ColombiaLink.com – SUPPPLY AND DEMAND

See
also: List of Economic Topics

SUPPPLY
AND DEMAND
– microeconomics


The
supply and demand model describes how prices vary as a result of a balance between
product availability at each price (supply) and the desires of those with purchasing
power at each price (demand). The graph depicts an increase in demand from D1
to D2 along with the consequent increase in price and quantity required to reach
a new market-clearing equilibrium point on the supply curve (S).

In
microeconomic theory, the partial equilibrium supply and demand economic model
originally developed by Alfred Marshall attempts to describe, explain, and predict
changes in the price and quantity of goods sold in competitive markets. The model
represents a first approximation for describing a market that is not perfectly
competitive. It formalizes the theories used by some economists before Marshall
and is one of the most fundamental models of some modern economic schools, widely
used as a basic building block in a wide range of more detailed economic models
and theories. The theory of supply and demand is important for some economic schools
understanding of a market economy in that it is an explanation of the mechanism
by which many resource allocation decisions are made. However, unlike general
equilibrium models, supply schedules in this partial equilbrium model are fixed
by unexplained forces.

In
general, the theory claims that when goods are traded in a market at a price where
consumers demand more goods than firms are prepared to supply, this shortage (or
excess demand) will tend to lead to increases in the price of the goods. Those
consumers who are prepared to pay more will bid up the market price. Conversely,
prices will tend to fall when the quantity supplied exceeds the quantity demanded
(i.e., when there is a glut, market surplus, or excess supply). This price/quantity
adjustment mechanism causes the market to approach an equilibrium point, at which
the market clears and there is no longer any impetus to change. This theoretical
point of stability is defined as the point where producers are prepared to sell
exactly the same quantity of goods as consumers want to buy, so there is no endogenous
force causing prices to change.

Assumptions
and definitions

The
theory of supply and demand usually assumes that markets are perfectly competitive.
This means that there are many small buyers and sellers, each of which is unable
to influence the price of the good in each market on his own. This assumption
is central to the simple form of supply and demand theory that is taught in introductory
economics. In many actual economic transactions, the assumption fails because
some individual buyers or sellers have enough market power to influence prices.
In this situation, the simple microeconomic theory of supply and demand is incomplete
and more sophisticated analysis is needed. However the simple theory presented
here does apply, and accurately describes many real life market interactions.
In many other cases it is a good first order approximation to some of the major
effects in the market.

Mainstream
economics does not assume a priori that markets are preferable to other forms
of social organization. In fact, much analysis is devoted to cases where so-called
market failures lead to resource allocation that is suboptimal by some standard.
In such cases, economists may attempt to find policies that will avoid waste;
directly by government control, indirectly by regulation that induces market participants
to act in a manner consistent with optimal welfare, or by creating ‘missing’ markets
to enable efficient trading where none had previously existed. This is studied
in the field of collective action.

Demand

Demand
is the quantity that consumers are willing and able to buy at a given price over
a period of time. For example, a consumer may be willing to purchase 30 bags of
potato chips in the next year if the price is $1 per bag, and may be willing to
purchase only 10 bags if the price is $2 per bag. A demand schedule can be constructed
that shows the quantity demanded at each given price. It can be represented on
a graph as a line or curve by plotting the quantity demanded at each price. It
can also be described mathematically by a demand equation. The main determinants
of the quantity one is willing to purchase will typically be the price of the
good, one’s level of income, personal tastes, the price of substitute goods, and
the price of complementary goods.

Supply

Supply
is the quantity that producers are willing to sell at a given price. For example,
the chip manufacturer may be willing to produce 1 million bags of chips if the
price is $1 and substantially more if the market price is $2. The main determinants
of the amount of chips a company is willing to produce will typically be the market
price of the good and the cost of producing it. In fact, supply curves are constructed
from the firm’s long-run cost schedule.

Simple
supply and demand curves

Mainstream
economic theory centers on creating a series of supply and demand relationships,
describing them as equations, and then adjusting for factors which produce “stickiness”
between supply and demand. Analysis is then done to see what “trade offs”
are made in the “market” which is the negotiation between sellers and
buyers. Analysis is done as to what point the ability of sellers to sell becomes
less useful than other opportunities. This is related to “marginal”
costs – or the price to produce the last unit that can be sold profitably, versus
the chance of using the same effort to engage in some other activity.

Graph
of simple supply and demand curves

The
slope of the demand curve (downward-to-the-right) indicates that a greater quantity
will be demanded when the price is lower. On the other hand, the slope of the
supply curve (upward-to-the-right) tells us that as the price goes up, producers
are willing to produce more goods. The point where these curves intersect is the
equilibrium point. At a price of P producers will be willing to supply Q units
per period of time and buyers will demand the same quantity. P in this example,
is the equilibriating price that equates supply with demand.

In
the figures, straight lines are drawn instead of the more general curves. This
is typical in analysis looking at the simplified relationships between supply
and demand because the shape of the curve does not change the general relationships
and lessons of the supply and demand theory. The shape of the curves far away
from the equilibrium point are less likely to be important because they do not
affect the market clearing price and will not affect it unless large shifts in
the supply or demand occur. So straight lines for supply and demand with the proper
slope will convey most of the information the model can offer. In any case, the
exact shape of the curve is not easy to determine for a given market. The general
shape of the curve, especially its slope near the equilibrium point, does however
have an impact on how a market will adjust to changes in demand or supply. See
the below section on elasticity.

It
should be noted that on supply and demand curves both are drawn as a function
of price. Neither is represented as a function of the other. Rather the two functions
interact in a manner that is representative of market outcomes. The curves also
imply a somewhat neutral means of measuring price. In practice any currency or
commodity used to measure price is also the subject of supply and demand.

Effects
of being away from the equilibrium point

Now
consider how prices and quantities not at the equilibrium point tend to move towards
the equilibrium. Assume that some organization (say government or industry cartel)
has the ability to set prices. If the price is set too high, such as at P1 in
the diagram to the right, then the quantity produced will be Qs. The quantity
demanded will be Qd. Since the quantity demanded is less than the quantity supplied
there will be an oversupply (also called surplus or excess supply). On the other
hand, if the price is set too low, then too little will be produced to meet demand
at that price. This will cause an undersupply problem (also called a shortage).

Now
assume that individual firms have the ability to alter the quantities supplied
and the price they are willing to accept, and consumers have the ability to alter
the quantities that they demand and the amount they are willing to pay. Businesses
and consumers will respond by adjusting their price (and quantity) levels and
this will eventually restore the quantity and the price to the equilibrium.

In
the case of too high a price and oversupply, (seen in the diagram at the left)
the profit maximizing businesses will soon have too much excess inventory, so
they will lower prices (from P1 to P) to reduce this. Quantity supplied will be
reduced from Qs to Q and the oversupply will be eliminated. In the case of too
low a price and undersupply, consumers will likely compete to obtain the good
at the low price, but since more consumers would like to buy the good at the price
that is too low, the profit maximizing firm would raise the price to the highest
they can, which is the equilibrium point. In each case, the actions of independent
market participants cause the quantity and price to move towards the equilibrium
point.

Demand
curve shifts

When
more people want something, the quantity demanded at all prices will tend to increase.
This can be referred to as an increase in demand. The increase in demand could
also come from changing tastes, where the same consumers desire more of the same
good than they previously did. Increased demand can be represented on the graph
as the curve being shifted right, because at each price point, a greater quantity
is demanded. An example of this would be more people suddenly wanting more coffee.
This will cause the demand curve to shift from the initial curve D0 to the new
curve D1. This raises the equilibrium price from P0 to the higher P1. This raises
the equilibrium quantity from Q0 to the higher Q1. In this situation, we say that
there has been an increase in demand which has caused an extension in supply.

Conversely,
if the demand decreases, the opposite happens. If the demand starts at D1, and
then decreases to D0, the price will decrease and the quantity supplied will decrease
– a contraction in supply. Notice that this is purely an effect of demand changing.
The quantity supplied at each price is the same as before the demand shift (at
both Q0 and Q1). The reason that the equilibrium quantity and price are different
is the demand is different.

Supply
curve shifts

When
the suppliers’ costs change the supply curve will shift. For example, assume that
someone invents a better way of growing wheat so that the amount of wheat that
can be grown for a given cost will increase. Producers will be willing to supply
more wheat at every price and this shifts the supply curve S0 to the right, to
S1 – an increase in supply. This causes the equilibrium price to decrease from
P0 to P1. The equilibrium quantity increases from Q0 to Q1 as the quantity demanded
increases at the new lower prices. Notice that in the case of a supply curve shift,
the price and the quantity move in opposite directions.

Conversely,
if the quantity supplied decreases, the opposite happens. If the supply curve
starts at S1, and then shifts to S0, the equilibrium price will increase and the
quantity will decrease. Notice that this is purely an effect of supply changing.
The quantity demanded at each price is the same as before the supply shift (at
both Q0 and Q1). The reason that the equilibrium quantity and price are different
is the supply is different.

See
also
:
Induced demand

Market
‘clearance’

The
market ‘clears’ at the point where all the supply and demand at a given price
balance. That is, the amount of a commodity available at a given price equals
the amount that buyers are willing to purchase at that price. It is assumed that
there is a process that will result in the market reaching this point, but exactly
what the process is in a real situation is an ongoing subject of research. Markets
which do not clear will react in some way, either by a change in price, or in
the amount produced, or in the amount demanded. Graphically the situation can
be represented by two curves: one showing the price-quantity combinations buyers
will pay for, or the demand curve; and one showing the combinations sellers will
sell for, or the supply curve. The market clears where the two are in equilibrium,
that is where the curves intersect. In a general equilibrium model, all markets
in all goods clear simultaneously and the ‘price’ can be described entirely in
terms of tradeoffs with other goods. For a century most economists believed in
Say’s Law, which states that markets, as a whole, would always clear and thus
be in balance.

Elasticity

Main
article: Elasticity (economics)

An
important concept in understanding supply and demand theory is elasticity. In
this context, it refers to how supply and demand change in response to various
stimuli. One way of defining elasticity is the percentage change in one variable
divided by the percentage change in another variable (known as arch elasticity
because it calculates the elasticity over a range of values – This can be contrasted
with point elasticity that uses differential calculus to determine the elasticity
at a specific point). Thus it is a measure of relative changes.

Often,
it is useful to know how the quantity supplied or demanded will change when the
price changes. This is known as the price elasticity of demand and the price elasticity
of supply. If a monopolist decides to increase the price of their product, how
will this affect their sales revenue? Will the increased unit price offset the
likely decrease in sales volume? If a government imposes a tax on a good, thereby
increasing the effecive price, how will this affect the quantity demanded?

If
you do not wish to calculate elasticity, a simpler technique is to look at the
slope of the curve. Unfortunately, this has units of measurement of quantity over
monetary unit (For example, liters per euro, or battleships per million yen),
which is not a convenient measure to use for most purposes. So, for example if
you wanted to compare the effect of a price change of gasoline in Europe versus
the United States, there is a complicated conversion between gallons per dollar
and liters per euro. This is one of the reasons why economists often use relative
changes in percentages, or elasticity. Another reason is that elasticity is more
than just the slope of the function: It is the slope of a function in a coordinate
space, that is, a line with a constant slope will have different elasticity at
various points.

Lets
do an example calculation. We have said that one way of calculating elasticity
is the percentage change in quantity over the percentage change in price. So,
if the price moves from $1.00 to $1.05, and the quantity supplied goes from 100
pens to 102 pens, the slope is 2/0.05 or 40 pens per dollar. Since the elasticity
depends on the percentages, the quantity of pens increased by 2%, and the price
increased by 5%, so the elasticity is 2/5 or 0.4.

Since
the changes are in percentages, changing the unit of measurement or the currency
will not affect the elasticity. If the quantity demanded or supplied changes a
lot when the price changes a little, it is said to be elastic. If the quantity
changes little when the prices changes a lot, it is said to be inelastic. An example
of perfectly inelastic supply, or zero elasticity, is represented as a vertical
supply curve. (See that section below)

Elasticity
in relation to variables other than price can also be considered. One of the most
common to consider is income. How would the demand for a good change if income
increased or decreased? This is known as the income elasticity of demand. For
example how much would the demand for a luxury car increase if average income
increased by 10%? If it is positive, this increase in demand would be represented
on a graph by a positive shift in the demand curve, because at all price levels,
a greater quantity of luxury cars would be demanded.

Another
elasticity that is sometimes considered is the cross elasticity of demand which
measures the responsiveness of the quantity demanded of a good to a change in
the price of another good. This is often considered when looking at the relative
changes in demand when studying complement and substitute goods. Complement goods
are goods that are typically utilized together, where if one is consumed, usually
the other is also. Substitute goods are those where one can be substituted for
the other and if the price of one good rises, one may purchase less of it and
instead purchase its substitute.

Cross
elasticity of demand is measured as the percentage change in demand for the first
good that occurs in response to a percentage change in price of the second good.
For an example with a complement good, if, in response to a 10% increase in the
price of fuel, the quantity of new cars demanded decreased by 20%, the cross elasticity
of demand would be -20%/10% or, -2.

Vertical
supply curve

It
is sometimes the case that the supply curve is vertical: that is the quantity
supplied is fixed, no matter what the market price. For example, the amount of
land in the world can be considered fixed. In this case, no matter how much someone
would be willing to pay for a piece of land, the extra cannot be created. Also,
even if no one wanted all the land, it still would exist. These conditions create
a vertical supply curve, giving it zero elasticity (ie. – no matter how large
the change in price, the quantity supplied will not change).

In
the short run near vertical supply curves are even more common. For example, if
the Super Bowl is next week, increasing the number of seats in the stadium is
almost impossible. The supply of tickets for the game can be considered vertical
in this case. If the organizers of this event underestimated demand, then it may
very well be the case that the price that they set is below the equilibrium price.
In this case there will likely be people who paid the lower price who only value
the ticket at that price, and people who could not get tickets, even though they
would be willing to pay more. If some of the people who value the tickets less
sell them to people who are willing to pay more (i.e. scalp the tickets), then
the effective price will rise to the equilibrium price.

The
graph below illustrates a vertical supply curve. When the demand 1 is in effect,
the price will be p1. When demand 2 is occurring, the price will be p2. Notice
that at both values the quantity is Q. Since the supply is fixed, any shifts in
demand will only affect price.

Other
market forms

In
a situation in which there are many buyers but a single monopoly supplier that
can adjust the supply or price of a good at will, the monopolist will adjust the
price so that his profit is maximised given the amount that is demanded at that
price. This price will be higher than in a competitive market. A similar analysis
using supply and demand can be applied when a good has a single buyer, a monopsony,
but many sellers.

Where
there are both few buyers or few sellers, the theory of supply and demand cannot
be applied because both decisions of the buyers and sellers are interdependent
– changes in supply can affect demand and vice versa. Game theory can be used
to analyse this kind of situation. See also oligopoly.

The
supply curve does not have to be linear. However, if the supply is from a profit
maximizing firm, it can be proven that supply curves are not downward sloping
(i.e. if the price increases, the quantity supplied will not decrease). Supply
curves from profit maximizing firms can be vertical, horizontal or upward sloping.
While it is possible for industry supply curves to be downward sloping, supply
curves for individual firms are never downward sloping).

Standard
microeconomic assumptions cannot be used to prove that the demand curve is downward
sloping. However, despite years of searching, no generally agreed upon example
of a good that has an upward sloping demand curve has been found (also known as
a giffen good). Non-economists sometimes think that certain goods would have such
a curve. For example, some people will buy a luxury car because it is expensive.
In this case the good demanded is actually prestige, and not a car, so when the
price of the luxury car decreases, it is actually changing the amount of prestige
so the demand is not decreasing since it is a different good (see Veblen good).
Even with downward sloping demand curves, it is possible that an increase in income
may lead to a decrease in demand for a particular good, probably due to the existence
of more attractive alternatives which become affordable: a good with this property
is known as an inferior good.

An
example: Supply and demand in a 6-person economy

Supply
and demand can be thought of in terms of individual people interacting at a market.
Suppose the following six people participate in this simplified economy:

ColombiaLink.com – TRANSFER PRICING – MICROECONOMICS

See
also: List of Economic Topics

TRANSFER
PRICING
– microeconomics

Transfer
pricing refers to the pricing of goods and services within a multi-divisional
organization. Goods from the production division may be sold to the marketing
division, or goods from a parent company may be sold to a foreign subsidiary.
The choice of the transfer prices affects the division of the total profit among
the parts of the company. It can be advantageous to choose them such that, in
terms of bookkeeping, most of the profit is made in a country with low taxes.

From
marginal price determination theory, we know that generally the optimum level
of output is that where marginal costs equals marginal revenue. That is to say,
a firm should expand its output as long as the marginal revenue from additional
sales is greater than their marginal costs. In the diagram that follows, this
intersection is represented by point A, which will yield a price of P*, given
the demand at point B.

When
a firm is selling some of its product to itself, and only to itself (ie.: there
is no external market for that particular transfer good), then the picture gets
more complicated, but the outcome remains the same. The demand curve remains the
same. The optimum price and quantity remain the same. But marginal cost of production
can be separated from the firms total marginal costs. Likewise, the marginal revenue
associated with the production division can be separated from the marginal revenue
for the total firm. This is referred to as the Net Marginal Revenue in production
(NMR), and is calculated as the marginal revenue from the firm minus the marginal
costs of distribution.

Transfer
Pricing with No External Market

It
can be shown algebraically that the intersection of the firms marginal cost curve
and marginal revenue curve (point A) must occur at the same quantity as the intersection
of the production divisions marginal cost curve with the net marginal revenue
from production (point C).

If
the production division is able to sell the transfer good in a competitive market
(as well as internally), then again both must operate where their marginal costs
equal their marginal revenue, for profit maximization. Because the external market
is competitive, the firm is a price taker and must accept the transfer price determined
by market forces (their marginal revenue from transfer and demand for transfer
products becomes the transfer price). If the market price is relatively high (as
in Ptr1 in the next diagram), then the firm will experience an internal surplus
(excess internal supply) equal to the amount Qt1 minus Qf1. The actual marginal
cost curve is defined by points A,C,D.

Transfer
Pricing with a Competitive External Marke
t

If
the market price is relatively low (as in Ptr2), then the firm will experience
an internal shortages (insufficient internal supply) equal to the amount Qf2 minus
Qt2. The actual marginal cost curve is defined by points A,B,E.

If
the firm is able to sell its transfer goods in an imperfect market, then it need
not be a price taker. There are two markets each with its own price (Pf and Pt
in the next diagram). The aggregate market is constructed from the first two.
That is, point C is a horizontal summation of points A and B (and likewise for
all other points on the Net Marginal Revenue curve (NMRa)). The total optimum
quantity (Q) is the sum of Qf plus Qt.

Transfer
Pricing with an Imperfect External Market

See
also

marketing

pricing
microeconomics
production,
costs, and pricing

ColombiaLink.com – SCARCITY – MICROECONOMICS

See
also: List of Economic Topics

SCARCITY
microeconomics

Scarcity
is a central concept in economics. In fact, neoclassical economics, the dominant
school of economics today, defines its field as involving scarcity: following
Lionel Robbins’ definition, it is the study of the allocation of scarce goods
among competing ends. Scarcity means not having sufficient resources to produce
enough to fulfill unlimited subjective wants. Alternatively, scarcity implies
that not all of society’s goals can be attained at the same time, so that we must
trade off one good against others.

“Resources
scarcity” is defined as there being a difference between the desire and the
demand for a good. What this means is that a good is scarce if people would consume
more of it if it were free. Scarcity (S) can also be viewed as the difference
between a person’s desires (D) and his possessions (P). Mathematically, this can
be expressed as S = D – P. If P > D, a state of negative scarcity exists which
is abundance. For most people desire exceeds possession and this provides the
spur to material success.

Goods
and services are scarce because of the limited availability of resources (the
factors of production) along with the
limits on our technology and our management skills. These determine the location
of society’s production possibilities
frontier or curve (PPF). Inefficiencies in the use of resources (less than
full employment or inappropriate employment of inputs) may limit the amount produced
so the economy operates below its PPF. If it difficult to abolish them, these
inefficiencies imply institutional artificial scarcity.

Where
goods are scarce it is necessary for society to make choices as to how they are
allocated and used. Economists study (among other things) how societies perform
the optimal allocation of these resources — along with how societies often fail
to attain this optimality and are instead inefficient and how to solve this problem.

For
example, we may all want to own gold jewelry. However, the amount of gold available
is limited, so it is necessary to make choices as to how it is allocated. In a
market economy, this is achieved by trade. (Other ways to make this decision involve
tradition, community democracy, and government top-down or centralized command.)
In the market, individuals and organizations (such as corporations) trade resources
amongst themselves, reallocating resources to where they are most wanted by those
with purchasing power. In a smoothly operating market system, the rate of exchange
between different resources, or price will adjust so that demand is equal to supply.
One of the roles of the economist is to discover the relationship between demand
and supply and to develop mechanisms (such as pricing, incentives, or penalties)
to achieve an optimal outcome (in terms of consumer welfare).

Some
see the above definition of scarcity as invalid, on the grounds that it assumes
both human wants are unlimited. “Unlimited wants” seems a product of
indoctrination (say, by advertisers). Alternatively, the “unlimited wants”
may be the result of the unsatisfying nature of work in a capitalist economy.
In alienated labor, the needs resulting from a worker doing noncreative work under
some manager’s command to produce something that is of no interest (except to
earn a wage) can be “solved” by buying unnecessary product. Thus in
News from Nowhere, a somewhat Marxian utopian novel by William Morris, the existence
of creative work for all helps to abolish the scarcity of products. However, most
economists disagree with these critiques.

Certain
intangible goods are likely to remain scarce by definition or by design; examples
include awards generated by honours systems, fame, and membership of elites. These
things are said to derive all or most of their value from their scarcity. But
these are examples of artificial scarcity, reflecting societal institutions. That
is, the resource cost of giving someone the title of “knight of the realm”
is much less than the value that individuals attach to that title.

As
informational goods can be copied at negligible cost, they do not need to be scarce.
This is why copies of free software such as GNU/Linux are typically available
for very little cost. However, proprietary software and many other products are
kept artificially scarce by copyright and patent law.

Further
reading

Georges
Bataille’s The Accursed Share
Trade and Market in the Early Empires, edited
by K. Polanyi, C. Arensberg, and H. Pearson
Marshall Sahlins Stone Age Economics

ColombiaLink.com – RECESSION – MACROECONOMICS

See
also: List of Economic Topics

RECESSION
– macroeconomics

A
recession is usually defined in macroeconomics
as a fall of a country’s Gross National Product in two successive quarters. (This
is a simplified version of that of the business-cycle dating committee of the
National Bureau for Economic Research, a U.S.-based think tank.) Combined with
inflation this process is known as stagflation.

A
sustained recession is known as an economic depression. (Alternatively, a depression
is a situation where the economy “has fallen and can’t get up.”) A short-lived
recession is often called an economic correction. However, many theorists including
John Kenneth Galbraith believe that there is no reasonable distinction between
the three types of recesssion, other than a desire to downplay risk of a panic.
In the nineteenth century, such theorists point out, business cycle events of
the same magnitude were typically called “crises” or “panics”.

To
avoid all these politically loaded terms, the more neutral term ‘recession’ is
to be preferred, despite the overly-specific technical economics definition. The
politics implied by the current definition, including the assumption of relevance
of Gross National Product to human well-being, or the desirability/necessity of
reporting by quarter-years, are challenged in some theories of a larger political
economy consisting of voting, market, and other activities.

That
said, there is little challenge to the idea that GNP (or GDP) are related to job
availability in a wage-employment economy, nor to the idea that business confidence
and consumer spending tend to decrease during a recession, which is usually a
crisis of trust.

Recessions
are mostly caused by economic shocks. The greatest, worldwide recession that humanity
has ever experienced was the beginning of the Great Depression (late 1920s and
1930s); other notable recessions include the two Oil Crises in the 1970s and the
Long Depression of the late nineteenth century. The sharpest recession on record
is that following the First World War when hyperinflation hit much of Europe;
this recession did not last very long, however.

It
can be difficult to understand the seeming decrease in available money during
a recession when no money is physically destroyed. Suppose you have 250 million
people living in a huge hall and there is a recession in the hall, no money went
into or left the hall. Where did all the money go? In fact money actually can
be destroyed, but it’s hard to see where and when.

Prior
to the Great Depression a huge wave of investing in the stock market had taken
place which created artificially high prices of stock. This process was driven
by the fact that shares were being used as a collateral for loans in order to
buy more stocks. When the economy showed signs of slowing and share prices plummeted,
this caused an extensive domino effect. The investments lost their face value
and the loans on them “went bad”, which, among other things, triggered
a crisis of the banking system. In consequence, there was the famous rush on banks,
with people not being able to access their deposits. They had disappeared. After
this, people grew extremely wary of investment which resulted in extreme deflation.

While
the amount of “hard” money (also referred to as Central Bank Money)
can only be changed within certain restrictions, this is not the total amount
of money that an economy relies on. The latter is a multiple of the former, determined
by factors like the speed of exchange and the reserve policy of a central bank,
or of other banks who borrow from that central bank.

There
is some debate as to whether or not a recession is a normal part of the business
cycle. The definition is set where it is (reduction in GNP for two successive
quarters) because this is supposed to be an unusual event, outside the normally-expected
cycles in which no more than one quarter should go by without some kind of growth.
An alternative view of this is that of Karl Marx for whom economic “crisis”
is symptomatic of a dysfunctional society, capitalism, forcing valuable social
resources to be destroyed in order to return the system to profitability. Another
alternative view is that the GNP and GDP are relevant only to waged jobs, and
that the expansion of money supply to support certain activities, e.g. chronic
hospital care, political lobbying, advertising, can encourage those activities
even though they actually represent declines in quality of life. So it all depends
on what you mean by ‘normal’, and whether you think the definition is relevant
to it.

The
fact that parties and theories compete to set policies, and have the power to
set definitions on such terms as ‘recession’ or ‘depression’, and explain their
meaning to the public as authority figures, leads to larger questions in political
economy, specifically those explored in political choice theory.

An
example of the importance of this is the Great Depression itself. When President
Franklin D. Roosevelt entered office in 1933, he was intending to continue a relatively
conservative fiscal policy to placate his business critics (Herbert Hoover in
particular had warned him that any controversial early action would affect business
confidence very adversely). However, after Black Monday Roosevelt was forced to
change his mind, and instituted the “New Deal” economic reforms to stave
off any future depressions. Contrary to myth, Roosevelt did not engage in sustained
deficit spending until World War II neared, so that the Depression continued.

To
date no repetitions of the Great Depression have happened in the United States.
At least, none politicians and the media call “depressions”, regardless
of their impact on actual human lives. However, Japan suffered from a depression
during the 1990s, while this word may be used to describe the situation of many
poorer countries.

It
is an open question whether a “depression” can even be noticed at all
under the terminology in use among technical economists today. Galbraith among
others thought it could not, and that the terminology was merely exercise in concealment
– a potent criticism from an economist who was a central part of that Administration
during the war years.

See
also

List
of recessions
Business cycle
Central bank
Job cut
Job exportation
Measuring well-being
Money supply
Reserve
policy
Political economy

Colombian Companies to begin export of cannabis to Canadian companies

Clever Leaves is a licensed Columbian producer of pharmaceutical-grade medical marijuana. It is the first company to get permission for exporting cannabis to Canada. This vertically-integrated company has attained a high-level success as Colombia has recently announced the legalization of medical cannabis.
On similar notes, Khiron Life Sciences Corporation has announced a partnership with US-based company Dixie which is another move to authorize cannabis export. Khiron Life Sciences is a Colombia-based company serving urgent-care requirements.
PharmaCielo, a Colombian cannabis company has attained an export license for medical marijuana oils. The beginning of its commercial sales has given a positive move to the company and it is looking forward to attaining great results with the advantage of legalized cannabis.
The government agency responsible for national public health of medical industry has permitted Clever Leaves for importing the dry cannabis flower from Colombia to Canada for testing purposes. This is by far the first time any Colombian company has been permitted to grow legal cannabis for some other nation. Clever Leaves fulfills all the requirements given by Health Canada for obtaining permission for import.
The Colombian government has regulated the use of cannabis only for medicinal usage. The cultivation has been done in a fair way to pass the inspection and get ahead with the positive notes for the company. At present, the Colombian government allows the export of cannabis oil only and dry cannabis flower is not permissible. Clever Leaves has always tried to accomplish the credibility of the company inch-by-inch to compete with the PharmaCielo Colombia Holdings. The company’s aim for commercial sales have almost begun and seems to pass all the standards.
Even if the dry-flower sales are not feasible, it is a major step for ensuring that the product is in compliance with the international medical cannabis standards and meets the quality in terms of every important aspect. The test results of the products being exported will determine the scope of the company to ship medical cannabis oil to the Canadian licensed operators in the future. Clever Leaves will subsequently begin the sale of CBD products in Europe and high-THC medical products in the German market. Clever Leaves was founded in 2017 and within 2 years of their operation, they claim to have strong business ethics and the working team of 200+ employees.
The company PharmaCielo has presented the facility of 12.1 hectares of cannabis greenhouses ready for cultivation. The seedlings are planted to contract growers and their own land to produce high-quality cannabis for medical usage. The company has even announced that it has got the approval of National Cultivar Registry for listing 10 unique CBD and THC strains. The business can proceed for commercial registration, manufacturing, and sale of strains to be used by Colombian companies and even exported to the worldwide markets.
Colombian companies can really succeed if they follow the dedicated and ethical approach to produce high-quality cannabis for spiritual and medicinal usage. Many countries are heading towards legalization of cannabis and it is quite sure that the market will bloom with the growing trends and research for cannabis.

Top 3 Cannabis Stocks Higher on Colombian Growth Story

Colombia has begun to transform itself into the multi-dollar industry cannabis pharma industry. The weed growers estimate that the region would capture 1/5th of the total market share which is projected to a value of $40 billion a year. The investors in Colombia are making its potential towards the new approach of resourceful cannabis sources with the business-oriented regulatory environment. Colombia has the most suitable climate for cannabis with even distribution of light and dark phases (12-hours duration) in a day. There is low-cost labor available with promoting infrastructure for the export business.
The legalization of medical cannabis in Columbia is expected to be highly fruitful to various cannabis stocks. We’ve listed here three most prominent stocks which would have the major positive impact by the legalized status of cannabis.
Khiron Life Sciences Corporation (OTC: KHRNF)
This company was one of the primary licensed medical cannabis companies in the country. They have been developing cannabis products for medical purposes and are even involved in the production of nutraceutical and cosmeceutical products. The company was founded in 2017 and has cultivation licensing for low and high THC.
In recent times, the company announced the partnership with Dixie for creating a lining of cannabis-infused products to the Latin America market. The aim of the company is to become front-runners in the quickly growing legal cannabis markets. The company also creates a way for developing new products and brands according to different regions for allowing the full use of the changes resulting from the legalization of cannabis throughout the region. The recent news of the company is for making its understanding with Dayacann which is the first company to obtain cannabis cultivation license in Chile region. It is a positive point for the company to access the commercialized products to meet the needs of approximately 1.8M patients.
Blueberries Medical Corporation (CNSX: BBM)
Blueberries Medical Corporation (BBM) entered into the joint venture with harmony and Life SAS for the operation of their medical centers as El Manantial. This is among the rapidly growing medical centers in the region of Colombia and represents over seven thousand patients at present. The company is expected to grow this number by 7 times in the coming 3 years. Additionally, the company has made plans for building 2 Good Elaboration Practices-certified pharmacies for supporting this initiative. The company has made plans for treatment-focusing education programs for helping the physicians for drafting cannabis-based treatment options for the patients.
The joint venture with El Manantial gives tremendous options for the company to acquire patients in the Colombian market. The focus of the company in cannabis-based products for treating a broader spectrum of patients would be an ultimate success for the patients and doctors. The treatments are built for the benefit of community needs and will have a broader scope in the long run.
PharmaCielo Limited (OTC: PHCEF)
PharmaCielo Limited works with its subsidiary in cultivation, processing, production, and supply of medical-grade cannabis oil extracts in the region of Colombia and the global level. It provides cannabidiol and THC focused extracts for distributorship in medical clinics, pharmacies, and cosmetic companies. The operations of the company are based in Colombia and they have been granted a licensing for 10 CBD and THC strains.

Legal c will be profitable for the state of Colombia

The expansion of the marijuana market has grown its wings with the legalization of the drug in recreational use in Canada. There are a number of US states allowing medical and recreational use of cannabis. The trends in the cannabis sector are proof that it has significantly grown its importance in these nations and there have been many supplies made for export in these regions. The international markets are becoming more outstanding and the states are looking forward to gaining higher revenues with pot stock attractions. Colombia is the newest state to legalize medical marijuana and it will have a brighter aspect for the companies having the stocks significantly grown towards a higher level.
These are the penny stocks which will have a positive impact on the Colombian decision for legalizing the cannabis:
Aleafia Health (ALEAF)
This Canadian company has vertical integration and operates for cultivation and R&D divisions. The company is under the big expansion process through new medical clinics, education centers, strategic acquisitions, and newer growth resourcefulness. The balance sheet of the company is towards higher graphs and is expected to expand with the greater competencies. The stock value is now at $1.21 level and is expected to increase with the growing trends.
MediPharm Labs (MLCPF)
This Canadian cannabis company works to extract, distill and purify the cannabis for different uses. The company generated more than $10 M value in revenues after getting the sales license. The company will eventually supply cannabis oil concentrates to AusCann Group Holdings (Australia). The stocks have surpassed the value of $3.5 and could become a strong mover in the coming phases. The analysts mark this stock as a worthy pick among the cannabis listings in Canada and the US.
Blueberries Medical (BBRRF)
This company is based in Ontario, Canada and recently started trading on CSE also. It provides attractive solutions for the Latin America Cannabis market. The company has recently done the acquisition of 37 acres of agricultural property in Columbia which is a promoting move. The state of Columbia will benefit from newly permitted cannabis. Blueberries plan to build a 1.3 million-sq-feet cannabis greenhouse facility under the same areal. The companytakes advantage of Columbian land and natural resources to produce the electricity costs below the market zone. The stock prices will reach to half a dollar value very soon.
Green Organic Dutchman Holdings (TGODF)
This organic cannabis producer is traded on TSE after May 2018. The company is highly profitable and a bit underrated as for now. The times will come when TGODF stock will be among the best cannabis investments. The company has 4 cultivation and processing facilities in Canada, the Caribbean, and Europe. The company produces the largest organic cannabis in Canada with lower energy costs with its partnership with Eaton. The stock price is a few cents lesser than $3 and is expected to have better values in the coming stages.

Colombian Export Edge for three Canadian Cannabis Stocks

The Canadian cannabis stocks are influenced by Colombia’s decision for permitting medical cannabis exports to Canada. The authorization from the Colombian government was done recently on February 7, 2019. The contract for importing and exporting cannabis was awarded to a private company Clever Leaves, which is funded by Northern Swan Holdings based in New York. The company can now begin the shipping of medical cannabis to Canada for testing the standards of cannabis. If the results come out on positive notes, it should be a way to open the opportunity for the other cannabis companies for beginning the import and export of medical cannabis through Canada.
There are many companies benefiting from the medical marijuana sector. The legalization in Colombia for allowance of medical cannabis would be another way to seek out for the most profitable options for investments. Penny stocks should be purchased vigilantly and with full research from the investor. Three important Canadian cannabis stocks having operations in Colombia which would certainly benefit the new cannabis export laws in the country are given below. You can view the stocks and draft your own opinion regarding them. It will be ultimately helpful in making your appropriate selection for the Columbian Export stocks.

PharmaCielo (TSXV: PCLO)
PharmaCielo is a Canadian cannabis company focusing on the supply and processing of natural cannabis oil extracts and the associated products to the major distribution channels. The company has its headquarters in Rionegro, Colombia and it is the nursery and propagation center. The total cultivation capacity of the company is 139 hectares. The company began its trading on the TSX Venture Exchange on January 19. The monthly return of the company is rising gradually and the market capitalization has reached to a level of $740 million.
Khiron Life Sciences Corporation (CVE: KHRN)
Khiron Life Sciences is a Canadian company having its major operations in Columbia. The company has a potential market for 6 million patients in Colombia and about 68 million in Latin America with future expansion. The Company works for medical marijuana research applications and has got approval for the commercialization of its cosmeceutical product line in Peru. The stock prices of the company are improving with its joint association with Dixie Brands, Inc. for the introduction of the cannabis-infused products in Latin America. The market capital of the company will soon reach $250 million.
Blueberries Medical Corporation (CNSX: BBM)
Blueberries Medical Corporation is a cannabis company having its operations in Bogotá Savanna, Colombia. It started trading on CSE on February 6. The company has received expertise in agriculture, medicine, extraction, and pharmaceutical segment. There is licensing done for cultivating, distribution, production, and export of CBD and THC. The market cap of the company is not too high at present but with the increased number of investors, it can go up to a higher level and get better revenues. The stocks are priced at $0.64 at present.

Colombia’s approval for Medical Cannabis

Marijuana has been used for thousands of years. The major purpose of this drug for the people was to get high and it is majorly possible due to the primary ingredient THC (TetraHydroCannabinol). There are many medicinal purposes for which this drug is being used and it possesses some therapeutic properties if taken in right form, amount and timing. There are people who still use this drug for getting high and this is the recreational use of cannabis. However, taking an account of the medical uses, there are many countries which have permitted cannabis usage for various segments. Colombia is one of the recent nations which has allowed medical use of cannabis.

Medical cannabis is presently allowed in 31 countries in the world. Despite terming it as ‘illegal’, there are many states which have decriminalized personal usage of marijuana. The different between legalization and decriminalization is that legalization permits the use of marijuana without any legal complications or bounds whereas, decriminalization means the relaxation of the criminal penalties for violating the laws related to marijuana.

The Food and Drug Administration had already given approval for synthetic cannabinoids (Nabilone and Dronabinol) for treating vomiting and nausea associated with cancer chemotherapy. The US Food and Drug Administration has given approval to 3 cannabinoids. In the recent phases, GW Pharmaceuticals has attained success in treating two forms of epilepsy by getting FDA approval for the drug Epidiolex. The legalization of recreational marijuana is not much prevalent but many states are under the process to pass this on.

There are 3 major types of stocks included for medical or recreational marijuana sector:
Marijuana growers: Cultivation and plantation of cannabis plants in indoor facilities or greenhouses, harvesting the crops and finally, selling it to the customers
Cannabis-focusing biotech companies: These companies perform research and development for developing drugs including cannabinoids.


Service providers: There are service providers associated with every industry and cannabis sector is no different. It includes the various levels of providers linked at every stage to establish a smooth supply of cannabis throughout the region and even on the export platform.

Marijuana stocks were volatile in 2018 with the unsure decision by the government for legalization matters. The stocks were highly speculative and the new companies with great ideas were even seen with a dilemmatic eye. The administration of Trump has given a green-signal to many companies to initiate their business with the altered business-models and the legalized approach towards investments.

The markets suffered a lot with the ongoing sluggish decisions made by the governments. Colombia’s decision for permitting medical usage of cannabis has given a new start to the wide range of countries to initiate the process of even exporting the cannabis oil to Canada for testing and review. This primary step has given hope to the companies to develop new ideas and approach for generating cannabis-based businesses. Clever Leaves is the first company to attain the permission from the government to submit cannabis oil samples to Canada and it will be a success for the Colombian administration to get the approval from the company for getting the best quality medical cannabis.