Economic Infusion Volume 2 Issue #1

Editors' note

Economics and Business serve as fundamental disciplines that enable individuals to comprehend the world around them. Although we may not consciously realize it, we constantly make economic and business decisions, even regarding mundane matters such as what to have for lunch. Once, an economist Milton Friedman said, "There's no such thing as a free lunch," highlighting the economic problem of scarcity and its resultant opportunity cost.

We aim to foster a better understanding of the world's relationship with Economics and Business and their impact on our daily lives. As the current directors of Economic Infusion, we have initiated Volume 2, in which we have been working alongside students who share our passion for Economics and Business.

The articles featured in this magazine are a testament to our collective passion for Economics and Business, through which the students at Economic Infusion express their thoughts and emotions.

By leading the group, working collaboratively, and sharing our perspectives, we can enhance our academic knowledge and gain valuable experiential learning

A message from Anvi Jain and Sieun Yeom (Leaders & Co-editors in Chief)

Saudi Arabia - The Specialist in Oil Production

Buth Khuptanon

Specialization is when a nation concentrates its productive efforts and resources on a specific variety of goods to be most efficient and compete with other foreign countries. Since decades ago, Saudi Arabia has been known for being one of the largest producers and exporters of oil, second to no one except the United States. After 1938, when one of the World’s largest oil reserves was found in Saudi Arabia, the country started concentrating most of its labor and capital resources on oil production, allowing it to increase its oil output to match with the Americans. (National Geographic, 2022).

After specializing in oil production, Saudi Arabia has been able to efficiently use its scarce resources and utilize its advantageous geographical area. In 2022 alone, the revenue for oil production reached $326 billion (Omar, 2023), accounting for 22 8% of Saudi Arabia’s total GDP (Trading Economics, 2022) This comes to show that oil production has become a huge part of Saudi Arabia’s economy and suggests that it plays a huge role in escalating its growth

Unsurprisingly, the energy sector became the backbone of Saudi Arabia’s economy, and oil was at the heart of it. By 1970, they became one of the leading producers and exporters of oil, and by 1980, the government took control of the Saudi Aramco, one of the largest public petroleum and natural gas companies in the world (Wikipedia, 2023) Since then, the company has been exploring the vast geographical area to find more highgrade crude oil, discovering some new fields, such as one 175 miles southeast of Riyadh (The Royal Embassy of Saudi Arabia)

Oil discovered in Saudi Arabia (no date) Oil Discovered in Saudi Arabia. Available at: https://education.nationalgeographic.org/resource/oil-discovered-saudi-arabia/ (Accessed: March 25, 2023)

Omar, A.A. (2023) Saudi oil revenue drop rounds off year of $326 billion windfall, Bloomberg.com. Bloomberg. Available at: https://www.bloomberg.com/news/articles/2023-0221/saudi-oil-revenue-drop-rounds-off-year-of-326-billion-windfall?leadSource=uverify+wall (Accessed: April 6, 2023)

Saudi Arabia GDP growth oil sector2023 data - 2024 forecast - 2011-2022 historical (no date)

Saudi Arabia GDP Growth Oil Sector - 2023 Data - 2024 Forecast - 2011-2022 Historical Available at: https://tradingeconomics com/saudi-arabia/gdp-growth-oil-sector (Accessed: April 6, 2023).

Saudi Aramco (2023) Wikipedia. Wikimedia Foundation. Available at: https://en wikipedia org/wiki/Saudi Aramco (Accessed: March 25, 2023)

The Royal Embassy of Saudi Arabia (2022) Energy | The Embassy of The Kingdom of Saudi Arabia. Available at: https://www.saudiembassy.net/energy (Accessed: March 25, 2023).

Frequently asked questions (faqs) - U S energy information administration (EIA) (no date)

Frequently Asked Questions (FAQs) - U.S. Energy Information Administration (EIA). Available at: https://www.eia.gov/tools/faqs/faq.php?id=709&t=6 (Accessed: March 25, 2023).

The oil curse: A remedial role for the oil industry (2015) Available at:

https://carnegieendowment.org/2015/09/30/oil-curse-remedial-role-for-oil-industry-pub-61446 (Accessed: March 25, 2023).

The Collapse of the Silicon Valley Bank

Until Friday 10th March 2023, Silicon Valley Bank (SVB) was the 16th largest bank in the US, with its value worth more than $200 billion. The SVB was created in 1983 and it became renowned for its technological prowess and astute decisionmaking They provided financial support for companies in the technology industry globally up till its downfall owing to a sequence of hapless investment decisions

Throughout the pandemic era, demand for electronic devices and digital services has increased rapidly as people spent most of their time using electronic devices at home due to the lockdown. For instance, Apple’s stock prices nearly doubled in 2020 and they had a 20% revenue growth (Dilek, 2021) This growth in demand for goods in the technology industry has allowed the establishment of numerous startup companies in early 2020 after the release of the COVID-19 virus

Sungwon Park (Jenny)

The majority of tech startup companies utilised SVB to keep their money for any payrolls or other expenditures regarding their business SVB took this chance and used the influx of deposits for investment. When it made significant investments in long-term US government bonds, especially those backed by mortgages, was the remark of the beginning of its collapse.

Back in September 2022, the Federal Reserve rapidly raised the interest rates due to the soaring inflation rate. (Smith & Duguid, 2022) This is known as the contractionary monetary policy, which is implemented by the central bank to lower inflation by increasing the interest rate and decreasing the money supply in the short term. Increasing interest rates will encourage people to save their money due to higher returns of savings and will prevent them from purchasing goods and services, which will result in lower price levels. The elevated interest rates have caused a substantial loss in SVB’s bond portfolio since bonds have an inverse relationship with interest rates. This is because the investors will be discouraged by the lower interest rate of the bond, which will outcome a decline in its price. (Lioudis,

2023)

Furthermore, banks usually have a portion of their assets as cash for several reasons: transaction motive, precautionary motive and speculative motive

In the book “The General Theory of Employment, Interest and Money” by John Maynard Keynes, he discusses these 3 motives in Chapter 13, the general theory of the rate of interest Transaction motive is the required cash for any business to run its day-to-day operations such as wages and rent. A precautionary motive is an action of holding cash to cope with any unexpected affairs that compel cash outlay. Lastly, the speculative motive is a strategy usually used by investors or traders, who are seeking investment opportunities that may occur in the future (Keynes, 2002)

SVB’s problem slowly commenced when they made atrocious investment decisions and it was set off after their announcement of a $1 75 billion capital raising to replenish their loss on a bond portfolio This enabled customers to be knowledgeable of the financial issues SVB was going through, precipitating them to withdraw their money.

Unfortunately, the majority of SVB clients owned large accounts unlike retail banks for households, making the bank run even more rapidly

SVB did not have the ability to embrace this as it could not hold these bonds for years until it got its capital back. As the coronavirus dominated the world, the economy has been on a decline, inducing uncertainty (Jackson et al , 2021) This caused the majority of the customers to withdraw their deposits. SVB’s actions have shocked both the investors and the customers as they surprised everyone by selling bonds. In less than 48 hours after selling all of its assets, SVB went bankrupt. (Barrett, 2023)

Bibliography

Dilek, C (2021, November 25) Electronics industry: Current trends and the COVID-19 effect Segmentify Retrieved March 30, 2023, from https://segmentify com/blog/electronics-industrycurrent-trends-and-the-covid-19-effect/

Smith, C , & Duguid, K (2022, September 22) Jay Powell refuses to rule out us recession after third 0 75 percentage point rate rise Subscribe to read | Financial Times Retrieved April 5, 2023, from https://www.ft.com/content/af12dcb4-bab2-4aa7-8462-2941ca58cd1d

Lioudis, N (2023, March 28)

Inverse relation between interest rates and bond prices

Investopedia Retrieved April 5, 2023, from https://www investopedia com/ask/answers/whyinterest-rates-have-inverse-relationship-bondprices/#:~:text=Most%20bonds%20pay%20a%20fixed,a%20decline%20in%20its%20price.

Jackson, J , Weiss, M , Schwarzenberg, A , Nelson, R , Sutter, K , & Sutherland, M (2021, November 10). Federation of American scientists. Global Economic Effects of COVID-19.

Retrieved April 11, 2023, from https://sgp.fas.org/crs/row/R46270.pdf

International Monetary Fund

Taehan Lee

The International Monetary Fund (IMF) organizes and works to reach prosperity and continuously grow for all 190 countries by keeping up economic policies that encourage financial stability and monetary cooperation. These are necessary to increase productivity, job creation, and economic contentment

The IMF is to observe the following; IMF suggests policies to countries to support growth and financial stability, they research any dangerous risks that would harm global economic developments and monitor the international monetary system Additionally, the IMF inspected the economic well-being and financial policies of all 190 countries.

Furthermore, ‘The board of Governors’ are situated at the highest point of organizational structure in charge of the IMF staff and the managing director who acts as the chair of the executive board. . The head of the IMF staff and the Chair of the Executive Board is the managing director The IMF’s regular work routine is supervised by the entire membership and supported by IMF staff which represents the 24-member Executive Board.

The IMF’s current goal is to continuously expand trading and economic growth, discouraging policies to prevent harm to prosperity and further growth of international monetary cooperation.

The staff-level of agreement on a set of macroeconomic and financial policies have been reached by IMF members and Ukrainian authorities which would be provided by Extended Fund Facility (EFF) Arrangement

International Monetary Fund (IMF)

“The staff-level agreement reflects the IMF’s continued commitment to support Ukraine and is expected to help mobilize large-scale concessional financing from Ukraine’s international donors and partners over the duration of the program.”

“In addition to the horrific humanitarian toll, Russia’s invasion of Ukraine continues to have a devastating impact on the economy: activity contracted by 30 percent in 2022, a large share of the capital stock has been destroyed, and poverty levels have climbed Acute macroeconomic challenges persist due to the scale of the shock and the expansion of the fiscal deficit. The authorities have nevertheless managed to maintain macroeconomic and financial stability, thanks to substantial external support and skillful policymaking. The authorities’ commitment to good economic management was also evidenced by the strong performance under the Program Monitoring with Board Involvement (PMB) (Press Release 23/46).”

“A gradual economic recovery is expected over the coming quarters, as activity recovers from the severe damage to critical infrastructure, although headwinds persist, including the risk of further escalation in the conflict. Developing a single baseline outlook scenario under exceptionally high uncertainty is exceedingly challenging, as a range of outcomes are plausible. On that basis, staff currently sees real GDP growth for 2023 ranging from -3 to +1 percent”

“The overarching goals of the authorities’ program are to sustain economic and financial stability in circumstances of exceptionally high uncertainty, restore debt sustainability, and support Ukraine’s recovery on the path toward EU accession in the postwar period The program has been designed in line with the new Fund's policy on lending under exceptionally high uncertainty, and strong financing assurances are expected from donors, including the G7 and EU In view of the exceptionally high uncertainty, the requested IMF-supported program envisions a two-phased approach:

International Monetary Fund (IMF)

The first phase, currently envisioned during the first 12-18 months of the program, will build on the PMB, to strengthen fiscal, external, price and financial stability by (i) bolstering revenue mobilization, (ii) eliminating monetary financing and aiming at net positive financing from domestic debt markets, and (iii) contributing to long-term financial stability, including by preparing a deeper assessment of the banking sector health and continuing to promote central bank independence. New measures that might erode tax revenues will be avoided The authorities are also committed to continuing reforms to strengthen governance and anti-corruption frameworks, including through legislative changes

The second phase would shift focus to more expansive reforms to entrench macroeconomic stability, support recovery and early reconstruction, and enhance resilience and higher long-term growth, including in the context of Ukraine’s EU accession goals. During the second phase, Ukraine would be expected to revert to prewar policy frameworks, including a flexible exchange rate and inflation-targeting regime In addition, fiscal policies would focus on critical structural reforms to anchor mediumterm revenues through the implementation of a national revenue strategy, together with strengthening public finance management and introducing public investment management reforms to support post-war reconstruction Enhancing competition in the vital energy sector, while reducing quasifiscal liabilities would complement the postwar reform efforts.

“The mission met with NBU Governor Pyshnyy and Finance Minister Marchenko, and other senior public officials, and would like to thank the authorities for the open and constructive discussions and the close collaboration that have brought us to today’s staff-level agreement.”

BIBLIOGRAPHY

LOUIS, M. E. E. R. A. (2023, March 21). IMF and Ukrainian authorities reach staff level agreement on a US$15 6 Billion extended fund facility (EFF) arrangement IMF Retrieved April 2, 2023, from https://www.imf.org/en/News/Articles/2023/0 3/21/pr2388-ukraine-imf-and-authoritiesreach-staff-level-agreement-eff-arrangement

The Danger of Asymmetric Information

Sieun Yeom (Claire)

Imagine going to an all-you-caneat buffet where everyone pays the same price, regardless of how much they eat This may seem unfair to those who eat less, but from the restaurant’s perspective, it is difficult to charge different prices since they do not know who will eat more or less. This situation exemplifies asymmetric information, which occurs when one party in a transaction holds more information than the other, resulting in unfair benefits.

Asymmetric information is an imbalance of information between buyers(consumers) and sellers(producers) in a market that gives one side an unfair advantage in a transaction. When this happens, the market outcome will not be the most efficient, as the decisions are based on incomplete information From society’s point of view, asymmetric information leads to inefficient allocation of resources, either under allocation or overallocation to the production of products. Therefore, asymmetric information is seen as a market failure. In most cases, producers have more information than buyers making it difficult for buyers to make informed decisions However, in the case of an all-you-can-eat buffet, consumers are the ones who have more information than the sellers since they know much more about themselves, such as how much they can eat.

In such cases as an all-you-can-eat buffet, asymmetric information can lead to adverse selection, where one party exploits the information imbalance before the transaction occurs. Consumers in an all-you-can-eat buffet have more information about their appetites, making it easier for them to exploit the system by eating more than they usually would. This behavior is known as a moral hazard in which one participant takes on more risky behavior because they do not pay the consequences of that increased risk. A moral Hazard happens after the transaction has occurred. Since the buyers know they are freely available to have food, they tend to eat more than they usually would and throw away even more.

Due to the existence of asymmetric information, buyers and sellers of the market do not make decisions that maximize the welfare of the market, which leads to market failure. To address the adverse selection and moral hazard, governments can use legislation and regulation to reduce potential harms from asymmetric information For instance, laws and regulations can prevent market failure by addressing externalities, correcting market distortions, and promoting competition. In the context of an all-you-can-eat buffet, sellers can require the guests to finish their plates before serving more food or fine the guests according to the amount left behind

Buyers and Sellers can also use private responses such as signaling, the use of actions or attributes by a firm to convey information about its quality, intentions, or capabilities to its customers, investors, or other stakeholders This way, the guests will be less likely to present moral hazards since they will be more careful filling their plates and deciding how much they eat. Also, restaurants can set a time limit for customers to enjoy the food. Implementing time limits in a restaurant business can benefit the establishment financially by increasing table turnover, optimizing staffing levels, and potentially reducing the need for reservations, resulting in more efficient use of space and increased revenue. To manage sellers' asymmetric information, they can provide customers clear information about their food and the buffet's rules

The presence of asymmetric information in a transaction can pose significant risks for both buyers and sellers While certain situations, such as all-you-can-eat buffets, may present more difficult challenges in controlling information asymmetry, it is crucial to minimize this imbalance to prevent potential market failure

Bibliography

Kognity (no date) App Available at: https://app.kognity.com/study/app/y12-economics-hl/sid-186-cid167610/book/asymmetric-information-id-30498/ (Accessed: April 27, 2023).

BENEFITS OF LOW INTEREST RATES IN AN ECONOMY

Kavin SIngh Charoenvorawat

Monetary policy is a demand side policy which influences the aggregate demand of the economy by manipulating money supply and interest rates. This would further stimulate the growth of the economy One way that is mentioned above is manipulating interest rates, which demonstrates if it is more favorable to save or borrow money Interest rate is the price of money borrowed by lenders and reward for savers.

Digging in a little bit deeper, low interest rates are a form of an expansionary monetary policy. This is usually decided by the central bank of a country if they want to imply expansionary or contractionary monetary policy. Expansionary monetary policy is usually implemented when there is slow down in the economy, that may be caused by a recession or other factors influencing this such as high unemployment rate. “The cash rate would need to remain lower for a longer period of time to help the economy recover from the negative shock ” (Chung et al 2019), which means interest rates needs to remain low in order to help the economy recover from a downfall.

There are 2 reasons as to why low interest rates would encourage consumers to borrow more money. Firstly, “Falling interest rates meant banks charged borrowers less for their loans ” (David L ,2020), meaning that the cost of borrowing for consumers/businesses/investors would be cheaper therefore encouraging them to borrow more money. Secondly, when a low interest rate is charged, the return on savings would be lower as opposed to when interest rates are high, thus disincentivizing consumers to save money in the bank Both these reasons above are a way to contribute to stimulating the economic growth of a country

When low interest rates are in motion, this “allows people to spend and invest more freely.” (Maverick., 2021), resulting in a shift in the AD curve from AD1 to AD2. This will increase the average price level from P1 to P2 and an increase in the real output from Y1 to Y2, meaning that there would be a rise in the GDP (Gross Domestic Product) as national income rises which would likely increase economic growth, probably decrease unemployment, and increase exports

Low interest rates can make it less expensive for governments to borrow money which may be used to pay off their debt or fund new infrastructure projects

As new infrastructure would be built in the economy, there would be a higher demand for laborers to cater the building of new infrastructures, this is known as derived demand This would lead to a decrease in unemployment in a country. As a result, making it easier for the government to stay within their budget and not resort to cuts in spending or increasing taxation

In the consumer’s eye, borrowing becomes more attractive when interest rates are low therefore the demand for loans would increase. A lower interest rate would also mean that consumers with mortgages may find their mortgage payments fall These would result in more disposable income for consumers to spend on goods and services, as a result, increasing the aggregate demand in an economy which would lead to an increase in economic growth

For example, “home sales are usually higher when mortgage rates are 5 percent than if they were 10 percad better products may be produced.

Low interest rates can encourage investors to invest in riskier investments and seek higher returns, such as stocks and real estate. This would occur because investors would gain confidence to invest due to the low rates of borrowing. However, these investors would seek to invest the money borrowed in other countries to earn higher return on investment Therefore, leading to a decrease in demand for the currency with low interest rate, causing the currency to devalue relative to other currencies The flip side to this is that, when a country exports more than it imports, a positive trade balance is created.

As the currency of a country depreciates, goods and services will become relatively cheaper for other countries to buy. “This is because the number of products that other countries used to buy will be more in the same amount of money, therefore increasing the export of the country ” The import of the low interest rate country would be more expensive because “the number of products that they used to buy will be lesser in the same amount of money,” due to the weakened exchange rate. As a result, making exports cheaper and imports more expensive, further boosting economic growth.

Bibliography

https://www washingtonpost com/b usiness/2020/10/03/low-interestrates/

https://www rba gov au/publicatio ns/bulletin/2020/sep/the-economiceffects-of-low-interest-rates-andunconventional-monetarypolicy html

https://www.investopedia.com/ask/ answers/071715/how-do-changesinterest-rates-affect-spendinghabits-economy.asp

https://www stlouisfed org/publicat ions/regional-economist/october2010/low-interest-rates-havebenefits

https://www finnomena com/zadmin/currency-appreciationdepreciation/

Market failure is a fundamental concept in microeconomics that describes the situation where resource allocation is inefficient in a free market. In an idealized functioning free market, the relationship between supply and demand should be in balance However, when this supply-demand balance is disrupted, market failure occurs. (Team, T.I. 2023) There are many common reasons for market failure, including externalities, information asymmetry, public goods, and monopolies In this article, I will focus on theoretical knowledge about externalities and real-life practical examples.

Externalities can be classified as positive or negative, and they occur when the production of a good or service affects a third party (People or groups who are not directly involved in any economic activity but are affected by externalities) in a beneficial or harmful way. Positive externalities refer to economic activities that benefit third parties without the actor receiving any benefits themselves To illustrate, consider the example of Producer A, whose apple orchard benefits a nearby bee farm, which is a positive externality. In contrast, negative externalities refer to economic activities that cause harm to third parties, and the actor responsible does not bear the cost of that harm. Producer B's farmland is negatively affected by the pollution from a chemical plant upstream, which is a negative externality (君⼦终⽇乾乾, 2022)

Externality and Market Failure

Tianhao Bao

The image below shows the occurrence of oil pollution in the Niger Delta of Nigeria. Shell is the largest oil operator in the Niger Delta, the largest oilproducing region in Africa. Due to the hundreds of oil spills that occur every year from Shell's oil production in the area, residents face high poverty rates and a severely degraded environment. The level of benzene contamination in the area's groundwater is 900 times higher than the World Health Organization's standard level, and local farmland yields are low Rivers are heavily polluted, making residents unable to rely on fishing for their livelihoods. Each year, thousands of infants and young children lose their lives due to oil pollution (Princewill & Shveda, 2022)

In this case, Shell's oil extraction activities in the Delta region have resulted in a series of negative impacts on society and the natural environment, giving rise to what is known as negative externalities.

However, the social marginal cost includes not only the production costs of oil but also the costs incurred by other people in society affected by the oil spill and pollution, such as medical expenses and pollution cleanup costs. Therefore, as shown in the graph, the social marginal cost line (SMC) is above the private marginal cost line (PMC), and the distance between the two lines represents the additional cost that society pays for the negative externality

Negative externalities lead to social marginal costs exceeding private marginal costs Taking the Shell oil spill as an example, the private marginal cost only includes the production costs generated during the oil extraction process, such as the cost of constructing drilling platforms and the wages of oil workers

As shown in the diagram, the intersection point A between the private demand curve PD and the social marginal cost curve SMC represents the optimal allocation of resources the society wishes to achieve. On the other hand, the intersection point B between the private demand curve PD and the private marginal cost curve PMC represents the production decision of the private sector, which is aimed at maximizing their profit. taking externalities into consideration, there is a discrepancy between the private and social objectives The optimal quantity of resources that the society wants to allocate, Qs, is less than the quantity of production Qp that the private sector provides Since the private firms or producers do not have to bear the external costs in which they are producing, therefore, when negative externalities exist, the quantity of goods provided by the private sector will exceed the socially optimal level This indicates that the existence of negative externalities will break the supplydemand equilibrium of the optimal resource allocation, leading to the so-called market failure. (

The government intervenes and regulates the market by exerting its "visible hand" to address market failures, deficiencies, and gaps to optimize resource allocation. Regarding eliminating negative externalities, the government can intervene in those companies that produce external economic effects through the traditional method of levying taxes. For example, imposing corresponding taxes on companies that cause severe pollution, namely pollution taxes Such Taxes should not be lower than the cost of pollution control (Mr. Figurant, 2022), and the production cost of the company will also increase accordingly As a result, the private marginal cost of the company will coincide with the social marginal cost. This will curb the demand for these companies products in the market and lead to a contraction in their production Ultimately, this will guide resources to be transferred to other uses, enabling more effective resource allocation to achieve the goal of efficient resource allocation.

Bibliography

Team, T.I. (2023) Market failure: What it is in economics, common types, and causes, Investopedia. Investopedia. Available at: https://www.investopedia.com/terms/m/marketfa ilure asp (Accessed: March 29, 2023)

君⼦终⽇乾乾 (2022) 微观经济学之市场失灵理论 1. 外部性, 知乎专栏. Available at: https://zhuanlan zhihu com/p/537622939 (Accessed: March 29, 2023).

Princewill, N and Shveda, K (2022) Shell escaped liability for oil spills in Nigeria for years then four farmers took them to court -and won, CNN. Cable News Network. Available at:

https://edition.cnn.com/2022/05/25/africa/shelloil-spills-nigeria-intl-cmd/index.html (Accessed: March 29, 2023)

Mr

(2022)

A-6：市

政府的⼲预, 知乎专栏. Available at: https://zhuanlan zhihu com/p/488579654 (Accessed: March 29, 2023).

Figurant

经济师基础

场失灵和

Windfall tax in UK

HyeMin Lee

Due to the effects of the Russia-Ukraine war, there has been an increase in oil and gas prices. A windfall tax is an extra levy imposed by a government on a company. It targets firms that benefit from something they were not responsible for - in other words, a windfall (BBC, 2023) Due to the increased demand after Covid restrictions were lifted, oil and gas prices have increased, leading to higher profits for oil and gas companies.

In Figure 1, the initial equilibrium a is at the intersection of supply curve S and demand curve D1. At the initial equilibrium of a, the demand rises due to the covid restrictions being lifted For instance, after the covid restrictions have been lifted, consumers’ income has risen as consumers have gone back to their normal workplaces. Thus, there is an increased percentage of income spent on gas and oil, increasing the demand. Another reason can be that as more people are out of Covid quarantine, there is an increase in the use of energy, leading to an increase in demand Also, after the covid restrictions were lifted, businesses or factories re-open, leading to increased use of oil and gas. Thus, leading to increased demand for oil and gas. So there is a rightward shift in the demand curve from D1 to D2. At the initial price P1, increased demand results in shortage, so the quantity demanded is larger than the quantity supplied. The price of oil and gas will rise until the shortage has disappeared Thus the price rises from P1 to P2, and quantity rises from Q1 to Q2 The price rises from P1 to P2 and quantity rises from Q1 to Q2. At the initial equilibrium, the demand rises after the covid restrictions were lifted so there is a shift to the right in the demand curve from D1 to D2. As the demand curve shifts, a new equilibrium b is formed at the intersection of S and D2

The government imposes windfall tax on oil and gas companies to reduce the benefits that the companies are not responsible for The tax is imposed to decrease the supply As the supply shifts to the left from S1 to S2 and creates a new equilibrium (c) at the intersection of S2 and D2. When the equilibrium changes the quantity supplied decreases from Q2 to Q3 and the price increases from P2 to P3 At the new equilibrium, the price paid by the consumers increases to P3 and the quantity purchased falls to Q3 The producers receive P3 per unit but they pay the government P3 to P4 which leaves the producers with the final price of P4. This leads to a fall in the firm’s revenue from P2 x Q2 to P4 x Q3. The government receives tax revenue of (P3-P4) x Q3, as shown in the shaded region in Figure 1

An advantage of the windfall tax is that the government gains revenue

Since windfall tax is taken from oil and gas firms that gained profit as there was an increase in the price of gas and oil after covid. The companies gain higher profits and the government will put higher taxes on them. As the government earns more, it may lead to an increase in the government investment which is used in public goods However, whether society benefits from increased government revenue depends on how much the government spends on public goods. As the UK finance minister has stated that the government has “plans for higher taxes and cuts to public spending”, society does not benefit greatly from the windfall tax

A disadvantage would be the windfall tax leading to a decrease in the profit for the firms since they have lost a lot of money as a result of stopping investments in Russian oil firms. The taxation will increase as they earn more profit, meaning the firms will be worse off. Firms will have less to invest which will show a decrease in investment However, it depends on the company because for some firms, “company’s planned UK investments would carry on regardless of any windfall tax” (BBC, 2023) Furthermore, as the price increases but the quantity decreases, it is a disadvantage to the consumers.

A disadvantage would be the windfall tax leading to a decrease in the profit for the firms since they have lost a lot of money as a result of stopping investments in Russian oil firms The taxation will increase as they earn more profit, meaning the firms will be worse off. Firms will have less to invest which will show a decrease in investment However, it depends on the company because for some firms, “company’s planned UK investments would carry on regardless of any windfall tax”.(BBC, 2023) Furthermore, as the price increases but the quantity decreases, it is a disadvantage to the consumers

When the windfall tax is imposed, the price increases so the quantity of oil and gas will decrease. Windfall tax is good for the government since they take the profit from the energy companies that make unreasonably high amounts of profits This tax is a convenient way for governments to raise a large amount of revenue quickly. However, windfall tax is not good for the firms because it will decrease the amount of profits the firms are earning In conclusion, even though windfall tax has negative effects on firms, windfall tax is effective in reducing the companies’ profits that they are not responsible for

Bibliography:

What is the windfall tax on oil and gas companies? (n d ) BBC News

https://www.bbc.com/news/business-60295177

Ziady, H. (2022, November 17). UK to raise $65 billion from windfall tax on energy companies | CNN Business. CNN.

https://www.cnn.com/2022/11/17/economy/windfalltax-nuclear-uk-budget/index.html

Semiconductors in Taiwan: The US – China 'Chip War'

Gabriela Lozano

Found in your everyday household fridges to cruise missiles, the semiconductor, as stated by the economist, is “the cornerstone of the modern economy” (The Economist, 2022)

First off, what are semiconductors? Why are two of the great world powers fighting over them? Semiconductors, integrated circuits, and microchips are all names for the essential component comprised of silicon or germanium that conducts a regulated amount of electricity for electronic devices

Taiwan is the global leader in semiconductor manufacturing and home to two of the world’s largest chipmakers, TSMC and UMC TSMC produced over 12,300 products for 535 clients worldwide in 2021, including A-series chips for Apple, the company's largest client (McFarlane, G 2023) With the semiconductor industry making up to 15% of Taiwan's total GDP, this market played a critical role in Taiwan's maintained growth rates even during times of pandemic (Kelter, F 2022) Nevertheless, the success in this industry has made it a target for the two rivalrous world powers of The People’s Republic of China and The United States of America.

They control and manage the flow of electric current in electronic equipment and devices. Found in smartphones, appliances, gaming software and more, semiconductors enable advances in communication, computing, healthcare, military systems, transportation, clean energy and countless applications. (SIA, 2023)

Producing around 60% of the world's semiconductors and over 90% of the most advanced ones, Taiwan has become a ground of instability from the conflicting interests of the US and China rooted in the strategic and economic race of both parties involved (The Economist 2022)

(The Diplomat, 2023) In addition to this, they also rolled out a set of restrictions that diverge the sale of advanced chips to China, depriving China of the computing power it needs in order to advance its AI industry to scale This resulted in China increasing supply chain security to its highest priority

$52.7 billion industrial policy aiming to strengthen research, enhance supply chain resiliency, and revitalize semiconductor production in the United States

capacity (Al Jazeera, 2022)

them to provide defense, tensions are high on a geopolitical scale and the semiconductor clash adds to the flames. Yet, the US’s continued suppression of China could lead to trouble for the manufacturing sector as the Republic is a leading exporter to the rest of the world, including the US. China’s role in the manufacturing chain is irreplaceable presently due to the scale and capacity of Chinese manufacturing, meaning separating China from the semiconductor supply chain is near to impossible (Global Times, 2022)

Ultimately, the semiconductor industry which fuels Taiwan’s engine is being pursued by the two giants that are China and the USA. Amidst geopolitical conflicts in the technological industry and fuelling tensions that have been growing over the years, Taiwan remains in an unpredictable and unstable position, with its main source of protection being its “silicon shield”

Bibliography:

SIA (2023) “Semiconductors

https://www semiconductors org/semi is-a-semiconductor/

McFarlane, G (2023) “How T Manufacturing Company Makes

From:https://www.investopedia.com/a /how-taiwan-semiconductor-manufact tsm.asp

The Diplomat (2023) “The future war.” From: https://thediplomat.com the-china-us-chip-war/

Kelter, F. (2022) “The Battle Ov Endangering Taiwan” Foreig https://foreignpolicy.com/2022/11/09/t semiconductors-water-resource-scarci

Cheng, E. (2022) CHINA ECONOMY biggest chipmaker more than th CNBC From:https://www cnbc com/2 taiwans-biggest-chipmaker-more-than around.html

Al Jazeera (2022) “Why China is no key chip indus https://www.aljazeera.com/economy/2 not-sanctioning-taiwans-crucial-tech-

Global Times (2022) “SOURCE / GT cannot afford to engage in a 'chip war https://www.globaltimes.cn/page/2022

id=11

Brown, D (2023, April 6th) “China simple guide.” BBC From: https://ww asia-china-59900139

How the population density influences the economic state of Japan

Fuga Nomura

The population of a country plays a crucial role in the economy as the quantity and the distribution of the economy can help or hinder the rate of economic development and dynamics The decline in Japan's birth rate is attributed to the economic insecurity felt by the younger generation, which indicates that the decrease in the birth rate is not due to a tendency among people to have fewer children, but rather due to an economic environment that is not conducive to encouraging childbirth. Due to the shrinking population of Japan, the economic state of the country is substantially influenced

The shrinking population of Japan has had substantial influence on the country’s labour shortage and the consumer market putting upward pressure on wages within the country. A Lot of young workers from Japan are moving overseas to get better pay and working conditions. According to the Organization for Economic Cooperation and Development, the average wage in Japan in 2021 was $39,711, barely increasing over the 30 years Meanwhile, wages in the U S are about 1.9 times higher than in Japan and have increased about 1.5 times over the same period.( Nikkei Asia, Accessed 17 Mar. 2023)These results show that the pressure of wages has greatly impacted the young workers from japan

Due to the lack of young workers in Japan, the retirement age has been extended to 65 years old. (Chau, Charles. HRM Asia, 6 Apr. 2021)which may have many negative aspects of potential job performance deficits in working memory, processing speed, and information processing compared to younger workers Therefore it may become difficult to provide locally produced goods and services that are successful enough so that the country can gain economic stability through the consumers investing and purchasing the products that the business makes.

Figure 1: Graph that has representation of the population and working age population

Japan, realizing the consequences of the state of the economy due to the demographic structure, has made an approach towards increasing the number of women in the labor force. The Japanese public have been increasingly supportive of women's labor market engagement to work. Women's labor participation and the quality of woman labor is an important factor for the opportunities for woman empowerment and economic growth. Figure 2 shows the comparison of Japan, United states and OECD countries. Over time, it can be seen that Japan has the highest rate of women's labor force participation among the three countries, demonstrating the effectiveness of Japan's public policies to support women's labor in increasing the country's labor force and improving its economic state.

Overall it can be seen that the economic state of Japan is being greatly affected by the demographic structure of the country The labor shortage is dropping, putting pressure on wages and the lack of young workers has caused the extension of the retirement age to 65 affecting the elderly population as well. As an approach towards increasing the labor force Japan made a public policy that supports the woman labor which has been efficacious to ameliorate the economic state of Japan However, given the continuing decline in population, simply increasing women's labor force participation will not be sufficient Japan will need to find more solutions so that the economic state could be more stabilized.

Bibliography:

Chau, Charles. “Japan Approves Law Raising Retirement Age to 70.” HRM Asia, 6 Apr. 2021, hrmasia.com/japanapproves-law-raising-retirement-age-to-70/.“Japanese Workers Become Migrants Seeking Better Pay Overseas ”

Nikkei Asia, asia nikkei com/Business/Businesstrends/Japanese-workers-become-migrants-seekingbetter-pay-overseas. Accessed 17 Mar. 2023.

SILVERGATE

BY

MADHAVA NURMAWAN

The date is March 3rd, 2023 Reports have surfaced of mutated animals as a result of the Chernobyl incident, the case of a disgraced lawyer who murdered his family comes to light, and a Ukrainian mayor has gone off the radar. Despite all this, I believe there is something more monumental that could affect us all: The Silvergate Meltdown.

35 years ago, a 29 year old Dennis Frank and a 20 year old Derek Eisele founded Silvergate Capital. A Californian bank that didn’t find its big break until crypto currencies came into the picture. Crypto currency is a form of digital currency that isn’t tied to a centralised system. Perhaps inspired by the likes of Coinbase, they ventured into the crypto market in 2013 and worked under ideologies like wanting to “empower people” and “exceed expectations”.

Silvergate capital pivoted towards the crypto market in 2013, and excluding the past year, it had been paying off Their major innovation was SEN, the Silvergate Exchange Network, a platform that would make crypto transactions more efficient This was a platform that operated 24/7 and collaborated with over 250 other cryptocurrency banks across the globe, consisting of the likes of Coinbase, Gemini and Bitstamp. A year later on November 7, 2019, they had gone public and issued shares at $150 when they first joined NYSE (The New York Stock Exchange); Over 3 years later their valuation fell by 80%

In January 2022, Silvergate had acquired Diem Coin for $200 million. Diem coin, formerly known as Libra, was announced on June 18th, 2019, as a stable coin. A stable coin is a cryptocurrency which has a value fixed to another asset Diem would be added to their SEN While this was happening, they had also initiated SEN Leverage which would loan USD backed by Bitcoin There were many sceptics regarding the volatility of Bitcoin, but this was where SEN came in. Silvergate had accounted for this, and had already created their own platform to quickly sell their Bitcoin in case of any emergency.

Then issues did arise But these were unaccounted for, they were from the inside FTX would melt down as it was uncovered that former CEO of FTX Sam Bankman-Fried had pulled what was deemed the largest rug pull of all time, recent reports of bribery with Chinese political figures didn’t help his case either FTX ended up running a 24/7 customer support program however, recent accusations came out revealing that Silvergate was aware of FTX’s actions when the program had started, just weeks before FTX was exposed.

Silvergate faced a class-action lawsuit on the 14th of December and went under investigation At this point, it was revealed that they had cut ties with 40% of their workforce, and that they had to take out a loan of $4.3 billion from the Federal Home Loan Bank. Right while this fiasco was happening, BlackRock (the world’s largest asset manager) would increase their stake in Silvergate from 5 9% to 7 2% and ‘buy the dip’

On the 8th of March Silvergate announced the shutdown of SEN and this had marked the point where everything finally came to an end. On this same day, Silvergate had ended up liquidating (the process of ending a business and selling off any remaining assets) and their hold on crypto exchange had run its course From market leader to shut down, this was the crash and burn of Silvergate.

Bibliography

Kinder, T (2022, December 10) Silvergate: From tiny local lender to bank behind the Crypto Boom. Silvergate: from tiny local lender to bank behind the crypto boom. Retrieved March 9, 2023, from https://www ft com/content/5c960a79-ccbe-4805-a137-7e5241251c4e

Hollerith, D (2023, March 9) Silvergate capital will liquidate after crypto collapse wipes out bank Yahoo! Finance. Retrieved March 10, 2023, from https://finance.yahoo.com/news/silvergatecapital-will-liquidate-after-crypto-collapse-wipes-out-bank220356639.html#:~:text=The%20stock%20opened%20at%20%24150,billion%20through%20its%20f ourth%20quarter

Devine, J L S (2019, November) Silvergate announces closing of initial public offering of common stock IPO Edge Retrieved March 11, 2023, from https://ipo-edge com/silvergateannounces-closing-of-initial-public-offering-of-commonstock/#:~:text=Silvergate's%20common%20stock%20began%20trading,shares%20of%20its%20com mon%20stock

Kharif, O. (2022, January 31). Meta-backed Diem Association confirms asset sale to Silvergate. Bloomberg com Retrieved March 16, 2023, from https://www bloomberg com/news/articles/202201-31/meta-backed-diem-association-confirms-asset-sale-tosilvergate#:~:text=The%20cryptocurrency%20project%20that%20Facebook,%2D%2D%20now%20 Meta%20Platforms%20Inc

Sanis, R., & Sanis, R. (2022, January 4). Diem coin launch date: What you need to know. Diem Coin Launch Date | What You Need To Know Retrieved March 16, 2023, from https://currency com/diem-coin-launch-date

Royal, J (2022, May 12) What are stablecoins? Bankrate Retrieved March 16, 2023, from https://www.bankrate.com/investing/stablecoincryptocurrency/#:~:text=Stablecoins%3A%20What%20they%20are%20and,though%20other%20ass ets%20are%20possible

Goldstein, M. (2023, March 28). Sam Bankman-fried is charged with foreign bribery. The New York Times Retrieved March 30, 2023, from https://www nytimes com/2023/03/28/business/ftxsam-bankman-fried-bribery.html

Asmakov, A (2022, December 16). Crypto Bank Silvergate hit with class action lawsuit over FTX, Alameda dealings. Decrypt Retrieved March 30, 2023, from https://decrypt.co/117405/cryptobank-silvergate-hit-class-actionlawsuit-ftx-alameda-dealings

Macheel, T. (2023, January 31). Silvergate capital shares jump after Blackrock reports increased stake in the Crypto Bank CNBC. Retrieved March 30, 2023, from https://www cnbc com/2023/01/31 /silvergate-capital-shares-jumpafter-blackrock-reportsincreased-stake-in-the-cryptobank html

Capital, S. (2023, March 8). Silvergate Capital Corporation announces intent to wind down operations and voluntarily liquidate Silvergate Bank. Silvergate. Retrieved March 30, 2023, from https://ir silvergate com/news/ne ws-details/2023/SilvergateCapital-Corporation-AnnouncesIntent-to-Wind-DownOperations-and-VoluntarilyLiquidate-SilvergateBank/default.aspx#:~:text=In%2 0addition%2C%20Silvergate%20 Bank%20made,through%20the% 20wind%20down%20process

C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

Jain

Corporate Social Responsibility, or CSR for short, is a business model in which an organization focuses on its social impact on society, rather than solely on maximizing profits Businesses with a CSR have ethical objectives, with the aim of contributing towards bettering the environment and their community.

Businesses may opt towards having a corporate social responsibility as it helps benefit society, whilst also benefiting themselves as it creates a positive corporate image for their organization However, the extent to which their CSR goes differs from business to business. Some businesses implement a CSR as they have a genuine want to contribute towards improving their environment, whereas other businesses may use it solely as a means of increasing their competitive advantage, publicity, and consumer awareness, which could then lead to an increase in their revenue An effective CSR program can help reinforce positive corporate culture by promoting values such as integrity, transparency, and accountability. It can also improve the company's reputation and enhance its relationships with stakeholders, including customers, employees, investors, and the wider community.

Anvi

Good CSR campaigns include:

Reducing

carbon footprints

Improving labor policies

Participating in fairtrade

Diversity, equity, and inclusion

Charitable global giving Community and virtual volunteering Corporate policies that benefit the environment

Socially and environmentally conscious investments

For instance, a good example is TOMs CSR, which had begun with a mission to donate a pair of shoes for every one they sell, resulting in the donation of over 100 million pairs of shoes Over time, they had changed their mission to make a more impactful contribution to society. In their Impact report, they stated “We give 1/3 of our profits for grassroots good through cash grants and building deep partnerships with nonprofits working to create impact in three areas: mental health, access to opportunity, and ending gun violence ” In 2020 they had given $1,700,000 towards this cause and impacted 147,510 lives

On the other hand, some companies often adopt a bad CSR program, and for the wrong reasons, their campaigns tend to consist of:

Using charitable initiatives to cover up bad press

Using good initiatives to cover up bad practices

Jumping onto the latest issues with the incentive of increasing profits

Misrepresenting of efforts

Greenwashing

Greenwashing is when a company makes false or misleading claims about its environmental performance or sustainability efforts, as a means to appear more socially responsible than it really is. Businesses guilty of this include Volkswagen, infamously known for its CSR scandal Volkswagen is a car manufacturing company, that had claimed to adopt a CSR for which they manufactured environmentally friendly vehicles to reduce emissions However, according to BBC “When the cars were operating under controlled laboratory conditions the device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance. Once on the road, the engines switched out of this test mode ” “The engines emitted nitrogen oxide pollutants up to 40 times above what is allowed in the US ” They had falsely claimed to be reducing emissions in order to increase their sales when in reality they had been doing the opposite. As a result, there were countless lawsuits filed against them The media states that “Volkswagen VOWG p.DE said its diesel cheating scandal has cost it 31 3 billion euros ($34 69 bln) in fines and settlements” (FRANKFURT (Reuters), 2020) As evident, bad CSRs can lead to consequences which undermine the credibility and effectiveness of a company's CSR program, and ultimately harm its reputation and bottom line.

Overall, when done properly, CSRs have many benefits for a business. They help increase customer loyalty, staff motivation, and productivity and improve their brand image. However, as seen previously, the wrong intentions can lead to serious backlash and have a negative toll on the company's performance Therefore it is vital for companies to approach CSR in a genuine and transparent manner, and to make a real effort to address the social and environmental issues that affect their stakeholders

Bibliography:

IB Business Management, Corporate Social Responsibility, ThinkIB.net. Retrieved from https://www.student.thinkib.net/businessmanag ement/page/44171/corporate-socialresponsibility?lg=47989

Digital Marketing Institute, 16 Brands Doing Corporate Social Responsibility Successfully, Retrieved from https://digitalmarketinginstitute com/blog/corp orate-16-brands-doing-corporate-socialresponsibility-successfully Rigorous Themes, Bad Corporate Social Responsibility Examples, Retrieved from https://rigorousthemes com/blog/badcorporate-social-responsibility-examples/ Investopedia, Why Social Responsibility is Important for Business, Retrieved from https://www investopedia com/ask/answers/041 015/why-social-responsibility-importantbusiness.asp#:~:text=Social%20responsibility %20programs%20can%20boost,increase%20cu stomer%20retention%20and%20loyalty

BBC News. (2015, September 22). Volkswagen: The scandal explained. BBC News. Retrieved from https://www bbc com/news/business-34324772

TOMS. (n.d.). TOMS impact report. TOMS. Retrieved from https://www toms com/us/impact/report html

Trade Protectionism and Free Trade

By Wooseob Ahn

Free trade is a policy in which a government does not discriminate against imports, or interfere with exports. This is done by applying tariffs to imports, or subsidies to exports Protectionism refers to government policies that restrict international trade to help domestic industries. It is used to improve economic activity within a domestic economy and for safety or quality concerns. Both systems have advantages and disadvantages when used.

An advantage of free trade is that it allows countries to benefit from specialization It also increases competition and efficiency by creating additional business opportunities as there are no policies reducing exports of domestic firms It will then enable firms to benefit from the best workforce, solutions, and technology from anywhere in the world with no cost. International trade increases economic interdependence and therefore reduces the potential for conflict when trading between countries, with no retaliation when trading.

However, the disadvantage of free trade is it can have a threat to intellectual property. When imports are freely traded, domestic producers will copy the product and sell them as knock-offs without fear of any legal repercussions. This will be stopped by the FTA, including provisions for intellectual property laws and enforcement Additionally, jobs in developing countries can become a free trade area. Free trade area is an area where a group of countries agree to reduce trade barriers, such as tariffs and quotas to encourage international trade among countries. When workers are in free trade areas that lack labor protection laws, workers may be forced to work in unhealthy and substandard work environments, increasing the exploitation of workers. Free trade can also contribute to rapid resource depletion and climate change as fewer resources will be available later and will limit the choices available to the consumers who ultimately make up the economy.

The use of protectionism would provide more growth opportunities as the policy provides local industries with opportunities to grow until they can compete with more experienced firms in the international market This is because protectionism reduces imports to the country and therefore increases import prices, which help domestic firms to increase competitiveness in their country. Protectionism will prevent dumping into the country, which is where foreign companies sell products at a lower price than the cost of production. By preventing dumping, it will keep product competitiveness high This will help the economy to increase economic growth, as it will increase its trade balance and therefore increase GDP from the increased exports

Protectionism will also help the economy achieve a higher employment in domestic industries as they will increase exports, and firms will employ more workers By having higher unemployment, more people will have a more disposable income, therefore increasing spending power and creating higher living standards for people.

Protectionism will result in limited choices for consumers as they would have access to fewer goods in the market as a result of limitations on foreign goods An increased price, but the same or lower quality from lack of competition would have bad effects on the economy and on consumers as it results in lost revenue and decreased consumer loyalty. It may result in retaliation, causing import prices to rise, as higher consumer prices encourage inefficient firms to stay in business This leads to less scope for speculation and economies of scale

In conclusion, there are benefits of both free trade and trade protectionism. However, in general, economists are in favor of unrestricted free trade as protectionism has been shown to harm economic growth and people’s prosperity In contrast, free trade and the elimination of trade barriers have been shown to affect the economy and economic strength positively in many countries.

Bibliography:

Free trade area. Corporate Finance Institute. (2023, April 3). Retrieved April 13, 2023, from https://corporatefinanceinstitute com/resources/economics/free-trade-area/

Protectionism (2023) Corporate Finance Institute. Available at: https://corporatefinanceinstitute.com/resources/economics/protectionism/ (Accessed: April 13, 2023)

Team, W. (2022) Free trade, WallStreetMojo. Available at: https://www.wallstreetmojo.com/freetrade/ (Accessed: April 13, 2023).