Business and Economic News
Introduction: Action Reaction Functions
You might be wondering why does The Dhillon Group have a news tab if the company specializes in design, investing, and construction? To answer this question is the very reason our team has developed this tab, operating a business like many other events in the world is an action-reaction function. If something tragic or appealing happens in the world its pooling effects will certainly be felt by our business.
For example, if the US imposes greater tariffs on Canadian imports it will result in a bilateral imposition of higher tariffs on US exports leading to greater transaction costs for producers. Thus, these producers will translate costs over to other business owners and consumers leading to higher prices for goods inflating the price of services that would otherwise be done at a discounted price. Similarly, new policies such as increased interest tax writes can have positive impacts on households and businesses because it means individuals can leverage more of their assets due to tax shields thus, allowing them to finance more investing activities to grow their wealth.
Consequently, explore our news tab to keep posted on economic factors that may affect your investment decisions today and in the future!
The Economics behind supply chain disruptions and prices
By: Gaganpreet Dhillon Date: March 30/2020
Economic supply chain disruption, what it means for you?
During the unprecedented time of the COVID-19, there has been a major constraint in the construction supply chain similar to many other industries. Which has been clearly recognized by news chains across the province such as the Toronto Star and Global News. The resulting effect of this constraint has caused an increase in the cost of material and labour, which stems from the classic economic principles of supply and demand, where supply chains experience market constraint due to transportation, production, and regulation. The limited supply when coupled with the increased demand for construction as individuals transition towards working from home has resulted in inflated market prices at every level of the supply chain. To continue, the inflated labour costs along with extended deadlines are a direct result of the greater precautions required by the federal and provincial governments of Canada, which as mentioned by the Toronto Star, “short-term, projects are likely to be delayed by health precautions that prevent construction crews from working normally, and in the long-term could be affected by disruptions to global construction supply chains and government funding constraints caused by the economic downturn that’s already started to grip the province" (Spurr, 2020). All in all, the presence of COVID-19 has had many adverse effects on industries world-wide, and in this time, we try to work our best to build a safe environment at The Dhillon Group.
Spurr, B. (2020, March 25). Coronavirus likely to force long delays in major GTA transit projects, experts warn. Retrieved January 02, 2021, from https://www.toronto.com/news-story/9915668-coronavirus-likely-to-force-long-delays-in-major-gta-transit-projects-experts-warn/
The Free Rider problem in Evs
By: Gaganpreet Dhillon Date: May 1/2020
Public goods at risk
To begin, a public good is classified as non-rival and non-excludable such as public roads or policing services. The market mechanism utilized to allocate resources to fund public consumption is private tax dollars of varying scopes. The public good model describes that the social planner solves the problem by assuming goods as being quasi-linear so they aggerate the marginal benefit of each household with the marginal cost. Unfortunately, governments unlike social planners in practice do not have perfect information on the household’s preferences, in turn allowing certain households to hide their true preferences to avoid taxation. As a result of the failure of these market mechanisms, households face the dilemma of “why should I buy a good if what you buy, is enough for me?”. This causes the free-rider problem which is a failure of allocation of goods where in principle those who reap the highest marginal benefit end up paying more for the good as opposed to their less enthusiastic counterparts.
Moreover, the free-rider problem is prevalent in society and is making the rich wealthier and others even more financially challenged in scenarios as simple as infrastructure repairs. The newspaper The Drive explored the notion of the government’s reliance on the carbon tax in funding the repair of roads and the free-rider effect that is emerging from Electric Vehicles (EV). The fact that EV’s have a large fixed cost to purchase when coupled with low variable costs over time is the determining factor in making them unattainable for certain individuals. Inadvertently, this creates a divide where wealthier individuals can afford the exclusive good therefore, they can avoid paying the carbon tax because “EVs don't need gasoline, and therefore their owners aren't paying a cent towards road maintenance right now”, thus incentivizing the wealthier EV owners to get a tax break from a public good even though they still utilize it (Creech,2020).
Overall, this acts as a double-edged sword in the line-standing example where the wealth is transferred from the higher-class citizens to lower class citizens. While in the EV example it further stresses inequality because the lower-class citizens are unable to enter the EV market which marginalizes them to pay more carbon taxes than their wealthier counterparts.
Creech, J. (2020, April 22). Switching to Electric Vehicles Will Ruin Our Roads Without a Gas Tax Replacement. Retrieved from https://www.thedrive.com/news/32810/switching-to-
electric-vehicles-will-ruin-our-roads-without-a-gas-tax-replacement
Lyon, R. (2019, December 10). Greenpeace: Carbon offsets are a global con job. Retrieved from https://www.rt.com/op-ed/509291-greenpeace-carbon-offsets-con-job/
Do the Wealthy Control pollution?
By: Gaganpreet Dhillon Date: December 16/2020
The wealthy control Pollution
To begin, pollution is collectively viewed as a negative externality because it causes global warming and jeopardizes public health. As a result, to combat the externality, governments across the world have implemented models but have inadvertently increased inequality amongst citizens. In principle, this concept was demonstrated in the production and consumer externality units. The production externality model with pollution with two firms where one firm is green who faces a constant marginal cost and another which is not green with increasing marginal cost. In theory, this allows the social planner to solve the optimization problem by maintaining the same output but implementing taxation costs on pollution allowing the non-green firm to produce less because of the aggerate costs of production. Although this functions in theory because the social planner has unlimited funding and information in practice, there are intensive transaction and fixed costs to set-up the green infrastructure intern leading certain companies to be deterred from adopting such technologies.
Adversely, from a consumer externality perspective, each firm can allow the opposing firm to emit pollution above the legal limit by implementing a permit that can be purchased by the firm that wishes to pollute. This method has been exercised in the U.K in the Brexit agreement which allocated a specific number of permits to individuals to cap the maximum allowable pollution (Reuter,2020). Inherently the negative externality can only be mitigated if the transaction costs are low, adequate information regarding preference is available, and if the rights are well defined. Unfortunately, implementing caps or permits on a good makes it exclusive because the supply becomes limited leading to it being unattainable for others because of the monetary value attached to it.
Overall, it presents the thought experiment that government mechanisms that control the population by increasing social welfare are sometimes successful. However, sometimes when these same market theories of consumer and producer externalities are exercised, they may increase the inequality gap rather than bridging it.
Reuters. (2020, December 12). EU confirms Brexit-adjusted carbon market permit removals for 2021. Retrieved from https://financialpost.com/pmn/business-pmn/eu-confirms-brexit- adjusted-carbon-market-permit-removals-for-2021