Muhammad Ali. Business Economics GM545 Sep 11 Sec C mtaimurali@gmail.

com

Gasoline is most valuable resource in today's world. It is the driving engine for all the develop and developing nations. All the major trade is done by using the power of fossil fuels. Fossils fuels are in great demand and their also supplied in large quantities using various means. The constant fluctuation of gas prices is due to many factors like politics, war and current economic situation. Whenever there is atmosphere of hostility in the middle east region the gas prices goes up. Even though the supply of crude oil remains the same, it is governments of world or OPEC way of making extra money. They know the fuel is a product that people will buy at any price, they might consume less of other things but they will consume gas. In economic terms you can say there are very less substitute for gasoline. They are other options like electric cars and ethanol but they are too expensive for everyone. A change in quantity demand for fuel does not bring a lot of change. People will consume approximately same amount of fuel but will reduce their spending on other products. Governments know that fact and use this for their own advantage. A very good example is third world countries which are under the blessing of IMF loans, it is very hard for them to collect taxes from people so they raise fuel prices. They make car cheaper to buy and raise fuel prices, which in turns bring revenue for these government. These extra petro dollars become payment for IMF loan and end of the day the common people pay for it. The amount of oil barrels reaching the oil refinery has increased in the last decade due to increase in mining technology. There has been a lot of offshore drilling and countries in Africa have also started pumping oil. In recent years supplies have been the same but OPEC is setting prices according to their own benefit, this is also called temporary inflation or artificial inflation. It is basically a very strong monopoly, which is strong enough to set prices of fuel all over the world. The major gulf states in Middle East are producing the same amount of oil for the last decade and the number of oil refineries has actually increased. The real reason why the gas prices in U.S have increased is due to weakening of dollar. The increased amount of debt and borrowing from foreign countries to run government has weakened U.S economy at its core. If it continues that way dollar will not be more than trading currency. Whenever the currency of some country get weaker things get more expensive and less affordable. Lack of economic growth and printing more money without being backed by gold or anything has made outside investors nervous in investing money in U.S. All these factors add up to increase price at the pump and in turns make people spend less. Whenever there is an environment of uncertainty people will spend less and common businesses will lose money.

Ch 8 QUESTION 14
Competition is basically the strategic advantage one business entity has over its rivals. Competition is at its best when it forces businesses to produce high quality products at lower prices. The firms in competitive market have little control on the product price is due to the reason that do not have something very unique. In some industries like airlines they are all using planes sitting on one airport. The reason there is so much competition is that they are few airline companies and everyone is fighting for potential clients. They are mostly using same kind of equipment or planes to provide the service. The other reason for lots of competition is that not everyone can open airline service, the amount of capital required is very high. In the software industry especially the company which make operating system like Microsoft, there is very less competition. Microsoft has a very high market share and have a monopoly in the software industry. Even though they do have competitors but their market share is so less that they pose no threat. When big firms are fighting for same market share then it is very hard for to them to have big change in their product prices. The reason for that is simple, you do not have much of difference in the product. According to Michael Porter they are four competitive strategies. These four strategies are Differentiation, Cost Focus, Cost Leadership and Differentiation Focus. In very competitive market for a certain product they do not have a high differentiation. The good example would be Coke and Pepsi. They both offer close to similar products. They are sold at the same stores and placed right next to each other .When you have similar products you cannot charge a premium price. The cost leadership strategy also does not work due to the fact that the company will lose money and will not be able to pay its fixed cost. The most important aspect of competition is how new business can exit or enter the market. If the market is homogenous, then they are lots of substitute for that product. When consumers have good knowledge about the prices the seller charge , then it is very hard for that company to charge high prices. They know that consumers can easily buy substitute for that product. When your competition has access to same resources( technology, other input factors) and production improvements in one firm can easily be copied. This gives very less incentive to a company to invest in research and development.

Ch 7 Question 15
Businesses most valuable asset are their employees. The companies which have become very successful in short period of time like Starbucks and DreamWorks have very good HR departments. The reason why these companies are successful is the simple fact they give lots of incentive to their employees. These incentives could be in the form of stock, bonuses or paid vacations. If you hire an employee which is less productive then your current employee, it should not decrease your overall productivity or output. The reason is that in the beginning that employee will be going through learning curve and when he goes through daily training the output will increase. This is one of very good reason that company should provide reasonable amount of training for their employees. It gives them enough time to understand the companies operation and their corporate culture. Employees output can be measured and increased in many ways. First step is to have a system in place which measures employee productivity. This system should measure the amount of time to perform a task, time spent for personal use, the amount of sales revenue generated by the employee and the gross sales revenue produced compared to their revenue. Once the system is in place then you put everybody on the same playing field. The second most important thing is to implement a process to increase employee productivity. This could be done when the employee and employer are trying to achieve the same set of goals. This could be done by maintaining positive morale or atmosphere in the company. This will make employees come to work with passion and not take it as a burden or routine. Limits things which distract employee from their work, like internet and web surfing control. Employer should also invest in employee education, a better educated employee is more valuable asset. These days knowledge is power and whoever posses more has competitive edge. If the employee produce good results their productivity should be awarded. The review on their progress can be done quarterly or yearly. The employee should not also feel threatened by the review or they will refuse to participate. Once they do good then discuss with them ways to make their productivity even much better. It is hard to increase employee productivity in large corporation but the key is to focus on employee productivity one at a time.

Work cited page.

http://www.usatoday.com/money/perfi/columnist/krantz/2006-05-09-gasolineprices_x.htm http://www.opec.org/opec_web/en/press_room/178.htm http://workawesome.com/management/increasing-employee-productivity/ http://tutor2u.net/economics/content/topics/competition/competition.htm Core Economics: Gerald Stone