the euro.....

 

One of the looming topics in news, the long standing trouble in Greece, has grown to unstoppable heights. The euro in on the brink of failure and along with it the European union and the world economy. The hot topic now is whether or not Germany will bail them out..again.

In an article from the New York Times, the depth of Greece's economic problems are evinced: "Greece has been kept afloat by its fellow euro zone countries, but at a steep price: the austerity measures demanded by France and Germany in return for two massive bailout packages, totaling 240 billion euros, have ripped holes in the Greek safety net and plunged the country into a recession of near-Great Depression dimensions." 

However, much of the bailout money is not being used for Greece's benefit but flowing back into the troika's pocket. The troika is the European Commission, the European Central Bank and the International Monetary Fund. 

The Economist describes a strategic plan that could potentially bring Europe to economic stability: "First, it must make clear which of Europe's governments are deemed illiquid and which are insolvent, giving unlimited backing to the solvent governments but restructuring the debt of those that can never repay it. Second, it has to shore up Europe's banks to ensure they can withstand a sovereign default. Third, it needs to shift the euro zone's macroeconomic policy from its obsession with budget-cutting towards an agenda for growth. And finally, it must start the process of designing a new system to stop such a mess ever being created again."

Any way you look at it, Europe and especially Greece are in grave danger of the euro's failure along with economic downfall. Solving this major problem is going to take a lot or money and compromise which are both in low supply. 

http://www.economist.com/node/21529049

http://topics.nytimes.com/top/news/international/countriesandterritories/greece/index.html

http://www.economist.com/node/18899736 

The "Perfectly" Inelastic Demand of Starbucks

Every morning I MUST have my daily dose of coffee. Without it I am completely lost for the entire day. However, the coffee at Starbucks ( "Fivebucks" as my dad calls it) is somehow superior and I am willing to pay almost any price for their coffee. Obviously if it is 100$ for a tall latte I might cut back, but within reason my demand for Starbucks is perfectly inelastic. Firstly, their are few to no substitutes for Starbucks in walking distance or on my way to and from school and work. It is most definitely essential to my daily life. It does not require a large share of my wealth (or at least per each trip). And lastly must be purchased every morning...or else.

But what about the supply of coffee??

Surprisingly, there is a large supply of coffee beans grown and then imported into the United States. This accounts for the relatively  low cost (input price) to produce the venti skinny vanilla latte with a pump of carmel and light on the foam that I order every morning.

HOWEVER, because Starbucks has market power, they are what we call "price-makers" and can make large profits. Their coffee is highly demanded and consumers are willing to pay high prices. Therefore they charge a much higher price than the actual average total cost per cup of coffee.

A Diamond is Forever... But not the monopoly

De Beers is a company that completely dominates and controls the diamonds, diamond mining, diamond hops, diamond trading and industrial diamond manufacturing sectors. De Beers operates similarly to the vertical monopolies of the railroad and steel industries. They are active in many areas of mining such as open-pit, underground, large-scale alluvial, coastal and deep sea. This gives them the upper hand to control and make their own prices in the market because they are the dominant supplier in the world.

Cecil Rhodes, an English born South African business man, bough the mine owned by the "de beers" brothers in 1880 and it wasn't long before he owned virtually all of the diamond mines in South Africa. In 1888, De Beers Consolidated Mines, Ltd. was formed. They began crafting a monopoly on production and distribution of diamonds. In order to control supply and demand ("price making") he created a scarcity of diamonds. And by the time Rhodes died, De Beers owned around 90% of the world's diamond production and distribution.

Ernest Oppenheimer, owner of a rival diamond producer, essentially bought his way onto the board of De Beers and eventually became the Chairman of the Board. He established exclusive contacts with diamond suppliers and buyers, making it impossible to deal with diamonds outside of De Beers.

 In the 1930's, a decrease in diamond sells caused Henry Oppenheimer, Ernest's son, to begin a campaign to increase the number of diamond engagement and wedding rings. In 1947, he coined the slogan " A Diamond is Forever" which eventually became the companies slogan.  

Due to countries with large stockpiles of diamonds being unhappy with the structure of the De Beers company, in the last decade they have turned their focus to promoting its own brand of diamonds and retail stores. 

In November of 2011, the Oppenheimer family sold 40% of the company to Anglo American and therefore withdrawing the Oppenheimer's family connection to De Beers. 

While they are no longer a pure monopoly, De Beers is still extremely influential in the entirety of the diamond markets, especially Botswana.