Document Sample
Economics Powered By Docstoc
					John McCarthy                                                                                        Page 1

                                   Economics: Media Analysis
                                             John McCarthy

Scarcity: (The Economic Problem)

Scarcity is a key concept in the study of economics. The Economic problem is the idea that the
human race has unlimited wants, but only limited resources to fulfil those wants, and so decisions
need to be made on what to produce, how to produce and who should receive the produced goods
and services.

Rujun Shen, Yahoo7 News, <

One example of how scarcity affects our world is in the prices of precious metals and other goods
and services. In this article, it is outlined how the prices of gold are falling, and currently, are rising.
This fluxuation in the price of gold is a direct result of the supply and demand for gold in our
economy. Gold has many uses, including jewellery, mechanical production and technology, making it
a very valuable resource. As there is only a limited supply of gold, but a large demand, gold is a
scarce resource. As the demand rises, but the supply dwindles, the price rises. This is the general
idea being covered by this article. These changes in the price of gold can affect many different parts
of the technology industry, as when the price of gold rises, the price of the creation of technological
components such as motherboards, graphics cards, mobile phones and hard drives increases, due to
the reliance on gold as a key resource in the production of circuits.

Applying a Cost Benefit Analysis:

A Cost Benefit analysis consists of an analysis of the potential private, external and social costs and
benefits of a decision. When a cost benefit analysis is made, the option with the greatest benefit to
cost ratio is usually chosen, and other options are left behind.

Blair Speedy, The Australian, <

In this article, information is detailed about how the major retail chain Woolworths recorded loses
due to a restructuring of their Dick Smith chain. Woolworths made a cost benefit analysis on a
decision to restructure, and in the future sell off their Dick Smith chain due to a steady drop in
profits from the chain. The private costs of this decision include short term economic loses for the
company, which corresponds to external costs of investors getting decreased returns from their
shares. One potential social cost form this decision is job cuts, and also decreases in pay for those
working in the Woolworths chain of stores.
John McCarthy                                                                                    Page 2

Opportunity Cost:

The opportunity cost is defined as the potential alternatives forgone when making a decision that
involves a trade-off between two possible options. When a decision made, the best possible option
is chosen, and the second best option is not chosen, that is, the second best option is forgone. This
second best option is defined as the opportunity cost of making that decision.

Elysse Morgan, ABC News, <

In this article, many businesses corporations involved in the industrial and mining industry have
made the decision to forgo the investment of resources into the areas of production plants,
machinery and equipment in favour of an increase in the allocation of resources to building and
structures. In this case, the option chosen is to allocate resources into buildings and structures, and
the opportunity cost, that is, the option forgone, was the allocation of resources into machinery,
equipment and production plants. This forgone option could result in a decrease in jobs and pay in
the sectors of the mining industry that pertain to machinery and production plants, and could carry
on to affect the car industry and other parts of the mechanical industry as the production of parts
used in these industries could be affected.

The use of Resources to produce goods and services:

In Economics, there are four key resources:

       Land. Land refers to anything which is natural, including forests, water ways, agriculture,
        mining, fishing and earth generated power.
       Labour. Labour refers to anything that requires human effort in the production of goods and
        services. Activities such as teaching, singing at a concert or plumbing are all classified as
        Labour resources.
       Capital. Capital resources are defined as goods and services used in the production of other
        goods and services. For example, petrol is a Capital resource as, without petrol, how can you
        use a car.
       Enterprise. Enterprise is the human ability, smarts and initiative to start up a new business,
        drive businesses and investment forward and build on new ideas. When you start a new
        local corner shop, a food chain, or a mining company, you are demonstrating the enterprise

AAP, The Australian, <

In this article, information is released about the plans for a new railway line and power supply
network to be built for rural towns. This demonstrates the several of the resources mentioned above.
Firstly, as 600 new jobs, mostly to do with labour in the production and laying out of the new rail line
and power supply network, are being created, the labour resource is a key part of this venture. The
Capital resource is also an important part of this new initiative, as the power supplied, and the new
rail line, help in providing new services and goods to those in the areas where this new line is in
John McCarthy                                                                                  Page 3

effect. Finally, it also represents the Enterprise resource for the companies that have been tasked
with the job of creating and laying down this new rail line and power supply network.
John McCarthy                                                                                      Page 4

Media Article: Scarcity

Rujun Shen, Yahoo7 News, <

   By Rujun Shen
   SINGAPORE, March 1 (Reuters) - Spot gold rose more than 1 percent on Thursday, as its biggest
daily decline in more than three years attracted buyers who bet on a further rally in bullion despite
the slightly hawkish tone of U.S. Federal Reserve Chairman Ben Bernanke.
  Asia's physical gold market witnessed a buying frenzy as jewellers, traders and investors rushed to
take advantage of the nearly $100 drop in prices overnight, helping to boost prices.
   Investors had hoped the Fed will launch another round of quantitative easing, pushing cheap
money into the market that would boost inflation, against which gold is a traditional hedge, and give
investors additional firepower to buy bullion.
   But Bernanke stopped short of signalling more asset buying in an otherwise dovish testimony in
front of Congress, driving down stock markets and boosting the dollar.
   While the chances of quantitative easing were reduced, the Fed will likely adopt some measures
to promote growth, said Dong Tao, chief regional economist for Credit Suisse in Hong Kong.
   "But liquidity will remain the driver of financial markets -- this story has not changed, although it
will be a fragile story in the sense that markets will be highly volatile," Tao added.
   Spot gold rose 1.5 percent to $1,720.33 an ounce by 0606 GMT, rebounding after a 5 percent fall
on Wednesday, its largest one-day loss since December 2008.
   Gold prices rose rapidly after the Shanghai Gold Exchange started trading in the morning, as
investors took advantage of a $10 discount in spot prices in the global market versus Shanghai prices.
The discount has since narrowed, with Shanghai gold trading at 349.30 yuan a gram, or $1,724.32 an
   U.S. gold gained 0.6 percent to $1,721.60.
   Bullion is still up 10 percent this year, on track for its twelfth annual gain, as interest rates remain
low and central banks boost liquidity.
   Banks took 530 billion euros of cheap three-year funds from the European Central bank of
Wednesday, bringing to over a trillion euros the amount of money the bank has injected into the
financial system in two months.
   Technical analysis suggested that spot gold's rebound may end at $1,726 an ounce, said Reuters
market analyst Wang Tao.
   Gold's long-term outlook remains intact despite Bernanke refraining from indicating further
quantitative easing, and the sharp drop in prices provided a good buying opportunity, traders said.
   "It's been a long time since we see such decent buying," said a Hong Kong-based dealer, "The fact
that Bernanke did not mention more quantitative easing was an excuse to sell, but people are still
confident in gold."
   He added that $1,700 should provide a firm support for gold.
   Dealers said buying came from across Asia, including China, Thailand and Indonesia.
   As a sign of unwavering interest in gold, holdings in the SPDR Gold Trust, the world's largest gold-
backed exchange-traded fund, gained 0.7 percent on Feb. 29 to 1,293.676 tonnes, its highest in two
and a half months.
   So long as real interest rates stay low gold will remain attractive, said analysts. In January, the Fed
pledged to keep interest rates low until at least 2014.
   Other precious metals also staged rebounds. Spot silver rose 0.9 percent to $34.91, after
shedding more than 6 percent in the previous session.
   Spot platinum climbed 1 percent to $1,691.99, and spot palladium rebounded 0.4 percent to
John McCarthy                                                                                               Page 5

Media Article 2: Applying a Cost Benefit Analysis

Blair Speedy, The Australian, <

RETAIL giant Woolworths has reported a 16.8 per cent fall in net profit for the first half of the financial year
as it took a $300m hit on its underperforming Dick Smith business and pumped cash into its new hardware
joint venture.
However chief executive Grant O'Brien said described the result as “solid” in a tough retail environment
characterised by price deflation and poor consumer sentiment, noting that when these one-off items were
excluded, net profit was up 3.2 per cent to $1.184 billion for the six months to January 1, in line with market
“Given the prevailing macro-economic and market challenges, as well as the growth and change agenda we're
driving through our business I think this is a commendable result,” he said.
All divisions reported an increase in earnings before interest and tax, with the exception of discount
department store chain Big W, and consumer electronics division Dick Smith, the latter of which has been put
up for sale following a strategic review which led to a $300m write-down on the book value of the business.
Mr O'Brien said there had been a “pleasing level of interest from prospective purchasers” of Dick Smith, whose
sale is being handled by Greenhill Caliburn, although he could not say when a sale might be executed.
The company's biggest earnings generator, its Australian food and liquor division, reported a 6.3 per cent gain
in EBIT to $1.494bn, despite sales growth of just 4.3 per cent.
“We've grown our profit very strongly in our food business as well as our liquor business, courtesy of the
enhancements we've made to our reduction in shrinkage, our improvement in house brand mix and our
general mix in the supermarket area,” Mr O'Brien said.
Deflation of 3.7 per cent in supermarket prices during the first half was partly driven by Woolworths actively
cutting prices, but the majority was due to falls in the cost of fresh produce, he said.
“I don't see that there will be any step change in that ... I think we're providing great value to customers _ it's a
great time to be a customer, because while deflation is challenging for a retailer, it's great news for consumers.”
Mr O'Brien said cuts to official interest rates in November and December did not appear to have boosted
consumer spending at all.
“They can only help, but there's no evidence that it's led to increased retail spending in our stores,” he said.
The second half had “continued to be challenging from a sales point of view ... we expected deflation to
remain present and it is, and we expect that it will remain so until the end of the year.”
“We've got similar sort of conditions in the third quarter as we had in the second quarter,” he said.
Mr O'Brien said while the company wanted to restore annual profit growth to at least 10 per cent, he could
not say when it would be delivered as the poor trading environment was expected to continue.
“It's an ambition, not a prediction for next year,” he said.
The company maintained guidance for net profit growth of between 2 per cent and 6 per cent after tax for the
full financial year, excluding the $300m write-down on Dick Smith.
Woolworths declared an interim dividend of 59c per share, fully franked and payable on April 27, up from 57c
paid in respect of the previous first half.
City Index’s chief market analyst Peter Eshos said: “The outlook is for things to remain subdued and we still
think Woolworths is trading at a price to earnings ratio that is too high to justify its sluggish growth rate, not
just for this year but in the years to come also.
“Woolworths has also updated on the sale of Dick Smith which it says has attracted interest from a number of
potential purchasers. Earnings in the division continue to trend backwards, although the rate of decline is not
disastrous,” he added.

At 12.30pm AEDT shares in Woolworths were unchanged at $25.31.
John McCarthy                                                                                  Page 6

Media Article 3: Opportunity Cost

Elysse Morgan, ABC News, <

The latest business investment figures show the mining sector continues to prop up the economy.

Bureau of Statistics data show businesses curbed their spending in the fourth quarter, with total
capital expenditure falling 0.3 per cent to $37.9 billion on a seasonally adjusted basis.

The result was driven by a decline of 2.1 per cent in spending on equipment, plants and machinery,
which offset a rise of 0.9 per cent in spending on buildings and structures.

Economists had been expecting the figures to show a gain of 3.8 per cent in the period.

The mining industry was one of the few to increase spending in the period, with a rise of 5.6 per cent
overall, while the weaker services and manufacturing sectors reined in spending.

And TD Securities head of research Annette Beacher believes the figure would have been much
worse but for the spending by the mining sector.

"The only strength really in this report today - whether we are looking at the December quarter or
this year's planned expenditure or even next year's planned expenditure - it really is skewed towards
the mining sector," Ms Beacher said.

Nevertheless, she said the result was a blip in the long-term trend of the investment boom, but the
figures will weigh on economic growth for the fourth quarter.

"We need to look past the odd lumps and bumps and stay with the big story, and that is we have
$200 billion of investment coming and that will be tomorrow's export growth," Ms Beacher said.

NAB senior economist David de Garis says the result marks the first time the softness in non-mining
industries has not been masked by the strength of the resources sector.

"For once the non-mining industry flatness or decline has outweighed the continued growth in
mining capital expenditure, for once we've seen the scales tilt the other way," Mr de Garis told

"The overall series has been trending high from the resources boom.

"There's a huge pipeline, but in this quarter it's just levelled off a little bit."
John McCarthy                                                                                   Page 7

Media Article 4: The use of Resources to produce goods and services

AAP, The Australian, <

THE West Australian government has approved a rail and power supply project in the Pilbara to
connect the new Hope Downs 4 iron ore mine - a Rio Tinto and Hancock Prospecting joint venture
- to the existing Hope Downs 1 mine infrastructure.

The project is estimated to be worth more than $400 million and will generate up to 600 jobs.

WA Premier Colin Barnett said the government had granted a special licence for a 53km railway line
and approved a 220-kilovolt electricity transmission line.

"These approvals are the final step for development of the Hope Downs 4 iron ore mine, at an
estimated total cost of more than $1.2 billion," Mr Barnett said in a statement today.

"The new (HD 4) mine will create about 1500 new jobs and Rio Tinto expects first production to
commence in the second quarter of 2013."

Hope Downs 4 was granted environmental approval in January.

Shared By: