Economics

The American Economic Association defines economics as the study of how people choose to use resources. In this context the Association states that resources include the time and talent people have available, the land, buildings, equipment, and other tools on hand, and the knowledge of how to combine them to create useful products and services. On the other hand, economics is said to be the study of, among other things, labor, land, and investments, of money, income, and production, and of taxes, and government expenditure.

Supply and Demand
In the economics study, demand and supply are schedules or arrays of price and quantity combinations (Zkreso, 2008). Demand and supply concept is actually the basic foundation of economic theory and thought. The very reason for the existence of a firm is the demand for its product that it produces to sell according to the article in the Transtutors.com. The economic meaning of the term demand is hence the relationship between the price of the product and the quantity of the product the consumers will be willing and able to buy at various prices, holding all other factors constant. While the demand for the product comes from the consumers, however, it is the firm that decides how much of the product to produce and supply in the market. Accordingly, the supply of a product is the relation between the price of the product and the total quantity of the product that producers are willing and able to offer at various prices, keeping all other factors affecting supply decisions constant. Supply represents the quantity of goods or services available for sale while demand represents the number of consumers who need the goods or service and want to buy. The price at which the good is sold at is taken to be its cost plus profit. While a good is said to be something one can see, touch, feel, smell taste while a service is something you do to others, they need it, pay for it but is not tangible. A service is hence intangible.

The law of supply
In the cause of doing business, the supplier may increase the price or lower it. By raising the price, other things being unchanged, the demand will go down as more consumers will think twice before buying the good or service. In economics this is referred to as the law of supply.

The law of demand
When the price is lowered, other things being unchanged, more consumers will want to buy the good or service as they will consider this to be a deal and in this particular case the demand will be said go up. This in economics is known the law of demand.

Factors that lead to a change in supply and change in demand
Besides the price of the product, other factors that will influence supply according to Trnastutors.com include

1. Input cost and taxes- Increase in the input costs and imposition of taxes will make it costlier for the firm to produce a specific quantity of the product. To continue making the same amount of profit, the firm will have to increase prices or bring down the quantity produced.

2. Technology and government regulations- Improved technology or government policies conducive to the firm will improve production conditions.

3. Profitability of the substitutes in production- If cheaper substitutes for the inputs used in production can be utilized then the resulting effect will be similar to a decline in input costs.

4. Number of firms in the market- If the number of firms in the market increases, then the power of the existing firm to freely decide the quantity to supply is reduced. This will therefore influence the supply decisions taken by the firm.

5. Expectations- Firm management expectations regarding future prices, policies of the government and other factors play a key role. This will influence the supply decisions.

Apart from price changes, other factors that will influence demand are as follows

1. Consumer income- an increase in consumer income implies an increase in the ability of consumers to purchase more of all goods. Therefore demand for most goods increase when consumer income increases.

2. Prices of related goods- Changes in the prices of related goods lead to changes in demand. Related goods are of two kinds- substitutes and complimentary. A decrease in the price of a substitute good can cause the demand of the concerned good to decrease. Tea and coffee are substitutes as the consumer is likely to take tea if the price of coffee increases. A decrease in the price of a complementary good can cause demand of the concerned good to increase. For example a decrease in the price of bread is likely to increase the consumption of bread.

3. Consumer preferences- Consumers have preferences for particular brands of goods. These preferences can be changed in favor of a product with the help of advertising, sales promotions and so on.

4. Population- An increase in the population of consumers will increase demand for all products.

5. Seasonal factors- Seasonal factors also influence the demand for a product. Consumers purchase great deal of certain products during certain times of the year. For example, the demand for umbrellas is higher during the rainy season.

6. Expectations- If the consumers expectations about the price of a good in future changes, then the demand for the good will also change.

Trends in Consumption Patterns
The consumption pattern and the derived utility of the following products, tea, coffee and umbrellas will be discussed. Utility is said to be the satisfaction or the value an individual gets from the product he consumes. The utility that the consumer derives from the product will change according to the amount consumed and in most cases the utility will diminish as consumption increase. This pattern is referred to as diminishing marginal utility. While lowering the price for a cup of tea or coffee will increase the demand for tea or coffee, the utility that a consumer will get from consuming an extra cup of tea or coffee will progressively diminish. This reduction in satisfaction is commonly referred in economic as diminishing a marginal return that is for every cup of tea or coffee consumed, the satisfaction or need is reduced. As for the case of the umbrella, the utility derived from purchase of one umbrella is fully satisfied as an extra umbrella will not add any value in terms of consumption to the buyer. In other words, the marginal utility derived from purchasing an additional umbrella is basically zero.

However lower prices of tea or coffee will increase the demand for tea or coffee while the demand for the umbrella will diminish as the market tends to reach the saturation point.

Japan is considered one of the leading countries in terms of global economy. This country has experienced rapid economic growth after the second world war  and has maintained its status as a leading trade player in the global economy. Knowing the trade pattern and profile is very important especially for an economic giant such as Japan. This country has established itself in the field of electronic products and car exports, the major trade industry of Japan is high-tech electronic products such as Sony and motor vehicles such as Toyota. It has also been regarded that Japan, being  one of the leaders in international trading , is a resource-poor nation. This means that they are importing raw materials and oil. They also do not have a comparative advantage in terms of agricultural products. With this knowledge, it is also important to know the foreign trade policies of this country and the strategies they have incorporated in order to emerge as an economic giant.

Problem Statement
The main problem and focus of this research is to construct a trade profile that analyzes and explains the trade patterns of Japan.

This study will first establish the trade performance of Japan among the world economy. Trade policies of Japan will be reviewed to show how it affects the trading pattern of the country. Comparative tables will also be shown to provide a clearer view of the competitiveness of Japan in the global market. Showing the competitive standing and ranking of Japan will establish some of the patterns and profile of this country. The study will also show past data of the trading patterns and the changes it has undergone.

By studying the past data and showing the pattern of growth and decline of Japans trading sector, we can point out the trade profile of Japan. The significance of finding out and analyzing the trade profile of a particular country is to follow the positive applications they have made. We can also learn from the mistakes that was made which causes the decline or shift of the countrys economy.

The common view of Japans trade profile is that it is a country which specializes in the exportation of electronic gadgets and cars. This study will delve deeper into this common trade profile that people perceive for this country. This will show that Japans economy has also undergone major decline and decrease in growth for a period of time. One of the recent major problems facing the Japanese car industry is the technical issues of Toyota cars which will definitely have an impact on the economy. Another issue is that Japan has the worlds fastest aging population because of the high life expectancy of the country.

Literature Review
The country of Japan started its rise to economic power a few years after the end of the second world war. They relied on the international trading and domestic investment from the very start. The focus of the early trading years of Japan was in textile and radio. A major factor which contributed to Japans early economic rise was their industrial policy which is the assignment of foreign currencies earned from exports to industries that was expected to earn more foreign currency (Ito, 2001, p. 289). Having this policy gave the country the thrust to produce more high value products, those products that have a higher earning power, which in turn earns more foreign currency. This early pattern gave way for Japan to produce more of these goods leading up to the exportation of electronic products such as tape recorders and televisions as well as ships and steels. Today, Japan is a major exporter of cars and high-tech gadgets.

To fully understand the trading profile of a country, we have to know their basic trading index and their trade performance change index. The basic trading index consist of five variables
the share of the countrys export sector in world trade
the sectoral trade balance
per capita exports
the level of differentiation of export products within a given sector
the level of diversification of export markets (Schwab, 2003, p. 308).

The measurement or the index of change, either for the improvement or the weakening, of a countrys competitiveness position is called the change index and is composed of
the change in the countrys sector specific share in world trade
the increase or decrease in the trade balance within the given sector
the degree of specialization in particularly dynamic products within a given sector
the change in product differentiation
the change in market diversification (p. 308).

The establishment of the trading policy of Japan is very important to show the causes of the trade patterns of this country. In the past, Japan has lowered its tariffs and in 1985 import duties were eliminated on about 1800 narrowly defined product categories, for which tariffs were generally below 5 percent (Balassa  Noland, 1988, p. 49). Non tariff barriers in Japan apply to agricultural and fishery products and to some manufactured goods. Japan has also prioritized the  promotion of High-Technology Industries. They have made import limitations on semiconductors, market shares of foreign leading products such as Motorola has been limited and they have limited the role of foreign companies in the provision of the international telephone services. Japan has made a firm stand on foreign telecommunications firms by excluding them from the domestic common carrier market. Entry of foreign telecommunication firms are also subjected to the approval of the Ministry of Post and Telecommunications. Regarding the Japanese patent system and trademark, it is known that this country has a slow process when it comes to registering patents. Foreign trademarks may be registered by domestic firms that have used them at home or abroad. Distribution channels are excessively complicated and discriminate against foreign made goods. Distribution margins for import goods has more than twice as high as for competing domestic products. This shows that Japan has a very strict policy against import goods, prioritizing their domestic products in almost all the sectors from raw materials, food, telecommunications, intellectual property and distribution of goods. This is the reason why the predominant  products and goods in Japan are locally made.

DISCUSSION
The trade index has been previously defined on this study. This index will now be applied to Japan to have a glimpse of this countrys trade pattern.

The most common index is the share of Japans export sector in the world trade. The latest information regarding the export of Japan is that their export has declined last year (2009) by 30.9, plummeting to an estimated US516.3 billion from 747 billion just one year earlier (Workman, 2010).

The year 2009 was not a very good year for Japan in terms of its export relations with the United States. Still the leading export of Japan to the US is technological and industrial products. However, there has been a considerable loss for science related technologies and Japanese automobiles.

One new trade pattern that can be seen in Japan is the rising surge of manufacturing imports in the country. This shows that although Japan has very strict trade policies for foreign goods and products, it still can be penetrated and is now slowly surging up. These imports of manufacturing goods are coming from East Asian countries.

Here are the changes in the pattern of trade among the East Asian Nations EANIC (Singapore, South Korea, Taiwan and Hong Kong), Japan and the United States. By showing the changing trade patterns of these countries, the trade relations of Japan with other countries can be clearly seen. Please refer to the table 1 at the next page

Table1
Triangular Trade Relationship among Japan, EANIC and the United States.
Export toImport fromJapanUnited StatesEANICsWorldJapan1970...6,015(31.1)
(15.5)2,641(13.7)
(29.9)19,318(6.8)1975...11,242(20.2)
(12.1)6,965(12.5)
(26.1)55,728(7.0)1980...31,910(24.5)
(13.4)19,459(14.9)
(22.3)130,435(7.0)1985...66,684(37.6)
(20.4)22,684(12.8)
(23.5)177,189(9.8)1987...85,017(36.8)
(21.1)39,803(17.2)
(27.1)231,332(9.8)1988...90,245(34.1)
(20.6)49,819(18.8)
(25.7)264,961(9.8)United States19704,652(10.8)
(29.9)...1,810(4.2)
(20.5)43,231(15.3)
19759,563(8.9)
(19.0)...5,233(4.9)
(19.6)107,586(13.6)198020,790(9.4)
(16.8)...15,079(6.8)
(17.3)220,781(11.8)198522,631(10.6)
(19.8)...16,918(7.9)
(17.5)213,146(11.8)198728,249(11.2)
(21.1)...23,584(9.3)
(16.1)252,884(10.7)198837,732(11.8)
(22.6)...34,881(10.9)
(18.0)320,385(11.8)EANICs1970747(11.8)
(4.8)2,031(32.1)
(5.2)500(7.9)
(5.7)6,336(2.2)19752,845(13.1)
(5.7)5,699(26.2)
(5.1)1,966(9.0)
(7.4)21,767(2.8)19807,681(10.1)
(6.2)18,965(24.8)
(8.0)7,009(9.2)
(8.0)76,351(4.1)198511,434(10.0)
(10.0)39,693(34.8)
(12.2)10,165(8.9)
(10.5)114,006(6.3)198720,466(11.5)
(15.3)62,530(35.1)
(15.5)17,001(9.6)
(11.6)177,908(7.6)198827,855(12.4)
(16.7)69,968(31.3)
(16.0)24,091(10.8)
(12.4)223,763(8.3)World197015,543(5.5)38,811(13.7)8,828(3.1)282,638197550,310(6.4)92,925(11.7)26,661(3.4)791,3911980123,684(6.6)237,680(12.7)87,360(4.7)1,87,8001985114,424(6.3)326,248(18.0)96,697(5.3)1,811,5001987133,586(5.7)403,587(17.1)146,658(6.2)23533001988166,966(6.2)437,438(16.2)193,746(7.2)2,707,500
Source (Krugman, 1995, p. 88)

From table 1, we can see that the Japanese export has a growth of about 10 percent in 1985 from 7 percent in 1980.

Let us now discuss Japans import and export level. The growth in Japans export level can be caused by a number of factors the increasing demand for Japanese products the competitive prices of Japanese products in the market and lastly, the high quality standard of their products prompted consumers around the world to buy their products. The major factor opposing the increase of Japans export level is the product saturation in the market. Japanese firms were likely to turn to export markets for expansion.

As mentioned earlier in this study, the import level of Japan is gradually increasing. There are several major factors contributing to the increase. The most obvious factor is the economic growth of the country and the income levels . Another factor would be the price of imports. For every increase in the import prices, particularly raw materials and energy, causes Japans import bill to rise accordingly. Japan has to pay higher prices for imports. Trade liberalization is another factor. Imported products are now starting to compete more fully in the Japanese market because of the reduced tariff rates and the lessening or weakening of the trade barriers. Import level in Japan is primarily dependent on its domestic economy. As the economy grows, so does the level of importation. During recessions, import level is weak and in decline.

Another trade profile of Japan is its ability to bounce back from trade deficits. This country has experienced huge trade deficits in the past. An example of this is during the rapid rise of petroleum prices and raw materials in 1973  which plunged the country into a trade deficit. The country recovered from this because of its strong export level. With this knowledge, it can be readily shown that Japan is very much affected and highly vulnerable to the increase in petroleum prices and raw materials in the world market. However, Japan has the capability to recover from such deficits because of its strong export sector. Their export sector is able to respond to match the increase in imports. The ability of Japans exporters to expand sales abroad while commanding premium prices for their products is highly commendable.  

The direction of trade of Japan should also be taken into account. Japan trades with every country in the world. Since 1950 onwards, Japan trade has been shifting from developing countries to developed countries such as the United States. In terms of importation, Japan relies on developing countries with about half coming from the Middle East. This shows the voracious need of Japan for raw materials and petroleum. This, however, creates friction because the countrys economic status depends partly on their ability to import food, raw materials and energy and export finish products. Usually in most cases, the country providing Japan with the imported goods does not have population income levels or trading ties with Japan to buy sufficient finish products to bring bilateral trade into balance.

Trading profile of Japan can also be established by taking into account the value of yen, the money currency of this country. The relative value of yen is determined in foreign exchange markets by the forces of demand and supply. The demand for yen arises from the demand for what the yen would buy by foreigners in Japan. The supply of yen arises from the desire of yen holders to exchange their yen for dollars or other foreign exchange currency in order to buy something abroad. This means that if Japan has a surplus of export, this will increase the value of yen. If there is an excess in imports, the value of yen will decrease.

As with other countries, Japans currency has experienced fluctuations throughout the years. In the first half of the 1980s the yen failed to rise in value. From 221 in 1981, the average value of the yen actually dropped to 239 in 1985. The rise in the current account surplus generated stronger demand for yen in foreign-exchange markets, but this trade-related demand for yen was offset by other factors. A wide differential in interest rates, with United States interest rates much higher than those in Japan, and the continuing moves to deregulate the international flow of capital, led to a large net outflow of capital from Japan.

The yens increased value made Japanese exports less price competitive and the imports more price competitive. However, this pattern did not really affect the economy of Japan negatively.

To conclude this study, the trade pattern of Japan shows strength and confidence even in trying times. This will continue as long as Japan produces quality high tech products. It has been mentioned also that Japan is opening up its trading policies meaning trade relations with other countries are flourishing especially with other Asian countries and of course the United States. Importation of goods is a necessity for Japan because they need raw materials and they will continue to import a lot of goods from neighboring countries.

About four million infants in USA consume approximately 80 million cases of baby food each year. This represents domestic market revenue of about  865 to 1billion, yet this industry is only dominated by three companies, Gerber, Heinz and Beech-Nut. Indeed, Gerber commands 65 of the total market share, leaving 17.4 for Heinz and 15.4 for Beech-Nut (Baye and Scholten, 2001). As such Heinz and Beech-Nuts wants to merger in order to favorably compete with the industry giant. This present short case study paper examines the competitive strategies of Heinz and Beech-Nut and their reasons to merge.

Competitive strategies used by Heinz against Beech-Nut
It was Michael Porter who formulated four generic competitive strategies that can be adopted by a business in for it to gain competitive advantage. One of the competitive strategies that Heinz has implemented in differentiation strategy, here Heinz has formulated different products such as strained carrots, apple sauce among others so that it can cater for different customer segments. The company main objective is to offer products that Beech-Nut is not offering. Similarly, the company has adopted market expansion strategy, whereby by it has focused on expanding its operations to new markets in different countries where Beech-Nut does not have presence. Indeed, as noted in the case study, Heinz is the leading company of baby food with estimated global sales of  1 billion.

Competitive strategies used by Beech-Nut against Heinz
Accordingly, from the case study, we can say that Beech-Nut is following cost leadership competitive strategy. In this kind of strategy the company aims at being the lowest-cost company within the industry.  The company focuses on reducing cost of production so that it can low its final price for its products.  The philosophy behind this strategy is that if that the company will be able to enjoy more profits than its competitors if it reduces it costs. Nonetheless, because of this strategy, the level of differentiation of its products is not high its only at the level that can be accepted by the majority of its customers. As seen form the case, Beech-Nut ensures a price difference with Heinz by selling its products at slightly lower price than Heinz. This aspect as noted by Porter (1985) is strategy to increase its market share, through low pricing strategy. Indeed, it has succeed has the company commands 15.4 of the market share as from the case study

Question 3, b) Are the barriers to entry high or low for this market What are they
Baby food industry has got high barriers to entry, this simply because the industry his highly regulated by various regulating bodies because baby food is a sensitive product that needs to be watched carefully. Below are three main barriers within the industry.

High regulations and licensing
Another barrier in the industry is the huge initial capital.
High competition within the industry discourages new entrants
Question 4 What were the arguments used by Heinz and Beech-Nut in favor of the merger
The two companies that they are not actually competing one another when it comes at the retail level. In addition, they state that their individual customers do not consider their products as substitutes of one another. More so, just one of the two brands from these two companies is available at any particular retail shop. Thus according to them this will result in a very slight competitive loss occurring form the merger.

The second point put forward by these companies is that the merger will greatly improve the operations of the two companies as a single company and make it to be more effective. This effectiveness will help the merged company to compete more competitively, especially with Gerber, a major competitor within the industry.

The third point supporting the merger by the two companies is innovation. According to the companies, their merger will enable them innovate more products or improve on the existing ones. This will as well enable them compete well with Gerber Company. Heinz and Beech-Nut notes that they lack enough shelf presence (All Commodity Volume) in the retail shops around the country, thus their merger will give them enough shelf presence and thus improve their competitiveness.

Conclusion
The current business environment is more competitive than ever, this has resulted in many organizations re-examining their business strategies in order to formulate competitive business strategies that can give them an advantage over their competitors.

Smith (1977) argues that in order to efficiently respond to water resource management, it is pertinent to apply property rights (8). He used two characteristics of water to measure its value- the total availability of water and the individual demand of every property deed holder. He stresses the following benefits of water deeds appropriation according to paid deeds, creation of positive cash, potential to decrease pollution, redistribution of wealth will not greatly occur, relative price inflexibility to market value of surface land and improvements, potential community wealth increases, and the incentive to develop substitutes. He also acknowledges the disadvantages of his proposal, namely system operation costs, fraudulence, and other special costs and issues. My critique of Smiths proposal is that if we are going to put a price on water through water deeds, Coase (1960) asks if this is the proper social arrangement for dealing with the problem of depleting water resources, which can harm the rights of other people, who cannot purchase the water deeds they need, because they lack political or economic power, and the harm to sectors that will prefer substitutes, which can harm general social welfare (18).

Coase (1960) points out that whenever people think about B harming A, many immediately assert that B should be restrained (2). He argues, however, that the more important problem is should A be allowed to harm B or the other way around The problem, he states, is avoiding the greater harm. This is in line with opportunity costs, wherein removing the harm from one person transfers another form of harm to the person who will be restrained. The proposal of Smith considers the inefficient use of the Tucson Basin as harming many stakeholders. However, as he proposes the water deeds, he neglects to identify who will be harmed by this proposal. By this, I mean that he has not considered other possible harms, not just to the new water users, who will also be claiming for water rights, but also to other groups who will have difficulty in acquiring water deeds because of various reasons. Smith is only thinking of how polluters and inefficient users can be restrained by water deeds, but he has not carefully considered the social costs of the harm that this can do to different sectors also.

Second, Smith provides insightful benefits of water deeds, in terms of making water resource management a more efficient market-based sector. Coase, on the other hand, argues that this leads to faulty economic thinking, because it leads to the belief that merely removing the deficiency of inefficiency, as desirable in itself (43). As Coase indicates, the new market arrangement for the water deeds can do more harm than the original deficiency (43). I am referring to the harms to people who do not have the economic and political capacity to participate in the market. For instance, there are farmers who might need 57xi (xi refers to amount of water defined by Smith, 8), but since they can only pay for 30 xi, their water supply is limited, and they could not get the water they need to sustain their lands. If the government can provide water subsidies, these subsidies may be limited, and as in many real life practices, those who have political power will most likely get more water rights. In addition, when substitutes to water deeds become more cost-efficient, this can possibly lead to wide-scale transformation of agricultural land to grazing land or other commercial purposes, which need less water. As a result, agricultural productivity can sharply decrease, and this can affect the social welfare because food supply will decrease.

Smiths proposal constitutes a new social arrangement that has numerous social costs. These social costs are not greatly analyzed and computed, as part of the average cost of operating water deeds. As a result, Smith fails to consider the social costs to other people who cannot be assured that they can have water subsidies, when they have weak political and economic power, and the social costs due to the substitutes and trade-offs of water rights that can create greater economic harms.

Do you think the differences between the pricing issues Varian describes for information goods and those we looked at for peak capacity pricing in the electricity industry will lead to important differences in the competitive environments in these two industries

Yes, I believe that the pricing issues Varian describes for information goods and those we looked at for peak capacity pricing in the electricity industry will lead to important differences in the competitive environments of these two industries, because peak load pricing will no longer define profitability for the information industry, as it does for the electricity industry. The electricity industry can price its products competitively, through the use of peak pricing. The competitiveness in the information industry, on the other hand, will be affected by the traditional principles of competitive strategy, by being either a differentiation leader or a cost leader, while competitiveness in the electricity industry will be defined by its ability to be a cost leader, primarily through an efficient peak pricing system.

Using peak-load pricing, the costs of capacity are passed to peak users, and this makes electricity production more efficient during peak production, because extra capacity is paid only by those who drive capacity up. In addition, peak hours determine necessary capacity, so that off-peak consumption can increase without any significant increases in capacity. Peak pricing, however, do not apply to the information industry, because information products have high production cost, but low reproduction cost (Varian, 22). Even when there is high demand for information products, extra capacity will not cost information companies a great deal of money. An example is the Encarta CDs being sold by Microsoft. The variable cost of additional production almost costs nothing, which enables Microsoft to reap 92 gross profit margins (Varian, 21). This is even more pronounced for information products available online, wherein companies that list their prices drive prices to decline toward the marginal cost. After understanding the limitations of peak pricing for the information sector.

The competitiveness in the information industry will be affected by the traditional principles of competitive strategy, by being either a differentiation leader or a cost leader, while competitiveness in the electricity industry will be defined by its ability to be a cost leader, primarily through an efficient peak pricing system (Varian, 25-26). Since the cost of producing more information products almost cost nothing, competitiveness in the information industry can be attained through cost or differentiation leadership. Through cost leadership, information companies can control their sunk costs, so that they can produce the first product at the lowest possible cost, and additional products, at minimal or almost no marginal cost. If one company produces and sells products at a price that is greater than the marginal cost, then it can still sell its price lower than competitors and still make a profit. Cost leadership is not always easy to attain, however, because of the identical nature of information goods. In addition, marketing and research and development can increase sunk costs significantly. It can be more profitable for the company to differentiate information goods, so that higher perceptions of value can lead to premium pricing and higher revenues.

On the other hand, the electricity industry will be defined by its ability to be a cost leader, primarily through an efficient peak pricing system. Electricity is not something that can be differentiated, because it is perceived as a basic commodity, like water. Electricity companies can be more competitive, if they can apply peak load pricing in the most efficient terms, wherein it can find ways to maximize capacity usage, without necessarily increasing peak capacity usage, such as the example given by Preston McAfee for aluminum smelters (280). Aluminum smelters are interruptible consumers that can be turned off during peak capacity usage, thereby saving electricity companies from incurring additional capacity expansion costs.

To conclude, the differences between the pricing issues Varian describes for information goods and those we looked at for peak capacity pricing greatly affect the competitiveness of the electricity and information sectors. Information companies can be more competitive through cost andor differentiation leadership, while electric companies can be more competitive through an efficient peak pricing system.

The article entitled Falling Fertility talks about the decline in the population growth of the world together with its corresponding effects in the development of the society. The discussion of the article used the Malthusian Theory as a basis in order to introduce its antithesis of the declining population growth. Nevertheless, the article also give due emphasis to the Malthuss heirs in explaining that the decline in the population is just synonymous to the slow growth, which still means that the population is still growing and once it reached its peak the natural resources of the world would be depleted. In connection to this, the article also answers the research question of whether the decline in population growth will solve environmental problems. Furthermore, if developing countries will continue to pattern their growth according to the practices of the West then environmental problems like climate change would further worsen.

According to Thomas Malthus, the population growth would outstrip the worlds food supply. However, the phenomenon of industrialization has greatly changed the population growth of developed countries because fertility fell sharply, especially in Europe and America. In the same manner, developing countries also have declining fertility rate, which is observable in Brazil, Indonesia, and event some parts of India. As a result, the fertility of half of the world is equal to 2.1 or less, which is regarded as a stable population and is referred to as the replacement rate of fertility. The decline in the growth of the population is seen as a boon because it entails greater security for billions of people and also a means for economic growth. On the other hand, according to the supporters of the Malthusian Theory, there are already too many people on the earths fragile ecosystem. As such, the decline in the fertility rate might be alleviating the lives of poor people but it is not saving the earth.

In relation to this, an article entitled G-7 Global Markets, Global Warming discusses the efforts of various countries in addressing climate change. Despite the fact that each country has their own perspective when it comes to the issue, they were able to agree on one thing and that is the vital role of using clean technology towards development. This is also similar with the previous article because it also states that in order to address the environmental damage of the world, people should shift towards a cleaner growth.

This is paper will dwell on the different types of agglomeration economies and the bid rent theory and review the factors influencing location requirements for certain kinds of firms. Agglomeration economic dwells on the savings or benefits firms realize by clustering together (SdS), it is frequently associated with the collective use of the infrastructure of transportation, communications facilities and other services (JGS). Bid rent is the amount of money one is willing to offer to acquire a certain piece of land.

The scope of this paper will delve on these two main subjects. Of importance will be to find out factors influencing the location of certain firms or enterprises at certain location in the city. Explanations will be drawn from using the bid rent theory and various other economic theories.  Sources used will mostly be online sources as there are quicker to access and can easily be compared with other sources for aptness and authenticity

1.0 Introduction
The decision process individuals and firms go through when deciding on the best location for a certain business or firm is one worth studying.  The theory of agglomeration economies helps us to understand this in much detail. The advantages associated with firms being located in a certain area are very crucial for the company managers as well as for city planners who want to attract investment into their city.

Perhaps the most important factor before any decision to locate a firm in a certain area is that of costs. Firms will tend to move into areas where operational costs are low e.g. low taxes, cheap labor, lower rent etc.

The bid rent model (diagram above) delves on the function of profit maximization in the presence of comparative, multipurpose and impulse shopping behavior. (Findarticles 2010) Thus at the core of any decision to locate a firm, is the issue of profit maximization and reduction of costs.

In this paper we are going to review the various factors that will influence the location of
a head quarters office of a financial institution
a department of a public agency dealing directly with the public
a call centre
an accountants office
a research establishment

This will all be done using the theories outlined in the abstract and the subsequent paragraph. Each firm operates in a different environment and hence has different needs.  They each serve different customers.  The factors that will influence each firms location decision will be decided based on a trade off to be more accessible to clients as possible but to also keep costs very low.

2.0 Location of a headquarters firm of a financial institution
The headquarters of a financial institution is the central and most important place of a financial companys operations. A financial institutions headquarters will need to be located at a place where it is very visible and accessible. Many financial company headquarters are located in the worlds financial hubs such as London, Hong Kong and New York wall street being a very good example.

2.1 Important factors in the location of financial institutions
According to Burgess theory as demonstrated above the city is arranged as concentric zones. The central business district tends to have the most expensive rent per square kilometer. The headquarters of a financial institution will likely be situated in the central business district. The reasons being
Easy access financial institutions headquarters have to be easily accessible to main lines of transport such as airport, train station. This is to allow easy access by employees to attend company meetings and for other stakeholders to access them.

Closer location to other financial institutions for easier sharing of data, network facilities, infrastructure etc. Infrastructure is also of utmost importance in the CBD, communication, transportation and other essential facilities need are guaranteed to be present.

Image reasons. The headquarters of a financial institution can also act as a marketing icon of the company thus its location is of great importance to the company. A stylish building located in the central business district portrays a good image of the company.

In terms of rent, the financial institution can afford the high charges charged at the CBD thus this will not be a major issue for the income.

There are many other reasons why the headquarters of a financial institution may likely be located in the CBD. The ones outlined above are usually the main ones. However it is possible and becoming for the headquarters of a financial institution to be located close to a university or other place of higher learning. This is to easily attract young talent.

3.0 Location of a Public agency dealing directly with the public
A public agency dealing directly with the public will most likely be located in the community itself thus in a residential area. In Burgess concentric model theory (fig.1) this area will most likely be C, D andor E.  The main reason being that it has to be closest as possible to the people it serves.  A public agency could be a community centre, police, clinic etc.

A public agency is funded by tax money so thus it cannot afford being in the central business district. Such a location will produce a backlash from the public. It also needs to be very accessible to the public thus its location close to where people live. Economies of agglomeration theory does not apply to the location of a public agency dealing directly with the people  because it is usually a non-profit, and hence has no need for the advantages derived from closer location to a similar industry.

3.1 Benefits of public agency in a residential neighborhood
The main benefits of a public agency being located in the community are that
Cheaper rent tax payers money is saved.
Nearer the people thus their needs can be aptly accessed and served.

Even though the majority of public agents will most likely fall into the category mentioned above a few will not. There are some public agencies which have been commercialized or privatized. Though they still serve the community, they are out to make profit. For these public agencies being located in the Central business district would be much more preferable for them as they can gain easier access to more clients and access financial, communication and other essential services.  The theory of economies of agglomeration will only be applicable if more companies venture into this service thus the advantages of being located in the same place may apply.

4.0 Factors that will influence the location of a call centre.
The location of a call centre like any other industry can determine if the call centre will succeed or not.  Call center managers do not have to worry about a storefront to attract walk-in customers to sell a service or product. Most call centers are back offices, and thus, the productsservices are sold or acquired over the phone or by e-mail. (SearchCRM 2010)  There is no need for a call centre to be located in the central business district or other highly visible places like the headquarters of a financial institution for example.

4.1 Site Selection of a call centre
Factors that will influence the selection of a call centre are likely to be
Labor and wages Access to cheap labor is very crucial. In fact the main reason why most firms outsource to call centers is because they want to lower costs.  Without an available and affordable labor pool that has the necessary skills, the call center will not be able to function, no matter the community or legislative environment.

Local fringe benefits Local fringe benefit can vary from place to place. They may include lower taxes, tax breaks, beautiful scenery, etc.

Education and language skills Call centre jobs require educated and very skilled people.  Location of a call centre close to a place where skills can be easily be recruited is important.

Telemarketing laws  need to make it easier to run a call centre in that area
Telecommunication infrastructure Perhaps this is the most important.  The success of a call centre will rest on the sound infrastructure in that area. Bad telephone network will make it difficult for calls to get and thus the centre will lose business.

Like the public agencies offering services to the public above, call centers do not have to be concentrated in a certain area. The benefits associated with being located close to each other will be minimal.

5.0 Location of an Accountants office
An accountant is responsible for recording, analyzing and reporting of a firms financial data. Using laid down principles of accounting an accountant will analyze a companys financial information such as net profit, EBIT, costs etc and advice managers on the best possible solutions. As an important stakeholder in the company, an accountants office will usually be located within the firm itself.

5.1 Environmental and work conditions
In deciding the location of an accountants office there are some other factors that may need to be considered. An article which details some of the key factors to take into consideration when deciding the location of an office states, Location is one of the most key factors to success in your business. Does your work space need to be presentable Does it need to be accessible Does it need to be geographically specific (Officefront 2010). Indeed these are some of the key factors that need to be considered when deciding on the location of an accountants office.

A clean and healthy working environment is important when considering the location of an accountant. The office should not be located in an area where too much sunlight penetrates, or smoke and noise from polluting industries nearby come through. These factors would be de-motivating and thus the company may find it difficult to attract and retain skilled labor such as that of an accountant.

With respect to rent, office space will need to be in alignment with the overall revenue and cost plans of the company. For a company wishing to incur small operations costs, a location close to the central business district will not be ideal. Cheaper office space can be found in investment zones, or tax free zones.

6.0 Research Establishment Location Factors
A research establishment serves as a place of higher learning and where so many discoveries are made. Many universities and colleges usually have their research centers attached to them. It is common for a medical school, or IT institute to have a research arm attached to it.  The location of a research establishment is influenced by the need to be close to the parent research institution and of course easier access to skilled labor and in some cases the kind of materiel that is going to be researched.

6.1 Key factors
Availability of skilled workers and nearness to university.
Many research centers are usually located close to a university this is to enable the centre to easily recruit skilled personal to work in the research centre. In some cases students carry out part of their studies at the research institute easy access to and from the university is very important here.
 Research subsidies, tax breaks and other incentives
There may be subsidies provided in certain locations, to attract potential industry to the location. For example, transport subsidies or even potential tax breaks offered to industry for locating at a given location. Such subsides can be a real financial incentive, that may well overshadow a few disadvantages of the actual location. (Helium 2010) In this regard certain subsidies targeted at stimulating research and innovation in a certain area, will make it suitable for a research institution to be located there.

6.1Economies of Agglomeration Research Establishment
A research establishment may benefit from economies of agglomeration which will come about as a result of synergy of related establishments in the area.  Industries can also reap benefits of economies of scale by location close to firms engaged in similar industries through the sharing of facilities, knowledge, and expertise and manpower resources. Industries located near to related industries enjoy the benefits of industrial linkages. (Helium 2010).  The research establishment can share information with surrounding research establishments.

7.0 Summary and conclusion
They essay has outlined some of the most important factors which are often considered when deciding the best place to locate a firm or organization.  As may have been seen in the whole essay certain key factors are crucial to almost every business.  The relation between revenues and costs of rented buildings is also very important. A financial institution can afford to have its headquarters in a high rent area as its revenues and cost structure may allow it. On the other had there is not much use for a research establishment or public agency to be located in a high rent area, rather access to skills and the community is more important.

Firms can derive a lot of advantages by being located close to other similar firms. The theory of economies of agglomeration states these advantages as the more related firms that are clustered together, the lower the cost of production (firms have competing multiple suppliers, greater specialization and division of labor result) and the greater the market that the firm can sell into. Even when multiple firms in the same sector (competitors) cluster, there may be advantages because that cluster attracts more suppliers and customers than a single firm could alone. Cities form and grow to exploit economies of agglomeration.

The concept of gross fixed capital formation is mostly applied in national accounts. This concept has been in use since 1930s. Some of the national accounts which use this concept includes UNSNA and NIPS. Gross fixed capital formation involves additions to fixed assets in a business. It is obtained by considering the total assets in a business which includes purchased assets. The total assets are obtained by deducting the all fixed assets which have been disposed off (Foss, 1994). This can be done on personal business, households and even government. The data used in calculating the gross fixed capital formation is made available by statistical agencies. These agencies are involved in compiling data which is made available on annual basis or even quarterly. Economic growth can be traced by considering this indicator. Gross fixed capital formation is used as an indicator for business progress. It gives future business activity.

Gross fixed capital formation is normally related to gross domestic product (GDP). It is indicated as a percentage of the gross domestic product. This is normally done in the private sector. This indicator is arrived at by considering the additional assets. All disposals are deducted from the assets. The disposed assets may be tangible or intangible. Some of these assets include machinery and equipment. Others include buildings and vehicles. This indicator also considers any additional value on assets. Private sector uses this indicator in making decision on investment.

Gross fixed capital formation considers the net additional investment. This new investment affects fixed capital assets which are controlled by businesses, households and government. A business activity level can be determined by using economic indicators. The data provided on gross fixed capital formation may be used as an economic indicator to determine the progress of a business activity (Fischer, 2004). This indicator does not portray the total investment in a business. This is because there are several omissions. These omissions include inventories stocks, financial assets. There are also other operating costs which are excluded. Gross fixed capital formation is a value which is obtained by considering all additions made on fixed assets. Disposals are normally deducted to arrive to a flow value. Value addition on assets is also considered. Machinery and equipment may acquire new value after some improvements done on them. It is not necessary that all the assets are tangible. Some assets such as software are intangible. Machinery and equipment are taken to be the main types of assets. There are some assets which are not included in gross fixed capital formation. Some of these include armaments, land, household equipment amongst others. Depreciation of assets is not considered in GFCF. This is why is referred to as gross. This brings about some confusion since the measure of GFCF is geared towards net additions. Some activities which change the value of assets is not included in the measure of GFCF. These include damages and destruction on fixed assets (George, 2005). This causes alterations to fixed assets since they have to be introduced to repair.

In conclusion, gross fixed capital formation is a value which is expressed in terms of the gross domestic product. It involves all net additions to fixed asset less disposals. Disposals of fixed assets such as machinery and equipment is valued and deducted from the total assets. This ratio is used as an economic indicator for business progress. It can be used as measure of the total investment of a business since some assets such as land are excluded.

This section contains a summary of the contents of thesis proposal.

Table of contents
This is the list of items contained in the document. The page numbers are provided to each item in the list of contents.

Acknowledgement
Write down the people and organizations that helped complete the research.

Chapter one

Introduction
The definition of the terms poverty and inequality will be given at this stage. In addition, the measures to reduce poverty and inequality will be listed after the definitions. The relationship between the two will be explained as the last paragraph.

Thesis title
A comparative analysis of poverty and inequality, measures and its application in Egypt. A case study of . (Name of a town in Egypt to be studied as the sample survey area)

Thesis objective
Major objective To study the impact of poverty and inequality on the economy of Egypt.

Minor objectives
To evaluate the measures to reduce poverty and inequality in Egypt
To assess the living standards of the various classes of people in Egypt
To investigate the impact of poverty and inequality on the national economic activities
(Add others)

Importance or the research
To reduce poverty and inequality in the country
Suggest to the government on how to reduce poverty in the country
Improve the living standards of the people
(Add others)

Problems encountered in the research
Lack of funds
Inexperienced research assistants
Lack of cooperation from the interviewers
(Add others)

Chapter two
Literature review
Relevant information about the topic of study on studies done by other people

Chapter Three
Methodology
Methods of collecting data, for example, questionnaires, interviews, photographs, case study
Sources of data Primary data sources and secondary data sources
Methods of selecting the samples
The skills required of the research personnel

Analysis
The tools of analyzing the data collected, for example, standard deviation, mean, logit probit models, qualitative data analysis tools, ANNOVA, linear programming,

Results of the research
Give the data obtained (the results) from the analysis part of the research

Discussion
Explain the data in relation to the objectives of the study. Integrate both minor and major objectives into the discussion about the results obtained.

Chapter Four
Conclusion and recommendations
Give a summary of the findings of the research. Summarize all the contents of the thesis.
Give a direction of the research study.

Appendices
Budget of the research
Tables and diagrams used in the document
References used in the document

RESEARCH OUTLINE
Introduction
Introduce the essay by writing down the meaning of the research. A brief history about research in the subject selected and some few details about poverty, inequality and the economy of Egypt. Hypothesis Question Impact of Poverty and Inequality on Economy

Provide a general overview about poverty and inequality and their impacts on the economy of any nation. How does Poverty and inequality impact economy in Egyptprovide a specific analysis of poverty and inequality on the economy of Egypt. Poverty

Definition Give several definitions according to different authors.
Measures Elaborate on the possible methods to reduce or eliminate poverty within any economic system. Inequality

Definition
MeasuresLink between Poverty and Inequality Show the relationship between poverty and inequalityApplication of Poverty and Inequality on Egypt Use the case study of the economy of Egypt to show the impact of poverty and inequality.

Conclusion
Provide a summary about what you have learned about the topic. Give a direction to the essay.

When we talk about we are mainly focusing on the phenomena of Globalization that is reshaping this world into a new globalized economy. This globalized economy experiences trickle down effects, and thus simultaneously affects the demand and supply of various factors of production.

Globalization has positive and negative impacts. The proposers of positive affect argue the opportunity exploration that is created by the globalization. On the other hand, the critiques argue that globalization is a threat for the political sovereignty and economic prosperity. At the heart of the argument lies the impact of globalization on the job losses and downward pressure experienced by the people due to international macroeconomic settings.

Macroeconomic situations
We need to analyze the potential job losses and the downward pressure that is being created on the labor market due to macroeconomic situations. By this we can easily analyze the cost of workers when they are outsourced into the global world. When outsourcing people, they usually argue over the number of jobs gained versus the number of jobs lost. The countries that are based on importing will be at a loss, whereas the exporting countries will rise in its industrial sectors, and similarly jobs will be created. Whenever an office premises it outsourced to a different country, especially in a labor abundant country where the cost of labor is very cheap, and then the people will loose jobs in the country from where the offic4e has been relocated. On the other hand, people will in the other country and experience a gain due to the inflow of new foreign direct investment in their economy.

When we look at the impact of labor in global scenario, and the impact of globalization over the labor markets, we may develop perspectives. One is the view of already developed countries, whereas the other view is that of developing labor abundant countries. In developed of nations, the labor impact is subjected primarily to two areas of interest, one is the trade and the other is the FDI whereas, in developing countries, the discussion is broadened by including the effects of financial capital flows and IMF stabilization policies.

Situation in United States of America
In USA the labor has lost his jobs due to the emergence of low-cost labor abundant countries. In between 1973 and 1996, USA saw a decline of 19 percent in the wages of non-supervisory labor. In USA, labor has lost both, its buying power and industrial jobs whereas, these technologies and capital employing labor is becoming the activities of other countries. The people in USA are now engaged in low paying services jobs rather than high paying primary jobs such as wives going out to work for meeting both ends meet, washing each others clothes, cooking meals for each other etc.

The buying power of American labor was declining by 1 percent per annum before the 1996-98 increment in the minimum wage. During 1997-1998 when Asian Tigers and Russia went into a financial meltdown. This gave a chance to USA to increase the buying power of labor. In 1979, a US worker had to work for 23 weeks after which he can afford an average priced car, whereas a decade after to buy a same car he had to work 32 weeks. This reflected a diminishing trend in the buying power of the labor in US over a period of time.

Developing Economies
We can see a rise in the labor market of countries such as Malaysia, China, South Korea, Indonesia, Taiwan, India, and Philippines at the expense of the labor of developed nations in western world. With the expansion of money transfer system, global outsourcing, and telecommunication advancement, we will see a lot of shift of labor intensive production activities from the western world to the developing world as they are ready to do the work at a fraction of a cost in comparison with any normal American or Briton.

We saw the developed countries such as Germany, Sweden and Japan protecting their country against the odds of labor and capital. But now they are also found shifting towards cheap labor markets. They have to do this in order to remain competitive in the world market, or else they will be defeated by some other cheap producer. These countries saw the capital fleeing from their countries in search of cheap production cost and so they also decide to move with the trends and moved towards those countries that offer low labor cost due to their labor abundant nature of the country.

Commercial activities
We see a rise in the commercial activities, increasing profit trends, and jobs due to the economic multiplier that is activated when industries are established in a state. A nation that is rich in commercial activities will have proper infrastructure to provide people with labor protection laws, environmental laws, medical and health facilities, retirement programs, unemployment benefits, and social security. This is all done to protect the labor of that country from the potential harms whereas, in developing nations it is quite opposite. There are no such programs that can facilitate the labor, and most of the structural adjustment policies restrict the provision of such support.

Societal impact
The most important issue to be discussed in this labor concerns is the societal impacts due to the changes in a countrys financial structure. Even of this imbalance continues over the next decade and the economies began to decline due to the loss in their finances, they may go for war rather than trade. But we see a completely new perspective in the corporate imperialism. If the economies around the global are experiencing a downward trend due this the capital invested abroad encounters with the capital invested in the boundaries of home country, both type of capitals will continue to cannibalize each other. They will engage in a process known as capital destroying capital. At that time it will be extremely difficult to manage the resources, be it human resources or capital resources in its more effective manner.

China
In the past few years we have seen the emergence of China in the overseas market as the low-wage manufacturer. Chinese manufactures one third of the products that are foreigner-owned plants, majority of them belongs to Japan. China usually imports machinery and components from Japan in order to sustain its economic well  being and persist its cheap and abundant labor advantage. The Asian financial crisis that arose in 1997-1998 can also be attributed to the entrance of China in the low cost manufacturing business and was still able to undercut its competition from the countries belonging to the region of Asian Tigers.

Richard Freeman, a Harvard Labour economist, stated in a paper that was prepared for Federal Reserve Bank during the Boston Conference in 2006. he said that since the entrance of India, Former soviet Bloc, and China has lead to the expansion of their labor force twice as much as from 1.46 billion to 2.93 billion.

World Economic Outlook
In May 2007 World Economic Outlook was published by International Monetary Fund. The purpose of this was to analyze the growth of the global labor force. It weighted the labor force of each country by checking its level of participation on the globalized economic activities. This was measured by using the ration of exports to GDP. Once the analysis was carried out, International Monetary fund concluded that the world has seen a rise of fourfold in the last decades regarding the effectiveness of the global labor force. Now in todays world, the developed nations are accessing the pool of global labor force via numerous channels and Medias. This can include the immigrations, importing final goods and outsourcing the production of intermediaries.

The pooling of global labor has had a major impact on the labor wages in the developed countries.  There has also been a change ion the distribution in the national income between wages and profits.  Since 1980, international Monetary Fund has stated a declining trend in the labor share of national income of these advanced economies. The shift is estimated to be about 8. The impact can be clearly seen from this graph.

In 1960s and 1970c we saw a steady rise in the labors share in national income, but in recent years it has seem to drop down in the industrial countries. The reasons have been the temporary and cyclical factors that have caused the disturbance. However, the persistent nature of the decline suggests that it has been also due to the structural changes that are goin on in the economies (Guscina, 4).
Another major impact is that of technology that is helping the countries to raise the per capita income by applying such technologies that can increase the productivity of labors. It allows for more efficient allocation of resource, and hence aids in the economic development and the raise in labors share in national income.

Richard Freeman concluded in his report for the Boston Federal Reserve conference that since the entry of ex-Soviet Union, Chin and India, the world has seen a dramatic shift in the global capital-labor ratio massively against workers. These developing countries have currently worked on the provision of expanding higher education which has flooded their local market with highly educated and well skilled employees. This increment in the well qualified labor supply has helped the developing economies to compete with those developed nations that are facing the problem of high labor wage disadvantage.

According to the estimated of Richard Freeman, as the global labor force doubled itself, it also reduced the capital  labor ratio in the globalised economy. This reduction was seen by 40  - 50 . For the sake of simplicity we can say that as the supply of labor tends to rise, we experience a decline in the wages of that labor. As the labor increases relatively to its capital, its price that is calculated in terms of wages is diminished.

Economist in July 2006 stated that due the emergence of China as the cheap manufacturer has flooded the market with labor and has made the capital quite scarce in relation to its labor resource. This has resulted in rise in the relative returns on capital due to its scarcity. This rise is reflected in the balance sheets of the advanced such as America and Japan, whose profits after tax has risen in proportion of GDP.

The financial times in October 20060 concluded that all the western advanced economies has seen a rise in their profits due to a number of factors. The most is being the decline that is being witnessed in labours share of national income.

Labor Productivity Growth
China, India, and other developing economies are seemed to have been rising in labor productivity also. This has halted the United States workers welfare to a large extent. It does have a great ion the economies of well developed nations mainly due to the fact that workers in United States including the firms in which they are employed, or were employed, are losing grounds in the international trade. This is mainly due to the rapid productivity in the overseas countries due to the cheap and abundant labor available with them. This will have two effects on the economy of United States, either a gain, or a loss. Consumers in United States can be at a benefit due to the import of cheap products from the developing nations, whereas some exporters from the United States will find it easy to gain competitive edge by accessing cheap intermediate products from overseas.

Labor productivity growth can be defined as the ability of a country to produce more output per hour worked. An economy is seemed to be rising when it becomes wealthier due to the strong labor productivity growth rate. In this situation the living standards increases and the short-term pressures can be easily tempered. But if the developing economies like China and India will strengthen more in labor productivity terms, this will negatively affect the labor utilization of the existing advanced economies. Their labor seems to have been displaced if the developed countries producers found cheap grounds for their business activities.

We see a rise in the labor productivity growth in the developing countries especially China and India are the two giants that are emerging as the economic superpowers. Other states include from the regions of developing Asia and Eastern Europe. China and India are seen growth rates above 4 percent per year.

If we want to analyze the effect of labor abundant economies with the advanced economies, we can compare United Sates of America with the rest of the world. In the rest of the world we are including the names of developing nations of South Korea, Russia, Mexico, Indonesia, India, China and Brazil. In our chart 2 we are measuring the productivity growth for each country. The data is for 1999-2005 period. In that data we can see that China, Russia, South Korea, and India saw a robust growth in that period, however, Mexico, Brazil and Indonesia saw a slower growth in comparison with USA. The United States of America at that time was having a growth rate of 2.

We may consider the Labor productivity growth as the engine of economic growth. If the labor is utilized efficiently and effectively, we may see strong emerging economies like China and India that are quickly catching up with the western markets. They are not only catching up with those advanced economies but are also becoming for the gigantic job losses in the developed countries. Moreover consumers are also more interested in gains by buying a cheap imported product produced by developing economies business hubs.

Conclusion
To conclude we can say that for firms working globally they may have two basic options. One is to offer low wages and ignore the environmental laws and other regulations. The second way is to achieve higher productivity and then produce high quality goods and services. If a free trade agreement is adopted in the first option, the producers will be at a tough completion, similarly high gains. If the second option is adopted, then the will work for the societal benefits as well as their firms value maximization. They will seek competitive advantages by offering innovative products developed by applying productivity enhancing techniques. Another important step for these organizations is to secure the labor gains. Labor should be given their due share in increasing the productivity in the form of increased income. If the producer the benefits to their employees, then only employees would see a rise in their purchasing power.

The GCC is economically and politically prepared to evolve into a monetary union through a single currency.

The GCC, formed in 1981 by six Arab states, is an economic power holding about half of the worlds oil reserves and a fifth of gas reserves.

The GCC and a currency union are a perfect match.

A currency union is the use of a single currency across a region having the same monetary policies under one administration. The Euro serves as the best example of a successful use of a currency union.

The impacts of a currency union to a regions economy range from elimination of currency exchange risks, promotion of regional competitiveness, trade enhancement, investment and tourism, corporate health and expansion improvement and encourages financial discipline and transparency. Costs of having one may include losing national monetary, fiscal and exchange rate policies.

Looking into the traditional measures of OCA (optimum currency area), GCC may well be the next European Union.

Being prepared for a shift to a currency union requires the establishment of institutions that will push forth the realization of a single workable currency.

GCC shares a homogeneous cultural experience and history. The success of a currency union is imminent given the regions economic soundness and healthy politics. Dangers that lurk, i.e. China and the Greek crisis, must be addressed through a political union, an important monetary union prerogative.

With the success of the European Union, a monetary union with a single currency in a region bordered by the East and the West is a long time coming. It will be the new face of economic development and political dynamism.

The GCC Monetary and Economic Union
On May 25, 1981, Bahrain, Oman, Kuwait, Qatar, Saudi Arabia and UAE formed the Cooperation Council for the Arab States of the Gulf or GCC (Laabas and Limam, 2002). The GCC now holds 45 percent of the worlds proven oil reserves and 17 percent gas reserves (Fasano, 2003) making it a global economic powerhouse. Relevant to the establishment of this regional bloc was the achievement of economic cooperation and integration, which was outlined in the GCC Charter and Economic Agreement 1981 (Cooperation Council for the Arab States of the Gulf  SG, n.d.). The push towards a unified region of interdependent nations was clear in the GCCs Economic Agreement. Provided in Article (22) of the said agreement, it says

Member States shall coordinate their financial, monetary and banking policies and increase cooperation among the Monetary Agencies and Central Banks, including unification of currency to support the anticipated economic integration among them (Cooperation Council for the Arab States of the Gulf  SG, n.d.).

After talks about a monetary union and a single currency were postponed in the nineties, the Bahrain Summit of December 2000 re-discussed the issue with he US dollar chosen as a common peg (Cooperation Council for the Arab States of the Gulf  SG, n.d.). To realize the common currency or currency union, a monetary union must first be formed. Below is a timetable of the formation of the Monetary Union (per GCC-SG online publication)

The Supreme Council in December 2001 approved the timetable for establishing the union.
Schedule also required the members to maintain a level of economic performance relevant to convergence criteria (i.e. monetary union by 2005) and eventually a single currency by January 2010. Per GCC-SG

For the purpose of achieving the GCC Monetary and Economic Union including introduction of the single currency, Member States shall meet the requirements of that union, according to a specific time schedule, and achieve a high level of convergence among Member States in all economic policies, particularly the financial and monetary policies and the banking legislation, and develop criteria to ensure proximity of the significant economic performance averages for achieving financial and monetary stability, such as deficit rates, indebtedness and rates.

At the 26th Session in Abu Dhabi December 2005, two convergence criteria were set to be followed (a) the monetary convergence criteria inflation rates, interest rates and sufficiency of the foreign cash reserves, and the (b) financial convergence criteria annual deficit ratio of the government finance to GNP and the ratio of the public debt to GNP.

At the 28th Session in Doha December 2007, newer instructions for alternatives in managing the proposed single currency through a monetary authority were proposed.

GCC and Currency Union A Perfect Match
A currency union is the use of a single currency across a region having same monetary policies under one administration. The proposed Gulf currency, dubbed as Gulfo, will use this petro-currency of their own displacing the US dollar as the pricing currency for their oil contracts (Evans-Pritchard, 2010).

The impacts of having a currency union are wide as they are varied. It is projected that benefits will be observed on intra-GCC Trade, tourism and investment, exchange currency risks of the GCC states will be eliminated and will improve stock markets mergers or procure corporations within the GCC will be encouraged regional competitiveness will be promoted and lastly there will be an enhanced transparency and financial discipline in the region (Cooperation Council for the Arab States of the Gulf  SG, n.d.).

Fasano (2003) seconded these benefits saying that the move towards a monetary union should improve the efficiency of financial services, lower transaction costs, and increase transparency in prices of goods and services, and thereby facilitate appropriate investment decisions. In the words of Tenreyro and Barro (2002) theoretically, a currency union enhances trade, increases price co-movements, and decreases co-movement of shocks to real GDP (consistent with the view that currency unions lead to greater specialization). They further reiterated that it also leads to better consumption behavior and production decisions.

Costs of a monetary union are a loss of national monetary and exchange rate policies, as well as changes in economic structures and trade patterns may lead to different growth and inflation effects and fiscal policies, especially incentive policies, may create unfair competition (Fasano, 2003).
       
The OCA (Optimum Currency Area) Criteria
Laabas and Limam (2002) argue that the GCC is yet to fulfil the traditional optimal currency area (OCA) criteria, as the structure of economies in the Gulf is still oil-dominated with limited intra-regional trade. They further describe the OCA as a region where it is optimal to have its own currency and its own monetary policy. OCA would allow exchange rates to be fixed because multiple exchange rates have high transaction costs (costs to predict exchange rate movements, cost of convert currency, and cost to manage reserves for intra-regional trade) (Laabas and Limam, 2002).

The OCA criteria include openness, factor mobility, degree of commodity diversification, similarity of production structure, price and wage flexibility, similarity of inflation rates, degree of policy integration, and political factors. It is important to analyze these criteria one by one to prove that the GCC is ready for monetary union through a single currency.

Openness. GCC is not ready as most goods are tradable (oil as main product). The exchange rate is an ineffective corrective tool due to inelastic demand for imports. (Laabas and Limam, 2002). Countries that are highly dependent on trade like the GCC will be easily affected by external shocks.

Factor Mobility. Factor mobility serves as a substitute for exchange rates to correct shocks. GCC was still not on labor (Laabas and Limam, 2002). However, eight years later after Laabas and Limam study, GCC labor markets were analysed as flexible (i.e.labor can move freely), although two-thirds of its labor force are foreign (subject to complex visa procedures) (Razzak, 2010). Razzak further points out that most locals work for the government so it is unlikely that they will leave their jobs. But according to Pugel and Lindert (2002), the EU experience actually did not meet this criterion when it first started because labor mobility across borders was low even within the EU countries. On this measure, GCC is ahead of the EU.

Degree of Commodity Diversification. Diversified economies are better at facing shocks and other terms of trade. GCC is still heavily dependent on oil and it does not use the exchange rate as a policy adjustment instrument but through government expenditures (Laabas and Limam, 2002). To compensate for lack of diversified intra-industry trade, specialization and sophistication of industries are viable solutions (Laabas and Limam, 2002).

Similarity of Production Structure. A common production structure often led member states to experience symmetric shocks. GCC has it as oil dominates its production processes (Laabas and Limam, 2002).

Price and Wage Flexibility. Although there is limited flexibility of prices and wage, GCC is still fit to qualify for a currency union (Laabas and Limam, 2002). With price of oil tied to international changes in price, all domestic prices, including the price of labor, would tend to fluctuate with the changes in oil price.

Similarity of Inflation Rates. Inflation rates are pro-cyclical picking pace during oil price hikes and decreasing during slumps (Laabas and Limam, 2002). All countries of the gulf having to export almost the same product - oil and oil-based products- inflation rates would behave similarly.

Degree of Policy Integration. The same policy attitudes can be seen per Article 4 of GCC charter (Laabas and Limam, 2002). As stipulated in their 1981 Economic Agreement, it is expected that the member countries will share the same policies for the common good.

Political Factors. Political factors might be more important than economic criteria, experience says. GCC is very committed. It is praised for taking pragmatic approaches towards integration (Laabas and Limam, 2002).

According to the analysis of Laabas and Limam (2002), GCC met five of the eight criteria (4, 5, 6, 7,  8) in the OCA eligibility test. However, it is yet to fulfil some pre-conditions to be fully currency union-ready (I.e. intra-regional trade) (Laabas and Limam, 2002). Six of eight as improvements in factor mobility especially on labor have given the GCC an upper hand in their quest for a unified currency. But deep in their analysis, they made a comment on the eligibility test basing on the European Unions history. It showed many EU member countries did not meet the criteria at the beginning. The OCA criteria are also argued as generally met ex post rather than ex ante(Laabas and Limam, 2002).

The Power of Political Will
To develop as a region with one monetary authority and one currency, a policy mix of decentralized fiscal policies and a centralized monetary approach are expected (Fasano, 2003). Having a decentralized supranational monetary authority, a common central bank and national central banks will only require a stronger fiscal policy and political will (Fasano, 2003). Laabas and Limam (2002) argue that a commitment to a fixed exchange rate system and a strong political resolve are the factors to consider for a favourable currency union. Like the ECB, which is independent from national political influence and cannot accept or seek instructions from national governments (Dornbusch, Fischer, and Startz, 1998), the proposed central authority must also be politically correct in its decisions.

Looking Ahead
There are concerns that the region is trying to run before it can walk (Evans-Pritchard, 2010). The euro is the GCCs model. Europe took 40 years to this point, taking 11 years for the coins and notes to reach the deepest of streets (Evans-Pritchard, 2010). It may be seen as something premature but taking into consideration the relative preparedness of the GCC as analysed by the OCA criteria, the EU seemed to be less prepared when it decided to merge into one monetary group. The EU took slow steps because they have more countries to take into account. The sixteen current members (which will soon become 18) took decades to be part of it. The GCC only expects six at the start. That is a lot easier to manage given the fact that, as Evans-Pritchard (2010) points out, the logic of an Arab currency union is composed of three tenets one language, one Koran, and has not disintegrated in wars. GCC shares a remarkable degree of cultural and political homogeneity (Fasano, 2003).

As stated above, GCC motivation and commitment are clear and present. Now, to address the current problems and systemic failures, natural or artificial, the group must first need a commission, a court, and a bank (Evans-Pritchard, 2010). With these institutions, GCC will be able to break down basic barriers to trade and capital flows- its main problem as shown in the OCA test. By reducing domestic market segmentation and strengthening national labor laws and policies (expatriate versus local), while ensuring a smooth flow of cross-border workers from the member states (Fasano, 2003), this can be directly treated. As countries adjust to the fixed exchange rate of a monetary union, this will be controlled and removed as a deterrent factor. This should not be difficult as current real (flexible) exchange rates in GCC are closely related, sharing the same stochastic trend (Laabas and Limam, 2002). With this striking similarity, the GCC has in effect been exercising a somewhat fixed exchange rate in its monetary transactions long before it decided to have a single currency.

Other threats will still exist, nevertheless. The Saudi dominance has been seen by critics ever since the plan of a monetary union was brought up. Saudia Arabia may dominate the currency (Evans-Pritchard, 2010). Saudi Arabia may play the same role as the powerful counties in the EU. To avoid the Greek crisis, which struggled to compete with other EU members (certainly a product of differing competitiveness among the Euro member states), a central fiscal authority and political union must first be built with the monetary union (Evans-Pritchard, 2010). This will provide a safety net for less competitive Gulf States.

Another problem is China. China exports cheap products. This already forced poorer Arab states to protect their industries (Evans-Pritchard, 2010). The Asian giant is operating in economies of scale being able to target areas where it can profit. For the Gulf States, a way of  adjustment to national imbalances is for resources to move from areas of weak demand to areas of strong demand (Pugel and Lindert, 2002). Pugel and Lindert (2002) also explains that countries may use its high capital mobility to employ underutilized resources like unemployed labor. The GCC as earlier have high capital mobility and that much of labor in the GCC is foreign. As evidence, the Gulf has redirected foreign labor to sectors like construction and IT through the example of Dubai. This is also the Chinese way.

Conclusion
Europe has seen the success of a monetary union that was made by decades of lobbying in every nation wanting to be part of the most powerful economic bloc in history. In the Gulf, they are first in Asia and second in the world to advance towards a single currency. Borne out of the 1981 agreement on economic integration and cooperation, the GCCs goal of putting every line of national monetary and exchange rate policies into one single approach is already paying dividends. The push towards the end of that goal must go on. The GCC has prepared enough economically all the fundamental facets of integration. With its dynamic political flare and unparalleled political sincerity, the world will see a new model of economic development and politics at the crossroads where the East meets the West.

As of January 20, 2009, total US federal debt amounted to more than 10.6 trillion. This was a 85.5 increase in more than eight years. The borrowing cap ceiling stood at 8.1 trillion. Two years previously, the US Congress raised the ceiling by an additional  1 trillion, approximately 70 of the GDP. Apparently, Congress used this method to deal with an increasing debt celing in previous years. Borrowing limit was raised in 2002 and 2003. On October 4, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 aimed at raising the current debt ceiling to more than  11 trillion.

Currently, the federal debt rose by 1.4 trillion. Indeed, current federal debt amounted to more than  12 trillion (Garcia, 2009). Although US public debt is definitely the largest in size, the proportion of GDP to debt indicates that it is lower than Japan (anout 83 of GDP). According to some economists, total debt will continue to rise (to nearly 100 of GDP) in the last two years of the Obama administration. This may be correct as the Obama administration is set to increase provisions for widening the borrowing ceiling. Some econmists put the figure at 200 but clearly this is an exaggeration.

US trade deficit to China amounted to  200 billion. Former President Bush and President Obama asked China to lift its currency (Yuan). China promised to lift its currency, also as a means to provide the Chinese economy from overheating (San Luis, 2009). If the Chinese currency appreciates, the value of Chinese exports falls relative to other goods. If the Chinese currency depreciates, Chinese goods are bought at a much higher price, say in the US, increasing its overall value. Setting the Yuan at a lower currency standing (or even degrade it to a floating status) restores the balance.

This measure is also beneficial to the Chinese economy. As the Yuan continues to appreciate, the economy overheats. It produces more and more export goods (because higher prices in the world market is an incentive for suppliers). The demand for export goods increases  both in the domestic and foreign markets. In the United States, the effects are more profound. The currency appreciation increases the trade deficit of the United States to China. US export goods are continuously pounded by domestic economic contradictions.

Inflation and unemployment are also major economic issues of the country today. Inflation reached its double figure in early 2009. Unemployment stood at 13 - the highest since the Carter administration. The world economic recession (2009) is the main culprit. As domestic demand falls, production falls by an equal proportion. Firms have no choice but to decrease its labor force  a standard response of a weakening market (because wages tend to be inflexible in the short-run). Now, coupled with an increasing money supply, the market faces scarcity of key resources, leading frantically to a double-digit inflation. From econominc theory, the relationship between inflation and unemployment is inversely related (Phillips Curve). As inflation increases, unemployment decreases (increased job opportunities of an expanding economy). This is not the case with the United States. The fall of domestic consumer goods pushed the market to stagnation, with increasing but controllable levels of inflation.

As of today, the US Congress passed laws which seek to 1) increase consumer spending by providing stimulus packages, 2) raise new taxes, and 3) promote a stable market system. Increasing consumer spending raises expectations in an economy. Indeed, increased consumer spending stimulates the market to produce more goods. Raising new taxes may not be a good stimulus for the market, but it is a good solution for the ballooning budget deficit. Federal savings is expected to rise by about 11.

Promoting a stable market is an ideal concocted measure because congress apparently failed to grasp the true situation of the US economy. The federal government though plans to increase government spending by 20 to stimulate the economy. Expansionary fiscal policy is the key to reinvigorating the economy. This is though a contradiction of the second aim. Increasing government spending will offset the effects of increased taxes. Net effect is expected to favor the economy.

The Federal Reserve is also set to make reforms. Here are as follows 1) decrease money supply by about 15 in the first 3 quarters of the current fiscal year, and then increase it by about 10  in the last quarter, 2) sell foreign assets, and 3) release notes for the ballooning public debt. Decreasing money supply induces to an increase in interest rates. Increasing money supply decreases interest rates. A decrease in interest rates induces to an increase in investment levels. Selling foreign assets expands the economy (expansion). Releasing notes for the debt induces counter effects, thus, balancing the effects of (1) and (2).

One of the primary justifications of privatization or deregulation is to decrease costs, because of the confidence that private organizations develop more cost-efficient systems and operations. Privatization also promises a wide array of consumer choices, diminished market power, and enhanced infrastructure performance. Because of these attractive promises, the U.S. electricity industry underwent a wide range of privatization in federal and state levels. I disagree, that privatization or deregulation has provided major economic benefits of lower electricity prices and controlled market power to society, because deregulated prices continued to increase in comparison with regulated prices, the free markets do not control market power and cost-effectiveness, and that when firms are fewer and workers are weak in bargaining power, privatization can even diminish social welfare.

I disagree, that privatization or deregulation has provided major economic benefits of lower electricity prices and controlled market power to society, because deregulated prices continued to increase in comparison with regulated prices. Using peak-load pricing, the costs of capacity are passed to peak users, and this makes electricity production more efficient, because extra capacity is paid only by those who drive capacity up. At the same time, peak hours determine necessary capacity, so that off-peak consumption can boost without any increases in capacity. Is this what is happening in the deregulated electricity industry No, because evidence shows that power traders and deregulated generators were holding back low cost power during peak periods, and they are also controlling the bidding process to increase prices, such as what happened during the 2000 electricity crisis. When power traders and deregulated generators have become fraudulent, they would not care if electricity prices are low, because it will benefit them more when prices are high.

The free markets do not control market power and cost-effectiveness, because privatization has led to the rising concentration and dominant firm behavior in the U.S. electricity sector. Private companies promote concentration of market power because they can take advantage of the Federal Energy Regulatory Commissions (FERC) permissive merger and acquisition policy. This means that they are increasing their vertical and horizontal integration, which allows them to control electricity prices. The market also failed to become cost-effective, because the industry has been unable to create a pricing system and set of incentives that will lessen discriminatory pricing and service quality problems. Deregulation pricing models do not protect consumers from price manipulation.

Finally, when firms are fewer and workers are weak in bargaining power, privatization can even diminish social welfare. The cost-efficiency improvements that some deregulated industries stress can come from lower wages or layoffs. Studies showed that deregulated firms may be more cost-efficient than government-owned firms, only if the lack of Pareto improvement is ignored. In reality, when there are few firms competing in the market and when workers are de-unionized and have lost bargaining power, these cost-efficiency improvements are traded off with lower social welfare increases.

Privatization has not delivered its promises. Though it can demonstrate economic gains of cost-effectiveness, to some extent, these gains are undermined when electricity prices continue to rise, the free markets do not control market power and cost-effectiveness, and when privatization can even lead to diminished social welfare.