Introduction to Externalities

When making the claim that free, unregulated markets maximize the amount of value created for a society, economists either implicitly or explicitly assume that the actions and choices of producers and consumers in a market dont have any spillover effects onto third parties who are not directly involved in the market as a producer or a consumer. When this assumption is taken away, it no longer has to be the case that unregulated markets are value-maximizing, so its important to understand these spillover effects and their impacts on economic value. Economists call effects on those not involved in the market externalities, and they vary along two dimensions. First, externalities can be either negative or positive. Not surprisingly, negative externalities impose spillover costs on otherwise uninvolved parties, and positive externalities confer spillover benefits on otherwise uninvolved parties. (When analyzing externalities, its helpful to keep in mind that costs are just negative benefits and benefits are just negative costs.) Second, externalities can be either on production or consumption. In the case of an externality on production, the spillover effects occur when a product is physically produced. In the case of an externality on consumption, the spillover effects occur when a product is consumed. Combining these two dimensions gives four possibilities: Negative Externalities on Production Negative externalities on production occur when producing an item imposes a cost on those not directly involved in producing or consuming the item. For example, factory pollution is the quintessential negative externality on production, since the costs of pollution are felt by everyone and not just those who are producing and consuming the products that are causing the pollution. Positive Externalities on Production Positive externalities can occur during produciton such as when a popular food, such as cinnamon buns or candy, produces a desirable smell during manufacturing, releasing this positive externality to the nearby community. Another example would be adding jobs in an area with high unemployment can benefit the community putting more consumers with money to spend into that communitry  and also reducing the number of unemployed people there. Negative Externalities on Consumption Negative externalities on consumption occur when consuming an item actually imposes a cost on others. For example, the market for cigarettes has a negative externality on consumption because consuming cigarettes imposes a cost on others not involved in the market for cigarettes in the form of second-hand smoke. Positive Externalities on Consumption Because the presence of externalities makes unregulated markets inefficient, externalities can be viewed as a type of market failure. This market failure, at a fundamental level, arises because of a violation of the notion of well-defined property rights, which is, in fact, a requirement for free markets to function efficiently. This violation of property rights occurs because there are is no clear ownership of air, water, open spaces, and so on, even though society is affected by what happens to such entities. When negative externalities are present, taxes can actually make markets more efficient for society. When positive externalities are present, subsidies can make markets more efficient for society. These finds are in contrast with the conclusion that taxing or subsidizing well-functioning markets (where no externalities are present) reduces economic welfare.

The Model Of The American Family - 1061 Words

For as long as I can remember, the ideal family household consisted of the male/father as the bread winner, provider, and head of the household, and female/mother, and children as members of this family. This image was embedded in us through our social class, our parents, our community, and the social media. The families of today have drastically changed, and are more complex in the family role. As time progresses, divorce rates are at an all time high, and single parent homes are even higher. To top it off we can’t turn on the TV or computer without seeing or hearing about gay/lesbian marriage or states legalizing same sex marriage. Over time the idea of what the model family was viewed as and the reality of what a model class consist of now began to clash. American families are becoming numb or more excepting of the detrimental changes that I have listed above, of the model African American family. Finances and infidelity are at the top of the list of reasons why the African American family is becoming non-existent. The idea that the 1950s were the best time to raise children was based on the finances of the middle class, but the women back then were not respected as an equal to their husband as they are more so today. The African American male traditionally had the patriarchy role. He was the provider, and head of the household. That role is still ideal today, but not always possible. Due to high divorce rates, that role changes to the AfricanShow MoreRelatedThe Myth of the Model American Family Essay1380 Words   |  6 PagesAbstract This essay, The Myth of the Model American Family, is a discussion of the concept of an ideal family in the different perspective specifically social, cultural and economic. 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Contemporary Business Issues for Wesfarmers Limited †A Powerful Case

Question: Discuss about theContemporary Business Issuesfor Wesfarmers Limited. Answer: Introduction Wesfarmers limited is an Australian organization. It has covered almost a hundred years after being founded in the year 1914. Other than Australia, the organization has its branches in New Zealand, Bangladesh, Ireland, and United Kingdom. It operates in the conglomerate industry. Approximately, 205,000 people are employed in the Wesfarmers limited. It was originally founded as a co-operative of Western Australian farmers, which provided services and commodities. In the year 1984, became a huge conglomerate after being listed on the Australian Stock Exchange. The company has many subsidiaries all over the globe. The company has avoided the effects of the Global Financial Crisis, which shows the strength of the organization. It has tried to expand overseas, while the other Australian organizations have failed. This makes the move of Wesfarmers a bold one. Sticking to the Australian market which is small regarding the size of the domestic market, the company with its huge resources, has the strength to expand (Islam, Jain and Haque 2016). A Strategic Management Cycle framework shows how governance by the authorities of an organization creates strategy and implements those with absolute control to direct the organization towards sustainability. The work of an organizations governing body is strategy formation and implementation, which involves the board of the members, CEO of the company and the senior management. They together control the operations with the strategic operations. These are the internal attributes of the company. The accountability of the stakeholders depends on the sustainability of the organization, which is an external attribute. It depends on the satisfaction level of the stakeholders. If the stakeholders think that the strategies adopted by the governing body will ensure profit in the long run, they will keep investing in the market. The Wesfarmers Limited has taken several strategies. The report analyzes the strategies adopted by the company and the outcomes which will follow the actions of the g overning body (Richardson 2014). Strategic Management Cycle Framework: Figure 1: Strategic Management Cycle Framework for Wesfarmers Limiteds success. Source: (As created by the author.) Policies: The Strategic Management Cycle for Wesfarmers Limited has shown how the policies are relevant for the companys growth. Some of the policies can be listed as follows: Entrepreneur of the year of 1989, Trevor Eastwood, of Wesfarmers said, We set target rates for people and the level of returns they ought to get at various levels in the company. This caused people to concentrate on the things that really mattered in life and we started to see tremendous growth in profitability which generated funds that we were able to invest in further diversification and gave us additional growth. Providing the workers one target at a time helped them completing the tasks with undivided attention. Before implementing this strategy, the organization was returning less than 10 per cent on the shareholder funds. After adopting this policy, the returning increased to a whopping 22 per cent by the year 1989 (Adams 2016). Wesfarmers had introduced a gender diversity policy. This has ensured a long term success story for the organization. For the last five years the percentage of workers who are women, has been more or less the same. The percentage of women workers is more than male workers in the organization. According to the spokespersons of the company, this attribute will help the company to achieve an inclusive culture. It will also help the organization to improve talent management, Increase the efficiency in the recruitment practices. The pay equity will also be addressed by this policy (Moscardo et al. 2013). Percentage of female employees in Wesfarmers Limited Years 2011 2012 2013 2014 2015 Non-executive directors 25 25 30 30 33 Senior-executive directors 22 21 25 25 25 All management roles 26 28 28 29 29 Total workforce 57 57 57 56 55 Table 1: Female employees percentage in Wesfarmers Limited. Source: (Developed by the author.) These were the policies implemented by the governing body of Wesfarmers. The policies are made for reaching the targets like long run sustainability, growth, increase in total revenue, and others. This is the initial process of the Strategic Management Cycle Framework. The next step comes as the strategy creation by the senior management and the CEO (Hubbard, Rice and Galvin 2014). Strategies and Their Implementation: Market Segmentation: The company segmented the consumers of the market depending on their valuation of the commodities sold. According to the spokespersons of the organization, this is "the essence of executing the retail business model." The greatness of the strategy is that it helps the company to produce the goods which are more demanded by the consumers most. This increases the revenue of the organization. Understanding the consumer demographic will help the organization to determine the quantity and quality which is needed by the customers. Generating new insights into the customers of the organization will increase the profit margins of the company (Morison and Ramsay 2014). Pricing Strategy: The conglomerate industry is following an aggressive pricing strategy, where each firm is trying to get more market share by reducing their prices. But this can only be achieved if the suppliers of Wesfarmers Limited can approve to lowering their prices. The market became more customer-driven since the Global Financial Crisis. The company has two choices, one is being the price leader, and the other one is suggesting being the price follower of the leading firm. Changing the prices of the commodities costs the organizations. Thus, changing the price in the short run or the long-term is a point of concern. Making a low price and sticking to it is the best strategy for the company. This grows the trust in the customers. The retailers need data mining in order to create market segments. Here, price is the major factor which divides the market (Harding, Shankar and Jackson 2013). Private Labels: Another strategy worth mentioning is regarding a certain trend of using private labels in the market. The other companies in the industry have introduced several products which are carrying the companies private label. This increases and promotes the brand name. But this strategy has some loopholes. The suppliers who used to supply the similar goods are losing their market share as they mainly sell their products to these large conglomerates. It shakes the intermediate goods industry. The price of the goods supplied by the small suppliers gets challenged. It reduces the value of products. There are some customers who are loyal to these products. They miss the chance of buying their product of choice. Wesfarmers created a code of conduct which saves the interest of the suppliers. This creates a strong bond with the stakeholders of Wesfarmers. These standardized set of principles provided the company new reputation in the market (Cheng, Green and Ko 2014). Treatment of Animals: Wesfarmers and its supplier follow the treatment of animals through their ethical sourcing. Animal welfare is considered in the management ethical strategies. The management of suppliers on the commercial grounds of price, quality, and efficiency are the key issues of fairness, ethics and doing the right thing is now, therefore, becoming more prominent (Klettner, Clarke and Boersma 2014). Internationalization: The organization has considered a new international strategy, which let the organization acquire a home base in the United Kingdom. The organization has past history of challenging bigger names and winning them over in their turf. The company is trying the same here in the foreign land while the other conglomerates of Australia failing doing the same. This makes the move highly risky (Akbar and Ahsan 2014). Strategic Operations: Wesfarmers has ensured delivering shareholder return both in the short run and in the long run. The cash flow generation process of the organization incorporates: Growth in long term earning possibilities. Efficient management of working capital in the organization and its subsidiaries. Creating a strong process of capital expenditure. The shareholders are benefited by the service being provided by the organization. To ensure a positive return for the shareholders in the short run, as well as the long run the company has ensured the following: The returns on the invested capitals are improved through the strategies and implemented policies. Growth of the dividends over the time. This provides long run positive returns for the shareholders. Capital and resources are scarce. Thus these have to be handled efficiently. The organization has ensured effective management of capital. The organization invests above the cost of the capital. It provides security to the shareholders, and makes the shares more lucrative. The financial discipline of the organization is such designed that it provides positive returns in the long run. Any exogenous shock which might disrupt the companys revenue is considered while designing the finance system (Janssens and Kaptein 2014). Strategies for Sustainability: Sustainable growth is every companys main agenda. To achieve this, every company takes some strategies and implements some policies. The outcome of the policies determines whether the policies implemented were appropriate for the companys sustainability. This sustainability is ensured by consistent growth. The job of the organizations CEO and other senior management officers is to ensure this growth pattern. To attain sustainability an organization needs some policies which will survive for a long term. By long term it is meant that all the factors of production of the company are variable (James 2013). Acquisition: The CEO of the Wesfarmers, Richard Goyder (since 2005) has taken strategy which is relatively aggressive. He opted for attaining growth through acquisition. The transactions were done just before the Global financial Crisis, which made the move riskier. But constant work by the CEO made the move a success (Kotler et al. 2015). Positive return on capital: For achieving a successive growth rate, the company needs sustaining increase in shareholder value. Hence, the return on capital is important for the company. According to Bob Every, retired Chairman of Wesfarmers, the main strategy for sustainability the company follows is ensuring positive return on the capital consistently. Human resource department and reputation: The value creating strategies followed by the company is ensured by taking responsibility of not only the shareholders, but of the stakeholders also. Appropriate governance, gender and racial diversity, human rights, transparent transactions also add to the value. This also goes to the organizations reputation (Zentes, Morschett and Schramm-Klein 2017). Code of conduct maintained by HR department: The department of Human Resources, to ensure sustainable growth, has created code of conduct which helps the fifteen thousand suppliers across the group. This move not only created a good relationship between the suppliers and Wesfarmers, it also helped to create a healthy business environment. This is a must for having a sustaining future (Rowe et al. 2014). Summary of Recommendations: Recognizing top talents and using them according to the demand prevailing in the market with the help of the HR department. Risk assessment of the market before expansion. Creating a better client base by product surveys in different geographical segments of the market. Researching the market thoroughly before acquisition. Creating private labels for those products which are less supplied by the suppliers. Proposal of Implementing Recommendations: Top Talents Recognition by the HR Department: The Human Resource department has to recognize talents which are responsible for the organizations well being and good reputation. These are the people whose actions have added value to the service provided by the organization. These people can belong from within the organization and outside the organization. The workers, working in Wesfarmers Limited directly are within organization talents, and those who are from the supplier companies are called outside the organization talents. To ensure top quality service by these people in the future, the company and the Hr department can give those workers prizes and other incentives for their quality of service. The prizes can be in either cash, or in kind. They can be provided with more incentives. This will show those employees that good work is appreciated. Other workers within and outside of the organization, seeing this, will try to join in and increase their production (Limnios and Mazzarol 2014). Risk Assessment Before Expansion: Before expanding the market by bringing in new products or opening new stores, the company has to see the market demand for the same. The demand structure will guide the organization to answer of whether to expand or not. The expansion can be divided into product expansion and operating stores expansion. The demand structure will show the trend line. Without increased demand, there is no need for expansion. The nature of the increased demand has to be assessed. If the increase is for short run, just an increase in the production will suffice. If the increase shows long run potential and permanent, the organization can expand by producing more products and opening new stores in selected places (Kenny 2013). Product Survey and Different Geographical Segments: Wesfarmers Limited operates in a vast geographical area and in both domestic and international markets. It incorporates several cultures, races, geographical positions, and many more attributes, due to which the demand pattern changes. The demand for goods is different in different communities. Geographical positions also play an important role in determining the type of good to be sold. For example, the places which are relatively hot, needs less woollen products than those places which are relatively cold. Hence, the products require a survey in each location to determine the products demand. Otherwise, it will create over supply and inventory accumulation (Berk et al. 2013). Market Research Before Acquisition: A thorough market research is needed before acquiring another firm. The financial situation of the organizations and the economys strength has to be assessed before the acquisition. Otherwise, an action like acquisition, which includes significant transactions might cause economic blunder and hurt the organization financially. The acquisition of Coles by Wesfarmers was just before the Global Financial Crisis. The situation left the CEO in jeopardy, though he managed to climb out of it with hard work for days. A proper research prior the acquisition would have saved him from the troubles. The Wesfarmers Limited has the potential to acquire many regional companies, which can increase Wesfarmers revenue. Proper market research will show the company if the timing is perfect for the acquisition (Brown 2014). Private Labels: The code of conduct binds the organization from preparing private labels, as it will hurt the suppliers. The suppliers, who are already operating in the market knows how to minimize the cost and hence creating private label for those goods is not an efficient decision. But there are some goods which has relatively less number of suppliers. The organization can also start selling new products, which are not supplied by the suppliers yet. The senior management has to find among these products, which has high demand in the market. This way the organization can increase its brand value and the total revenue as well (Jones, Hillier and Comfort 2014). References: Adams, M.A., 2016. Contemporary case studies in corporate governance failures. Governance Directions, 68(6), p.335. Akbar, S. and Ahsan, K., 2014. Analysis of corporate social disclosure practices of Australian retail firms. International Journal of Managerial and Financial Accounting, 6(4), pp.375-396. Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V. and Finch, N., 2013. Fundamentals of corporate finance. Pearson Higher Education AU. Brown, B., 2014. Call for greater courage. Governance Directions, 66(7), p.390. Cheng, M.M., Green, W.J. and Ko, J.C.W., 2014. The impact of strategic relevance and assurance of sustainability indicators on investors' decisions. Auditing: A Journal of Practice Theory, 34(1), pp.131-162. Grayson-Morison, R. and Ramsay, I., 2014. Responsibilities of the Board of Directors. Company and Securities Law Journal, 32(1), pp.69-77. Harding, D., Shankar, S. and Jackson, R., 2013. The renaissance in mergers and acquisitions: The surprising lessons of the 2000s. Bain Company. Hubbard, G., Rice, J. and Galvin, P., 2014. Strategic management. Pearson Australia. Islam, M.A., Jain, A. and Haque, S., 2016. A Preliminary Analysis of Australian Governments Indigenous Reform Agenda Closing the Gapand Corporate Accountability. In Key Initiatives in Corporate Social Responsibility (pp. 341-354). Springer International Publishing. James, H., 2013. Tag Archives: Business. Evolutionary Theory. Janssens, M. and Kaptein, M., 2014. The ethical responsibility of companies toward animals: A study of the expressed commitment of the Fortune Global 200. Available at SSRN 2513354. Jones, P., Hillier, D. and Comfort, D., 2014. Environmental and Social Programmes and Rapidly Growing Retailers. Economia. Seria Management, 17(1), pp.5-17. Kenny, G., 2013. The stakeholder or the firm? Balancing the strategic framework. Journal of Business Strategy, 34(3), pp.33-40. Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165. Kotler, P., Burton, S., Deans, K., Brown, L. and Armstrong, G., 2015. Marketing. Pearson Higher Education AU. Limnios, E.M. and Mazzarol, T., 2014. 11. Losing sight of purposethe United Farmers Co-operative Company. Research Handbook on Sustainable Co-operative Enterprise: Case Studies of Organisational Resilience in the Co-operative Business Model, p.188. Moscardo, G., Lamberton, G., Wells, G., Fallon, W., Lawn, P., Rowe, A., Humphrey, J., Wiesner, R., Pettitt, B., Clifton, D. and Renouf, M., 2013. Sustainability in Australian business: Principles and practice. Wiley-Blackwell. Richardson, D., 2014. Submission to the financial services review. Rowe, A.L., Nowak, M., Quaddus, M. and Naude, M., 2014. Stakeholder engagement and sustainable corporate community investment. Business Strategy and the Environment, 23(7), pp.461-474. Zentes, J., Morschett, D. and Schramm-Klein, H., 2017. Corporate Social Responsibility. In Strategic Retail Management (pp. 207-226). Springer Fachmedien Wiesbaden.