A part of my chapter: Institutions and information

It takes me a long time to read, think and understand what the book is talking about. I am still reading the book 'The Economics of Business Enterprise'- Martin Ricketts- Page 16-20. Now i just focus on the meaning of this section: Institutions and information (PART 1: Basic concepts) So that i just have a look on dictionary briefly and have some note-taking what i read.

INSTITUTIONS AND INFORMATION:
FIRMS:
- characterised by a system of bilateral contracts, or 'nexus of contracts' (in more complex case- agreement is signed between employees, bondholders, landowners and a 'legal fiction' such as: BP, US Steel)
- formed as an institutional response to transactions costs.

CONTRACTS:
imperfectly specified, because the lack of specificity abtains from the simple fact that the precise details of the contract is made at the same time when requires the employees of a firm maybe unknown.

INFORMATION:
- collected concerning opportunities for productive collaboration, on the skills and attributes of employees, on new technical innovations, on the demands of consumers
- transmited to the relevant decision-maker who must choose, implement a plan of action.

INSTITUTIONS AND CONTRACT ENFORCEMENT:
THE EXCHANGE GAME:
I found that international trade as the exchange game. That is very simple, interesting although it is not true in practice, but i like the way thw writer wrote. I will explain what is exchange game. Firstly, have a look of this table

The structure of payoffs in a game of exchange:

		Company A
		Cooperate	Cheat
Company B	Cooperate Cheat	1,1 (a) 2, -1 (b)	-1,2 (c) 0,0 (d)

I supose in the commercial world, there are 2 firms: company A and B. A sells 1 product x, B sells 1 product y. The goods exchange will be happened if A and B sign the contract. In practice, there are 4 cases could be happended:
(a) A and B trust together and cooperate. Each company will get what they want.
(b) A cooperates but B cheats in which A sent his goods x to B before receiving y from B as the B's promise in contract. It means A will receive nothing and lost his goods. So A got -1 goods, B got 1 x and 1 y.
(c) The same case (b)
(d) If A say that please send your goods firstly and then i will send you back my goods. B also say that. Then noone believe each other. It means no comercial exchange.
The reason of these transactions will be explained in next chapters. I am still reading ..

However, to understand that i have to scan these new vocabulary:

- equilibrium method: a condition of balance between oppsed forces
- instantaneous: occuring or completed without perceptible delay
- reconcile: to bring (oneself)) to accept; to make compatible or consistent, reconcile opposing views
--> All transactions are costlessly and instantaneously reconciled.
- gi'gantic: extremely large or extensive, huge
- myriad (a) constituting a very large, identifinite number
(n) a vast number
--> The economy is made up of a myriad of individual contractors, each one in an comprehensive only with painstaking effort, have many complexly arranged elements.
- contractor: one that agrees to perform services at a specified price, especially for construction work
--> contractual (a)
- institution: an established custom, practice or relationship in a society
- firms: a commercial partnership of 2 or more person especially when unincorporated
- rationale: a fundamental reason, rational basic
- sufficient (a) being as much as it needed
- bilateral contracts: contract between 2 sides
- single proprietor: an owner, as of a business, small business
nexus of contracts: a connected services or group, a means of connection, link
- discretion: freedom of action or judgment
--> The choice was left to our considerable discretion.
- collaborate: to work together
--> productive collaboration
- forth (adv) out into view
- implement a plan of action
- decentralise: to cause to withdraw from am area of concentration, to distribute (phan quyen dia phuong)
--> The outcome of entirely decentralised decisions
- conscious decisions of planners: capable of thought, will, perception, deliberate (nhan thuc ro dieu dang xay ra)
- initial characterisation of the firm: su bieu thi dac diem, mo ta tinh cach
- advantage (n)--> advantageous (a) cooperation
- comlementary (a) forming or serving as a complement supplying mutual needs/lacks, addition (su bo sung)
--> complimentary: express a compliment (ca ngoi)
- possession: a territory subject to foreign control
- coalition illustrated: an alliance or union, especially a temporary one (khoi dong minh)
- payoff: a final settlement or reckoning, a bribe
- symmetrical: doi xung
- outcome=result
- dilemma: a situation that requires a choice between options, usually equally unfavourable or mutual exclusive(doc quyen): tien thoai luong nan
- sucker: who is cheated easily

New quizzes

World greets new Harry Potter
http://www.bbc.co.uk/apps/ifl/skillswise/inthenews/all_quizzes/quizengine?quiz=entertainment

The much-hyped release of the fifth Harry Potter book has created a stir even in countries where English is not the native language.

Bookstores in Paris, Brussels and Bucharest were among those that put the book on sale as the clock struck midnight in Britain (2300GMT), although the book is currently being published only in English.

Australians laid on a Hogwarts Express steam train, while New Zealand's Prime Minister Helen Clark joined a planned 27-hour reading of the book aiming to set a new record for reading aloud.

In the US, the president of the New York Public Library donned white gloves to accept a signed first edition delivered by armoured car. "We put the white gloves on only for the most special books," the library head, Paul LeClerc, told the Associated Press news agency. “Harry Potter and the Order of the Phoenix qualifies."

JK Rowling's previous four novels about the boy wizard and his nemesis Lord Voldemort have sold almost 200 million copies in 55 languages.

The latest, 'Harry Potter and the Order of the Phoenix', reveals which character dies - a much-guarded secret - and will keep readers occupied for quite some time with its 766 pages.

The new book went on sale on Saturday (21st June) in the UK, US, Canada, Australia and in English in many other countries around the world.

US bookstores handed out Harry Potter-style round glasses and chocolate frogs. In New York, a group of Harry Potter look-a-likes carried the first batches of books to the tills at ‘Toys R Us’ in Times Square.

Many booksellers recreated locations from the books, such as wizards' shopping street Diagon Alley and Kings Cross platform nine-and-three-quarters, from which the train to wizard school Hogwarts leaves.

In Copenhagen, bookstores stayed open late, while in Hong Kong, they opened early. Hong Kong's Bookazine bookstore had a uniformed police officer come in to claim his pre-ordered copy, the French news agency AFP reported. One shop in the Danish capital told AFP it had never before seen such demand for an English book. The largest English-language bookstore in Paris stocked 3 000 copies of the book and had organised an evening of wizardry and readings before putting the novel on sale at 0100 local time. Even the official French translator, Jean-Francois Menard, did not have a glimpse of the book before Saturday. Working at a rate of about 10 pages a day, he is expected to finish sometime in October, the BBC's Hugh Schofield in Paris says. The French translation is due to be published on 3 December. Record-breaker Online retailer Amazon said it had received 1.3 million advance orders worldwide. Some 760 000 of them were placed on the main Amazon.com site. The novel also became the best-selling book in the history of the company's French website, and notched up a record number of pre-release orders on its Japanese site for any book - Japanese or English. In the UK, the novel has become the fastest-selling book ever, according to one chain, while another shop described the levels of demand as "barmy bookselling". Ms Rowling attended the launch of her book in Edinburgh, Scotland, where she said she enjoyed "meeting the children who are reading the books". Quiz Answers Score: 10/10 1: In which languages is JK Rowling's latest book currently being published? You said: only English Yes, that's right. The book is currently only available in English. 2: In which country did they plan to have a 27 hour reading of the book? You said: New Zealand Yes. Well done. The answer is New Zealand. 3: The other Harry Potter books have been translated into 27 languages: true or false? You said: false Yes. The answer is false. The books have been translated into 55 languages. 4: When is the French translator expected to finish his translation work? You said: October 2003 Yes, well done. The correct answer is October 2003, as he did not see a copy of the book until it was released in the UK. 5: More than half of Amazon's orders were placed on its main 'Amazon.com' website: true or false? You said: true Yes, well done. The answer is true: 760 000 is more than half of the 1.3 million copies ordered. 6: Exactly when did the latest Harry Potter book go on sale in Britain? You said: Midnight on 21st June Yes, that's right. The answer is midnight on 21st June. 7: In the text which of these words could replace the word 'release'? You said: publication Yes, congratulations. The correct answer is publication. You could say the 'much hyped publication of the fifth Harry Potter book'. 8: A native language is the language you first learn to speak. True or false? You said: true Yes. The answer is true. A native language is your first language. 9: What is the 'much-guarded secret' in this latest book? You said: one of the characters dies Yes. Well done. The big secret in this book is that one of the characters dies. Do you know who it is? 10: Which word is a conjunction in this sentence: 'In Copenhagen, bookstores stayed open late, while in Hong Kong, they opened early.' You said: while Yes. The answer is while, as it joins two sentences to make one sentence.

question-homework

Question Homework

5 questions that people usually ask you:
1. Where are you from?
2. How long have you been in London?
3. What is your favorite sport?
4. What kind of books do you like to read?
5. Do you have relatives in United Kingdom?

5 questions that people don't usually ask, but you 'd quite like them to ask:
1. Do you know drawing?
2. What is your dream when you was a child?
3. What is the place/ country in the world u like most ?
4. Do you have any other hobbies?
5. What kind of music do you like?

3 questions that you are happy that people don't ask, because you don't want to answer/ don't know how to answer:
1. Could you tell me about your boyfriend?
2. What is the most important in your life?
3. What will you do if tomorrow is the end of the world?


Reading homework:

Bank should not lift rates over oil

Economic Outlook

David Smith

THE next few days will do much to determine whether prospects for Britain’s economy over the next 12 to 18 months are merely poor, or start to look dreadful.

On Tuesday the May inflation figures will be published and, while these things can never be predicted, are set to show the rate rising above 3%, triggering an open letter from Bank of England governor Mervyn King to Alistair Darling, the chancellor. Inflation on the target measure was 3% in April and should have been pushed above it now by rising food, petrol and utility bills.

The contents of that letter and of the minutes of the June meeting of the Bank’s monetary policy committee – published on Wednesday – will tell us much about whether the money markets are right to expect a series of interest-rate rises in the coming months – which could be the last straw for the economy.

Most economists, in contrast to the markets, have taken the view that the Bank cannot raise rates in the current circumstances. Yes, inflation is high, they concede, but this is due to global commodity and energy price developments. And yes, inflation expectations have risen, but there is no sign of any follow-through into higher wages. The Bank has to hold rates and grit its teeth.

So, if one were to preview the exchange of letters on that basis, King will cite the factors, mainly external, that have pushed inflation higher. He will say the Bank does not take any of this lightly, and is serious about getting inflation back to the 2% target, but it recognises that to try to do so quickly would hit the economy unnecessarily hard. A gradual return to target will be its strategy and, by implication, there will be no nasty upward lurches in interest rates.

Darling, in response, will say he understands the Bank’s difficulties and the factors behind them. He will say, in essence, that the government is happy for the Bank to take its time, which it plainly is. A Treasury research paper, “Global commodities: a long term vision for stable, secure and sustainable global markets”, sets out the factors that have pushed prices higher and will be used by the chancellor and Gordon Brown to try to influence other countries at this weekend’s G8 finance ministers’ meeting in Japan and other upcoming gatherings.

The risk, however, is that King’s tone and the minutes are more hawkish. The Bank’s own figures, released on Thursday, showed a jump in inflation expectations for the next 12 months from 3.3% to 4.3%. Official figures last week had industry’s raw material and fuel costs up by nearly 28% on a year ago, with factory gate prices rising by almost 9%.

The European Central Bank threw a sizeable spanner into the works with its warning 10 days ago that it was likely to raise rates next month, though subsequent guidance that this will be a one-off move calls into question why it chose to cause such a fuss for a quarter-point change in rates.

There is no doubt that central banks are becoming more hawkish. The Bank of Canada surprised the markets by not cutting rates last week. Amid a few green shoots for the American economy, the Federal Reserve seems to have reached the end of its rate-cutting cycle. I don’t expect the Bank to raise rates, but cuts that were expected a few weeks ago now look at best delayed. Until central banks can be confident that the price of oil will fall significantly, they will remain on alert.

There are wider issues to do with oil, some of which I will return to in the coming weeks. Jeff Rubin, chief economist at CIBC (Canadian Imperial Bank of Commerce) Markets, and his colleague Benjamin Tal, in a paper “Will Soaring Transport Costs Reverse Globalization?”, chart the rise in the cost of shipping goods from China to America, up from $3,000 for a container in 2000 to more than $8,000 now.

The initial impact of this is on consumers, raising the cost of goods from China, but long term the impact could be profound. Rubin and Tal describe higher energy prices as “the largest barrier to global trade today”.

Already there is anecdotal evidence that British firms looking at relocating operations to China change their minds when discovering the cost savings are modest and could be eroded by rising transport costs. Some work is even returning to Britain because of these factors. Such examples are rare but worth watching.

A second big issue is whether inflation targets were set at levels that were too ambitious. It is easy to forget how tough, relative to Britain’s past experience, a 2% consumer price inflation target (equivalent to about 2.75% retail price inflation) is.

Low inflation in the past, even in the so-called golden age of the 1950s and 1960s was 3% to 4%. You have to go back a long way, to the inter-war years and the 1870-1914 period, for a run of inflation as low as we have had over the past decade and a half.

This is not a time for abandoning or increasing the inflation target but it is an issue that will have to be addressed if global forces pushing prices higher persist, and achieving the target becomes possible only if the economy is subjected to a permanent squeeze.

The usual caveats about oil apply. The rise of the past few months is reminiscent of the last days of the dotcom boom, as investors scrambled to buy because they believed the world had changed. Everybody associated with the oil market has an axe to grind.

BP, which lent support to the high price last week with its new statistics on world energy, wants to get its hands on more oil. “While resources are not a constraint globally, the resources within reach of private investment by companies like BP are limited,” said chief executive Tony Hayward.

The International Energy Agency, which like most western governments refuses to blame the markets, wants Saudi Arabia and other Opec countries to raise output. Gazprom predicts $250 a barrel and sees oil as an instrument of Russian political power.

It is a paradise for speculators and oil producers. By the time the damaging effects of high prices on demand and economic activity are clear, the speculators will have moved on, like locusts, to cause mayhem elsewhere. If the Bank were to raise interest rates in response to high oil prices, they really would have caused mayhem.

PS: I don’t often return to something quite so quickly but numbers in last week’s column drew such a response I feel obliged to. I reported projections from Ross Walker of Royal Bank of Scotland that real household disposable incomes would grow by 2% this year and 2.2% next, preventing a consumer recession. How come, when average earnings are growing less than the retail prices index and food and energy bills surge ever higher?

It is a good question, so he and I put our heads together. The read-across from average earnings to real incomes is not that close because households have other sources of income, as anybody who fills in a tax return knows.

So at the end of last year, earnings were growing by 3.7% but retail price inflation was 4.1%. Real household incomes, however, were rising by 2.6%. Some of that was due to strongly rising employment; real incomes are an overall figure rather than on a per-capita basis.

Another reason, according to RBS, is that real income growth for much of 2006 and 2007 was squeezed by rising tax and National Insurance. That is not expected this year and next. Inflation should also eventually fall – the retail prices index benefits from falling house prices.

Headings: inflation, interest rate, oil price

Question:

1/ Why should Bank not lift rates over oil?

Because that could cause mayhem for the economy.

2/ What will happen if bank raise interest rate?

In that case, the oil price still be higher due to many speculators and oil producer's high demand.It could affect on customers, and then could be long term profound.

3/ What is the relationship between bank interest rate and oil price?

When the bank's interest rate increase, the speculators, price producers and investors scramble to buy oil and also push oil price higher.

Take note:

Situation: rising food, petrol, utility bills --> inflation increase 3% in April.

According to economists:

Inflation higher--> development of global commodity, energy price.

Inflation has risen and no signal of higher wage---> Bank should hold well.

According to King who are the governor of Bank of England: Inflation decrease to 2% target : strategy policy.

Typical example:

Bank of Canada: did not cut rates

Federal Reserve: rate-cutting cycle.

Transport cost of shipping goods from China --> America increased from $3000 to $ 8000/ month.

First impact is on customer in short term, push higher energy prices as the largest barrier ---> global trade.

Interest rate: raise , investor and speculator increase crumbled to buy oil--> higher oil price

Oil: Oil as an instrument of political power in Russia

Average earnings' speed is lower than retail prices 's speed, but they can manage it.

If inflation decreas--> house price decrease --> benifit for retail price index.