Economics

Companies are facing different decision-making scenarios everyday. They may be faced with dilemmas which may come in the form of the need for manpower diminution, acquisition of new machines or facilities or the demand for a more aggressive marketing campaign. In order to address any concern, it is essential for the top management to employ systematic, well-thought of and appropriate actions. One tool that is highly recommended to employ specifically for decision-making scenarios is the Cost-Benefit Analysis.

Cost-Benefit analysis (CBA or BCA) is a technique used to assess the viability of implementing a certain project or proposal quantitatively. The history of cost-benefit analysis may be traced in an 1848 article by Dupuit which featured the application of this tool in a proposed federal waterway infrastructure which was found successful and was subsequently applied in other infrastructure projects. This tool provides quantitative results of each of the investment options being considered, which in turn will allow the analyst to rank each of those options from the most beneficial to the least. It entails computation of a Benefit Cost Ratio (BCR) by dividing the quantified expected benefits of each of the investment options by the expected costs or expenses for each of the options.

This decision-making tool is widely used by the government to assess the feasibility in terms of cost-effectiveness of implementing different alternatives. The initial aim of this tool was to compare the expected output of each of the alternatives as compared to the current scenario, or the status quo. Over the years, experts in the use of this tool had discovered and devised methods to expand the use of this tool and apply in various scenarios. Furthermore, the theory behind this tool had been developed. It no longer limits its variables with the outright and expected costs and benefits. It evolved its theory to consider other variables such as inflation rates and cost of money.

In using this tool, it is important that the foundation or the principle behind the tool is properly established, that is, an accurate list of assumptions must be established. This means that the expected costs such as purchase price, training expenses, interruption costs and the benefits relative to it which includes but are not limited to revenue, sales and increased efficiency are properly computed for or quantified. The accuracy of the said assumptions minimizes the risk of erroneous decision-making.

The cost-benefit analysis is a useful tool in making decisions about major capital projects because of the following benefits it can provide to decision-makers

Cost-Benefit Analysis is an unbiased method to decide which investment option to pursue.
Since this tool is highly quantitative, the results are accurate and are impartial. Furthermore, since this is backed-up by quantitative data, there is no need for extreme scrutiny in defending the selected investment option to pursue. The tools end result is a numerical value which can be interpretation or explained outright.

Cost-benefit analysis immediately eliminates infeasible options.
In any decision-making scenario, it is important to brainstorm all possible options which can be considered in order to address a certain concern. It is also important that all possible angles of the problem be studied and be devised with a possible solution. The cost-benefit analysis serves as a mesh that screens viable options from those that are not.

In computing for the Benefit Cost ratio, all investment options with ratio less than one (1) are immediately removed from the list as these are foreseen as unprofitable venture options. All the options with Benefit Cost Ratio greater than one (1) are furthermore scrutinized.

The cost-benefit analysis allows comparison and ranking of the different investment options quickly and accurately.

From the short-listed options, the options are arranged based on increasing Benefit Cost ratio. The investment option with the highest Benefit Cost ratio is expected to be the most profitable and viable option.

The cost-benefit method does not only apply to the evaluation of capital projects.

The cost-benefit analysis was initially used in infrastructure projects. The concept emerged and was applied in acquisition issues such as purchase or a new machine or addition of a new production line. This tool is versatile as it can also be applied in various evaluation scenarios, not related to investment projects. Management may also apply this tool in decision-making scenarios which involve retrenchment concerns, business expansions, and implementation of a new process.

This can also be applied in any business scale, may it be on a small-scale business or a large-scale business.

The cost-benefit method provided basis for post-analysis.

Cost-benefit analysis does not stop once the decision-makers had chosen their investment option. Upon implementation of such, the cost-benefit can also serve as a tool to review or look back and assess the performance of the chosen option. From it, a decision-maker may understand which of the variables vary, which of the benefits and costs are highly sensitive to dependent variables.

Furthermore, the cost-benefit tool may also be used when studying and expansion of a certain investment.

The cost-benefit analysis is easy to apply and understand.

This tool is highly theoretical in nature. Furthermore, the results are self-explanatory.

I firmly believe that the cost-benefit method is an extremely useful tool to use when making decisions on capital projects. It provides confidence in the results because it requires accurate date and is highly quantitative in nature. Furthermore, it is quick and easy to use and more importantly, easy to understand.

Several companies, as well as government institutions, had used and had enjoyed the results of the cost-benefit analysis. Take the case of Blackwell Publishing Limited, one of the worlds leading society publishers. It had partnered with at least six hundred (600) academic and professional societies and has production facilities in the United States, United Kingdom, Australia and Japan. As it envisions itself to expand its production and distribution in the East, it used Cost-Benefit Analysis to examine the feasibility of such, as well as, the area where it can build its facility. It chose three different Oriental countries  China, Malaysia and Singapore. These countries were short-listed from the other Eastern countries as these are where they can not only penetrate more suppliers and customers but also operate at the least cost. After careful study, the company decided to establish a new production and distribution facility in Singapore. This is because the area offers an optimistic opportunity for a new venture because of its strategic location.

While Cost-Benefit Analysis is a highly beneficial tool used by the management in decision-making, it is but advised that management does not fully rely on the results of the said decision-making tool. It is also suggested that other decision-making methods such as the net present value analysis (NPV) or the breakeven analysis and other similar tools be used to sensibly picture out the implementation of a certain option. The cost-benefit analysis only looks at the viability in terms of the benefit to be extracted from the implementation of a certain option. Other management tools will illustrate not only the performance but also the cash flow needed for the implementation of such.

A monetary transmission mechanism is said to be a way which can lead to the transmission of real and monetary shocks of a countrys economy to another through monetary channels involving interest rates. These mechanisms can have a negative or positive effect on Nigerias economy which produces crude oil.

Mechanisms Affecting Monetary Policy
Monetary value can affect the level of investment in a country. Monetary policy works by creating influence on the economys demand and a low influence on supply. This policy determines the money value of goods and services. Central bank has the power to determine a specific interest rate in the financial market as it is the only bank that supplies base money. The central bank in England operates the same as all other banks in other countries although the details in the banks structure may differ depending on the country. The central bank plays the role of choosing the prices it will lend to institutions in the private sector. Banks in UK use the official rate. Nigerias central bank is said to operate the same as Englands and it also uses the official rate. Interest rates are said to be of two types, short term and long-term. Change in short term interest rates can be transmitted to other financial market rates and other rates which are considered to be short term like interbank deposits. When Nigerias official rate changes, it makes the other banks in the country to adjust their lending rates by an equal amount to the policy changes. This has an impact on the interest rates that the countrys banks charge their customers for loans and overdrafts. The same rise of rates causes rates on mortgages to go up or down. This same effect is also transmitted to people who have banked their savings.

Long term interest rates are also affected by monetary policy whereby a rise in official rate can lead to low expectations in future interest rates. All these effects lead to banks in the country offering little funds to their customers causing the country to be unable to invest in its oil plants. The rise of interest rates affects firms and people in the country in several ways. For example, the rise in rates reduces companies profits and leads to a decrease in the capital that firms require for new investments and this will make it difficult for the country to start new projects. The rise in interest rates will also affect the financial cost the country needs to hold its inventories as this cost is financed through bank loans. The high interest cost will also make it hard for oil plants to hire employees they will instead have to employ new methods like reducing employment opportunities and maybe hours worked. Low interest rates are an advantage to firms as they enable firms to hire more employees, be able to finance projects in new plants and buy equipment cheaply. High interest costs also affect the countrys citizen thus forcing them to reduce on their spending.

Monetary policy also affects the exchange rate. Exchange rate is said to be the relation between the price of domestic and foreign money and it depends on monetary conditions from domestic prices and foreign prices. A rise in the official rate makes the domestic currency to appreciate in foreign exchange markets and a fall in the official rate makes the domestic currency to depreciate. The fall in the exchange rate is due to Nigerias interest rates being higher compared to interest rates on foreign currency assets. This makes the Nigerian currency to be more attractive to investors from foreign countries. Increase in the exchange rate causes the countrys population to change from using goods produced in their own country to buying goods from foreign countries. This results in the countrys oil plant to have little demand for its products leading to poor sales or profits or the country being unable to invest in new plants. (Smal, 2001).

The country can also experience shock from the bank lending channel when the central bank limits the amount of funds it releases to fund the country. Bank lending channels operates when there is improper information between the bank and the suppliers of the capital needed. Due to this improper information, banks are unable to compensate the decrease of deposits which comes as a result of the tightening of the monetary policy with other sources of money. This leads to a low supply of capital thus making the country unable to invest in its oil plant. This lack of investment causes a low supply of oil in the country or causes plants to close down. The oil companies are forced to make their prices high creating inconveniences to the citizens thus the citizens are forced to look for other sources of energy.

Asset price mechanism can be another source of problem to the government as it affects the countrys prices on bonds and shares in the countrys stock exchange. Changes in the official rate will affect the market value of securities like bonds and equities. When it comes to bonds, their prices are said to be inversely related to the long term interest rate. A rise in long-term interest rates makes the prices of bonds to go down and a low interest rate makes the prices of bonds to rise. If all other things are held constant (expectation on inflation), higher interest rates are said to lower the prices of equities. Higher rates will also have an impact on the people in the country because they lower the value of assets and this leads to low wealth among people in the country. This causes people to reduce their spending so as to cater for the price increase. The high rates will also increase the cost of purchasing houses and make the housing sector to have low demand. The oil companies in the country will not be able to invest because they have to pay more so as to get housing for their businesses. People in the country will become poor due to high costs in housing and they will also reduce on borrowing. (Kuttner, 2002)

A balance sheet is used to balance the financial information of the country. This includes credits and asset values. It is important as it determines the countrys economic growth. If a country has a well balanced sheet then it will have a good economic growth as it shows its interest rate to be low. Central bank maintains a balance sheet of all the money it has given out. This sheet is used to monitor the amount the bank has given to the country. (Kuttner, 2002)

When the countrys policy on interest rates changes, it can cause influence in the expectations and confidence people have on the growth of the economy. These changes mostly affect people who are in the finance market and other sectors of the economy. This includes changes in expected future labour income, cases of unemployement, sales and profits. An increase in rate could be interpreted as a sign of growth in the economy. This will make the expectations people have about the growth of the economy high and positive. People will also have more confidence. This will enable more oil firms to invest. An increase in rate can also be interpreted as a signal that the countrys economy needs slow growth so as to hit the inflation target. This interpretation will make people have low expectation about the future growth of the economy and low confidence. This will make the firms to have little investments or no investments at all hence losses to the company. The countrys population will also have to reduce their spending power due to a low supply of oil products.  (Kuttner, 2002)

Financial Crisis Effect
The financial crisis of the year 2007 and 2008 has been transmitted into the energy sector through a number of transmission mechanisms. This includes high prices on goods, problems in financing investments and flow of remittance. The crisis is as a result of lack of enough regulations in the banks and other financing bodies. This crisis has faced both developed and underdeveloped countries.

This crisis has caused a reduction in the amount of goods exporters and manufactures are allowed to export or manufacture hence a big disadvantage to oil exporting countries. The crisis has also caused energy prices to go down which is a disadvantage to countries producing oil because they have low sales which make them to have limited investments. The countries importing oil have an advantage as they have increased their demand due to low prices. It has also affected the exchange rate of developing countries as currency positions in many countries have been reversed. The crisis has also caused investors in developing countries to withdraw their efforts making the underdeveloped countries to have limited capital for their investments. This has led to many firms closing down or experiencing low production.

Wind Energy
Renewable energy sources have been viewed as the alternative sources of energy by countries that dont have enough investments in crude oil. This is because they are cheap compared to the cost of oil in a country facing limited supply and the country can finance them on their own without asking for help from external sources. This has made these energy sources not prone to monetary policy impact crude oil. Energy sources like wind have an advantage in that they try to reduce global warming which is as a result of producing or releasing carbon dioxide into the air. Mining places release large amounts of carbon dioxide into the air thus causing global warming which affects a countrys environment. Countries should look for other sources of energy apart from crude oil and electricity. Sources like wind affects the surrounding community due to the noises produced. Being an international company does not guarantee one to invalidate the monetary policy for the company. This is because all companies are considered equal by the central bank when it comes to financial policy and the companies are said to have fixed and tight rates on the exchange of money. The monetary policy does not allow any country to have dominant leadership in money transfer. This is to reduce the effect of financial crisis that can be brought about by one country being the leader. Monetary policy allows all countries to have an equal chance of making decisions concerning policing and all policies are implemented fairly to ensure all developed and undeveloped countries have money for development. The financial crisis experienced in 200708 was partly because of some countries dominating the market and causing inconveniences as the countries provided financial aid to developing countries.

Conclusion
So for Nigerias investments to be successful, it should have its monetary policy well regulated as this can affect the countrys economy negatively or positively. A good monetary policy will enable the country to have enough supply to meet the citizens demand. The interest rate being the biggest channel through which monetary policy influences a countrys economy and other rates it should be kept low so that the country can have high investment and employment.

The factors affecting the U.S. economy is examined to explain why the GDP growth was not as it was expected. There were both external and internal factors that affected the slowdown in the U.S. economy. The massive bail out of the American government for its failed financial institutions resulted in tremendous debt obligations to foreign governments. These debt levels are unprecedented and they are reaching a critical point where it might not be palatable for foreign entities already to support the debt consumption of the American economy. The consumer behavior of the American country itself is also another major loophole that needs to change immediately. The large trade deficit the country is experiencing is due to the excessive spending and consumption of American citizens even beyond their capacity to pay for. They are transferring their wealth to other nations with their excessive buying attitude. The American businesses also need to regain their competitiveness which they have lost to their counterparts. This is especially true for the auto and other manufacturing industries based including the software industry. They are under attack either from China or Indias competitive business organization.

Macro Economic Factors affecting the U.S.
One of the reasons why the dollar is weakening is primarily due to the excessive amounts of debts that the U.S. government has started. Although they did this with the good intention to save major financial institutions from collapse, the consequences of doing so has resulted in this situation. The GDP level is exceeded by the debt that the American economy has asked from various foreign debtors. Although the decision was indeed important to save millions from hunger and unemployment, the decay of one of the worlds most respected currency is now literally starting to lose favor in the eyes of many. This is evidenced by the movements of smart investor into buying gold, commodities and stocks with multinational operations. All of these are in preparation for the devaluation that is expected to come.

Another factor that pushes the American economy further down the slope is the spending habits of the average American citizen. The trade deficit of the country has already created more than it can produce in income as a nation. The debt pile from other nations is getting bigger and bigger than ever. The only way to reverse this unwelcome situation is to reverse the behavior of the American consumer themselves. People have to be more frugal on their spending habits.

The American public should spend their time more on working and creating businesses and products that will generate more revenue for their country, (Clifford 2009). The trade deficit stemmed from the behavior of American public that they can afford to keep on buying cheap goods from the rest of the world as their credit is very good and everyone is more than willing to lend them the money needed for it.

Another considerable factor in the decrease of the American economys productivity is the very fact that their costs associated with operating a business are very high. It is no secret that everybody is outsourcing these days to lower labor costs countries. American based multinational companies can benefit from these outsourced operations but they cant possibly outsource all of their operations totally. The best example for this is China. The reason why they have dominated the manufacturing sector in almost all products is because of the fact that they can produce equally or superior products at a fraction of the cost. The resulting unemployment and irrelevance of the American work force stems both from lack of training in new technologies as well as the high costs of salary, (Izzo 2010). There is no way that American businesses can compete effectively with their Asian counterparts is the labor force is already expensive and redundant.

This study is an analysis of competition laws in the US economy.  The United States economy is primarily a market economy in which the prices of services and goods are determined by the forces of demand and supply in a freely regulating price system. As such, enterprises are free to innovate and produce products that give them a competitive advantage in the market. However, the production and innovation by specific enterprises should not inhibit the ability of competitors to access the market through abusive practices such as predatory pricing, price gouging, tying etc. In order to establish a platform for ensuring fair play and fair competition by businesses, the US government has established the competition law, normally referred to as the antitrust law that seeks to further healthy business operations by protecting small businesses from extinction by other businesses due to practice of unfair business practices such as the formation of cartels or any involvement by businesses in transactions that may threaten a healthy competitive business environment.

The aim of this analysis is to scrutinize the anti trust law, especially with regard to United States vs. Microsoft in the Microsoft antitrust trial in which a set of civil actions were consolidated and filed against the company in May, 1998. The suit was filed in pursuance of Sherman Antitrust Act.  To aid in the analysis, current micro and macro economics trends will be analyzed, market structures, consumer behavior, production costs, and international trade will be examined and the role of the US government in a laissez faire market economy will be analyzed. In addition, the impact of technological trends on businesses will be addressed. Based on the analysis, a comprehensive argument will be presented to support (government or Microsoft) position in the trial which was one of the biggest investigations of antitrust behavior since the turn of the century.

The first potential scenario for costs in the auto industry is for them to benefit from the freedom given by steering away from oil based fuel engines. The move by GM to develop plug-in type of vehicles will be very important in determining the sensitivity of America and the rest of the world into the fluctuations of oil supply. We are all affected by the constant surges in oil prices as their demand and supply is literally the basis why the industrial world keeps on going.

Environmental politics and related concerns regarding carbon emissions have heightened sensitivity to gas mileage standards and environmental protection worldwide (Wikipedia, 2010).

This is understandable as there was a lot of pressure from both society and the political arena to shift from the petroleum based engines.

The second scenario would be the increased attractiveness of the American auto products since the dollar would be devalued. The U.S. has run a massive current account deficit, borrowing money from abroad in order to maintain adequate levels of investment at home will result in the weakening of the dollar one way or the other (Harrison, 2008). The end prices will be cheaper in the eyes of foreign buyers but it would mean tougher times for the American citizen. All auto companies would probably shift the majority of the production plants abroad as they already are with very minimal presence in their home country. Only sales and marketing would probably remain in the American territory to drastically reduce the overhead costs for employees.

There is a chance however that the dollar might depreciate terribly to the point where there is no more advantage if the auto companies are going to base their operations abroad. Even though, our countrys economic position in the world is weakening as pointed out a motley fool article by hanson, (Hanson, 2006) there is really no way to tell whether the chances of a permanently dollar will sink deep enough to the level of third world countries. The technology as well as operational efficiency should be the main concern of American based auto companies to compete well in the world market and even in their local territory.

The best thing that Big Drive dealership should do is to start phasing out the inefficient vehicle models already. They should do everything to eliminate these in their inventory and take in more fuel efficient cars in response to the rising gas prices and changing consumer tastes. The intake of new models however should be very minimal as there are a lot of technologies still in the making that will enter the market as soon as they reach full development. There are a dozen possible fuels that vehicles can have depending on the decision of their manufacturer.

The automobile industry simply can no longer rely on oil to supply 98 percent of the worlds automotive energy requirements (Blanco, 2009) shows that the auto industry will have to shift radically to something else. The Big Drive dealership should prepare for this inevitable change.

A common skill required would obviously be in dealing with batteries. Even if the type of fuel would change, another skill that would come in handy in servicing cars would be the electrical knowledge of the circuitry involved with the fuel either liquid type or hydrogen and stored fuel cells. These are the areas that the auto dealership needs to prepare and watch out for. The current situation on a macro level guarantees that there will be several and unpredictable upheavals in the auto industry. The technological paradigm shift will cause these massive changes that have not been seen since the time that automobiles were invented.

The real side of the economy (often termed as real economy) is the physical side of the economy dealing with the goods, services and resources.  It is concerned with using the resources to produce goods and services which are used to meet the demands of the public and government. In real economy we study how the factors of production (i.e. Labor, Capital and Technology) are being used which directly affects the output of an economy (Peterson, Lewis,  Jain, 2007). It measures the aggregate supply of goods and services produced by the economy. Real side of the economy is majorly governed by the industries such as auto manufacturing, steel, shipbuilding, textiles, electronics and logistics.

Real side of the economy depends on how efficiently labor and capital are used to produce the goods and services. This efficiency is the measure of the level of technology used by the economy in producing the goods and services. The real economy is also affected by the changes in size and quality of capital stock through investment and labor force available for production.

While analyzing the real side of the economy our primary focus is on the real interest rates, real wages and
real output of the economy.

Nominal Side of the Economy
The nominal side of the economy deals with the total demand of the final goods and services produced in an economy. The demand of the goods and services is driven by the money at hand. The primary demand creator for the goods and services are households who spend their disposable incomes at hand. This side of the economy plays important role determining the price level for the goods and services.
In analyzing the nominal side of the economy our focus is on the nominal factor prices such as wages and price levels which adjust to ensure market equilibrium and are determined by the supply factors and demand for factors (determined by the price level and the technology)

Effects of Financial Crisis on Real and Nominal Sides of the Economy

Financial Crisis
A financial crisis is a crisis that originates in the financial markets of the economy. These financial markets are stock market, commodity market and other money markets. The first negative effect of the financial crisis is bore by the players in financial markets i.e. commercial banks, other financial intermediaries such as depository institutions, housing finance companies, lease financiers and other non-banking financing institutions (Dornbush, Fischer,  Startz, 2007).

Link of Financial Markets with Real and Nominal side of Economy
In a free economy these financial intermediaries play an important role in for the demand side and the supply side of the output of the economy. For demand side they provide loans to individuals for personal consumptions (such as car loans, housing loans etc.) and for the supply side they provide loans to corporate houses which invest the money in buying capital and building new projects which helps in further boosting up the output of the economy.

This fine connection of the financial intermediaries makes it inevitable that any financial crisis affects both real economy and the nominal side of the economy. In a financial crisis the liquidity is dried up and banks and other financial intermediaries run for their available liquidity options to survive themselves in the market (sometime with the help of government) consequently resulting in to lesser money lent for personal consumption and new projects. The lesser money lent to the households results in lesser demands for goods and services in the economy. The lesser the demand, lesser the production of factors, eventually, leading to the lower profits (often losses) of the industries. This affects the job market too, in which unemployment level rises suddenly due to jobs cuts by the industries to minimize their costs as an effort to minimize their overall losses.

This shows that industries bear the brunt of the financial from two sides first they have lesser access to the finances due to dried liquidity in the financial markets and second, the demand of their factors also comes down. In these situations government steps up and takes measures to increase the aggregate demand by available fiscal policies. These policy measures can be either tax cuts or increased government spending in infrastructural projects. Usually a developing economy has more scope for government spending through spending in infrastructural investment however, for a developed economy like U.S. the tax cut and other excise rate cuts are the only feasible options available. The government also tries to use monetary policies to uplift the liquidity position by interest cuts.

Current Financial Crisis
The current financial crisis is an example of how financial crisis can lead up to the crisis real side of the economy. This crisis started in the financial markets of the U.S. which led to the bankruptcy of leading financial institution and then eventually spreading its aftereffects in to the real economy and affecting automobile sector, textiles and other industries severely. This crisis has resulted in the waning consumer and business confidence. The global unemployment in the formal sector has risen to 6.5 in 2009, which is a total of 210 million people out of work, and 77 million in workers in developing countries to be pushed into poverty.

The governments from across the world have taken steps to prevent this crisis into becoming a long lasting labor market crisis. Many economic recovery packages are targeted at the real economy to stimulate demand, such as cutting taxes and boosting government spending, targeting infrastructure development, spending on education and health etc.

Another problem policymakers have to contend with in many localities that includes CR is that the policies they will introduce to dether the use of both tobacco and alchohol could cause permanent job loss in any given economy.  However, findings indicate that falling demand on the consumption of both products might not mean there is a decline on the overall employment picture of countries such as CR.  This is so because the possibilities are such that money spent on these substances could be spent on other items that will result in creating new jobs that can replace jobs lost in the tobaco and alcohol industry.  The soulution had been for such problems as seen from what happened in the US if the policy implementation aims at a longer time span such as a gother concern of raising taxes is the impact could be harsh on the poorer population because it could end up claiming a higher share from the income of the poor than the rich.  But outcome that was supported by emprical evidence had been that theConsuption level of poor people will go down quickly when compared to the rich that respond slowly to the task hike.  In this regards findings had shown that, especailly tobacco product consumption of children and adolecnts also respond more quickly to tax hikes showing raising tax has its own advantage since it will make it difficult for the younger segement of the population to continue to smoke.  Raising taxes had also affected a decrease on the number of tobacco related death whereas the figure globally stands at preventing between 5-16 million death for raising tax on tobacco product by 10.

When it comes to alcohol consumption the main concern had been the youth that are more prone to binge drinking that had led to vehicle accident in many occassions that was followed by violent crime.  The other worry had been that since future drinking as well as smoking patterns could be formed at a younger age there had been a need for measures such as excise tax to detehr this early habbit forming pattern, as well habit forming behhaviours developed at such earl stage could also affect the human capital, as well as family formation.  Therefore, findings indicate minimum purchase age for both products, as well hiking their price had some positive outcome that was not rigid as it is the case with the adult population that responds slowly to price hikes because both substances are addictive.  Especially, the minimum pruchase age had shown good result in all localities that had been implemented effectively and the outcome will be enhanced when the minimum age is comlemented by price hike.

Other areas such as heavy realiance on alcholo consumption that will lead to alcoholism had been found to be different in nature since it does not respond to most of the measures that led to lable is as a mental illness that requires special attention because such consumers of alcohol could lose their control over their drinking habit.  However, even such chronic problem had been found to respond to some economic incentives the cost of a drink could raise some kind of awarness that will lead to take actions.  Addicts that will be froced to work twice just to afford to pay for their drinks might in the long run choose to halve the amount they are drinking, whereas in some experiments such as financial incentives for not drinking, or loss of certain priviliges such as driving when caugh beyond the alowed alchol limit had led to abstience showing that measures had been found to be effective in raising the safety and health of the public.

With the samit is the case with the adult population that responds slowly to price hikes because both substances are addictive.  Especially, the minimum pruchase age had shown good result in all localities that had been implemented effectively and the outcome will be enhanced when the minimum age is comlemented by price hike.

Other areas such as heavy realiance on alcholo consumption that will lead to alcoholism had been found to be different in nature since it does not respond to most of the measures that led to lable is as a mental illness that requires special attention because such consumers of alcohol could lose their control over their drinking habit.  However, even such chronic problem had been found to respond to some economic incentives the cost of a drink could raise some kind of awarness that will lead to take actions.  Addicts that will be froced to work twice just to afford to pay for their drinks might in the long run choose to halve the amount they are drinking, whereas in some experiments such as financial incentives for not drinking, or loss of certain priviliges such as driving when caugh beyond the alowed alchol limit had led to abstience showing that measures had been found to be effective in raising the safety and health of the public.

With the same tocken, reducing the supply of both alcohol and tobacco did not show the same result where one supplier is forced to shut down because of lack of demand it is possible another  supplier will get an incentive to enter the market.  This so because so far prohibiting the cosnumption of both tobacco and alcohol is not found to be feasible when seen from economic grounds, as well as it will not be effective since the whole thing could go underground.  When it comes to tobacco, for example, there were efforts to come with a crop substitution for the grower that are heavily dependant on tobacco so that it will be possible to bring the supply.  But since the inentives of grwoing tobacco remain high no one will want to curtail the supply by growing substitute crops since the fiancial reward is not there at the same level.  Other efforts such as banning the importing of both products had also failed to show satisfactory results.8

eneration the econmic problem could be amiliorated.  Policy makers also had been worrying about the effect of higher tax rate on both products could affect government revenues, because it will directly affect the demand for the products.  However, emprical findings (Chaloupka et al) had disputed such a stance by showing that the reduction that occurs on demand is always smaller when compared to the size of the revenue the taxing will generate the reason for that being since such consumers are addicted their response for the tax will not be swift where the elasticti of demand had been between  0.2 and  0.8.  Another worry had been that whenever there is a tax hike the industry will pass the hike directly to the consumers and the industry could also hike the price that will result in coming down hard on the demand where the result would be if there is a 10 tax increase on these products the tax revenue will only be agumented by 7 only.  Another concern had been that higher taxes that will result in hiking the price could result in smuggling which much truer in the case of tobacco that will result in making the consumption at a high level but it will further reduce government revenue.  Merriaman et al had shown that in spite of this reality higher tax could still generate more revenue for the government if not dether the high consumption level that will require another measure which cracking down on criminal activities to attain both more revenue and public health improvement.  In most poor countries such CR any tax increase will decrease to a good extent while at the same it raise governement revenue that could be spent to finance a given health package that cover a large number of people as such measures had proven to be effective in countries such as China.

Another concern of raising taxes is the impact could be harsh on the poorer population because it could end up claiming a higher share from the income of the poor than the rich.  But outcome that was supported by emprical evidence had been that theConsuption level of poor people will go down quickly when compared to the rich that respond slowly to the task hike.  In this regards findings had shown that, especailly tobacco product consumption of children and adolecnts also respond more quickly to tax hikes showing raising tax has its own advantage since it will make it difficult for the younger segement of the population to continue to smoke.  Raising taxes had also affected a decrease on the number of tobacco related death whereas the figure globally stands at preventing between 5-16 million death for raising tax on tobacco product by 10.
When it comes to alcohol consumption the main concern had been the youth that are more prone to binge drinking that had led to vehicle accident in many occassions that was followed by violent crime.  The other worry had been that since future drinking as well as smoking patterns could be formed at a younger age there had been a need for measures such as excise tax to detehr this early habbit forming pattern, as well habit forme tocken, reducing the supply of both alcohol and tobacco did not show the same result where one supplier is forced to shut down because of lack of demand it is possible another  supplier will get an incentive to enter the market.  This so because so far prohibiting the cosnumption of both tobacco and alcohol is not found to be feasible when seen from economic grounds, as well as it will not be effective since the whole thing could go underground.  When it comes to tobacco, for example, there were efforts to come with a crop substitution for the grower that are heavily dependant on tobacco so that it will be possible to bring the supply.  But since the inentives of grwoing tobacco remain high no one will want to curtail the supply by growing substitute cropsing behhaviours developed at such earl stage could also affect the human capital, as well as family formation.  Therefore, findings indicate minimum purchase age for both products, as well hiking their price had some positive outcome that was not rigid as it is the case with the adult population that responds slowly to price hikes because both substances are addictive.  Especially, the minimum pruchase age had shown good result in all localities that had been implemented effectively and the outcome will be enhanced when the minimum age is comlemented by price hike.

Other areas such as heavy realiance on alcholo consumption that will lead to alcoholism had been found to be different in nature since it does not respond to most of the measures that led to lable is as a mental illness that requires special attention because such consumers of alcohol could lose their control over their drinking habit.  However, even such chronic problem had been found to respond to some economic incentives the cost of a drink coua

Another problem policymakers have to contend with in many localities that includes CR is that the policies they will introduce to dether the use of both tobacco and alchohol could cause permanent job loss in any given economy.  However, findings indicatTherefore, when it comes to drinking it has some impact on the number of hours worked and the amount of earning that could suffer because of less productivity and absenteeism.Reference12

ld raise some kind of awarness that will lead to take actions.  Addicts that will be froced to work twice just to afford to pay for their drinks might in the long run choose to halve the amount they are drinking, whereas in some experiments such as financie that falling demand on the consumption of both products might not mean there is a decline on the overall employment picture of countries such as CR.  This is so because the possibilities are such that money spent on these substances could be spent on other items that will result in creating new jobs that can replace jobs lost in the tobaco and alcohol industry.  The soulution had been for such problems as seen from what happened in the US if the policy implementation aims at a longer time span such as a generation the econmic problem could be amiliorated.  Policy makers also had been worrying about the effect of higher tax rate on both products could affect government revenues, because it will directly affect the demand for the products.  However, emprical findings (Chaloupka et al) had disputed such a stance by showing that the reduction that occurs on demand is always smaller when compared to the size of the revenue the taxing will generate the reason for that being since such consumers are addicted their response for the tax will not be swift where the elasticti of demand had been between  0.2 and  0.8.  Another worry had been that whenever there is a tax hike the industry will pass the hike directly to the consumers and the industry could also hike the price that will result in coming down hard on the demand where the result would be if there is a 10 tax increase on these products the tax revenue will only be agumented by 7 only.

Another concern had been that higher taxes that will result in hiking the price could result in smuggling which much truer in the case of tobacco that will result in making the consumption at a high level but it will further reduce government revenue.  Merriaman et al had shown that in spite of this reality higher tax could still generate more revenue for the government if not dether the high consumption level that will require another measure which cracking down on criminal activities to attain both more revenue and public health improvement.  In most poor countries such CR any tax increase will decrease to a good extent while at the same it raise governement revenue that could be spent to finance a given health package that cover a large number of people as such measures had proven to be effective in countries such as China.

Another concern of raising taxes is the impact could be harsh on the poorer population because it could end up claiming a higher share from the income of the poor than the rich.  But outcome that was supported by emprical evidence had been that theConsuption level of poor people will go down quickly when compared to the rich that respond slowly to the task hike.  In this regards findings had shown that, especailly tobacco product consumption of children and adolecnts also respond more quickly to tax hikes showing raising tax has its own advantage since it will make it difficult for the younger segement of the population to continue to smoke.  Raising taxes had also affected a decrease on the number of tobacco related death whereas the figure globally stands at preventing between 5-16 million death for raising tax on tobacco product by 10.
When it comes to alcohol consumption the main concern had been the youth that are more prone to binge drinking that had led to vehicle accident in many occassions that was followed by violent crime.  The other worry had been that since future drinking as well as smoking patterns could be formed at a younger age there had been a need for measures such as excise tax to detehr this early habbit forming pattern, as well habit forming behhaviours developed at such earl stage could also affect the human capital, as well as family formation.  Therefore, findings indicate minimum purchase age for both products, as well hiking their price had some positive outcome that was not rigid as it is the case with the adult population that responds slowly to price hikes because both substances are addictive.  Especially, the minimum pruchase age had shown good result in all localities that had been implemented effectively and the outcome will be enhanced when the minimum age is comlemented by price hike.

Other areas such as heavy realiance on alcholo consumption that will lead to alcoholism had been found to be different in nature since it does not respond to most of the measures that led to lable is as a mental illness that requires special attention because such consumers of alcohol could lose their control over their drinking habit.  However, even such chronic problem had been found to respond to some economic incentives the cost of a drink coual incentives for not drinking, or loss of certain priviliges such as driving when caugh beyond the alowed alchol limit had led to abstience showing that measures had been found to be effective in raising the safety and health of the public.

With the same tocken, reducing the supply of both alcohol and tobacco did not show the same result where one supplier is forced to shut down because of lack of demand it is possible another  supplier will get an incentive to enter the market.  This so because so far prohibiting the cosnumption of both tobacco and alcohol is not found to be feasible when seen from economic grounds, as well as it will not be effective since the whole thing could go underground.  When it comes to tobacco, for example, there were efforts to come with a crop substitution for the grower that are heavily dependant on tobacco so that it will be possible to bring the supply.  But since the inentives of grwoing tobacco remain high no one will want to curtail the supply by growing substitute crops since the fiancial reward is not there at the same level.  Other efforts such as banning the importing of both products had also failed to show satisfactory results.  This would mean that even if there is a need to introduce measures in order to bring down the consumption level of these two products by driectly impacting consumers  decision making process about drinking there certain precautions that are necessary to take not to imoing on consumers enjoyment by using both produtcs in way that will not heavily interfer with their health that could tranlate into becoming burden for society.  This means that if there is an obvious need to raise exicse taxes on both alcoholic beverages and tobacco products how low or high it should requires a close examining in order to avoid some of the negative effects discussed earlier.  In a situation like this what economics call normative framework where comparing the internal costs  usually borne by the drinkers themselves when the make decision to drink and exteranl cost that would occur when drikers create incidents.  When seen from such perspective it is the external costs that should be major concerns to policy makers since consumer sovereignty should be taken into consideration.  In this regard there had been interesta

Another problem policymakers have to contend with in many localities that includes CR is that the policies they will introduce to deter the use of both tobacco and alcohol could cause permanent job loss in any given economy.  However, findings indicate that falling demand on the consumption of both products might not mean there is a decline on the overall employment picture of countries such as CR.  This is so because the possibilities are such that money spent on these substances could be spent on other items that will result in creating new jobs that can replace jobs lost in the tobacco and alcohol industry.  The solution for such problems as seen from what happened in the US had been that if the policy implementation aims at a longer time span such as a generation, it is possible to ameliorate the economic problem it would create.  Policy makers also had been worrying about the effect of higher tax rate on both products could affect government revenues, because it will directly affect the demand for the products.  However, empirical findings (Chaloupka et al) had disputed such a stance by showing that the reduction that occurs on demand is always smaller when compared to the size of the revenue the taxing will generate, the reason for that being since such consumers are addicted their response for the tax hike will not be swift where the elasticity of demand had been between  0.2 and  0.8.

Another worry had been that whenever there is a tax hike the industry will pass the hike directly to the consumers and the industry could also hike the price of the products that will result in coming down hard on the demand.  The outcome of such combinations of measures is that if there is a 10 tax increase on these products, it is only possible to augment the total tax revenue by 7 only.  Another concern had been that higher tax that will result in hiking the price could lead to smuggling, which is much truer in the case of tobacco that will result in making the consumption to remain at a high level, but it will further reduce government revenue.  Merriaman et al had shown that in spite of this reality higher tax could still generate more revenue for the government if not deter the high consumption level that will require another measure, which could be cracking down on criminal activities to attain both more revenue and public health improvement.  In most poor countries such CR any tax increase on tobacco and alcohol will decrease the consumption level to a good extent while at the same time it raises government revenue that could be spent to finance a given health package that covers a large number of people, as such measures had proven to be effective in countries such as China.

Another concern of raising taxes is the impact could be harsh on the poorer population because it could end up claiming a higher share of their income when compared to the rich.  Nevertheless, outcome supported by empirical evidence had been that the consumption level of poor people will go down quickly when compared to the rich that would respond slowly to the tax and price hike.  In this regard, findings had shown that, especially tobacco products consumption of children and adolescents also respond more quickly to tax hikes showing that raising tax has its own advantages since it will make it difficult for the younger segment of the population to continue smoking and drinking.  Raising taxes had also decreased the number of tobacco related death where the figure globally stands it is possible to prevent between 5-16 million death for raising tax on tobacco product alone by 10.

When it comes to alcohol consumption, the main concern had been the youth that are more prone to binge drinking that had led to serious vehicle accidents in many occasions and what came second after that was violent crime committed by the youth.  The other worry had been that since future drinking, as well as smoking patterns could be formed at a younger age there had been a need for measures such as higher excise tax to deter this early habit forming pattern, as well as habit forming behaviors developed at such early age could also affect the human capital and the pattern of family formation.  Therefore, findings indicate minimum purchase age for both products, as well as hiking their price had some positive outcome ld raise some kind of awarness that will lead to take actions.  Addicts that will be froced to work twice just to afford to pay for their drinks might in the long run choose to halve the amount they are drinking, whereas in some experiments such as financial incentives for not drinking, or loss of certain priviliges such as driving when caugh beyond the alowed alchol limit had led to abstience showing that measures had been found to be effective in raising the safety and health of the public.


With the same tocken, reducing the supply of both alcohol and tobacco did not show the same result where one supplier is forced to shut down because of lack of demand it is possible another  supplier will get an incentive to enter the market.  This so because so far prohibiting the cosnumption of both tobacco and alcohol is not found to be feasible when seen from economic grounds, as well as it will not be effective since the whole thing could go underground.  When it comes to tobacco, for example, there were efforts to come with a crop substitution for the grower that are heavily dependant on tobacco so that it will be possible to bring the supply.  But since the inentives of grwoing tobacco remain high no one will want to curtail the supply by growing substitute crops since the fiancial reward is not there at the same level.  Other efforts such as banning the importing of both products had also failed to show satisfactory results.  This would mean that even if there is a need to introduce measures in order to bring down the consumption level of these two products by driectly impacting consumers  decision making process about drinking there certain precautions that are necessary to take not to imoing on consumers enjoyment by using both produtcs in way that will not heavily interfer with their health that could tranlate into becoming burden for society.  This means that if there is an obvious need to raise exicse taxes on both alcoholic beverages and tobacco products how low or high it should requires a close examining in order to avoid some of the negative effects discussed earlier.

In a situation like this what economics call normative framework where comparing the internal costs  usually borne by the drinkers themselves when the make decision to drink and exteranl costing findings where the external cost of per ounce of alcohol consumed could be around forty-eight cents in the US and it is double to what the federal tax per ounce that could be applicable to CR case to.  This is so because for both smokers and drinker most health related costs and death or unproductivity are borne by the smokers themselves, which would mean it will not cause harm to anyone else similar to an accident a drunk driver could cause to an injured victim.  That is one of the reason why advocates are saying the current excise that will take many factors into consideration might not be adequate enoug to bring down the number of people that are dependant on habit forming products, because as it is now the cost of injuries could be around sixty-cents that would occur when drikers create incidents.  When seen from such perspective it is the external costs that should be major concerns to policy makers since consumer sovereignty should be taken into consideration.  In this regard there had been interesting findings where the external cost of per ounce of alcohol consumed could be around forty-eight cents in the US and it is double to what the federal tax per ounce that could be applicable to CR case to.  This is so because for both smokers and drinker most health related costs and death or unproductivity are borne by the smokers themselves, which would mean it will not cause harm to anyone else similar to an accident a drunk driver could cause to an injured victim.  That is one of the reason why advocates are saying the current excise that will take many factors into consideration might not be adequate enoug to bring down the number of people that are dependant on habit forming products, because as it is now the cost of injuries could be around sixty-cents.

The same applies to the productivty level of workers that are consuming both substances that is known to impair normal productivity level.  Because of that there are kind bans in the workplace where alcohol consumption is fobidden, where the new trends had been in the develped regions to ban smoking from workplace because of the effect second hand smoke had on health, although smoking dose not affect productivity unless it is at a chronic stage where the smoker might have developed some kind of cancer.