Better Book Keeping

If I had the means to start a business of my own, it would definitely be in book keeping as this is the field that I am studying. This type of business would be very low cost to start up as I could work directly out of my home, I already have a computer, and accounting software is fairly inexpensive if you only have a few accounts to look after. This business would be quite small to begin with (I'd probably have to keep my full time job.) until I developed efficient procedures and gained the trust of any current clients.

 In time, hopefully my name would spread by word of mouth and I could eventually open up a small accounting firm that would have a target market of small business owners. I would target this specific type of market because they are generally the ones who source outside help for this type of service. I find that many small business owners attempt to do the accounting on their own to begin with and often lose site of the important things such as marketing, quality of their products and customer service aspects. Another reason why they may source outside help in this area would be due to growth of their business. Keeping the books and doing payroll becomes far too much of a burden and they may not want to spend so much time focusing on the process when someone else could give them the numbers each month.

 

Long run costs for this type of business would be the amount of accountants employed, the cost of rent for an office space if I were to expand outside of my home and the number of software licenses that needed to be purchased.  

 

The short term costs as I mentioned earlier would be things such as up to date accounting software, a computer if necessary, office supplies and furniture.

 

Fixed costs for a home based book keeping business would be things such as an internet connection for keeping in contact with clients and a portion of the mortgage and utility bills could also be deemed a fixed business expense.

 

A business that I would eventually aspire to be like would be The Small Business Accountants who are locally owned and do exactly as their business name describes. http://www.smallbusinessaccountants.ca/. They provide several different types of services, including book keeping, tax planning, financial planning, business consulting and training services. I think that a lot of business owners are afraid of the monetary aspect of things in large part because a lot of it has a connection to the government and that's where a company such as The Small Business Accountants could step in to relieve some of the stress. Targeting specifically small businesses is a great strength because many larger companies have their own accounting departments and don't have the need to source outside help. According to the website startupcan.ca, between 2002 and 2007, an average of 104,000 small businesses were started each year. That being said, I think that getting into small business accounting could potentially be a very lucrative business as outputs could be quite large while maintaining low average costs.

Reference:
http://www.startupcan.ca/wp-content/uploads/2012/01/Statistics-on-Small-Business-in-Canada_StartupCanada.pdf

 Site assessed on November 27, 2012

Law of Diminishing Returns in the Tobacco Industry

I recently read an article that was published by Pierre Lemieux in 2001 called "The Diminishing Returns of the Tobacco Legislation." In his article, he discusses how governments have imposed, on more than one occasion, something called a "sin tax" for tobacco products in an effort to deter people from using the harmful product at all. A diminishing return is when one factor of production is increased but all others remain constant, but the yield or return in fact decreases. For example, if you add a cook to a kitchen that is already full, he/she may become more of a hindrance than a help in the production process.

I find this to be quite a controversial issue for several reasons. Here's why:

Pierre states that over a decade (1985-1995) prices of cigarettes had been increased by 52% (all taxes!) in an effort to "reduce consumption" (I put this in quotations because I have a very hard time believing that this was their motivation. Can you say gold mine?)Well, their "plan" worked and consumption dropped by 18%. More than likely though this 18% just included all us "social smokers" and people who weren't necessarily addicted. Over the next 4 years (1995-1999), government increased taxes yet again, by another 48%, but this time consumption only dropped by 11%. A clear sign of diminishing returns. 'It worked well and we made a ton of money, ahem, a lot of people quit the first time, so why not try it again!' However, during this period black market tobacco products started popping up more than usual - perhaps this 11% just started shopping else where. According to World Bank economists, nearly this percentage of sales is in fact smuggled. This 11% of people do after all suffer from an addiction that they have to feed and it doesn't matter where they find it at that point. This type of illegal activity could closely be related to someone with a more illicit drug addiction such as marijuana or cocaine. I believe that the government recognises the fact that smoking is an extremely inelastic demand and is taking advantage of people who suffer from an addiction to it.

A few short years later, the government made yet another attempt to convince citizens to kick the habit. Perhaps this time they had our best interests at heart as they didn't introduce another tax hike, but instead passed a law that a certain percentage of the cigarette packaging must be covered by warnings and disturbing pictures of what could potentially happen if we don't quit. Diseased lungs, rotten yellow teeth, blackened lungs. You get the picture. For many of my smoker friends the shock value didn't last long at all and this did not reduce their consumption in the least.

I completely understand why governments from all around the world may want to make certain attempts to get everyone to quit smoking. Health care costs. Call me cynical, but there are pros and cons to every situation and I have a hard time believing that smoking increases cost so much that the government felt the need to raise the cost of cigarettes by 100% in order to pay for it. Unhealthy habits are a detriment to the human doing them by causing their life span to shorten, that's their choice. Think of all the health care costs to the elderly for diseases such as Dementia. This particular disease often requires constant watch and care by a trained health professional; a lot more costly than a person who dies of lung cancer or heart disease within a month.
To wrap it up, I'd have to agree completely with Pierre that in order to keep up the momentum of all this government intervention, they'll have to introduce even more taxes and more gruesome pictures to look at when you reach for that nicotine fix. In my opinion, if this keeps up, more and more people will start turning to the black market and it could become as large of a problem as drugs that are actually illegal. Then police forces will be in need of larger budgets. Vicious circle - sometimes they should just let sleeping dogs lie.

Put that in your pipe and smoke it......

Lemieux, Pierre, The Diminishing Returns to Tobacco Legislation,

http://www.pierrelemieux.org/artdiminish.html
site accessed on November 20, 2012

Tourism industry in Canada

As the second largest country in the world, Canada has a very large domestic and foreign tourism industry. From sea to shining sea, Canada contains a very large variety of stunning landscapes, adventure, food, arts and history. Tourism is extremely important to any economy as it brings monies in from outside sources, provides many jobs to people in those desirable areas and expands our knowledge of the world. The Canadian Tourism Commission carefully advertises to different countries based on the general interest of the population there. For example, the advertise the superb skiing in the Canadian Rockies to Australian's and you will find that many of the hills are even employed by foreigners. 

As you can see from the pie chart to the left, visitors from the United States account for most of the tourism in Canada. In fact, according to the numbers from the Canadian Tourism Commissions webpage, in August 2012 Americans accounted for 84% of all Canadian Visits. That's just over 1.8 million Americans who travelled north of the boarder. 



Data source: Canadian Tourism Commission



The chart to the right shows the total number of visitors that came from all other countries, excluding the USA. The United Kingdom, France and Germany are fairly wealthy countries if you factor in the income per capita, and this could be the reason why their visitation is higher than other countries. Personally, if I lived in a place like Australia, I'm not so sure I'd have any desire to leave either... especially on a day like today! (Minus 18 and snowing like crazy.)

The total number of visitors is up 7.4% from August 2011. I believe that this in large part due to the Canadian dollar being on par with the US dollar and also because the recession from last year has nearly come to an end and the economy is quickly recovering.

Tourism to Canada is a very elastic demand as there are many factors that could persuade a person to travel somewhere else, or not to travel at all. How much is it going to cost, can we afford it, would we rather go somewhere else are all questions that people ask themselves first. Effective marketing is very important in maintaining and industry, including tourism

                              

Reference:

http://en-corporate.canada.travel/research/statistics-figures

Site accessed on November 9, 2012

Elasticity & Total Revenue

I recently read an article from the Toronto Star, "Are milk prices too high?" written by Kenyon Wallace. I chose this article for two reasons: One, because I love cows (yes, it's an odd animal to love, I know) and two, because I found it quite fascinating to look at the differences of the farming industry between Canada and the USA. I have a very fond appreciation for farmers, especially dairy farmers: There is no way you'd find me up at 4am every morning milking cows! The farming industry as a whole seems to be a dying one which is why the government needed to step in. Fresh fruits, grains and milk products are a necessity of life and being able to get these goods from our own backyard is extremely important; we can then keep prices affordable, Canadians employed and ensure a higher quality product.

In Canada, we have something called a "supply management system" in which the government sets a quota for each farmer. This reduces over-production and helps farmers focus on providing a better quality product rather than wasting their time searching for buyers. The price of milk is also set by committee's which take into consideration all the factors of production cost's etc. When this article was written in November 2011, Canadians were paying about 59 cents more per litre than in the USA. Prices in the US are determined by free-market wholesale of cheese, butter etc. However, according to Wallace, American farmers are also guaranteed a "safety net" from a tax payer funded corporation, so essentially both Canadians and Americans probably end up paying around the same price for a litre of milk, Canadians just pay up front rather than in the form of taxes. Not such a "free-market" after all.

Price ($ per Litre)	Quantity (Litres)	Total Revenue	Elasticity	Type
10	0	0	19	Elastic
9	1000	9000
8	2000	16000	3
7	3000	21000
6	4000	24000	1	Unitary
5	5000	25000
4	6000	24000
3	7000	21000	.33	Inelastic
2	8000	16000
1	9000	9000	.05
0	10000	0

The elasticity co-efficient is a number that economists use to judge whether or not the demand will be responsive to a change in price and just how responsive it is. With this number we can easily identify which price change consumers will most respond to. Higher elasticity numbers mean higher responsiveness and vice-versa.

As you can see from the chart above, the price at which milk would generate the most revenue is $5. Prices of both $4 and $6 generate the same total revenue, which give this an elasticity of 1 or unitary elasticity. All prices above $6 would be considered an elastic demand because their co-efficients are greater than 1 and the demand at a higher price would be greatly affected. All prices below $4 would be considered inelastic because their co-efficients are lower than 1 and the quantity demanded here would not be very responsive to a change in price.

Below are the results in the form of a graph. This graph shows a downward sloping demand curve. Economists use graphs because they can quickly and clearly see which price will generate the most revenue, and how responsive consumers will be to a change in price.

The graph below clearly shows at which point maximum total revenue (TR) will be generated and also the rise and fall of TR.

According to Statistics Canada, the demand for milk has dropped by 18% over the last 20 years in large part due to the price. However, we need to get the facts before making such decisions; the price of milk in the USA may be lower at first look, but consumers end up paying more in the end. This system would create a larger demand  in comparison to Canada; perhaps Canadians should look at doing something similar to help consumers make healthier choices when it comes to their beverages, keep Canadian farmers farming, keep the quality of our perishable goods high and keep them local!


Kenyon Wallace, Toronto Star, Is the price of milk too high?http://www.thestar.com/news/insight/article/1089581--is-the-price-of-milk-too-high
Site accessed on November 1, 2012

Demand Changes

Demand curve graphs are a great tool that can be used to show how much/little the demand for a specific item has changed over time or with an increase/decrease in price - supply of that product can then be adjusted accordingly.

There are several key factors that will cause a shift of the demand curve:

• Consumer preferences: often include ridiculous fads such as fluorescent clothing - it wasn't cool the first time!
• Prices of preferred goods
• Consumer incomes: consider the recent recession - I imagine the demand for Apple products dropped drastically!
• Expectation of future prices: if you knew the price of beer was going up at midnight, you probably wouldn't be sitting there reading this, thus creating a larger demand.

On the graph to the left, there are two different demand curve lines (red) on the graph, D1 & D2. The S line (blue) represents the supply curve. The "Y" axis is showing the price of the product while the "X" axis is showing the quantity. Let's say line D1 is starting at a price of $10 with only 1 purchased - meanwhile, there is an increase in supply which causes the price to come down and in turn, creates a larger demand and more are purchased. Line D2 starts at the same price, but with more purchases at this price. This could be due to the larger supply, or that particular item gaining popularity - both of which are factors of a demand increase. Where red meets blue is known as the market equilibrium - supply and demand are in harmony! 

Game On!

For this particular exercise, I decided to play the game called Diner City. (http://games.t45ol.com/play/6132/diner-city.html) The object of this game is to manage a restaurant sufficiently. You are responsible for everything from making decisions about the decor on the outside of your restaurant to hiring the serving and cleaning staff on the inside.

There is a delicate balance when running a business that must always be maintained in order to be profitable and the pros and cons of each decision must be weighed before making it final. For example, when considering another employee, you must determine whether or not you've got the clientele (demand) to justify that persons wage. Will he/she cost more than you'll make by hiring them? And vice-versa, when making the decision the spruce up the decor, will you have enough staff and resources (supply) to adequately serve the increase in foot traffic? Also, would a bench or newsstand deter the customers enough to avoid hiring another employee? Which would be the more logical purchase? My thoughts would be the newsstand even though it is slightly more expensive, you will more than likely recoup those costs with sales and there is also the opportunity to turn a profit! You may not always be in the financial position to answer these questions with such ease - you may only have the funds for one, so it better be the right decision or it could lead to your demise against the competition.

I think that it is always important to consider what the future has in store (pun intended) when operating a business in order to effectively manage what resources, both funds and consumer goods, are available to make it a success.

Production Possibilities Curve

Production possibility graphs are an excellent resource for economists because they provide a visual aid which clearly illustrates how much of one particular good can be produced while also producing another type with the available resources.

Graphs are a fundamental part in determining many different aspects regarding supply and demand. Finding that delicate balance is referred to as the economic equilibrium. The equilibrium refers to the point at which the most output can be obtained for each individual product while utilising the resources to their full potential.



Figure 1
Source: Wikipedia



For example, if you look to the graph in Figure 1 you will notice 5 points on the graph. Anything within the curve of the line is attainable production (point A), and anything on the outside of the line (point X) is unattainable meaning that there are not enough available resources to attain that output. Points B, C and D all represent different levels of output based on which product you would primarily produce. Point B clearly would produce many more guns than butter. Point C the opposite, more butter than guns. Point D would represent the equilibrium, showing the point on the graph where maximum outputs will be reached for both guns and butter.

I'd have to agree with the statement that a picture is worth a thousand words - just by glancing at a production possibilities graph, you are able to identify the point at which maximum output would be reached or how many guns would be sacrificed for more butter and vice-versa.