Distinguish Between Cost Push and Demand Pull Inflation Essay Example

Distinguish Between Cost Push and Demand Pull Inflation Paper Can you remember how much you paid for the same items you buy now, two years ago? This increase in the general price level of goods and services in an economy is inflation, measured by the Consumer Price Index and the Producer Price Index; Commonly referred to as Inflation. There are however, different types of inflations, each affected by different factors. Aggregate supply is the total volume of goods and services produced by an economy at a given price level. When there is a decrease in the ggregate supply of goods and services stemming from an increase in the cost of production, we have cost-push inflation. Cost-push inflation basically means that prices have been pushed up by increases in costs of any of the four factors of production (labor, capital, land or enterprise) when companies are already running at full production capacity. With higher production costs and productivity maximized, companies cannot maintain profit margins by producing the same amounts of goods and services. As a result, the increased costs are passed on to consumers, causing a ise in the general price level (inflation). A company may need to increases wages if laborers demand higher salaries (due to increasing prices and thus cost of living) or if labor becomes more specialized. If the cost of labor, a factor of production, increases, the company has to allocate more resources to pay for the creation of its goods or services. To continue to maintain (or increase) profit margins, the company passes the increased costs of production on to the consumer, making retail prices higher. We will write a custom essay sample on Distinguish Between Cost Push and Demand Pull Inflation specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Distinguish Between Cost Push and Demand Pull Inflation specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Distinguish Between Cost Push and Demand Pull Inflation specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Along with increasing sales, increasing prices is a way for companies to onstantly increase their bottom lines and essentially grow. Another factor that can cause increases in production costs is a rise in the price of raw materials. This could occur because of scarcity of raw materials, an increase in the cost of labor and/or an increase in the cost of importing raw materials and labor (if the they are overseas), which is caused by a depreciation in their home currency. The government may also increase taxes to cover higher fuel and energy costs, forcing companies to allocate more resources to paying taxes. The graph on the left shows the level of output that an be achieved at each price level. As production costs increase, aggregate supply decreases from ASI to AS2 (given production is at full capacity), causing an increase in the price level from Pl to P2. The motivation behind this increase is that, for companies to maintain (or increase) profit margins, they will need to raise the retail price paid by consumers, thereby causing inflation. Demand Pull Inflation, however, occurs when there is an increase in aggregate demand, categorized by the four sections of the macro economy: households, usinesses, governments and foreign buyers. When these four sectors simultaneously want to purchase more output than the economy can produce, they compete to purchase limited amounts of goods and services. Buyers, in essence, bid prices up, again, causing inflation. This excessive demand, also referred to as too increase in aggregate demand that causes demand-pull inflation can be the result of various economic dynamics. For example, an increase in government purchases can increase aggregate demand, thus pulling up prices. Another factor can be the epreciation of local exchange rates, which raises the price of imports and, for foreigners, reduces the price of exports. As a result, the purchasing of imports decreases while the buying of exports by foreigners increases, thereby raising the overall level of aggregate demand (we are assuming aggregate supply cannot keep up with aggregate demand as a result of full employment in the economy). Rapid overseas growth can also ignite an increase in demand as more exports are consumed by foreigners. Finally, if government reduces taxes, households are left ith more disposable income in their pockets. This in turn leads to increased consumer spending, thus increasing aggregate demand and eventually causing demand-pull inflation. The results of reduced taxes can lead also to growing consumer confidence in the local economy, which further increases aggregate demand. When aggregate demand increases without a change in aggregate supply, the quantity supplied will increase. If aggregate demand increases from ADI to AD2, in the short run, this will not shift aggregate supply, but cause a change in the uantity supplied as represented by a movement along the AS curve. The reasoning behind this lack of shift in aggregate supply is that aggregate demand tends to react faster to changes in economic conditions than aggregate supply. As companies increase production due to increased demand, the cost to produce each additional output increases, as represented by the change from Pl to P2. This is because companies would need to pay workers more money (e. g. overtime) and/or invest in additional equipment to keep up with demand, thereby increasing the cost of production.

Arundel Partners Case Essays

Arundel Partners Case Essays Arundel Partners Case Paper Arundel Partners Case Paper 1. 1 Assuming that Arundel Partners is a purely financial company with no experience in the movie industry whatsoever, one reason for them to buy the rights to create sequels would be to exploit a possible arbitrage in between the price they would pay for an option to sequels and its real value. Therefore valuing the said option correctly is of the most importance. 1. 2 We believe that portfolio negotiation rather than on a film-by-film basis will level the playing field. Since the partners do not have experience in the movie making industry and those on the other side of the negotiating table do, it would be easier for the movie industry executive to figure out which movie would be a hit and which would be a miss and try to sell Arundel the rights to only those movies that will not be followed by a successful sequel. 2. 1 NPV calculation. According to the Exhibit 4, based on 14 pairs of first films and their first sequels, average sequel negative cost as a percentage of first film negative cost was 120%. Also according to the same exhibit based on 61 pairs of first films and their first sequels average sequel rental revenue as a percentage of first film rental revenue was 70%. If we assume that Exhibit 7 represents â€Å"the universe† of films available for analysis then data from Exhibit 8 can be used to calculate what percentage of movies has been followed by a profitable sequel. According to the said exhibit 26 sequels achieved one-year return of 0. 2 or higher. Therefore we can assume that the same number of movies was followed by a profitable sequel, i. . 26. Since Arundel will have an option to producing movies and will just forgo those which supposedly will not make any profit, we can only focus on those which made profit in past. Average negative cost for these movies at year 3 is 24. 52 and average net inflows at year 4 are 57. 17. Thus NPV for these movies will be 57. 17/1. 124-24. 52/1. 123=18. 88. This result, extrapolated to â€Å"the universe† of the movie s will give us an NPV per movie of (26/99) * 18. 88 = $4. 96 million per movie. 2. 1 Option calculation. We know if we are going to make a sequel at year 1. Option will be exercises at year 3. Cost of production is the strike (K). Average K for all movies is 22. 64. Asset value (S0) would be the cash inflows (average 21. 57 per movie). PV(S0) = 21. 57/1. 124=13. 71. Standard deviation of the return is 1. 21 for year 1; since this is the year when decision is made, in year 1-3 deviation is 0. Therefore average standard deviation over whole period will be v(1/3 ? ^2 )=0. 70. Using Black-Scholes where T=3, rf=6%, S0=13. 71, K=22. 64: 0 13. 71 K22. 64 PV(K)19. 00898 T3 sigma0. 7 rf6% SSQRTT1. 212436 d1 0. 34 N(d1)0. 631748 N(d1-SST)0. 190529 c0 5. 04 So we have two results quite close to each other. The main question for NPV calculation is 12% discount rate – options are more volatile and risky and should be discounted using higher discount rate. Question for Black-Scholes – why do we use lognormal distribution? Is it appropriate here? Another question is whether the movies in the movie population is comparable and more or less same.

Explain the reasons why left realism emerged Essay

Explain the reasons why left realism emerged - Essay Example Therefore, to fill in the radical vacuum that was prevalent in left-realists thoughts regarding crime, the left-realists had to take a position. This was meant to balance the extreme ideas regarding crime, which were being advanced by the right-realists on the one hand, and the left idealists, on the other hand (Young & Matthews, 1992). Upholding the view that crime was a matter of free will and personal choice as opposed to a behavioural problem, the left-realists emerged to criticize the politics of establishing longer sentences and more prison facilities (Matthews &Â  Young, 1986). Rather than addressing crimes through the concentration of criminals in prisons and rehabilitation centres, left realism advocated for the political class to take the causes of crime seriously. Further, the concept of left realism required that victims of crime must be taken even more seriously, considering that the fear of crime is not irrational, and everyone stands the chance of being a victim of crime (Lea, 2002). In this respect, the left-realists sought to criticize the distorted view that was being advanced by the right-realists and the left idealists. While the right realists cited crime as a function of a sick society full of moral decay and crime that is out of control, the left idealists did not take crime seriously, and thought it was simply a form of exaggerated societal panic (Lea & Young, 1984). The major focus of left realism is the victim, who should be the main concern of criminology. The left-realist also advances the view that it is out of the prevalence of unstructured inequality and perceived social injustices, that crime finds a breeding ground to grow and thrive (Matthews &Â  Young, 1986). Thus, left realism regards the establishment of better and equitable policies as a means of addressing the crime problem. The view of left realism is