to bring about the very rise which people fear.

James and the Giant Peach

James stopped and stared at the speakers, his face white with horror.

He started to stand up, but his knees were shaking so much he had to sit down again on the floor. He glanced behind him, thinking he could bolt back into the tunnel the way he had come, but the doorway had disappeared. There was now only a solid brown wall behind him.

James's large frightened eyes traveled slowly around the room.

The creatures, some sitting on chairs, others reclining on a sofa, were all watching him intently.

Creatures?

Or were they insects?

An insect is usually something rather small, is it not? A grasshopper, for example, is an insect.

So what would you call it if you saw a grasshopper as large as a dog? As large as a large dog. You could hardly call that an insect, could you?

There was an Old-Green-Grasshopper as large as a large dog sitting on a stool directly across the room from James now.

And next to the Old-Green-Grasshopper, there was an enormous Spider.

And next to the Spider, there was a giant Ladybug with nine black spots on her scarlet shell.

Each of these three was squatting upon a magnificent chair.

On a sofa nearby, reclining comfortably in curled-up positions, there was a Centipede and an Earthworm.

On the floor over in the far corner, there was something thick and white that looked as though it might be a Silkworm. But it was sleeping soundly and nobody was paying any attention to it.

Every one of these "creatures" was at least as big as James himself, and in the strange greenish light that shone down from somewhere in the ceiling, they were absolutely terrifying to behold.

"I'm hungry!" the Spider announced suddenly, staring hard at James.

"I'm famished!" the Old-Green-Grasshopper said.

"So am I!" the Ladybug cried.

The Centipede sat up a little straighter on the sofa. "Everyone's famished!" he said. "We need food!"

Four pairs of round black glassy eyes were all fixed upon James.

The Centipede made a wriggling movement with his body as though he were about to glide off the sofa -- but he didn't.

Unemployment
Economists used to classify unemployment as frictional, structural, demand-deficient and classical. We discuss each in turn.
Frictional Unemployment
This is the irreducible minimum level of unemployment in a dynamic society. It includes people whose physical or mental handicaps make them almost unemployment, but it also include the people spending short spells in unemployment as they hop between jobs in an economy where both the labor force and the jobs on offer are continually changing.
Structural Unemployment
In the longer run, the pattern of demand and production is always changing. In recent decades, industries such as textiles and heavy engineering have been declining in the UK. Structural unemployment refers to unemployment arising because there is a mismatch of skills and jobs opportunities when the pattern of demand and production changes. For example, a skilled welder may have worked for 25 years in shipbuilding but is made redundant at 50 when the industry contracts in the face of foreign competition. That worker may have to retrain in a new skill which is more in demand today's economy. But firms may be reluctant to take on and train older workers. Such workers become the victims of structural unemployment.
Demand-deficient Unemployment
This refer to Keynesian unemployment; when aggregate demand falls and wages and prices have not yet adjusted to restore full unemployment. Aggregate demand is deficient because it is lower than full-employment aggregate demand.
Until wages and prices have adjusted to their new long-run equilibrium level, a fall in aggregate demand will lead to lower output and employment. Some workers will want to work at the going real wage rate but will be unable to find jobs. Only in the longer run will wages and prices fall enough to boost the real money supply and lower interest rates to the extent required to restore aggregate demand to its full employment level, and only then will demand-deficient unemployment be eliminated.
Classical Unemployment
Since the classical model assumes that flexible wages and prices maintain the economy at full employment, classical economists had some difficulty explaining the high unemployment levels of the 1930s. Their diagnosis of the problem was partly that union power was maintaining the wage rate above its equilibrium level and preventing the required adjustment from occurring. Classical unemployment describes the unemployment created when the wage is deliberately maintained above the level at which the labor supply and labor demand schedules intersect. It can be caused either by the exercise of trade union power or by minimum wage legislation which enforces a wage in excess of the equilibrium wage rate.
The modern analysis of unemployment takes the same type of unemployment but classifies them rather differently in order to highlight their behavioral implications and consequences for government policy. Modern analysis stresses the difference between voluntary and involuntary unemployment.

THE END OF THE PARTY
By GRAHAM GREENE

Peter Morton woke with a start to face the first light. Through the window he could see a bare bough dropping across a frame of silver. Rain tapped against the glass. It was January the fifth.
He looked across a table, on which a night-light had guttered into a pool of water, at the other bed. Francis Morton was still asleep, and Peter lay down again with his eyes on his brother. It amused him to imagine that it was himself whom he watched, the same hair, the same eyes, the same lips and line of cheek. But the thought soon palled, and the mind went back to the fact which lent the day importance. It was the fifth of January. He could hardly believe that a year had passed since Mrs. Henne-Falcon had given her last children's party.
Francis turned suddenly upon his back and threw an arm across his face, blocking his mouth. Peter's heart began to beat fast, not with pleasure now but with uneasiness. He sat up and called across the table, "Wake up." Francis's shoulders shook and he waved clenched fist in the air, but his eyes remained closed. To Peter Morton the whole room seemed suddenly to darken, and he had the impression of a great bird swooping. He cried again "Wake up," and once more there was silver light and the touch of rain on the windows. Francis rubbed his eyes. "Did you call out?" he asked. "

Merger

Two existing firms can join together in two different ways. First, one firm may make a takeover bid for the other by offering to buy out the shareholders of the second firm. Managers of the victim firm will usually resist since they are likely to lose their jobs, but the shareholders will accept if the offer is sufficiently attractive. In contrast, a merger is the voluntary union of two companies where they think they will do better by amalgamating.

 It is important to distinguish three types of merger. By horizontal merger we mean the union of two firms at the same production stage in the same industry, for example the merger of two steel producers or two car makers. By a vertical merger we mean the union of two firms at different production stages in the same industry, as when a car manufacturer merges with a steel producer.

 Finally, there are conglomerate mergers, where the production activities of the two firms are essentially unrelated. For example, a tobacco manufacturer perceiving that the cigarette market is in long-term decline might join forces with a perfume company.

  What do firms think they stand to gain by merging? A horizontal merger may allow exploitation of economies of scale. One large car factory may be better than two small ones. (Notice that this requires that each of the original companies were producing below minimum efficient scale.) In vertical mergers it is often claimed that there are important gains to coordination and planning. It may be easier to make long-term decisions about the best size and type of steel mill if a simultaneous decision is taken on the level of car production to which steel output forms an important input. Since conglomerate mergers involve companies with completely independent products, these mergers have only small opportunities for a direct reduction in production costs.

Two other factors are frequently mentioned as potential benefits of mergers. First, if one company has an inspired management team it may be more productive to allow this team to run both businesses. Managers of course are very fond of this explanation for mergers. Economists have tended to be more sceptical. Second, by pooling their financial resources, the merging companies may enjoy better credit-worthiness and access to cheaper borrowing, enabling them to take more risks and finance larger research projects. Managerial and financial gains could explain why mergers make sense even for firms producing completely distinct products.

Cat in the Rain

Ernest Hemingway

There were only two Americans stopping at the hotel. They did not know any of the people they passed onthe stairs on their way to and from their room. Their room was on the second floor facing the sea. It also faced the public garden and the war monument. There were big palms and green benches in the public garden.

In the good weather there was always an artist with his easel. Artists liked the way the palms grew and the bright colors of the hotels facing the gardens and the sea.

Italians came from a long way off to look up at the war monument. It was made of bronze and glistened inthe rain. It was raining. The rain dripped from the palm trees. Water stood in pools on the gravel paths. The seabroke in a long line in the rain and slipped back down the beach to come up and break again in a long line in the rain. The motor cars were gone from the square by the war monument. Across the square in the doorway of the café a waiter stood looking out at the empty square.

The American wife stood at the window looking out. Outside right under their window a cat was crouchedunder one of the dripping green tables. The cat was trying to make herself so compact that she would not be dripped on.

‘I’m going down and get that kitty,’ the American wife said.

‘I’ll do it,’ her husband offered from the bed.

‘No, I’ll get it. The poor kitty out trying to keep dry under a table.’

The husband went on reading, lying propped up with the two pillows at the foot of the bed.

‘Don’t get wet,’ he said.

The wife went downstairs and the hotel owner stood up and bowed to her as she passed the office. His desk was at the far end of the office. He was an old man and very tall.

‘Il piove,’the wife said. She liked the hotel-keeper.

‘Si, Si, Signora, brutto tempo. It is very bad weather.’

He stood behind his desk in the far end of the dim room. The wife liked him. She liked the deadly serious way he received any complaints. She liked his dignity. She liked the way he wanted to serve her. She liked the way he felt about being a hotel-keeper. She liked his old, heavy face and big hands.

Liking him she opened the door and looked out. It was raining harder. A man in a rubber cape was crossing the empty square to the café. The cat would be around to the right. Perhaps she could go along under the eaves.

As she stood in the doorway an umbrella opened behind her. It was the maid who looked after their room.

‘You must not get wet,’ she smiled, speaking Italian. Of course, the hotel-keeper had sent her.

With the maid holding the umbrella over her, she walked along the gravel path until she was under their window. The table was there, washed bright green in the rain, but the cat was gone. She was suddenly disappointed. The maid looked up at her.

‘Ha perduto qualque cosa, Signora?’

‘There was a cat,’ said the American girl.

‘A cat?’

‘Si, il gatto.’

‘A cat?’ the maid laughed. ‘A cat in the rain?’

‘Yes, –’ she said, ‘under the table.’ Then, ‘Oh, I wanted it so much. I wanted a kitty.’

When she talked English the maid’s face tightened.

‘Come, Signora,’ she said. ‘We must get back inside. You will be wet.’

‘I suppose so,’ said the American girl.

In prisoner-of-war camps, cigarettes served as money. In the 19th century money was mainly gold and silver coins. These are examples of commodity money, ordinary goods with industrial uses (gold) and consumption uses (cigarettes), which also serve as a medium of exchange. To use a commodity money, society must either cut back on other uses of that commodity or devote scarce resources to producing additional quantities of the commodity. But there are less expensive ways for society to produce money.

A token money is a means of payment whose value or purchasing power as money greatly exceeds its cost of production or value in uses other than as money.

A $10 note is worth far more as money than as a 3 x 6 inch piece of high-quality paper. Similarly, the monetary value of most coins exceeds the amount you would get by melting them down and selling off the metals they contain. By collectively agreeing to use token money, society economizes on the scarce resources required to produce money as a medium of exchange. Since the manufacturing costs are tiny, why doesn’t everyone make $10 notes?

The essential condition for the survival of token money is the restriction of the right to supply it. Private production is illegal:

Society enforces the use of token money by making it legal tender. The law says it must be accepted as a means of payment.

In modern economies, token money is supplemented by IOU money.

An IOU money is a medium of exchange based on the debt of a private firm or individual.

A bank deposit is IOU money because it is a debt of the bank. When you have a bank deposit the bank owes you money. You can write a cheque to yourself or a third party and the bank is obliged to pay whenever the cheque is presented. Bank deposits are a medium of exchange because they are generally accepted as payment.

Cat in the Rain 2

They went back along the gravel path and passed in the door. The maid stayed outside to close the umbrella.
As the American girl passed the office, the padrone bowed from his desk. Something felt very small and tight inside the girl. The padrone made her feel very small and at the same time really important. She had a momentary feeling of being of supreme importance. She went on up the stairs. She opened the door of the room.
George was on the bed, reading.
‘Did you get the cat?’ he asked, putting the book down.
‘It was gone.’
‘Wonder where it went to,’ he said, resting his eyes from reading.
She sat down on the bed.
‘I wanted it so much,’ she said. ‘I don’t know why I wanted it so much. I wanted that poor kitty. It isn’t any
fun to be a poor kitty out in the rain.’
George was reading again.
She went over and sat in front of the mirror of the dressing table looking at herself with the hand glass. She
studied her profile, first one side and then the other. Then she studied the back of her head and her neck.
‘Don’t you think it would be a good idea if I let my hair grow out?’ she asked, looking at her profile again.
George looked up and saw the back of her neck, clipped close like a boy’s.
‘I like it the way it is.’
‘I get so tired of it,’ she said. ‘I get so tired of looking like a boy.’
George shifted his position in the bed. He hadn’t looked away from her since she started to speak.
‘You look pretty darn nice,’ he said.
She laid the mirror down on the dresser and went over to the window and looked out. It was getting dark.
‘I want to pull my hair back tight and smooth and make a big knot at the back that I can feel,’ she said. ‘I
want to have a kitty to sit on my lap and purr when I stroke her.’
‘Yeah?’ George said from the bed.
‘And I want to eat at a table with my own silver and I want candles. And I want it to be spring and I want to
brush my hair out in front of a mirror and I want a kitty and I want some new clothes.’
‘Oh, shut up and get something to read,’ George said. He was reading again.
His wife was looking out of the window. It was quite dark now and still raining in the palm trees.
‘Anyway, I want a cat,’ she said, ‘I want a cat. I want a cat now. If I can’t have long hair or any fun, I canhave a cat.’
George was not listening. He was reading his book. His wife looked out of the window where the light hadcome on in the square.
Someone knocked at the door.
‘Avanti,’ George said. He looked up from his book.
In the doorway stood the maid. She held a big tortoiseshell cat pressed tight against her and swung downagainst her body.
‘Excuse me,’ she said, ‘the padrone asked me to bring this for the Signora.’

Microeconomics and Macroeconomics

Macroeconomics (from the Greek prefix makro- meaning "large" +economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies.

While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income).

Macroeconomic models and their forecasts are used by governments to assist in the development and evaluation of economic policy.

Macroeconomists study aggregated indicators such as GDP, unemployment rates, national income, price indices, and the interrelations among the different sectors of the economy to better understand how the whole economy functions. They also develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, saving, investment, energy, international trade, and international finance.

Microeconomics (from Greek prefix mikro- meaning "small" + economics) is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.

One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce efficient results.