Recent orders
Price Index And Purchasing Power
Price Index And Purchasing Power
Introduction
Measuring the dynamics of the purchasing power of the dollar in different times has always been of interest to economists. Purchasing power is a term that underlines the amount of services or goods that a certain unit of currency can buy at a certain time. Needless to say, dollar figures from different time periods have different values. While this is the case, economists have outlined that the dollar figures of different time periods have to be inflated using the dollar index so as to compare their purchasing power. The dollar index (DXY) measures the dollar’s performance against a basket of six other currencies including British pound, the Euro, Canadian dollar, Swiss franc, Japanese yen and the Swedish krona (Wickens, 2008).
However, questions emerge as to whether the dollar index would be an appropriate comparison of inflation. While there may be divergent views on the same, it is evident that the dollar index does not give a true figure about global inflation.
Scholars have come to the realization that the inverse correlation that has for a long time been accepted as existing between the gold market and the dollar index is erroneous and misleading in which case it should be abandoned (Wickens, 2008). If the dollar index goes up, the dollar would be strengthening against the six other currencies. However, what matter s is not the strength or weakness of the dollar rather it is the dollar’s value in terms of the goods and services that the consumer can buy using the dollar (Grauwe, 2012). Economists quote statistics from the Bureau of Labor Statistics of 2005. The BLS stated that about 35% percent of the average income of an American goes to housing, with transportation and food taking 16 percent and 14 percent respectively (Layton et al, 2011). It goes without saying that the cost of energy is a considerable outlay for many Americans as it carries a significant share in transportation and housing expenditures. However, looking at the dynamics of the prices of energy (electricity and gas) and food from January 2005 to 2012, it goes without saying that the dollar lost a significant value against varied daily expenditures. This is quite different from the interpretation that would be made from the functionally unchanged dollar index value in seven years (Grauwe, 2012).
In fact, this is reflected across almost every service or good. On average, the prices of food and energy have been at 45% higher than they were at the beginning of January 2005. In fact, gasoline cost double the 2005 cost. In essence, about a third of the dollar’s purchasing power was lost between 2005 and 2012, when the practical value is measured against common goods bought by average Americans (Grauwe, 2012).
Individuals who vouch for dollar index has maintained persistent strength mainly because of constant disruptions and failures in the Euro Zone, which have affected euro’s value and enhanced US treasuries as safe haven. However, countries are engaging in currency wars as they try to reduce their currency’s value so as to relieve the debt burdens, as well as enhance economic growth via export markets (Layton et al, 2011). This means that the value of currencies remains constant relative to one another, thereby clouding the devaluation in terms of spending power. This results in the dollar index remaining rigid in the range, while it has devalued against real services and goods. In essence, the nominal values that are applied to currencies become increasingly misleading and irrelevant, in which case the dollar index would be disguising inflation.
References
Wickens, M. (2008). Macroeconomic theory: A dynamic general equilibrium approach. Princeton: Princeton University Press.
Grauwe, P. (2012). Economics of Monetary Union. Oxford University Press
Layton, A. P., Robinson, T. J. C., & Tucker, I. B. (2011). Economics for today. South Melbourne, Vic: Cengage Learning.
Price elasticity of luxury goods
Price elasticity of luxury goods
This paper gives an in-depth analysis of price elasticity of luxury goods. In doing this, a lot of focus will be put on demand and supply of commodities in the market. This will help in explaining why these kinds of goods always have a lactic response to changes in their prices and income of the potential buyers. The analysis will be important in proving why this class of commodities always behave in a different manner from the rest of products in any given market situation.
Demand
To begin with, the term demand, as used in Economics, simply refers to the willingness and ability of an individual to buy goods and services. Meaning, if a person is willing, but not able to purchase a commodity, then there is no demand for it. Since the major goal of any business is to make profit, businessmen will only supply their commodities if there is a good demand for them. As a result, the quality of their supply will greatly rely on the buyers’ reception. In other words, the higher the demand, the higher the supply will be because the suppliers will not be afraid of accruing any losses from overstocking (O’Sullivan, A. & Sheffrin, S., 2005).
Factors Affecting Demand
Some of the major factors affecting the demand of commodities in the market include the following:
Price
According to the law of demand, the quantity of commodities demanded is inversely proportional to the prices of the same commodities. This is called negative elasticity and is applicable to most of the necessity and other products. An increase in price of a commodity reduces its demand (Perloff, J., 2001). This is because; the change in price will bring more expenses to buyers who many then opt to forgo that commodity or acquire substitutes from other competing suppliers.
Income
The quantity of goods demanded is directly proportional to the level of income of the buyers. Their consumption increases with an increase in their salaries. The additional income acquired can be spent on buying more goods than they used to do before. As a result, the suppliers will benefit from high stock turn over and subsequently increase their gains.
Taste, fashions and preference
The other factor determining consumer behavior is differences in their tastes, preferences and fashions. Because of personal uniqueness, everyone has their own likes and dislikes. This makes each of them have their own way of evaluating the most appealing commodities. Hence, the manufacturers should know that they are serving diverse personalities (Vogel, H., 2001). They must provide lots of uniqueness in their commodities in order to win the confidence of their clients.
Government interventions
The intervention of the government is another important factor controlling the buyers’ response towards the commodities sold in the country. Even if the market is fully left in the ands of the private sector, it is justified for the state to be incorporated. However, interventions like provision of subsidies will directly influence demand of commodities in the market. For instance, tax reductions and provision of subsidies will lead to the reduction of prices. This will motivate consumers to increase their demands of such products (Ruffin, R.J. & Gregory, P. R. (2008).
Luxury Goods
Luxury goods refer to the commodities that are not essential in life, but are acquired in order life more pleasurable and comfortable. They are usually more expensive as compared to the necessities. Therefore, they can only be bought by rich people. Some of these commodities include expensive car brands such as Ferrari, Spyker, Aston Martin, Lamborghini and Rolls-Royce; latest fashion brands including Chanel, Fendi, Ferragamo, Louis Vuitton and Christian Dior and jewelries.
As already highlighted, these commodities do not adhere to the laws of demand. In fact, unlike others, they are lactic (Mankiw, N. G., 1998). In other words, their demand does not show a proportionate negative change to the changes in prices. Furthermore, their demand increases with an increase in consumers’ income. This can be explained s follows:
YED
In simple terms, YED is Income Elasticity Demand. According to this theory, the demand of inferior commodities decline with increase in income of the consumers. In my opinion, I can Abraham Maslow’s Need Hierarchy theory to explain this concept. According to Maslow, human wants are in an increasing order right from the most basic to the most luxurious. Immediately the ones at the base of the hierarchy are met, there is always a constant urge to acquire the rest (Goodwin, N. et al., 2007).
However, luxury goods do not obey the law of YED. Unlike other commodities, their demand increases with an increase in income. I think this happens because; as people get richer, they need to get more superior products to reflect the change in their status. For instance, a youth who was wearing Calvin Klein T-Shirts will no longer use the same if they get a job. Instead, they will shift to the most expensive designs like BCBG Max Azria.
Price elasticity of demand (PED)
In Economics, the term elasticity is used to denote the measure of responsiveness between two or more variables. In this regard, PED refers to the measure of the percentage of the amount f quantity demanded over the percentage change in price of that commodity. PED can be elastic or inelastic depending on the type of commodity. In this case, an elastic price shows that the quantity demanded is highly responsive to changes in prices and vice versa (Ferguson, C., 2009).
Luxury goods are more price elastic than the necessity commodities. Meaning, their demand is not greatly influenced by changes in prices. Consumers can still buy such goods whether their prices are lowered, constant or increased. This is because they are not bought as essential products, but only bought for prestige. Their work is to make life more comfortable and pleasurable to the users. Therefore, they do not care whether their prices change. What they need is to acquire them. For instance, a person willing to buy golden jewelries will not mind about its cost. They will buy them whether they are expensive or cheaper. Their main objective is to ensure that they are getting such commodities (Duetsch, Larry L., 2003). This is because, by getting them, they achieve personal fulfillment, besides holding a special position in society.
Cross Elasticity of Demand (XED)
XED is an Economics terminology which refers to the degree of response by the quantity of the commodity demanded due to price changes of others in the market. A typical market has a variety of goods which are either related as substitutes or complements (Frank, R., 2000). It is their closeness which determines the type of change they experience. Positive XED is realized when these commodities are substitutes while a negative infinity signifies compliment goods.
The quantity of luxury goods demanded may not greatly change as a result of changes in prices of other commodities. This is because the buyers always focus on single products when making their choices. They do no focus on the prices of these commodities because it is not a factor determining their choice. For example, a change in prices of the Prado Cars will not greatly affect the quantity of Honda demanded. Even if they serve the same purpose, the consumers will make independent decisions without such influences (Chaloupka, F. J. et al., 2002).
Conclusion
I would like to conclude by agreeing with the fact that luxury goods are exclusively meant for pleasure. They are not necessary in life and can be done without. Because of this, their demand is not greatly dependent on changes in price since they can be bought at any time. However, I would like to appeal to the clientele that they should focus on the necessities instead of engaging in such spendthrift behaviors. By doing this, they will save a lot and develop themselves economically.
References
Chaloupka, F. J. et al. (2002). The effects of price on alcohol consumption and alcohol-related
problems. Alcohol Research and Health.
Duetsch, Larry L. (2003). Industry Studies. Englewood Cliffs, NJ: Prentice Hall
Frank, R., (2000) Microeconomics and Behavior 7th ed. Mc-Graw-Hill.
Ferguson, C. (2009). Microeconomic Theory (3rd ed.). Homewood, Illinois: Richard D. Irwin.
Goodwin, N. et al. (2007) Microeconomics in Context 2d ed. Sharpe.
Mankiw, N. G. (1998). Principles of Economics, Wall Street Journal Edition. Dryden Press, San
Diego. pp. 71–73.
O’Sullivan, A. & Sheffrin, S. (2005) Microeconomics 4th ed. Pearson Books.
Perloff, J. (2001) Microeconomics Theory & Applications with Calculus. Pearson
Ruffin, R.J. & Gregory, P. R. (2008). Principles of Economics (3rd ed.). Glenview, Illinois:
Scott, Foresman.
Vogel, H. (2001). Entertainment Industry Economics (5th ed.). Cambridge University Press.
The Functions Of Management
The Functions Of Management
Introduction
The management of any business entity comes as one of its fundamental pillars. It has a bearing on the sustainability of the business entity both in the short-term and the long-term as it charts the policies and roadmaps that would be used in achieving the goals and objectives stated in the mission statement of the business entity. Every business entity, irrespective of its size has established and implemented its own concepts of management that would allow it to operate smoothly as well as achieve its objectives. In essence, the functions of the management allow it to handle the operations, tactical and strategic decisions in the business entity. The management has four functions.
One of the key functions of management is planning, an ongoing process in which the management undertakes an analysis of the external and internal factors that have an impact on the company and its objectives and goals. The management would assess the current position of the healthcare institution and its goals, after which it would determine and implement the best course of action for the attainment of the company’s objectives and goals. However, planning may be constrained by the lack of sufficient information and data pertaining to the course of action, resources necessary and the time to be taken. This may be solved through comprehensive research and discussions with all stakeholders to ensure all factors are considered.
In addition, nurse managers undertake the organization of its resources to allow for the implementation of the course of action established in the planning process. In this case, they assess the divisions, staff and departments in the company and determine the most appropriate way of handling the necessary tasks. This function, however, is constrained by the bureaucracies in the organization, especially with regard to the allocation of resources. A reexamination of the institution’s hierarchies and the constituent division of labor would be imperative so as to ensure that no unnecessary stages or divisions are incorporated. This would also eliminate the possibility of job duplication.
In addition, the management undertakes the staffing function. This involves discerning the healthcare institution’s needs and undertaking the recruitment, selection, training and development of employees. However, the staffing function is facing immense obstacle pertaining to the unavailability of qualified staff thanks to reduced appeal of medical careers. This may be resolved by liaising with the medical schools so as to handpick the students right at the initial stages of their careers.
In addition, healthcare managers undertake the leadership function, where they issue instructions, counsel and guide their subordinates to enhance performance to achieve the enterprise objectives. This, however, may be constrained by conflicts of interest and insubordination. Taking them through comprehensive training would go a long way in solving this.
Moreover, the management undertakes the coordination function, which revolves around the orderly synchronization of efforts so as to offer the appropriate amount of timing, as well as directing executing so as to result in unified and harmonious actions to a specific objective. This may be hindered by uncertainty of the behavior of staff. This may be resolved through undertaking comprehensive research so as to have comprehensive knowledge of the same.
Moreover, the management undertakes the directing function, where is influences and oversees the staff’s behavior in the achievement of the business entity’s goals and helping them in the accomplishment of their own career and personal goals. However, the directing function may be constrained by the organizational behavior, especially in instances where the management views communication and development of personal relationship with the subordinates as time wasting. This may be solved through training and workshops aimed at imparting relationship and communication skills in the management.
On the same note, management undertakes the representing function. This is a two-way function where it represents the objectives of the healthcare institutions to the subordinate staff while also representing the welfare of the junior workers to the directors. They also represent their institutions to the public. However, this may be hindered by mistrust between the varied categories of workers in the institutions. Holding events that allow for interaction between the different stakeholders would go a long way in enhancing the achievement of the representation function.
Lastly, the management undertakes the controlling function, which revolves around the establishment of performance standards that are based on the objectives of the company, as well as the assessment and reporting of the actual job performance. On the same note, it would identify any emerging problems that necessitate corrective action. Institutional bottlenecks such as the policies guiding the functions of the different individuals may constrain the controlling function of the management. This, however, may be solved through a re-examination of the policy framework that guides the relationships in the organization and ensuring that there is a clear demarcation of the duties.