Economics

The growth of the internet has given retailers a new forum to hawk their goods.  The time when retail stores were limited to physical stores in malls and agoras is long gone.  Now, consumers can make purchases on the go and online with simply the click of a button.  This has changed the retail landscape and made it imperative for any retailer who wants to expend his or her market to explore the Internet Concept of Supply and Demand vis--vis online merchandising.

1.Discuss the ways companies use the Internet to sell andor market merchandise.

The birth of the internet has allowed vendors to expand their stores into cyberspace.  The face of conventional shopping has been changed.  No longer is shopping limited to physical methods such as going to visit stores but it has now turned into cyber-shopping.  As of 2006 figures have shown the growth of online shopping in the United Kingdom alone to be estimated at 24 million UK consumers who spend on average 1513 each during the year.  With forecasts predicting that e-commerce will grow by 36 in 2006 amounting to 49 billion, There can no longer be any doubt that the internet is a major part of the retail landscape, and that it will dominate the retail agenda for the next several years, according to IMRG managing director Jo Tucker.  Companies have taken to the web to advertise and even sell their products, launching online stores and retail outlets for shoppers.

2.Explain the ways the Internet has expanded the available supply of goods.

There is an enormous variety of the goods and consumer items available through online shopping makes it more advantageous for some people to shop online as opposed to traditional shopping.  The enormous variety of items available for online shopping makes cyberspace the largest mall in the world.  A single search query on any internet browser will yield hundreds if not thousands of results.  Combine that with the relative ease by which a person can also research on the pros and cons of items and a wise shopper is created.  The variety on ebay, the largest online auction store in the world, is enough to fill the entire state of Texas.  All the choices that are available online and the price advantage that is offered and the convenience all make the internet the shopping haven for any shopper.

3.Explain if the use of the Internet tends to increase or decrease prices.

The internet is currently the largest market and offers shoppers the largest stores and vendors the largest markets.  With the total number of online stores pegged at nearly 1 billion, the competition for the money of online shoppers is fierce to the point that anyone who does a fairly diligent search online will be able to find items at prices lower than one can find through traditional shopping.  For retailers this is also a big cost in expenses as it negates the need for a physical store for marketing their items and also greatly reduces overhead costs allowing them to offer the goods at relatively lower prices.

4.State whether the retailer faces more competition online or in its retail stores.

With fewer barriers to entry such as capital expenditure for setting a shop and overhead operational expenses, an online shop will offer more competition than a retail store.  The fewer barriers to entry exist, the more competitors there will be in a market.  In this case, the fact that all that is needed is a website or an account with eBay or Amazon makes it more accessible and viable for competitors selling similar, if not identical items, online.

5.Explain the concepts behind supply and demand for your clients.

The market price of a good is determined by both the supply and demand for it. In 1890, English economist Alfred Marshall published his work, Principles of Economics, which was one of the earlier writings on how both supply and demand interacted to determine price. Today, the supply-demand model is one of the fundamental concepts of economics. The price level of a good essentially is determined by the point at which quantity supplied equals quantity demanded.

6.Address the issue of supply and demand toward expanding the online merchandise.

As previously mentioned, there is more supply than demand in online merchandise.  The reason for this is that while there certainly are a number of countries that have internet access for their citizens, not many countries are equipped with the software and infrastructure to take advantage of online shopping.  In several countries, the terms of payment and credit card access is quite limited so that while they may have access to the stores they are unable to make purchases.  Since the clientele is limited by these factors, there is an over supply because the sellers to not face the same constraints.

7.Give your client a recommendation as to whether or not to expand its online merchandise.

Depending on the target market and the goods sold, online merchandising is an alternative.  In the case of consumer goods, it is advisable to sell online only if the cost of shipping justifies the reduced operational expenses.  It will also depend on the target market because, as previously mentioned, there are barriers that prevent people from buying depending on their location.  The safest bet is to advertise the products online and piggy-back on existing online retail sites such as eBay in order to reduce expenses and maximize opportunities rather than setting up the infrastructure for hosting and operating an online retail store.

China has undoubtedly been the economic success story for the last 30 years it has grown from being a centralized economy to a more independent system which is largely dependent on market forces and a fast growing private sector. The opening of foreign trade and investment has led to annual inflows of foreign direct investment of around 108 billion in 2008. However with the rapidly growing economy, China faces a number of problems which include corruption, environmental damages and work force related issues along with the recent global financial crisis that has adversely affected its exports (Schuman).

This paper will discuss the issue related to real estate bubble in China and the following section will define the parameters of this issue in detail. Currently, China is the fastest growing economy in the world and so far the main force pulling the world out of the recession however according to leading economist, the growth has its effects especially on the real estate sector in China. After the global financial meltdown in 2008, the prices of real estate have skyrocketed in the urban centers across China. According to regional experts, some areas have experienced a rise of around 150 in real estate prices during the last year and the demand for housing in China is still on the rise. Chinese growth rate is expected to be around 9 however, due to the global recession the export figures have declined which has led the country to shift its focus from global consumption to domestic demand as their primary engine of growth. Earlier, the Chinese government had tried to promote the real estate through easy real estate lending and development to boost growth. According to Chinas Central Bank, mortgages for new homes in the first nine months of 2009 have quadrupled from the amount borrowed during 2008 (Smith).

Analysts around the country are concerned due to the current aggressive stance of the government which has produced a tremendous rise in construction, lending and speculative buying. Many people fear, that if the Chinese authorities dont take quick action then the housing bubble would increase in its severity. Many experts believe that the lack of solid data to justify such high levels of housing sector prices is a proof that the bubble is developing as it is typically defined as the prices at higher level without any economic justifications. In this case, the investors purely base the purchase decision on speculation hoping that the prices would increase in the future without any solid reasons such as the change in the demand or supply of houses in China.

A similar situation developed in the Japan during the early 1990s when the real state and stock prices were inflated and according to many an economic bubble had developed. The reason it had developed was the same as financial assets became lucrative investments due to easy availability of credit and appreciation of the Japanese yen. However due to the corrective policy making the real estate bubble was elongated (some say until 2003) which minimized the losses. One of the measures taken by the Japanese central bank to combat deflationary pressures during these was that it reduced interest rates to approximately zero, thus the bubble collapsed gradually rather than catastrophically (Amyx 52).

However most people believe that the burst in still further and can be prevented through effective policy making and management. Looking at the following situation, the Chinese government has tried to calm the real estate bubble through variety of policies which include the higher mortgage rates and the larger down payments. However it is not only the government policies but other financial and cultural issues have also played a part in the development of the risky bubble.

After discussing the issue from the viewpoints of Chinas regional real estate experts, local and foreign people, investors and Chinese Central Bank and also comparing it with the similar case in Japan, the paper will now evaluate the issue in order to ascertain the main cause of the problem. China announced a stimulus plan of around 586 billion for the real estate sector which is 17.8 of their GDP as opposed to Americas which stands around 5.7 of their total GDP. There is visibly a link between the ultra loose monetary policy and real estate price hike the availability of easy money has lead to the rise in the demand for real estate which remains the one most lucrative form of asset investment in China. The central bank is under tremendous pressure to control the current situation through tightening of the monetary policy and credit restriction in order to control the price hike in real estate (Mufson).

Another reason for the price hike is rooted in the investors bet in Chinas currency, the Yuan which is expected to be revalued upwards in the near future. These bets are largely foreign in nature and are largely based on the expectation that the investment in Chinese assets such as real estates will increase in value once the revaluation of the currency takes place. The lack of performance by the Chinese stock exchanges has led the local and foreign investments to be poured into the real estate sector which is based on speculation about the future.

Another reason is Chinas overall economic growth which has led to the development of luxury houses in city centers which are designed for wealthy foreign corporate executives and consists of around 90 of new constructions taking place. These houses are unaffordable to average Chinese households as a result these new homes are sitting empty and are largely purchased as investment. Moreover, the current boom has led to a high price to income ratio and a high price to rent ratio for real estate, hence many Chinese firms in the industry such as chemical, steel, and textile are opening real estate divisions expecting higher return than their core businesses (Barboza).

Most of the land in China is owned by the government and a huge proportion of government revenue comes from land sales therefore the government needs money and any measure taken in order to curb the real estate market might be ineffective. The flip side also points out that the real estate boom has led to the development of other industries such as construction and steel industries which provides income to numerous families and is a source of growth to the country. There is also an increasing demand in the housing sector which is fueled partly by the millions of rural migrants moving from villages to large cities which would lead to the development of the country.

The lack of housing for the middle income groups which include most of the working class in China is a cause of great concern for the government as this would later develop into social instability and protests. The large number of mortgages in China and the continuing relaxed credit policies is leading China towards a housing bubble which would destroy the developing banking sector in China along with lifesavings of numerous investors. However, lately, the central bank has shown great concern and vowed to impose new limits on the speculative borrowing through deposit requirements for housing.

The evaluation also shows the other side of the issue that a bubble does exist but it wont explode due to a lot of factors to support the bubble which largely include the strong buying power of the existing consumers. Other factors include economic growth, rising family incomes, migration of labor to cities, high demand for housing, and banking system which is less vulnerable to mortgages compared to banks in the US or Japan. These are the reasons which can protect China from a real estate meltdown for years to come (Barboza).

In short, our evaluation of the issue of real estate bubble in China points out following key factors. Chinese citizens have limited access to foreign investments therefore it has artificially increased the appeal of domestic investments such as property which is the only viable option. Chinese culture also requires home ownership as a source financial independence therefore there is a high demand for housing. The low level of property tax has led to the development of real estate into speculative instruments without any carrying cost or risk. The unexpected nature of the stock market and regular slumps have left investors more interested in real estate options which are considered much more rewarding and less risky long term investments. Speculation in Chinese real estate is largely due to the easy availability of credit in the country which is both in the form of FDI and the local loose monetary stance however the dependency of local government on real estate as a source of revenue is another reason for the lax attitude of government towards the recent price hike. The government also aims to impose other restrictions in order to curb the crisis.

Now the paper will recommend some solutions for the issue of real estate bubble in China, but first we consider what Chinese government has done so far regarding the resolution of this problem. The government has stepped in to check the current situation and devised a few important strategies. This year a capital gains tax is to take effect on residential property sold within two years of purchase. In addition a new law is to be implemented which would require the owner of residential property to settle the mortgage before selling the property. However, these measures are moderate steps which would take time to calm the current crisis (Mufson).

For implementation of any proposal, the government has to act smart and take a balanced approach towards the situation, as from one point of view, the massive stimuli and easy credit has spurred a massive mal-investment in unneeded assets, marginal infrastructure projects and speculative luxury market which is sitting empty as investment. The other point of view signifies the critical role of domestic investment in supporting the growth and leading to an economic recovery locally as well as internationally, at the same time supporting urbanization in China. Hence the set of proposals should be implemented such that its net effect tries to contain the real estate bubble as well as maintain the required economic growth.

The government can take a number of actions such as increasing the interest rates in order to curb the money supply and the availability of easy credit and imposing capital gains tax along with sales tax. It can provide other venues for investment, making them more lucrative than housing, to direct the local and foreign funds to other markets such as capital, money, futures and commodity markets. It also has a proposal of making the first transfer of property exempted from tax so that middle income people from rural areas can find housing in urban areas. At the same time, the government can apply restrictions on transfer of real estate by imposing taxes on secondary transfers and full payment of mortgages before transfers which would reduce the volatility of the real estate sector (Smith). However, all these proposals cant be applied at the same time and for the right time to put checks on the growing real estate sector, the government should wait for other indicators of growth such as exports to show more positive signs which would provide the support for the overall growth targets without damaging the economy as a whole.

The fears regarding the implementation of these proposals are that these measures could backfire as the exports are still weak and the immediate effect would be detrimental for the growth. Restraining the real estate market too soon could effect growth as it accounts for 10 of GDP in the current situations. On the other hand, further tools of deflating the bubble could have other negative impacts on the economy, such as transaction tax on home sales aimed at reducing speculative trading may reduce the size of the bubble but would discourage real buyers which would suppress the demand unnaturally in the market.

Moreover, the revival of the real estate industry is the key reason that Chinas economy is emerging from the global recession. With China acting as the engine of global growth, any attempt to restrict its growth prospects because of such issues as real estate bubble might hurt the global economic revival. The world has also placed confidence in Chinese consumers to increase their spending to uplift the global trade. Hence it is the high time to boost domestic consumer demand and investments in China. Therefore the authorities in Beijing have to act smart in their attempt to shrink the bubble through balanced and delicate approach without adversely affecting the economic growth.

Furthermore, looking at the history of economic bubbles, it would be a point in time when the investor would loose the confidence which would lead to panic selling. The prices may fall reasonably low and the investors would wait on the sidelines waiting for the prices to hit the bottom which would shatter the whole real estate market in China. This would harm the major banks whose balance sheets consist of large number of mortgages and collaterals based on private property. Hence this requires the development of overall financial sector of China through introducing better practices and standards especially in the case of mortgages. This would ensure the integrity and firmness of Chinese financial sector in case a real estate bubble burst.

The simple conclusion of this paper is that whether the real estate bubble in China seems to be a myth or reality, the evaluation of the factors clearly reveals that there might be problems in the future which may affect the real estate prices. If the crisis does surface then the major portfolios of investors may substantially decrease in value and also financial institutions may face difficulty in handling the devalued mortgages. Moreover, world economy will be hurt as China presents itself as the engine of growth for the currently depressed world trade. Hence keeping all these factors in view, a more balanced and effective set of solutions should be selected for containing the bubble from escalating.

The most interesting matter about the article is the difficulty in handling existing bubbles in the economy.  Identifying these bubbles may seem to be simple but manipulating them is the major deal.  The gravity of the effects of these entities was very well felt through the problems that it caused the Federal Reserve and the economy in general.  The dilemma on deciding whether or not to prick these bubbles gives rise to various views for the welfare of the economy.  Attention was also drawn to the said matter because there is still no concrete way to deal with the bubbles and that the central bank according should not interfere with it.  The conventional solutions as stated in the article do raise queries.  Its like every bubble has this case-to-case basis of arriving at a solution in utilizing it correctly. 

In many ways or so, bubbles are related to economics.  As it is defined, economics deal with the proper allocation of the scarce resources.  In line with this, Federal Reserve aids in ensuring that there is good employment rate as well as regulating the financial system of the economy. Several concepts are linked with any kind of existing bubble.  The bubbles also have an effect on how economies work and how economic activities move about.  There is a possibility that pricking a bubble can worsen a financial crisis thus policy makers will work on it through the monetary and fiscal policies.  Monetary policy can increase or decrease the total money supply while the latter can be in the form of taxation and government expenditure. These policies are economic concepts which can be employed if bubbles cause damage to the economy.  Either way, both policies should aim to stabilize the economy alongside with regulatory measures.  A crash of a bubble can lessen the wealth of an economy, increase financial risks and at the same time, cause false allocation of resources.  It is also possible that bubbles occur because of an economys current state.  Bubbles are inevitable in any economy.  The central bank must make sure that bursting or letting the bubbles float on its natural course will cause a positive impact in the economy. 

The Great Depression taught us that falling prices or deflation and inflation are both destructive to the economy. Sustain fall in prices reduces incentives for businesses to increase production. The implication businesses will either cut available working hours or lay off some of its workers. Because wages tend to be inflexible in the short-run, the economy suffers from sustained recession (or depression).

Sustained double-digit inflation can weaken the economy. Rising prices adversely affects the input-output mix of the production process. If the prices of inputs increase considerably, then the prices of final goods increase proportionally. Because wages are inflexible in the short-run, real income will correspond to low-purchasing power. Inflation was generally absent during the Depression Era because of sustained fall in prices. However, during periods of recovery inflation is an issue. Single-digit inflation means that the economy is growing whilst a double-digit inflation means that the economy is in a state of shock. Now, central banks should ensure that interest rate will result in single-digit inflation.

There is a monetary aspect in the study of the Great Depression. During the Great Depression, deflation left the value of loans untouched, eroded the value of collateral, and shrank the borrowers equity. Wages can adjust to falling prices, but debts cannot because interest rates cannot go below zero. What should central banks do when deflation is sustained Central banks should ensure that the supply of money in an economy is sufficient to cover collateral and preserve borrowers equity. A relatively low supply of money in an economy results to short-term decrease in prices a relatively high supply of money in an economy results to short-term increase in prices. The Great Depression taught us that central banks should increase the supply of money when the economy is in recession and decrease the supply when the economy is recovering.

World Bank refers to an international financial institution which deals with the provision of loans for capital programs and for development. Its main goal is to reduce poverty level in the world (Bernstein and Pauly, p 66). It was established in the 1940s as an agency for international development. Its main purpose was to provide and advice on loans to more than one hundred countries. Its one hundred and eighty member countries own and operate it. It raises its funds through the contributions made by the government of the member countries as well as from the world markets. It has several divisions inclusive of the multilateral Investment Guarantee Agency, The International Finance Corporation, The International Development Association and The International Bank for Reconstruction and Development. In the whole world, it is the organization which offers most development assistance. Through investment in people and sustained growth, it seeks to improve peoples living standards and reduce poverty (Gilbert and Vines, p 127). 

The World Bank has grown to great heights since its conception. It started with very low levels of lending which involved thorough screening of applications for loans and fiscal conservatism. At that time, the staff used to monitor how loans were used and the bank had very strict rules about its lending. As the bank continued growing, its concentration was to meet the needs of developing worlds people. It aimed at improving their various sectors like education and health (Bernstein and Pauly, p 86).

It increased its borrowers and the amounts borrowed as its loans targets extended to social, educational and other sectors. Up to 1980, the bank sought for more capital for example by using global bond market. This enabled the bank to alleviate poverty levels as well as increasing their lending to the third world which increased by 20. Up to the present date, the World Bank has continued lending to different countries and it is known to have been a contributor to the improved educational, nutritional and health levels in the developing world and more so Africa, Latin America and Asia (Bernstein and Pauly, p 72). It has combined forces with some of the non governmental institutions which it lends funds. These organizations start several projects to help the people from the developing nations to meet their needs. They have branches in the third world countries to facilitate the running of their operations more effectively. Some go ahead to employ the people in the countries they are situated thus increasing the employment levels in such countries. This is one way to alleviate poverty in these countries through the help of the World Bank.

The World Bank has contributed to the multilateral political orders and disorders in several ways. For example, it has contributed to the alleviation of poverty in the developing countries. It has also improved the education and health in such countries making them better. It has as well contributed to other development programs all over the world which have contributed to the political order. On the other hand, the World Bank through its various programs has contributed many problems that humans have now. These are related to trans-national crime, migration, environmental pollution which have created multilateral political disorder (Gilbert and Vines, p 158). 

America has the following interests advocating and preserving of continuation of the U.S. hegemony, through exploring opportunities, highlighting threats and disseminating information regarding the same. The American interests can be said to converge to the World Bank due to its presence in the World Bank. This gives America a strong voice regarding the key issues of global development which are fundamental to the U.S. business and national interests. It is recognized by the World Bank as a steadfast partner and important financial contributor as the organization strives to reduce poverty in the developing world. These issues give evidence that the U.Ss. interests converge with the World Bank (Gilbert and Vines, p 36). 

Political risk is a problem faced by government and businesses due to changes in politics that alters the result and quality of an economic process leading to failed business objectives. It also means the interference of Government in the trade affairs of foreign investors or firms doing business in a certain country. The Government may interfere with the foreigners assets by taking them away by force or even cancel their contracts in favor of Government firms. Even though the USA has specific guidelines to guard against such occurrences, China is extremely hazardous when it comes to political risks. In 1949, China was involved in nationalizing foreign firms. Also, cases of forceful ownership, inflation, cancellation of contracts and devaluation of their currency have been reported. The main political risk in China is the Battle of Supremacy between the central government with local and provincial administration over the law to be applied when dealing with foreigners and whether it is being observed or not. This has given the foreign firms difficulties of knowing the exact rules hence the saying The Mountains are high and the Emperor is far away.

Political leadership
China is divided into two types of reformist leaders. The liberal leaders who wanted to learn from the past mistakes of China and lead the country towards socialism. The conservative leaders, who wanted to eliminate those corrupting the moral society of China and bring back the moral integrity of their Republic. Apart from inflation, the governments economical policies of rapid economic growth through interference with retail energy prices have increased the market prices of raw materials, oil and coil in the world. It has also caused an increase in food products. The government is being advised to give subsidies to enable the poor citizens purchase products at low prices and also accelerate economic growth. This is necessary in avoiding the social unrest among their communist supporters which will cause financial losses to government, reduction of profits in government firms and increase of non-performing loans in banks. This will automatically lead to the withdrawal of foreign investors. 

External conflict
Chinas Political risks have either directly or indirectly affected the entire globe. Chinas Economy has been growing very first as the income inflation has been on the rise leading to an increase in prices for commodities like oil and food stuffs. This has been felt by the entire world. Also, the increase in the income of their citizens has changed their lifestyle making them abandon the grain products for meat products. This has reduced the agricultural produce in China yet many developing countries in Africa and others like South Korea depend on China for the exports of the products. The ever rising inflation has hindered foreign firms in investing in the country. The battle of supremacy between the three main points of power is affecting Chinas relationship with foreigners who wish to invest in the country.

Corruption in China
Corruption is a vice that occurs when an individual intentional interferes with the normal functioning of administration processes for personal gain. They may either be Government officials or even people in the private sector. The individuals try to keep the deals a secret making it difficult to determine the level of corruption in the country. Corruption in China scares off foreign investors because of large amounts of money they are to part with to give the corrupt officials. Corruption is wide in China at 16 with heavyweights in business and government being arrested. Government has come up with anti-corruption measures like media freedom, reduction of excessive power of CCP, advocacy of independent judiciary, and crackdown on corrupt government officials.

The knowledge on international political economy (IPE) can significantly help in understanding matters related to globalization. The changes in the domestic and the international policies can bring about the interaction of the international economies which is an aspect of globalization. This change in the policies and that of the economic beliefs and practices gives rise to the technological developments in the political economies that are essential in globalization (Spero  Hart, 8). From this point, the improved technologies will reduce the costs of the communication and business processes hence increasing the internationalization of the economies productions and finance. There is a great link between the international economies policies and their systems of governance. With the different forms and levels of governments and systems throughout the globe, there is an increased adoption of different policies, regulations and the international liberalization. As a result of these differences, the trade exchange controls are reduced or removed, the trade barriers are removed and the bans to investments are removed. This will result to better trade within economies globally hence leading to globalization (Spero  Hart, 8).

Globalization is, in a greater perspective, involved in the development of the international political systems of different economies. It controls the governments ability to manage their economies using the international economic policies such as the exchange rates policies between countries (Spero  Hart, 9). This enables the governments to continue with the achievement of other national goals to be able to meet the international standards.  Since the international economics are not mainly addressing the global crisis, globalization challenges the international institutions and the international rules that govern the international economic relations to solve the global crisis.

In general, learning more about international political economies can bring about a cheaper understanding of globalization in the modern economies of the world since the two aspects are related.