HOW SUBSIDIES ARE USED AS EMISSIONS REDUCTION STRATEGIES

Economic and environmental goals can be co-operatively implemented to achieve a less polluted environment. Those policies and ideas advocating otherwise for instance, the opponents of the Kyoto protocol that was signed in Kyoto, Japan who claim that energy conservation would harm the economy should be reviewed. The two however compliment each other since some emission reduction strategies also support economic development.

Studies done in the US have prompted some to conclude that the benefits of subsidies remain elusive. However there are strong reasons to include these multibeneficiary programs in the efforts to reduce GHG emissions. Efforts should be channeled to developing Innovative ways such as the application of subsidy justification assessment to reduce uncertainty. Subsidies are a powerful incentive that does not contradict the economic objectives of corporations and can thus form the moral fiber of such strategies aimed at reducing emissions. The question is therefore not whether subsidies should be used as a strategy to reduce emissions but rather how they are used and how the use of these strategies can be used more effectively.
These subsidies are implemented in different governments for different reasons. For instance, a countrys could enhance international competitiveness by keeping the business costs down. Since energy is used in every aspect of modern life, higher energy prices should increase not only the direct cost of the energy used by companies but also most of other expenses as well.

Before commencing on to the possible strategies that can be adopted, it is of great importance to understand the cause of all these environmental catastrophes and the effect that they have on the environment and on human beings. Global warming and climate change have dominated the world debate over the past few decades. This is because the world temperatures have been rising at an alarming rate. The rise in temperatures can be attributed to the increase in the emissions of greenhouse gasses such carbon dioxide, methane, ozone and nitrous oxide. These gasses trap heat on the earths surface and cause what is referred to as the greenhouse effect characterized by uncontrolled rise in temperature on the earths surface. The effects of such climate changes include rise in sea levels, abnormal melting of glaciers, expansion of subtropical deserts, extinction of some animal and plant species as well changes in agricultural yields. Other environmental problems are caused mainly by pollution arising from human activities such as fossil dumping and chemical wastes dumping into rivers and other water bodies. Most of these activities have been seen to have direct impacts on both human beings and the environment. In order to avert such impacts, the following alternative measures should be taken.

Revenue tax policy
First and foremost, the environmental departments and all the other stakeholders need to come up with a revenue-neutral tax-subsidy policy for carbon emission reduction. In this policy, the environmental departments can decide to develop alternative fuel sources to reduce dependency on fossil fuels and thus mitigate emission of greenhouse gases arising from consumption of this fuel. This is because approximately 75 of carbon dioxide emissions are as a result of combustion of fossil fuels. Bio-fuels have therefore been touted to be viable alternative to the fossil fuels with the main purpose of lowering carbon emissions from combustion engines. Examples of bio-fuels include corn ethanol which emits almost 22 less greenhouse gas than gasoline. Given similar energy that is equivalent from a coal power plant that usually produces approximately 5 of the net emissions while taking into account the carbon sequestration potential of trees during growth, there is a considerable amount of carbon reduced. (School of economic studies) In addition to that, there can be an introduction of carbon tax as means of addressing the externalities that are associated with carbon dioxide emissions that arise from fuel production and use. In order to promote the use of alternative fuels, the Federal Government and other governments can introduce bio-fuel. This entails increasing the level of consumption of renewable fuels ranging from 9 billions gallons that was consumed in 2002 to around 36 billion gallon that was consumed in 2008. By 2008 consumption standard, it is estimated that there was a 7.76 renewable fuel content of motor fuels.

This will lead to roughly 24 ethanol content in gasoline by 2002. Furthermore, the Energy Security and Independence Act in America impose a requirement that an increasing fraction of renewable fuels be comprised of advance bio-fuels based on biomass and alternative types this only goes further to improve the situation.  Bio-fuel has been used as a subsidy because of two main reasons. One of them is the changing relative price of motor fuels in favor of renewable fuels which have a lower carbon emission. The second reason is that it reduces the dependency on fossil fuels through technological innovations. The subsidies that can help in technological innovation in the production of bio-fuels and mitigation of greenhouse gases can be applied at both the state and federal level. They help in decreasing renewable fuel production costs while improving the economic viability of bio-fuels in the long run.

Subsidies are ranked high among the instruments that are frequently used in environmental policy making. They are simply the most efficient instrument to achieve both short term and long term environmental objectives.

Another subsidy that can be used to mitigate carbon emissions is through introduction of abetment technologies in factories and industries. The carbon abatement technologies are group of innovative technological advancements that enable the large industrial plants to operate with substantially reduced carbon dioxide emissions. These technologies have the capacity to reduce carbon emissions up to 90 and still retain a significant amount of export potential. It involves the efficiency of conversion processes to reduce the amount of fuel consumed and associated carbon dioxide emissions.

An example of an abetment technology is the developments of boiler technologies for efficient coal combustion and advanced steam and gas turbine technologies that accommodate higher temperatures. These technologies will help to capture carbon dioxide, both pre and post combustion and oxy-fuel firing to improve their efficiency and thus reduce capital running costs. This is important since technological change is considered the primary solution to the environmental problems in the long-run. It has also been recognized that environmental policies create incentives that affects the whole process of technological development.        

Emission standards
Emission standards are vital in the current environmental situation. They put in place specific requirements requiring all concerned especially the industrial polluters to limit the amount of pollutants they release in to the atmosphere up to a given maximum level. Automobile emissions are also checked this is evident in the continued improvements being done on motor vehicles. Most of them nowadays are low emitters.
Such regulations if strictly followed can lead to attainment of an environment where the least possible pollutants are emitted .Emission licenses can only improve the situation all the more. Emission licenses can be used to ensure that more and more efficient motor cars and industries continuously replace the less efficient and thus more polluting ones. This can be achieved by making it a requirement that the level of efficiency be reviewed annually upon which a license would be issued .This will completely phase out those that are not compliant.

Transferable discharge permits
Closely related to emission standards are transferable discharge permits. They revolve around Marginal Abatement Cost (MAC) set by governments .They can be applied to reduce pollution by issuing licenses on the maximum possible amount that a given operator for example a given industry can be allowed to emit during a given period. This goes along way in ensuring the relative amount of pollutants that will or should be emitted during a given period.

Abatement Policy
In order to implement abatement policies, the government can impose two types of fiscal measures the pollution tax and lump-sum subsidy. The regulator which in this case is the government can either construct a menu or subsidy combinations to induce firms to self select. On the other hand the regulator can impose a uniform policy on all the registered firms within the industry commonly called a pooling policy. While doing this, the policy regulator can also construct a set of subsidy combinations that induce all firms to self-select the direction they want to take.

The key determinants of the policy that can be adopted include the marginal abatement costs of the technologies. This simply means that the lower the marginal abatement costs the more pollution that is abated which in turn means the smaller is the pollution tax base. A smaller tax base means an increase in the pollution tax rate that the firms are willing to accept for an extra dollar of the subsidies. This creates more efficient firms which tend to prefer higher tax combination.

Emission fees
Environmental conservation meets Economics in Pigouvian taxes.   Pigouvian taxes are fees charged on a given output of pollutants into the environment. It is basically an additional charge for additional emission of pollutants in to the environment over and above the set maximum limit. These are geared towards reducing significantly the amount of pollution while at the same time achieving effectiveness and efficiency in production and operation of other emitters like motor vehicles.

Pigouvian taxes comes not without challenges though, they can only be applied successfully if and only if proper mechanisms are put in place to measure the amount of pollutants released into the environment. This is because, unlike other commodities on which taxes are levied, pollutants are not taken to the market. As a matter of fact some will be tempted to dump pollutants at odd places and at odd hours to evade paying the Pigouvian tax.

Firms with higher Marginal Abatement Cost are allowed to sell to those with lower Marginal Abatement Cost if they are sure that they cannot exhaust their share. This encourages firms across the economy to improve on their efficiency and in turn reduce the amount of pollution to the environment. This is a very good method of controlling pollution since the charges associated with going against these regulations are enormous. Therefore the governments have almost absolute control over the whole issue of pollution, economically speaking.

Voluntary environmental programs
Voluntary environmental programs comprised of firms operating in the same industry are another method which can help greatly in reduction of pollutants emission and their accompanying effects. A perfect example to point at is that of US Chemical manufacturers Association which have designed its own regulations which must be religiously followed by member firms in an effort to reduce to the greatest extent possible the amount of pollution associated with that industry.

This is advantageous not only for the primary reason of environmental conversation but also to marketing strategies of those firms. As more and more firms go global, they would like to be seen as sustainable and would thus employ this as a promotional gimmick through corporate social responsibility. The firms also argue that the more they fight pollution, the more they become efficient since they associate more pollution with increased inefficiency. 

Reducing emissions is a matter of international importance and should be given the urgent attention it deserves. Any time lost in indecision by the world governments and policy makers is too costly. The policy makers and the firms need to give priority to efforts aimed at conserving the environment. They need to among other things adopt the measures above to ensure that they run cost effective firms and at the same time ensure that the environment remain free from carbon emissions and other pollutants.
As the business environment gains momentum towards globalization, the government and other stakeholders should be more innovative to come up and implement new policies, economic or otherwise to counter the dynamic environmental conservation challenges. These policies should be such that just like most of those discussed above they serve two or more purposes at the same time conserving the environment and achieving increased efficiency in the operations of these stakeholders.

Most importantly ethical operations of all concerned can influence to a great extent how these policies, economic or otherwise achieve the desired results. These should therefore be emphasized at all times even as charges, taxes and penalties are imposed.

Macroeconomics Simulation

1. The simulation showed many varying fiscal policy instruments. The ability to control government spending was illustrated by the form for adjusting government expenditures on infrastructure and education. The simulation also allowed for the manipulation of tax policy by varying the income tax rate. These three factors  infrastructure expenditures, education expenditures and tax rate were but a condensed and simplified toolset for emulating all the possible fiscal policy decisions that a real government might partake in actual macroeconomic planning scenarios.

Apart from these variables, the simulation also showed several analogues of real world economic data. The simulation showed a simplified overview of the fictional countrys budget, concentrating on the amount of deficit present in the annual budget. Apart from the budget, the inflation rate, unemployment rate and popularity was also tracked by the simulation. These dependent factors would vary according to the decisions made in adjusting the expenditures and income tax in the simulation. Increases in expenditures tended to increase the budget deficit and the inflation rate. On the other hand, increases in expenditure reduced unemployment and increased popularity. Raising income tax increased unemployment and reduced popularity but curtailed inflation the rate as well as helped balance the budget by increasing the cash inflows.

2. An increase in expenditure was reflected on the aggregate demand and supply plot as a rightward shift of the aggregate demand curve. Additionally, the increase in expenditure was also reflected as an increase in GDP. This GDP increase was derived from the multiplier for the expenditure. For the fictional country of Erewhon, the marginal propensity to consume (mpc) is 0.8 which gives a GDP multiplier of 5. This means that an increase of X million in expenditures would correspond to a 5X million increase in GDP.

The GDP increase is seen in the rightward shift of the aggregate demand curve as it intercepts the aggregate supply curve further along the x axis. However, increasing expenditures above a certain point will start to trigger an increase in inflation. This is because when it starts intercepting the aggregate supply curve in its upward sloping path, rightward shifts of the aggregate demand will also produce increasing intercepts along the Price Level axis.

Adjusting the tax rate also has the same effect. Decreasing the income tax also corresponds to rightward shifts of the aggregate demand while increases move the aggregate demand to the left. However, the shifts in aggregate demand are not as pronounced as compared to the shifts produced by expenditures. The effects of income tax are also dictated by the effects of the moving intercept between the aggregate demand and aggregate supply curves.

3. One key point was the difference in the multiplier between income tax and government spending. This fact was clearly demonstrated in the simulation. A 100 million cost towards expenditures would produce a greater shift in demand and a greater increase in GDP as compared to spending the same 100 million in a tax cut effected by reducing the income tax rate. Increasing expenditures by 100 million led to a 500 million increase in GDP. Reducing the government income by the same account through a tax reduction only increased GDP by 400 million.

The simulation also stressed how increases or decreases in expenditures translate to rightward or leftward shifts of the aggregate demand curve. The simulation graphically showed how policy decisions affect the countrys aggregate demand and supply curve. Increases in expenditure shift the demand curve rightward while decreases in expenditure shift the aggregate demand curve to the left.

Another key point emphasized was the relationship between aggregate demand, supply and inflation. The plot clearly demonstrated how shifts in aggregate demand translate to higher GDP and a higher price index.
Another interesting point from the readings which was shown in the simulation was the three-stage shape of the aggregate supply curve which produces a rounded backwards L shape. This reverse rounded L shape is formed by a horizontally flat initial phase, followed by a positively sloped middle phase and ends with a vertically sloped segment. This L shape can be traced back to the law of diminishing returns. At the initial phase, marginal returns are high as the economy has lots of spare  production capacity. As such, production can increase without needing price increases. When the production capacity is saturated, the market needs higher and higher prices in order to justify increased production. This makes the path of the aggregate supply curve go asymptotic upwards.

4. One important take away lesson is to be found in the aggregate supply. The workplace can be seen as a miniaturized version of the national economy. The reversed L supply curve tells us that production capacity should be pushed to the limit before inflation can take place. In the workplace, this tells me that keeping the price level constant, the company should produce at its highest possible efficiency until it hits production bottlenecks. In the national economy this situation provides for greatest GDP without inflation. In the workplace, this translates to utilizing all the companys resources for production effectively without resulting in having to charge higher prices for our products.

Another take away lesson from this simulation is a better understanding of current events. This may not translate directly to the workplace as it is quite frankly more useful to me as a person not me as an employee. Fiscal policy is an important issue in governance and it is often the subject of much public discourse. Economists, ideologues, politicians and spin doctors all have their own say on many various politically charged economic issues. By having an understanding of the effects of government fiscal instruments, I as a person would be better prepared in understanding the options available to the government. This can lead to better democratic decision making on my part.

5. For me, the interaction between unemployment and inflation was quite interesting. The simulation clearly showed the dichotomy faced by government as they can only choose to reduce one of the two factors. Efforts to reduce unemployment will tend to increase inflation. On the other hand, efforts to curb inflation tend to increase unemployment levels. This brings to mind the concept of an equilibrium point by which the government shall have to balance an acceptable inflation rate with an acceptable unemployment rate.

Additionally, this exercise also brought out some similarities and differences with microeconomic analysis. One major similarity between the exercise and microeconomics is the usage of the same supply and demand framework. In microeconomics, the framework is used to figure out equilibrium prices and quantities  for the exercise the same framework was used to figure out the analogous quantities of price level and GDP. One major difference though was the presence of a multiplier effect. Macroeconomic policy changes have more sweeping effects than microeconomic policy changes not only due to the scope of the problem but also because of the multiplier effect inherent in mapping out an entire economy. 

Global Business Opportunities

In various agricultural trials, sorghum has proved to be a viable alternative to barley primarily due to the rising cost of producing barley and the high international prices. While the beer industry is one of the major consumers of barley worldwide, the bio fuel industry is competing for the available crop for use in producing fuel ethanol. With global production levels of barley relatively steady, a rise in demand is likely to push prices up even further. This will squeeze profit margins for major users of barley and force up prices of finished goods. Beer consumption is likely to fall as beer companies pass on higher costs to the consumer.
The food industry is turning to sorghum to provide solutions for people diagnosed as being gluten intolerant.  Sorghum is gluten free and hybrid species have produced flour that makes quality bread and cakes. The potential for this product to replace wheat is enormous and the low cost of production will translate into lower consumer prices.

Sorghum is a crop native to Africa and does well in tropical regions. Most communities grew the crop as a staple food. With the introduction of maize, outputs declined as more farmers adopted maize as their main food crop. Changing weather patterns have encouraged African governments to reintroduce the crop because of its drought resistant qualities.  Scientists have also developed improved varieties that are pest resistant, high yielding and possess improved malting qualities. The stalks are an important source of molasses and have great potential for the bio fuel industry. Costs of production in the US average 110 per acre, which compares favorably with 140 per acre for barley. In Africa, this cost falls to as little as 45 per acre.

With most developing countries striving to attain the millennium development goals of food security, poverty eradication, and better lifestyles for all, the introduction of sorghum as a major cash crop is a great boon to African farmers especially in the tropical regions. East and central Africa are high potential areas for growing this crop as the ideal weather conditions include average rainfall and plenty of sunshine. Since population densities in these areas are low, the potential for large-scale farming is very high. Applying modern technology to traditional farming practices can greatly improve outputs and lead to a doubling of the current world production of approximately 60 million tons.  

Rising costs of fuel are eroding gains most nations are making through renewed economic growth policies. Sorghum molasses can alleviate this situation and provide cheaper sources of power for sorghum producing countries hard hit by inflation and high electricity costs. Lower production costs arising from cheaper fuels will improve the price competitiveness of exports and lead to increased foreign trade.  Based on these factors, the global business opportunity that exists is for an investor to negotiate with African governments to support a massive sorghum production program with the aim of increasing outputs for the crop. In Nigeria, sorghum has replaced barley as the main ingredient for malting purposes. Replicating this scenario throughout Africa and the rest of the world is possible provided sorghum production meets the market demands.
The business model will take the form of agricultural production and marketing firm. Contracted farmers will grow the crop under controlled conditions with the promise of guaranteed minimum returns. The company will invest in regional buying and processing centres and provide adequate transport facilities to ensure timely delivery of harvested crop. Bonus payments to efficient farmers will encourage better crop management and provide the incentive to produce more. By building molasses plants and producing ethanol from sorghum off cuts, the company will increase its income streams. This will enable the company to reduce its operating costs, as it will have a cheap source of power to run its factories.

The main markets for the crop will include the global brewing industry and major food factories dependant on wheat as their key ingredient. Lower input prices will attract these market players to adopt sorghum as an alternative to barley or wheat. With an assured market, the company can develop its network of out growers and expand the area under cultivation by venturing into Southern Africa. 

Tropical Africa is the most appropriate location to establish this business venture primarily because the crop is indigenous to the region. The climatic conditions are ideal for high production while the land is cheap and readily available. Low population densities mean that introducing large-scale farming is viable without additional costs of relocating families. Labor costs are low and high employment in rural areas will ensure a steady supply of workers to till the land and harvest the crop. East and central Africa have a number of port gateways that will ensure efficient export of the crop to international destinations.  

Internet penetration and mobile phone densities are still very low in Africa. This contrasts greatly with the situation in Europe and Asia. As part of the millennium development goals, the global community has committed itself to ensuring every person has access to some form of communication.  Nokia Company has a good business opportunity of increasing its market share by introducing low cost phones with internet capabilities to rural Africa. With an estimated population of about 1 billion, only 63 million people are connected to the internet or have reliable telecommunication services. Africas use growth figures for the period 2000-2009 are 1,394, which exceeds the rest of the world at 394. 

Through aggressive marketing and the development of user-friendly phones, Nokias sales will increase tremendously. A key marketing tool is the need to provide phones that have solar charging capabilities as most of rural Africa remains unconnected to national electricity grids.

Module 2 Analyzing International Competitors
Diageo Breweries Experiment with Sorghum
Diageo Breweries through its affiliates in Uganda, Tanzania, and Kenya is promoting sorghum cultivation to supplement their malting needs. In Uganda,   Nile Breweries have switched from using barley to sorghum in the malting process. The current technology is limited to producing malt used in low-end beers as research continues for a solution to the entire brewing process. Their efforts are geared to meeting their local demands with future prospects of satisfying the needs of the foreign branches. The company is working through third parties to avoid increasing its overheads by establishing an agricultural unit. With the focus mainly on producing malt, the companys immediate goals do not include ethanol production or sorghum for the food industry.

Ethanol production in Africa is low and its use is not as widespread as in the developed world. Energem Resources Inc. currently produces ethanol in Kenya and relies on the supply of sugarcane molasses as its raw material. The supply of molasses has become erratic due to the poor state of the sugar industry and the company is unable to meet local demands. This has forced the country to import ethanol from other countries to meet demands. By processing sorghum molasses into ethanol, an investor will reap good profits exporting the fuel to those countries that require more quantities than they can produce.  The business opportunity of satisfying the needs of food industries in developed nations will ensure that loss of demand from the brewing industry does not lead to a loss of market for the crop. Increased demand for the crop by competing needs will translate into higher producer prices paid by the investor as opposed to those offered by the Diageo Company.  Higher prices will encourage more farmers to sign up with the investor and thus increase the acreage under plantation.

Efficient transportation facilities will ensure that the goods arrive at the market on time so producers can meet their production targets. Reliable markets with a growing demand encourage increased production and enable an investor to conduct research into developing products of a higher quality. Good quality products fetch better prices on the international market, increase the incomes of those along the production, and supply chain. 

With lower costs of production due to efficient mechanisms and economies of scale, profit margins will increase which will translate into better prices for the suppliers of raw materials. Increased income for the supplier will have a multiplier effect on the economy resulting in higher growth rates and increased consumer spending which will spur all sectors of the economy.

Locating a business where the cost of production is low will give a distinct advantage in the production of a commodity. Sorghum production in the US is possible but the high cost of labor and machinery compare poorly with alternative locations like Africa. Ideal production conditions improve the yields of agricultural products. Africa is blessed with sunny conditions throughout the year. This factor makes it possible to harvest crops at least three times per annum as opposed to those lands that experience winter seasons. Proximity to the markets is another consideration when establishing a business. Transport costs make up a significant percentage of the finished good and the closer the production is to the market the lower the final cost. East and Central Africa have port gateways on the Atlantic and Indian oceans that are served by international shipping lines.

Developed financial markets are important for international commerce. Modern business transactions are conducted using electronic money transfers and internet banking thus ensuring speedy exchange of money and delivery of goods. Unrestricted repatriation of profits and stable exchange rates are the hallmark of a stable economic system. This encourages foreign direct investment and assures investors that their investments are safe.

Political stability is very important for a good business environment. Smooth transfer of power and established political structures create confidence in the business community. Investment tends to be very high in those states where political stability is assured, as the costs of production remain, low as a result peace and security. 

Customer Inserts Grade Course

A house is one important structure that forms one of the basic human needs in life. A house is the basic component in making a home. From a home, families are able to bring up individuals who grow, develop and contribute in one way or another to society. I therefore say that an effective society as we know it is directly reliant on the houses that provide homes to families. Individuals can hardly function well if they didnt get a good nights sleep, were able to cook and eat their breakfast, hence the importance of having a house where the basic activities of daily living are accomplished. Due to dilapidation and a steadily increasing population, more houses are being required every year.

However, the price of houses determines what kind of home one will acquire. The prices of houses are estimated through mortgages that are paid. The current financial crisis in that began in the USA made investors in real estate change the prices of their houses downward has unemployment increased (Andrews and Calmes, 2008). This situation could not be resolved through foreclosure since neither the bank, nor the owner of the property, could sell it to recover losses, there were simply no buyers because they expected prices to go down further. This has negatively affected spending behavior McQueen (2008) asserts that spending has started to falter and quotes several factors, which have caused this fall in spending by UK consumers.

CHANGES IN PRICES OF HOUSE
The price of anything plays a major part of the market operations. The price is determined by the interaction of demand and supply in the market. On the other hand the movement of price, which we call price adjustment, always maintains equilibrium in the market. Any dispersion from equilibrium is automatically recovered by the price adjustment. At the existing price level the market will face the excess demand. Then the price starts its action. The excess demand would pull the price up and the following two effects will follow that. Due to rise in price there is an extension of supply represented by an upward movement along the supply curve and there will be a contraction in demand represented by an upward movement along the demand curve. The equilibrium is again achieved at new price at which the supply and demand match again.  Hence any dispersion from equilibrium is automatically recovered by the price mechanism (Mankiw, 2008).
Having stated that there has been downward trend in prices of houses in the UK in the last three years as shown by the chart below

Adopted from (Walayat, N 2009, httpwww.marketoracle.co.ukArticle8080.html)
From the chart above it can be noted that the price of houses started going down from mid 2008. However it grew from approximately 185000 in 2007 to approximately 205,000 august, 2008. Then downward trend began from approximately 205,000 august, 2008 to 165000 in January 2009.
As a result of house prices fall in this period obtaining house mortgage loans difficult. These factors are worsened the current housing crisis. While demands remain low, there is an increase in the number of homes in the market hence, house prices continue to fall (Sprague, 2008).

FACTORS DETERMINING DEMAND AND SUPPLY OF HOUSES OF HOUSES
There are many factors that are influencing the consumption of houses in the UK and they include
Growth The current financial crisis has made the growth rate stagnant in the UK and many people lost confidence in the economy as the real sector is subject to a high level of risk. This affected the price of houses.  For example the national went down. GDP mainly indicates the sum of goods as well as services produced in an economy. It can be looked upon as the most important indicator of growth of an economy. The current crisis has a huge impact on the growth of the housing sector. The growth rate was only 1.5 in 2008, which reduces to 1 in 2009. Consumer spending also reduces to 0.2 and a significant drop in the investment level. The price of housing also shows a declining trend. The mortgage approval falls by 70.

However the UK economy is strong and prices of houses did not fall as in the USA.
Immigration The number of immigrants to UK played and important role in prices of houses. Immigrants have become vital labor sources in several key industry sectors particularly manufacturing, construction, agriculture, domestic service, and other services. The immigration of health care providers to these UK can be attributed to stability of house prices in the UK. Moreover, opportunities open up for these workers to gain a better life in abroad in contrast to economic problems in their countries of origin.

Employment Opportunity This financial crisis expects to cost at least a number of jobs in the UK and unemployment increases to 7.8, from 5.3 in the year 2008.  Uncertainty is the main cause which reducing consumers confidence and at the same times the level of spending across the world (Jones, 2009).

Public Policy and Economics for Development  Public policy of housing also played an important role in determining the price of houses. Therefore an economic policy may enable or prevent development, and how a government may define the direction of the societys progress. When it comes to the aspect of development, public policy fuels a number of initiatives that ensure goals are designed according to the needs of the population.  However, the feasibility of these policies is dependent on the capacity and capability of the government to deliver and manifest these goals into working programs (Just, Hueth and Schmitz, 2004).
Setting this in the setting of policy-making, a government needs to decide which policies are the priorities as based on the available resources.  For instance, a government may have health, education and security as its top priorities from there, a bulk of the governments resources will be directed to the programs that are created according to the policies in these areas (Perkins, Radelet and Lindauer, 1996).

According to OSullivan and Sheffrin (2003), economic development pertains to the means to increase the standard of living of the population through the improvement of their economic, political, and social well-being.  Translating these into actual government programs may not be as easy, but basically, the idea is to ensure that the populations basic needs are met.

Kaplan, Shema and Leite (20080 defines public policy as a system of laws, regulatory measures, courses of action, and funding priorities.  With this, public policy is therefore formed through a range of needs in which interest groups emphasize which of these areas and sub-areas cater neither to nor to the publics interests. 
The economics of public policy steps beyond scarcity, opportunity costs and marginal analysis primarily because it is integrated with ethical and moral issues, especially as the government takes steps towards providing development in a greater sense.  How public policy is created is based on governance, and how a range of resources --- from wealth to power --- can create the best channel that would incite growth and create an environment of well-being for the entire population.  The created and passed policies therefore reflect the rationality of the government, its prioritized issues on scarcity, and how the conducted marginal analyses have led to the most effective solutions across the social, economic and political challenges of the society.

Inflation  Inflation played an important role determining the price of houses in UK. At that time another bubble was created following the housing bubble and it was the commodity price bubble. The price of houses increases from  160,000 to 205,000 from 2007 to 2008, which implies larger share of spending in houses, which reduces the growth rate in real estate sector. The combining effort of lowered food and oil price leads to reduce the inflationary pressure. Another reason for price inflation is falling is that the demand for goods, services is slow. This situation encourages the consumers to hold back their spending as prices are expected to fall further. It my cause a deflation in the economy which further discourage spending.

SUPPLY AND DEMAND
Rising rents and decrease in low-income housing caused housing rent to represent as much as 40-60 of earnings among poorer families. Availability of cheap and easy mortgages made buying a house attractive in the USA. As demand rose, so did the prices. The result was a phenomenal rise in housing prices evidenced by annual appreciation of housing prices by over 7.6 in 2000-05 and 11 in 2005-06  compared to 1 in the 1990s (Altman, 2009)  leading to overvaluation of houses in 2007. When people were unable to pay for the houses, house prices fell and made obtaining house mortgage loans difficult.  This lead to the following change of demand and supply of houses
                                             
With the injection of loans in the market through cheap funds source people will have more money and the aggregate demand (AD1) will move to AD2 curve thus shifts to the right. This will force real estate investors to raise prices houses. Contractors face the same problem, they have either to raise prices or suffer shortages since they do not have the capacity to build more houses at the same price without a simultaneous adjustment in labor cost. The reverse is true actually, with increase in money in the market labor and other input costs rise and the aggregate supply (AS) curve shifts to the right and upwards. The result is  inflation. Notice the marginal increase in quantity with substantial increase in prices. This will be illustrated as shown below

EMBED AutoCAD.Drawing.15 
Costs involved Construction costs in recent years have been quite volatile and unpredictable. This is due, in part, to the instability of the steel market, where costs often are more than house prices. The framing system of a building typically accounts for 10-12 of the total building cost. When compared with concrete products, steel is typically 5 cheaper overall than concrete (Lawrence, 2002). This causes the price of the house to go up.

Environmental Effects All construction materials are limited and extraction of them contributes to pollution of the air and water. Energy is also required to process these basic materials. However, there are differences in the environmental impact of differing materials, and these can be assessed in terms of sustainability (Givoni, 1998).

Wood is a renewable resource, yet there are no uniform guarantees that wood utilized is being replaced, if these new trees will continue to flourish in the same locations as before, or even if those trees are of an equal character. Steel, on the other hand, is infinitely recyclable with no loss of use.
One of the responses to this global challenge is the development and implementation of a process by which damage to the environment can be measured, and by which one can determine the part of the process in which most environmental damage occurs. Analysis of these stages has led to reliable data which predicts a buildings impact on the environment and to the development of newer, more eco-friendly materials which will serve the same purpose as older, traditional materials. In the case of steel used in the construction of the built environment, newer production processes have led to a kind of steel manufacture which is much less harmful to the environment.

House Quality The quality of houses helps to determine price of houses. The quality affects also safety of the house.

Sustainability Rate of resource depletion, recyclability, energy required in manufacturing, and comparison of different types of materials are important for overall sustainability. As long as key social, economic and environmental issues are maintained, green steel technology are not only sustainable, but necessary for the earths future.

Availability of financing  The availability of cheap financing sources will provide funds to consumers to purchase houses.  However, in the last three years the economy experienced a down turn which contributed to the consumers inability to purchase homes. This is because the source of finance became very expensive, trying the prices off houses down trend. The demand and supply curve for the last three years has been shifting to the left as shown in the graph below.

It is important to note that prices came down supply of the houses also reduced. This reduction is the net effect of reduction in source of financing.
Location Prices of various houses in eastern London become expensive as thee western sides of London were cheap. Houses in major town in United Kingdom were fairly expensive as compared to those in rural and distance suburbs.  As the financial crises started affecting the macroeconomic factors people started moving to cheaply priced houses driving the price of houses in posho estates down. A bad location for house will have reduced interested buyers thus reducing the price downward.

Perception The perception of the people in the United Kingdom contributed greatly affected the price of some houses in the United Kingdom.   People viewed manshionates semidetached houses and bungalows has cheap houses since they are easy to live in. this perception contributed to the changes in price in the area. Also people move around in the estate to find whether there is a house for sale in a reduced price or with a discount this is majorly because of the financial crises. This behavior affects the performance of houses in the market.

Social changes Social behavior has changed drastically in the United Kingdom because majority of people currently appreciate renting a house as opposed because the idea of acquiring a house is currently not as important as it was in 1980s. This also contributed to the downward trend of house prices in the United Kingdom.

FUTURE TREND OF HOUSE PRICES 
With the recession of date, the U.K. real estate industry has been affected from the financial crisis from large lenders and brokerages, allowing the necessity for governmental and political infusion into the industry. The real estate sector experienced a 19 fall in price over 2008-2009, with large losses experienced in urban centers and high level of unemployment. With the fate of real estate at the hands of public policy, prices have been continually dampened by falling rents and lease provisions and an increased cost of funding for houses (House. (n.d.)).

Because the real estate is considered an essential, thus the UK Government has also implemented various strategies to restore consumer confidence. Whereas confidence in U.K. real estate s in general has plunged in last three years, many people continue to express confidence in the sector (Hassell, 2003). The future prices will be as shown in the chart below

Adapted from Walayat, N 2009
From the chart it shows the prices of houses will continue to come down to the value of 129,000 in the year 2012. These will a big fall from the prices of 2007 that were as high as 200,000. This will be considered as 16 decline per annum something that has never been witnessed before.

In order to stabiles market prices of houses various incentives should be implemented both fiscal and monetary. The government should encourage banks and mortgage companies to reduce interest rent but to increase creditworthiness evaluation of customers I order to allow many people access sources of financing to acquire homes. The government should also pass a law which will be used to compact complexities that have arisen due to the risks associated with the industry. Taxation has an impact on acquirement to development functions and outlook of the sector therefore it should be reviewed to make sure that the sector recovers.

If direct and indirect taxes in real estate are reduced there will be a resurrection of affordable housing, demand will increase and the government can claim to have fulfilled its responsibility of providing housing to larger number of people. It is known that profit margins in affordable housing are much lower than the mid and luxury segment but the state can for some time introduce tax holidays for low cost and middle housing which will increase demand and revive the entire sector, eventually leading to a big boost to the entire economy. The governments should give a tax holidays in real estate and infrastructure projects such as airports, highways, roads, ports and water supply projects. There should also be a move to encourage the government to extend tax holidays in the development of integrated townships. Such measures will go a long way in reviving the economy since a number of economic activities are generated from the real estate sector. If projects with lengthy gestation periods are exempted from the corporate tax provisions in keeping with the spirit of economic development, significant growth can be achieved in the sector.

Commercial real estate is considerably burdened with service tax and firms are on the constant look out for the government to either abolish or reduce the tax. Service tax is a considerable burden on consumers also in view of its impact on the final price of real estate products. Tax implications can result in the improvement of liquidity, which cannot be denied by any economist because such measures assist real estate firms to invest in new projects in addition to having extra time in repaying the loans taken for their projects.

As the UK economy begins to rebound, the ability to accommodate to economies of scale will translate into profound success for this industry. Accordingly, the major economic indicators relevant for this industry are the 3-month LIBOR-OIS spread and Prime Interest Rates.

Since the slow down of the housing market severely affects the financial market, and the economy, slowing down the number of foreclosures may be the first step in the recovery of the housing market Sprague (2008). As a first step, Banks should tighten their lending requirements and increase the interest rates to discourage people from borrowing to purchase new homes. However, lending to eligible applicants has to commence again. A combination of these two actions will help reduce the inventory of homes on the market and stabilization of house prices. Drop in inventory of homes will spur increase in the construction of new homes, improving cash flows and employment, and increased spending on housing and private construction. However, realization of the benefits of such actions will take some time (Smant,  n.d.).

Foreclosure is a reality and needs immediate attention. Homeowners deserve to retain their homes especially that they have paid for them. Government legislations which assist the homeowners while easing the housing crisis, would be effective since it protects both, the people and the industry.

The Nature of the Firm

Perhaps the most influential essay providing economical explanation of the reasons why individuals choose to partner or form companies and business entities instead of bilaterally trading through market contract is The Nature of the Firm written by Ronald Coase in 1937. In the article, Coase poses a very important inquiry regarding the expectation of emergence of firms. Two questions are asked to help us in the inquiry why we should expect the emergence of firms and under what conditions such expectations are likely. These questions are posed given that the process of production could be done devoid of any firm or organization (Coase, 1937, p.386). 

Major changes in economy can influence the performance of a company in the market. Some changes do can turn out to be favorable to one company and completely opposite to the other. The past year has not been favorable to Cadbury Food Company which has turned to selling some of its outlets to other better performing firms like Kraft pizza. It had an initial intention of selling out its shares to Swiss food giant Nestle but nestle declined. Other companies which were interested in the takeover bid were Hershey and Ferero from Italy but Kraft was boosted by its large capital base (Blackaby, 2010).  The emergence of modern firms only occurs when entrepreneurs start to recruit new employees. As an effect of this, the analysis Coase gives in the Nature of the Firm, carefully considers the condition under which it creates meaning to an entrepreneur to search for the hired assistance instead of contracting for a given role.    During Coases time, the traditional economic theory proposed that because of the efficiency of the markets, it may even be cheaper to contract out for a particular task than undergoing the long process of hiring. This theory considered the efficiency of the individuals already in the field who have the proper know-how in providing goods and services at even a cheaper rate. 

The two aspects quality and cost made the earlier theorists to recommend contracting than hiring. In his article, Coase notes that a number of costs especially the transaction costs are encountered in marketing. There are costs for obtaining various goods and services through the market which could even be higher than the actual price of the good (Bob, n.d, p.1). Other expenses apart from the costs incurred in obtaining the goods or services include the information and search costs. The enforcement and policing costs, bargaining costs and costs incurred in keeping various key secrets of the trade can all result to an increased cost of procuring items from a firm. According to this observation, there is an indication that firms will only emerge when they can plan to produce whatever they internally require and in a way try to do away with the costs. However, a natural limit exists on what qualifies to be produced locally or internally. In the article, Coase identifies the declining returns to the function of the entrepreneur which includes the overhead costs increasing and the increment of the probability of the excited manager to commit some mistakes in the allocation of resources. This a situation normally referred to as the countervailing cost incurred in the use of the firm.    

 Coase makes an argument that the overall size of the firm is as a result of searching for an optimal balance between the contending tendencies of the costs. The size of the firm is best measured by the number of contractual relations which are local or internal to the firm and those which are external. Generally, expanding and making the firm larger will seem to be an advantage at the initial stages (Coase, 1937, p.389). However, there will be a welcome of the decreasing returns which will come in shortly after the firm is expanded. The decreasing returns will also prevent the firm from its expanding indefinitely. The sale takeover of Cadbury by Kraft after 186 years existence could best sum up this argument. However, such takeovers are not given a sweet welcome especially by people who feel that the legacy should have been protected at whatever case. In this case, the great grandson Peter Cadbury of the founder George Cadbury felt that the company was only sold for a short time gain (Blackaby, 2010).   

In situations where all factors are kept constant, the firm will tend to get larger. There are some consequences that will automatically be felt when the firm gets larger.  There will be a reduction in the costs of organizing the firm and the rise in the costs will be a little slower with an increase in the organized transactions. The increase in the size of the firm will also result to the reduction of the propensity of the entrepreneur to commit mistakes. There will also be a smaller the augmentation of the mistakes which will be followed with the increase in the organized transactions. In addition, there will be a higher the reduction of the price of supply of the production factors to large firms.  

 In Coases analysis, it can be seen that the first two costs will automatically increase with the spatial transaction distribution which are organized and the transaction dissimilarity. His analysis can exactly explain why modern firms tend to have a different geographic location or even carry out different functions. In another perspective, the change in technology has resulted to the mitigation of the cost of transaction organizing around the world which has significantly caused firms to grow large and larger. For instance, the invention of telephone and affordable air travel has increased the sizes of different firms (Bob, n.d., p.3). Similarly, internet applications and allied modern communication and information technologies have led to the existence of the commonly known as virtual organizations which have no geographical boundaries.   

Unfortunately, Coase never considers the non-contractual relationships such as that which exist between a father and a son or other members of a family. He gives a lot of weight to non familial transactions which exist in business environment. He makes several important conclusions which are appropriately applied today in the field of economics and the running of a firm. Concerning authority, Coase points out that the market operation in deed costs a big deal and through the formation of organization and permitting some authority who can be an entrepreneur in directing the resources, a lot of marketing costs can be salvaged. The required scenario is the entrepreneur to be in a position to perform his functions at a minimal cost having in mind that he may have a propensity of having the factors of production at a rather lower price than the transactions in the market. The reason to Causes observation on this note is because it may always be possible to revert to the open, market in case the entrepreneur fails to carry out this function.
   
On what actually determines the size of the firm, Coase clearly identifies that there are other factors apart from the supply price variation. These factors include the cost of organizing and the related costs incurred through mistakes which ultimately increase the spatial distribution of the organized transactions (Coase, 1937, p.400).    The Economist Ronald Coase contributed greatly to the field of economics which he offered with a lot of dedication to observe a lot by watching. Through this venture, Ronald Coase won a Noble Prize and has throughout time been asking other economists to pay keenness to observation. The economists should be keen in trying to understand the reason why events are taking the course they are taking rather than having a theoretical basis on their arguments. Otherwise, the economists will end up wondering why the world may not conform to their theoretical models of reality. Instead, economists should be led the way to observe the organization and structures of the industrial activities before even making theories of them.

Auto Industry

There have been several competitive forces which have contributed to the positive growth of Auto Industry in the United States. In this article we will discuss the impact of these forces.

U.S. Automotive Industry
There could be several forces that may have affected the auto industry in the US. We restrict our discussion to the following factors  Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution and

Threat of New Entrants.
Before analyzing the competitive factors which may have fueled the growth of the automotive industry it is important to know that the history of the Automobiles can be divided into five eras Vintage era, Pre WWII era, Post War era and modern era.

Among all the factors Buyer power was one of the major factors in the growth of the U.S. automotive industry in its earlier phases because one of the major buyers was US army which was able to fund the research and buy the cars during the world war era.

Before the world war era the growth of industry and hence the industrial revolution was one of the other reason for the growth of auto industry , moving commodities produced at one state to another required automobiles and this helped shaped the automotive industry.

The economic stability of US government also helped in the development of the auto industry as it was able to support this industry. As the US government and policy makers realized the importance of the automobile it development was further pushed and several legislations were passed to enhance the development of the cars and hence helping the automotive industry. Even after all these governmental initiates it could not have been possible without the buying power of the customer that the auto industry saw its tremendous growth.
The World War II helped create a scenario where are lot of Research and development was made to improve the cars, this may be considered as one of the largest factor in the development of the auto industry in US.

It is important to know that throughout the veteran car era, however, automobiles were seen a novelty rather than an authentically useful device. The cars manufactured during this era consumed lot of gas and broke down frequently and was obviously expensive and common people were not able to afford it. It was not until the long drive by Bertha Benz in 1888 that made people aware of the importance of this invention.
Competitive Rivalry could be the second major reason of the growth of automotive industry. In the earlier phases of the U.S. automotive industry  there were several companies that tried to manufacture automobiles they spend great deal of effort in building new and improved designs with fuel efficient and unique engine designs but today there are only three large automotive companies that rule the U.S. Auto industry. The competition among these companies produced better cars with cheaper prices and more luxury. The other companies ended in failure of were bought out by the larger and financial better off companies. The reason of failure could also be attributed to the fact of poor designs and bad marketing efforts.

Threat of Substitution and Threat of New Entry are other important factors in the recent history of US automotive industry. Today the major auto manufactures in USA are General Motor, Ford and Chrysler. In the past only those automotives companies were able to survive which came up with new designs and produced cars which were economical and liked by the people based on the comfort and style, these companies struggled big time to stay on top and avoided substitution by other companys designs and this way avoided the new entrants into the market.

The failure of Ford can be related to this scenario because it produced designs that were not liked by the consumer and the Japanese automobile Toyota and European makes who were the new entrant also increased the competition and slowed the growth and business of Ford.
Today the competition that drives the market is the electric vehicle and it is because of the several laws that have passed and only companies which will be able to produce promising and better automotive designs would survive.

In this essay we discussed the growth of automotive industry in the US and the competitive factors between the companies that may have affected the growth. It can be easily seen that the Competitive Rivalry and Threat of New Entrants were the major factors that fueled the growth of this industry and in the future competitive rivalry would play a large role in the automotive industry growth.

Environmental Nature

Every nation has different types of resources. Some of these resources may be internationally traded while some other resources may only be sold and used locally. All those resource that can be sold or rather used locally are the ones that are referred to as non-traded resource. Resources are classified as non-traded due to some reasons. The first one is that they may have no international value or market meaning that no one will buy them in the international market such as firewood, or it may be very difficult to export them and therefore they must be used locally for instance the city council water. The third reason why goods may be non-traded is the fact that the government does not allow export of such resources. (Diamon, P,  Hausman, J.)
It is therefore obvious that there are some issues that will arise while trying to fix the value of non-traded goods. The first issue is that most of these goods are local goods and services are locally produced and in most cases by the government or rather by parastatal. It happens that they are monopolies and therefore there is very little competition. By the fact that there is little or no competition, some of the good are poorly produced and the customers will only use them because they are in need of them and not because they are the best products.  (Kolstad)
In addition, due to the nature of the good and services that are non-traded, it happens that even the consumers or the customer are not willing to buy them. This eliminates the nature of a normal market that is usually important for any good or service to be traded. This makes it even more difficult for the operators in the market to be able to know the actual value of the good or the service that they may be selling. A producer is usually able to fix the value of goods or services that he or she may be selling using the offers that are given by the consumers. If this offer is not there, it become very difficult to determine how much will be spent on this. (Diamon, P,  Hausman, J.)

A value that must be fixed for these goods and services must be reasonable so that people may buy them. It becomes very difficult to fix these values because there are some other issues that are involved in the process. First, there are some complementary resources which make it difficult for the consumers to be interested in the non-traded goods. For instance, instead of using firewood, which can be termed as non-traded good, people are turning into other forms of fuel such as gas which happens to be very cheap. This makes it difficult for the producers of firewood to fix the prices of firewood as none of the customers want to buy them because the price of gas is very low. (Nunes)

However, there is a way of dealing with this problem and this is through the use of the contingent value method which is commonly abbreviated as CVM. Using this method, the producers can reduce or rather deal with these issues which makes it difficult to have or to fix the value of the non-traded goods. Through this method, the producer can go into the market and infer preferences of the individual for public goods. Individuals in the public are the one who say what they want. Using this method, the consumer usually gives the maximum value that they want to spend on a certain goods. This makes it easier to fix the price of such a good because the producer will have an idea of the value that the consumer can buy the goods.  In addition,, this is known to solve most of the issue that arise from the trying to fix values of these non traded goods as the figure will only come from the consumer themselves.  (Perman, R. et al)