Factors Affecting Economic Growth and Economic Activity

Opportunity Cost

Opportunity cost is defined as the cost of the forgone alternative. We, as consumers, make several choices every day and sacrifice something to gain the other. We may choose one alternative at the cost of the next best alternative which is then referred to as opportunity cost in the terms of economics.

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I had decided to make my career in the field of banking where there is a lot of competition and professionalism. Since, I had studied finance and have quite an aptitude to deal with money; I was more interested to face the upcoming challenges in the banking sector. In order to achieve my goals and chalked-out objectives, I had to sacrifice my time in obtaining specialization in the field of finance and, later, in doing internships in different organizations. Moreover, it was essential for me to be coming out of a good education institution with a Masters degree and I had to have contacts in corporate world to get into a reputable bank.

However, if I had chosen to start up with my own business, it would have been a lot easier and less time-consuming. I would have earned more and had enough knowledge of managing a business venture on my own. Moreover, there would be no internships or requirements for obtaining an MBA degree with a good CGPA. Thus, starting up a sole corporation was the next best alternative that I had to forgo in order to achieve my well-thought-out missions.

Externality

An externality or a spill out is defined as the effect of economic activity on the people who are not a direct part of that particular economic transaction taking place. The beneficial or a profitable impact of the economic transaction is called a positive externality or economic benefit while a harmful effect is referred to as negative externality or economic cost.

If a local power plant emits harmful gases and particulates, this would be called a negative externality as it would be a source of damage the society and the surroundings. To reduce the effects of such economic costs, the first most effective tool would be government intervention. The government should pass certain laws and regulations to stop the power plants from polluting the environment. Either, the manufacturers are told to establish the plants far away from the residential area and should use an environment-friendly system of producing power. Or, they should be taxed if they don’t stop creating costs for the society. Secondly, the government can also provide subsidies to the power plant producers in order to start their production at a new level. Legislations can also provide solutions in preventing negative externalities from taking place. They can set the particular level at which the companies should produce and lessen the harm done to the environment thus reaching a level where MSC=MSB. Moreover, the government can issue pollution permits by which only an optimal level of pollution can be released. These permits can be bought and sold under certain conditions among the factory owners.

The benefit of taking all the above steps would be a decrease in pollution to an optimum level by providing incentives to the producers. The power plant owners would be restricted to produce a certain amount of power where MSB equals MSC thus increasing social efficiency. The government will also be able to increase its tax revenues to further stop external costs. The best level of emission reduction can also be judged through the excess production taking place. The normal capacity of the power plant may be lesser than what it is producing thus resulting in more emissions from the machinery. In such a case, the approach of providing incentives to stop the externality would be better. The grant of subsidies by the government would encourage the producers to operate at their optimum level and open up new power plants if extra production is required. This would encourage their profits and make them realize the potential costs of the society.

Price fixing

On June 14, 2004, the Federal Trade Commission approved of reconciling all the charges of a group of attorneys in Clark County, Washington, who had formed a group to charge higher fees from the County for protecting homicide, other criminal cases and death penalty cases. This was done in the clear violation of the FTC Act. The lawyers in the consortium did not solve cases until they were paid the high fees they asked for. The FTC had said that this behavior was similar to the price-fixing that was done by the criminal defense attorneys of the US Supreme Court in a 1990 case.

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In the Clark County, the private lawyers joined under a contract and provided the criminal legal services for destitute defendants. In 2001, the County had entered into negotiations under the contract where a group of attorneys was formed to negotiate for the County’s criminal matters. They had demanded to be paid considerably for cases such as defending homicides and death penalty. Moreover, 43 attorneys created a deadlock that wouldn’t work if their demands are not met.

Thus, the Consortium contract had compelled the Clark County to change its methodology of payment to the attorneys. This contract increased the County’s compensation rate considerably. This Contract by 43 attorneys was the price-fixing which was declared illegal and was a violation of Section 5 of the FTC Act.

The Proposed Consent Order was modeled which prohibited the repetition of any unlawful conduct by the Commission. Under its provisions, the respondents were restricted to agree on any terms with the attorneys or to negotiate with or threaten to deal with any payer (FTC Charges Attorneys’ Group in Clark County, Washington, with Price-Fixing New Realities, 2004).

Factors behind Economic Growth in Hong Kong and Singapore

Hong Kong and Singapore are two of the four countries known as the Asian Tigers and having the busiest ports in the world today (Trading Economics, 2008). They have evolved from a poor to a revolutionized and industrialized economy in a passage of time (Hong Kong GDP Growth Rate, 2008).

There are several reasons for their economic growth at such a short pace. Both the countries are heavily populated and work on the basis of free-market economies. The countries have adopted innovation in their manufacturing and services sectors and have achieved economies of scale in their production processes. They are not only involve in international trade but have also become important financial institutions globally and have a modern automated banking sector. They are free traders, support bilateral and regional trade liberalization and have capital inflows and huge amounts of GDP. The countries, instead of looking out for import-substitution industries, managed to find competitive edges in their exports globally. They also lease out the lands and get returns in form of economic rent. This economic rent serves to fulfill the economic demands of both the countries by bringing them capital. The per capita growth is as impressive as output per worker thus giving both the countries a competitive position in becoming global leaders. They have been able to benefit a lot from the market incentives and did not have to counter any adverse effects of policies on the economy (Wong, 2008). Moreover, the countries, at present, have high per capita income and high wage rates prevailing in industries. This has also raised the social living standards of both countries, Hong Kong and Singapore. These two countries have moved away from the primary and manufacturing sectors and now are involved in the production of medium and high-technology products (Economic Growth and Development in Singapore: Past and Future | Book Review, 2003).

A newly industrialized economy should be more concentrated on making its manufacturing sector more fruitful. They should work on the basis of innovation, and make the best use of technological boom in their economies. This would bring them an ultimate of high levels of output which can be traded later. Moreover, it would be useful for the newly industrialized country to benefit from low labor costs and thus lower input prices in their production sector.

Effects of Tax Cuts on the Economic Growth

Taxes are a way for the government to finance the economy. Through the direct and indirect taxes, the economic wheel is aimed to turn and fiscal policy of the country is made functional. For the last many years, the increase in taxes has been a cause of inflation globally. The rising taxes have been imposing higher prices on the producers and the public thus creating an inflationary pressure.

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If tax rates in an economy are increased, the ultimate would be a decline in the productivity and an increase in unemployment. The cost of inputs will also be subject to an increase and the cost of finished goods will be higher thus reducing the purchasing power of the people. On the other hand, a decrease in taxes is likely to improve economic activity. The result would be increased production due to lower cost of inputs, higher employment, and higher purchasing power of the people. Lower taxes will also result in the devaluation of money and the circulation of currency in the economy will increase. However, this could create demand and supply gaps and a shortage of revenue for the government. This is because, besides government spending, taxes are one of the ways to finance the country or fill the budget deficits of the country. Thus, if taxes are cut, the economic growth will increase due to high productivity and thus higher GDP.

Reference

Economic Growth and Development in Singapore: Past and Future | Book Review. (2003). Web.

FTC Charges Attorneys’ Group in Clark County, Washington, with Price-Fixing New Realities. (2004). Web.

Hong Kong GDP Growth Rate. (2008). Web.

Wong, R. Y.C. (2008). Understanding Rapid Economic Growth: A New Tale of the Four Asian Dragons. Web.

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