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Invent

Fear and self-doubt are the biggest detractors of personal genius. Often in the real world it is not the smart that get ahead but the bold.

Your financial knowledge requires both technical knowledge as well as courage. If fear is too strong, the genius is suppressed. I strongly urge you to learn to take risks, to be bold, to let your genius convert that fear into power and brilliance.

 The point that I would like to make is that investments come and go, the market goes up and down, economies improve and crash. The world is always handing you opportunities of a life time, every day of your life, but all too often we fail to see them. But they are there. And the more the world changes and the more technology changes, the more opportunities there will be to allow you and your family to be financially secure for generations to come

 Take any lemon; turn into millions.

Life provides many lemons, learn to recognise them.

 If the opportunity is too complex and I don't understand the investment, I don’t do it. Simple math and common sense is all that is needed to do well financially.

 It is a matter of understanding financial statements, investment strategies, a sense of the market and the laws. If people are not versed in these subjects, then obviously they must follow the standard dogma, which is to play it safe, diversify and only invest in secure investments. The problem with 'secure' investments is that they are often sanitised. That is, made so safe the gains are less.

 Investment is not gambling if you know what you are doing. It is gambling if you're just throwing money inot a deal and praying. The ideain anything is to use your technical knowledge, wisdom and love of the game to cut the odds down, to lower the risk.

 Always remember to have fun. Investing is only a game. Sometimes you win and sometimes you learn. But have fun. Most people never win because they are most afraid of losing.

Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.

 There are two kinds of investors:

People who buy a packaged     investment. They call a retail outlet such as a real estate company, or a     stockbroker or a financial planner, and they buy something. A good clean     and simple way of investing. Like going to a store and buying a computer     right off the shelf.

Investors who create     investments. The investor usually assembles a deal much like people who     buy components of computers and then put them together. Its like     customizing; like putting pieces of opportunity together. Probably the     professional investor.

 To be the second type of investor you need to develop another three skills on top of being financially literate:

  How to find an opportunity     that everyone else has missed     See with your mind what other people miss with their eyes.

How to raise money     The average person only goes to the bank. You must know how to raise     capital without requiring a bank. A majority of people let their lack of     money stop them from making a deal. If you can avoid that obstacle, you     will be millions ahead of those who don’t learn those skills.     There have been many times I have bought a house, a stock or an apartment     building without a penny in the bank. I once bought an apartment house for     1.2million. I did what is called "typing up" with a written     contract between buyer and seller. I then raised the $100,000 deposit,     which bought me 90 days to raise the rest of the money. Why did I do it?     Simply because I knew it was worth $2million. I never raised the money.     Instead, the person who put up the $100,000 gave me $50,000 for finding     the deal, he took over my position and I walked away. Total working time:     3 days. Again, it's more what you know more than what you buy. Investing     is not buying. Its more a case of knowing.

How to organise smart     people     Intelligent people are those who work with or hire a person who is more     intelligent than they are.

 There is always risk, so learn to manage risk instead of avoid it.

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Arbitrage

Know who you're betting against. Be aware of how other people are trading.

 Macro-investing:

Top-down approach Form views and predictions on large scale and global events in political and economic landscape

Strategy involves both long and short positions in various instruments.

Need to understand that Macro investors have a shit load of capital, hence they can swing the market based on their views so its important to understand their positions and views

 Activist Investing (trending areas)

Buy large stakes in underperforming companies and try to get seats on the board with the goal of affecting major changes.

Profit comes from implementing changes that make the company more valuable. Changes can range from the dividend payout policy, cost cutting, divestment from particular projects, or even firing the CEO. Based on forcing the CEO into doing what they want to do. Make their positions clear. (buying over 5% of a company makes your trade public to everyone)

Cost cutting popular.

"Poison pill" a defense from Activist investors. Basically booby trapping an Activist investor. For example a clause that if you fire the CEO he gets a $75mil payout - very expensive. Basically disincentives to change the way the company is operating.

Price moves due to them buying capital but also the market reaction. What stops them from just buying in and out is their reputation. If they continue to pull shit people will catch on. SCC etc.

Creates volatility which is good.

Small Activist hedgefund in NZ? Market isn't really big enough but could work on a smaller scale.

  Pure Arbitrage:

Takes advantage if pricing inefficiences across securities, currencies and its derivatives to make a guaranteed, risk free profit.

Funds use computers to rapidly identify and execute trades because arbitrage opportunities only last for fractions of a second. (ETF?)

 Example:

Stock XYZ listed on NYSE at     US$100 and on the TSX at CA$130

Exchange rate is $US! -     CA$1.31

XYZ should theoretically be     $CA131

Therefore make instant $1     profit by buying XYZ from TSX for CA$130, selling on NYSE for US$100, then     converting the US$100 into CA$131

People who win have the fastest computers and best algorithms. Don't need to worry about it as an equity investors.

 Statistical Arbitrage:

Makes an expected profit Risk arbitrage carries some degree of risk and profits are made when the price converges to the theoretical price.

Far more opportunities to find.

 Fundamental Long Only: (Buffet) Buy when underpriced and sells when they are overpriced. Doesn't use short selling Makes decisions by placing bets on market expectations, also use leverage, derivatives and alternative assets. (2:1, 3:1 leverage)

 Fundamental Long/Short Equity: Similar to fundamental long but also allows for the use of short selling

Many of these funds focus on equities.

Allows for hedging, can have an overall bear view or bull view.

Most have a net exposure of 30%. 200-300% leverage.

 High Frequency Trading: Automated trading using powerful computers that use quantitative models to identify opportunities and transact a large number of trades at extremely high speeds.

Positions are held for very short periods on time.

Relies on receiving and processing information faster than anyone else.

Profits come from:

Pure Arbitrage and     statistical arbitrage

News-based trading

Latency arbitrage.

 Special Situations (Event-driven trading)

Announcement of news with an uncertain probability of a particular result, differences can appear between the market's expectations and reality.

You want to adjust your positions as the market starts adjusting to your bet.

 Merger Arbitrage: Type of special situation where the fund manager believes the probability of an M&A deal going through, or the probability of a higher counteroffer price announcement by the acquirer, is different to what the market expects.

 Fund of Funds: Invest in other funds and ETF's. Investing in managers. Not that great unless you have a large sum of capital Highly diversified but suffer from two layers of management and performance fees.

Active Strategy fund of funds:

Makes macroeconomic bets by     shifting funds into geography or industry specific funds. Actively shifts     funds around between different hedgefunds etc.

Passive strategy

Creates an efficient     portfolio across asset classes to maximize return for a given level of     risk, rebalancing the portfolio routinely

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Behavioural Economics

The underpinning assumption behind marginal utility theory and indifference curve analysis is that consumers act rationally. Ration behaviour in mainstream economics means

Individuals     act solely to maximise their personal utility

Individuals have possession     or access to all information they need at low or zero cost.

Decision are based upon     carful comparison of the costs and benefits in order to achieve optimum     final outcome.

Once behaviour has been     optimized decision making is based on changes at the margin.

Individuals preferences and     attitude to risk is fixed.

 Behavioural economics is a rapidly developing branch of economics which aims to explain "irrational" behaviour. The pioneering study is "Prospect Theory" 1979 by Daniel Kahneman and Amos Tversky. It attempts to explain how people choose between alternatives involving risk where the probability of each outcome is known. It argues that instead of making decisions to achieve optimal outcomes as a rational consumer would, individuals actually make decisions based on the potential gains and losses that arise.

 Bounded Rationality: Imagine someone is applying for car insurance. There is obviously an enormous amount of information available to the consumer which would enable them to make the rational decision as to whether the decision they are making is the best one. There are many insurance companies of which t by from each with their own website and application forms. However, for a variety of reasons, the consumer may not be able to effectively use all the information to arrive at the optimal outcome. The timescale may be short and accessing the quantity of information is time consuming and might incur some financial cost. The Opportunity cost of time lost may sifting through information and applying to many companies may not be worth the potential savings. The individual's ability to act in a rational manner is, therefore, restricted; in the language of economics it is bounded. In other situations it may be the lack of information or the fact that there may be more than one possible solution that means a consumer may experience Bounded Rationality: the idea that someone's ability to make rational decisions is limited by the quantity of information available and their ability to absorb and interpret it within the timescale available. As a result individuals engage in satisficing behaviour rather than optimizing behaviour in their decision making. Heuristics: Rules of thumb or mental shortcuts made by individuals to speed up the decision making process In some cases behavioural economists argue that individuals resort to heuristics when making a decision. Such examples of Heuristics are

Anchoring     The tendency of relying on     the first piece of information obtained (the anchor) when considering a     decision

Availability     Basing decisions on the     easiest piece of information to recall.

Representativeness:     Basing decisions on past     experience or assumptions - can lead to stereotyping. (thinking someone in     a particular reason is poor)

Heuristics may speed up decisions but can lead to individuals making mistakes or irrational decisions.

 Framing: The way in which an issue, question or choice is presented or framed. There is evidence that the same information presented in different ways may lead to a different decision being made. The Endowment Effect: Individuals appear to be reluctant to give up goods that they own (their endowment) and as a result often demand much more to give up a product (willingness to accept) then they would be prepared to pay for it (willingness to pay). Appears to apply to relatively mundane goods like mugs. The effect appears not to be associated with the value, characteristics or attraction of the product, but more the distress of losing it. Behavioral economists refer to this as loss aversion.

 Loss Aversion: Individuals appear to give much greater weight in their decision making to the possibility of losses than the possibility of gains even when the probability of them occurring are the same.

 Reference points: The tendency to make decisions on the estimated gains or losses from a particular reference point (their position now) rather than looking at the overall picture. May lead to the breaking down of the decision into a number of individual smaller decisions.

 Certainty vs Uncertainty: People prefer outcomes that are certain, or perceived to be certain to those which are uncertain even when the probability that the uncertain event would engender a far better benefit is very high. Might explain why individuals prefer the guarantee of a low return on an investment to a much larger gain from an alternative if there was even a very small probability of it leading to a loss.

 Over-confidence and Over-optimistic: Individuals when looking into the future tend to be over optimistic or over confident about potential gains. This might be factor contributing to speculative bubbles.

 Too much choice: Whilst traditional economists argues competition creating choice is a good thing, there is evidence that given too much choice individuals fail to make any decision at all.

 Herd instinct and competition: When deciding consumption choices people are often swayed by the desire to keep up with peers and friends and as a result buy products simply because others have. Also possible that people buy goods that are perceived to be luxuries and want to be superior to their friends, therefore conferring social status.  

Behavioural economists argue that individual's attitudes to possible gains and losses are not fixed. The may vary over time and according to the perceived uncertainty, risk and amount of money involved. This clearly undermines the basis of indifference curve analysis.

 Implications For Policy: Behavioral economists argue that their insights can be used by governments and others to persuade or "nudge" people into making decisions which are beneficial for them or in their best interest. For example they can frame energy saving advertisements by the dollar value the consumer will save switching to solar (framing).

 Overview: Behavioural economics attempts to fins patterns and common themes in irrational behaviour; this can then be incorporated into economic models of consumer behaviour and decision making. Supporters argue that it helps economists to deal with real life individuals and the way they behave in reality. Ignoring thees behavioural aspects of decision making may lead to errors in prediction in traditional economic models. It is important to take into account the endowment effect and the fact that some choices involve more than one or two goods and services with which the consumer might not be familiar with. Criticism Of Behavioral Economics: Not all people agree with their findings. Some think that their experiments are not representable enough as the majority were tested on college students rather than business men, entrepreneurs etc…

Also most experiments involve hypothetical decisions not real decisions. For example if given a hypothetical ultimatum of saving 600 people to kill 200, a person's decision will be very different if the situation wasn't hypothetical but real. Another criticism is that behavioural economics might explain the short term but once people make decisions or face repeated sets of circumstances they might learn from past errors and not repeat past mistakes. This is important as irrational behaviour seems to be more prevalent in the short run and disappears as individuals obtain more information.

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Scalping

Scalping is the skimming of small profits on a regular basis, by enter in and out of positions several times per day. Scalping involves never carrying a position into another trading period or holding a position overnight.

While a day trader may look to take a position once or twice or even a few times a day, scalpers are much more frenetic and try to skim really small profits multiple times in a session.

A day trader might trade off the 5 minute and 30 minute charts, scalpers trade of tick charts and minute charts.

Some scalpers like to take advantage of high velocity moves that occur around the time if the release of economic data and other important news events.

 Scalpers try and scalp between 5 and 10 pips from each trade and repeat this process over and over throughout the day. Remember with one standard lot the value of one pip is about $10. So, for every five pips of profit made, the trader can make $50 at a time. Repeat this 10 times a day and you have $500 in the bag.

 Scalpers need to sit infront of their computers for the entire session and they need to enjoy the intense concentration that it takes to scalp. You can't really be distracted if you are trying to scalp small movements like five pips at a time. You have to react very quickly without analysing your every move. There is no time to think only time to pull the trigger at the right time - especially true in order to cut a position if it its moving against you by two or three pips.

 The differnce between a market maker and a scalper is important to understand. A market maker earns the spread, while a scalper pays the spread. So when the scalper buys on the ask and then sells on the bid he has to wait for the market to move enough to cover the spread he has just paid. Conversely the market maker sells on the ask and buys in the bid, thus gaining a pip or two as profit for making the market. Thus, the risk of a market maker compared with a scalper, although they are both seeking to be in and out of positions very quickly and very often, is much better for the market maker than the scalper. Market makers love scalpers because they trade often and pay the spread, which means that the more the scalper trades the more the market maker will earn for the one or two pips from the spread.

 Setting up to be a scalper requires that you have very good access to the market makers with a platform that allows for very fast buying or selling. Usually the platform will have a buy button and a sell button for each of the currency pairs. In liquid markets, the execution can take place in a fraction of a second.

 Picking a broker: Remember that the forex market is international and largely unregulated. As a trader it is up to you to research and understand the broker agreement and define what your responsibilities are and the responsibilities of the broker. You must be aware of how much margin is required if your positions go against you, which could mean an automatic liquidation of your account if you are too highly leveraged. Ask questions to the brokers representative and make sure you hold onto the agreement documents. Read the small print.

 You have to become very familiar with the trading platform that your broker is offering. Always open a practice account and practice with the platform until you are completely comfortable using it. Since you intend to scalp there has to be no room for error in using your platform. Platform mistakes and carelessness can and will cause losses.

 You need to be sure that your trade will be executed at the level you intend. Therefore be sure to understand the trading terms of your broker. Some brokers might limit their execution guarantees to times where the markets are not moving fast. Others may not provide any form of execution guarantee at all.

You can't afford slippage in addition to the spread so you have to make sure your order can and will be executed at the order level that you request.

 Liquidity: As a scalper it makes sense that you only want to trade the most liquid markets, these are usually the major currency pairs, such as EUR/USD or USD/JPY etc. Also depending on the pair certain sessions will be more liquid than others. Even though the market is 24/7 the volume is not the same at all times a day. Usually, when London opens at around 3am EST, volume picks up in London as London is a major centre for forex trading. At 8am EST, New York opens and adds to the volume being traded. Thus when two of the major forex centers are trading this is usually the best time for liquidity. Sydney and Tokyo are the two other major volume drivers.

 Redundancy: The practice of insuring yourself against catastrophe. In trading, means having the ability to enter and exit trades in different ways. De sure your internet connection is as fast as possible. Know what you will do if the internet goes down. Do you have a phone number direct to a dealing desk? And how fast can you get through and identify yourself? All these factors become very important when you are in position and need to get out quickly or make a change.

 Getting prepared to scalp:

 Get a sense of direction -

It is always helpful to trade with the trend at least if you are a beginner scalper. To discover the trend set up a weekly and daily time chart and insert trend lines.

Fibonacci levels and moving averages are your "lines in the sand" and will represent support and resistance areas. If your charts show the trend to be upward bias then you want to start buying at the support levels if they are reached. Vice versa with a resistance and downward bias. Depending on the frequency of your trades, different types of charts and moving averages can be used to help determine direction.

 Prepare your trade charts:

Set up a 10 minute and a 1 minute chart. Use the 10-minute to see where the market is currently trading and the one minute to actually exit and enter your trades. Be sure that you can toggle through the time frames.

In this system we've included a three plot RSI with the plot guides set to 90% and 10%. Only trade on the short side when the RSI crosses over the 90% plot guide, and the long side when the RSI reaches below the 10% plot guide.

It is best to wait for the second crossing into either of the two zones. That is only enter/ take the trade if the RSI goes into the zone on the second consecutive attempt.

 Before you trade, test out your strategy, using a practice account keep a record of all of your winning trades and all of your losing ones. Stop your losses quick and take your wins when you have your 7 to ten pips. This is some randoms scalping process so try your own bruh.

Remember that too much analysis will sometimes cause paralysis, therefore practice your methodology until it becomes automatic for you, even boring because its so repetitive. Professional traders are not gambler, they are speculators who know how to calculate the risk, wait for the odds to be in their favor and manage their emotions.

 When and when not to scalp: Remember, scalping is high speed trading and therefore requires a lot of liquidity to ensure quick execution of trades. Only trade the major currencies at peak volume times like when New York and London are trading. Don't scalp if you aren't feeling focused for whatever reason. Set the amount of losses that will stop you trading for that day. If you have a string of losses stop and give yourself time to regroup - don't try and get revenge on the market.

 Always keep a log of your trades, use screenshots to record your trades and file them etc.

By learning from scalping and then slowing down you can become a day trader or maybe even swing trader because of the confidence and practice gained from scalping.

ADHEREING TO A STRICT EXIT STRATEGY IS THE KEY INTO MAKING SMALL PROFITS INTO LARGE GAINS AND NOT ERASING YOUR ENTIRE ACCOUNT.

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Macro-economic Aims

The main aims concern: 

Inflation

All governments aim to achieve price stability in the economy - a stable slow rate of inflation. This allows businesses to plan ahead with confidence as they can accurately estimate their return on investment. There are heaps of consequences of high and negative inflation. The important thing to remember is that a low stable rate of inflation is good for the economy. Inflation is a monetary phenomenon which will always exist

 Balance Of Payments:      The      ideal situation is for the balance of payments to be in equilibrium that      is inflows = outflows.      Countries are usually concerned about their current accounts. If there      is a large persistent deficit then a country could face severe economic and      financial problems such as a depreciating rate, inability to pay its      debts and in extreme cases bankruptcy.            A continual positive balance is problematic as it causes difficulties      for trading partners especially if they are in a monetary union and      cannot depreciate their exchange rate. A number of Eurozone countries      face this such as Germany being in credit and for example Greece being in      a high amount of debt.      The aim should be to achieve equilibrium in the long run as      from quarter to quarter and year to year surpluses and deficits should      alternate.       

 Exchange Rate      Governments wish to avoid      wild fluctuations and volatility in the exchange rate for obvious      reasons. In theory governments would like their exchange rates to be      constant. This is unlikely to be the fact when a country has a balance of      payments disequilibrium on the current account which is not offset by      inflows in capital investment, to meet a deficit, or outflows of aid or      investment  to other countries in      the case of a surplus. In these situations a government would hope for a      gradual, managed, depreciation or appreciation.       

 Unemployment:      Governments all aim for full      employment. As we know it is hard to know exactly what full employment is      as the definition varies between measurements and countries. There is no      agreement on what percentage of unemployment means full employment;      nonetheless it is an objective of all governments.       

 Economic Growth:      Governments      aim to achieve sustainable economic growth. Sustainable being key      especially with developing countries that achieve high growth rates but      achieve this by depletion and exhaustion of materials or by creating to      much pollution.       

 Economic Development:      Governments      need to achieve sustainable development. It ensures that with economic      growth both the standard of living and the quality of life improve now      and in the future. All of these should be part of the aim of development      for governments.       

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Effectiveness Of Macro-Economic Policies

Effectiveness of Policies depend on

Availability of jobs and     current wage rate

Supply side policies -     education and training

Direct tax cuts not being     offset by rises in indirect taxes some of which are regressive

Cultural attitudes to work

 Remember the transmission period for both fiscal and monetary policies and that supply side policies are inevitably long run in their effect.

 Government Failure in Macroeconomic Policies: Free Market Argument

Free market economists argue that attempts by the government to reduce income and wealth inequality can worsen incentive and productivity in the economy. They would argue against national minimum wage because they believe it leads to real wage unemployment. They would also argue against raising the higher rates of income tax because of the negative effect on wealth creators in the economy and generally acts as a disincentive  to work longer hours or take a higher paying job. They are critical of governments focusing welfare benefits on the poorest because they might damage the incentive to work.

 Socialist Argument: The opposite of the free market point of view. Believe there is a lack of effective government policies to reduce the scale of income and wealth inequality. Believe that income inequality itself is also a cause of government failure as inequality can create many deep-rooted problems in society making social cohesion break-down. Also argue that information failure is a big cause of government failure as economic data takes a while to collate meaning the wrong policy can be implemented for what is actually happening in the economy rather than what has happened. (e.g- estimated interest rate transmission takes 18 months.)

 Laffer Curve: It is argued that high rates of direct tax act as a disincentive for people to work and for firms to make a profit. Lower income tax will act as an incentive for unemployed workers to join the labour force especially if there are low employment benefits linked with this. Also causes existing workers to work harder. Lower corporation tax provides an incentive for entrepreneurs to start business

And thus increase national output. The money they would have lost as tax could be used to reinvest into the company making it more efficient.

Professor Arthur Laffer is associated with this idea As can be seen on the curve, as the tax rate increases tax revenue at first increases, but then after some point falls.

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Collusive Oligopolies

Collusion can either be formal or informal. Formal Collusion (Cartels): Formal collusion involves the creation of a cartel, which is an agreement between firms to fix the price and output of a certain product - it may involve common market strategies. In most countries cartels are illegal. A cartel may either operate as a multi-firm monopoly or set output quotas for each member. If acting as a joint-firm monopoly it will seek to maximise the total joint profit of the cartel hence the it will take on the form of monopoly.

Competition among members is then likely to be non-price. The problem with this is, although joint profits are maximised, each individual firm will have different cost curves, hence some firms will be making a lot of profit while others will be making a little. This causes constant tension in the cartel as firms making large profits have an incentive to break agreement an increase output. For the consumer the price is likely to be high as it will be set at a level to allow the least efficient firms to make a profit. They may, however, be better if the cartels supernormal profits mean a better product is being produced. If a cartel were to use the quota method it is again hard as how do you decide a 'fair' quota for each firm? For a cartel to operate successfully there are a number of conditions:

  Cartels       are likely to be vunerable in times of recession.

  Informal Collusion: Informal agreements usually involve some form of price leadership, where one firm in the oligopoly sets or changes price and the others follow. There are three common models. Dominant firm: Following the lead of the firm with the largest market share and output. Other firms will likely follow for fear that if they do not they may be out competed if the dominant firm adopted an aggressive pricing strategy.

 Barometric: Leadership by a firm that has consistently been seen to judge market conditions accurately over time and is therefore seen to be a good 'barometer' of market trend.

 Parallel pricing: Where firms in the industry make the same price changes at any given time. Tacit Collusion: A type of informal collusion which occurs when it is recognized in the market that firms will follow certain established guidelines such as pricing strategies etc..

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Barriers Of Entry

Long Run Equilibrium In perfect competition the individual firm faces a horizontal demand curve as each produces only a small proportion of total market supply so must accept the prevailing market price. Note the industry demand curve is downward sloping since it represents the sum of all individual curves. The Long Run Equilibrium of a perfectly competitive market will always be one where producers are making normal proftis where:

Marginal Cost = Marginal     Revenue

Average Revenue = Average     Cost

Short run profits will fluctuate from sub-normal to normal to supernormal; but, when aggregated in the long run the equilibrium will always be at the point where MC= MR and AC = AR

For Example:

The producer in the diagram is making a supernormal profit - a return more than sufficient to keep the producer in the market. This Supernormal profit will attract other producers into the market because there are no barriers to entry in perfect competition. Therefore Market Supply for the industry will increase forcing price down. Market Quantity at each and every level will increase and all producers will now have to accept the lower price of P' (Because they are price takers) Now that Supernormal profits are eliminated there is no incentive for new firms to join the industry.

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Perfect Competition - Long Run

Long Run Equilibrium In perfect competition the individual firm faces a horizontal demand curve as each produces only a small proportion of total market supply so must accept the prevailing market price. Note the industry demand curve is downward sloping since it represents the sum of all individual curves. The Long Run Equilibrium of a perfectly competitive market will always be one where producers are making normal proftis where:

Marginal Cost = Marginal     Revenue

Average Revenue = Average     Cost

 Short run profits will fluctuate from sub-normal to normal to supernormal; but, when aggregated in the long run the equilibrium will always be at the point where MC= MR and AC = AR

 For Example: The producer in the diagram is making a supernormal profit - a return more than sufficient to keep the producer in the market. This Supernormal profit will attract other producers into the market because there are no barriers to entry in perfect competition. Therefore Market Supply for the industry will increase forcing price down. Market Quantity at each and every level will increase and all producers will now have to accept the lower price of P' (Because they are price takers) Now that Supernormal profits are eliminated there is no incentive for new firms to join the industry.

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Shutdown and Break

It is important to recall the definitions of Marginal Cost, Average Cost and Average Variable Cost. Marginal Cost is the cost of producing one extra unit of production. Average cost is the average cost per unit of production. Hence the break-even is the price which covers all economic costs. AC is  Variable costs plus Fixed costs (Pb7) The Shut Down is the price where revenue just covers variable costs. Shown at (Ps5)

 A firm will still operate between the break-even and shut down points. It has a price which covers all of its average variable costs and is paying some of its fixed costs. It should continue producing in the short-run because if it shuts down it will still need to repay its fixed costs. (It is making contribution to fixed costs) Firms will shut down if the price falls below the minimum average cost (AVC) At any price below the firm will not be covering its variable costs per unit or making any contribution towards fixed costs. Hence the Long run shut down point for a firm is when P = Minimum AC as they are breaking even and will eventually leave to seek profits. Hence the Short run shut down point for a firm is when P = Minimum AVC as they will not be able to cover their fixed costs if they only just able to cover their variable costs. Deriving The Supply Curve from Marginal Cost Curve A firms short run supply curve is derived from its Marginal Cost curve. It starts from the minimum average cost curve and continues to make up the supply curve. Hence the quantity supplied at $2 is zero because the price is below the shut-down point and the firm would have ceased operating.

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Scales

Economies Of Scale can be either Internal or External: Internal: Result from an increase in the scale of production of an individual firm leading to a movement down the LRAC curve as output increases.

 External: Result from the growth and interrelationship of all firms in the industry. They are available to all firms in the industry and therefore bring about lowering the ENTIRE LRAC of the firm. Types of Internal Economies: Technical Economies:

Can take a number of forms

Economies     of Increased Dimensions:     The Mathematical relationship between the surface area     of a container and its volume. The cost of making containers is linked to     its surface area. Doubling the sides of of the container will increase the     surface area and costs by 4. However the volume has increased by eight     times thus decreasing total costs.

Division     Of Labour:     The idea of specialisation will increase productivity and decrease     average costs.

Large     Capital Equipment:     Large specialist equipment, - e.g robots - will reduce     costs if the firm produces a large amount of output to recover the     machines initial cost.

Research     and Development:     Leads to cost saving processes or innovations;     particularly important in certain industries.

 Financial Economies: Large firms are able to access greater sources of finance from a wider range of sources and on normally better terms than a smaller firm. Limited companies can use the stock market; banks will usually be more willing to lend to larger firms as they see it as a safer investment.

 Marketing Economies: Discount buying as a result of buying in bulk. Large firms can spread their marketing costs over a larger output and range of products; additionally large firms may have their own distribution channels and transport.

 Managerial Economies: Large Organizations are likely to be able to afford to employ highly specialized staff. May be able to afford their own departments although expensive they are likely to increase productivity and output significantly and so to bring down unit costs.

 Risk-Bearing Economies: As a firm grows in size it is able to move into other product areas and markets which reduces the risks associated with a decline in any one of them.

 Economies of Scope: A firm can expand its scale of production but not only working in a relatively focused market but by also producing a range of products in different markets. Hence economies of scope are caused by economies rising when average cost fall as a firm increases its output across a range of different products External Economies Of Scale: If an industry becomes concentrated in a particular area it may benefit from improved transport links and infrastructure. Ancilliary industries may develop to provide supplies of components. Colleges and Universities may create specialist courses that equip people for a particular industry. All of these developments are likely to increase the productivity of all firms and reduce their average costs.

 Diseconomies Of Scale: Examples of internal economies of scale include managerial diseconomies and alienation of workers. In the sense that as a firm grows the complexity of the organization will increase and managers may find it hard to coordinate everything. Workers may feel like they are a tiny cog in a much grander machines and hence their productivity may decrease. It has also been shown that larger organizations have more labour disputes; labour disputes between key employees can cause all production to be disrupted.  

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Oligopolies

An Oligopoly is a market dominated by a few large firms each producing a large number of brands. Firms in this respect are mutually independent, meaning firms must be aware that any action they take will have an impact on the other firms in the industry and as a consequence will have to take into account the likely reaction of other firms when making any decisions. They are markets characterized by high barriers to entry similar to those in a monopoly.

 The mutual independence and uncertainty caused by having to take into account the possible behavior of rivals in oligopolistic markets means that there is no single model of the equilibrium of a firm in an oligopoly. A firm in an Oligopoly can either:

 Collude with rivals:      Brings      security and guarantee of some market share but is unlikely to maximise      profits

 Compete with rivals:      Might      bring about increased profits but there is risk of retaliation from other      firms which can lead to price wars and eventual bankruptcy.

Analysis therefore looks at both situations. Occurrence Of Oligopolies: Most likely come about due to economies of scale. Most likely to come about when there are some economies of scale that are not substantial enough to require a natural monopoly but are large enough to make it too difficult for more than a couple of firm to operate.

The extent to which a particular market might be regarded as an oligopoly is often measured through Concentration Ratios: N - Concentration Ratio: A measure of the market share of the n largest firms in an industry. e.g- The five firm concentration ratio measures the market share of the biggest five firms in a market.

 Concentration ratio can be calculated on the basis of either output (A.K.A daily circulation) or employment (quantity of labour etc). More useful to measure on the basis of output as some firms maybe far more capital intensive than other; their labour is less but their output bigger. For this to be accurate it must be clear that the firms being compared are in the same market or else limitations will occur. The ratio also doesn't show the likely hood or unlikely hood of collusion between firms. Nonetheless the concentration ratio is useful for giving a first impression of how the market is likely to function.

 Scale and Market Concentration: An important issue that arises as firms become larger is the number of firms a certain market can support. There are only so many economies of scale within a certain market place and a limited demand that needs to be fulfilled. Think of a natural monopoly, only one firm will be able to produce at the lowest point on the aggregated markets LRAC hence one dominant firm. For some markets there may be little scope for economies of scale. For example there are little fixed costs in setting up a café or hair salon compared to setting up a steel mill or railway network. The level of output at which minimum average cost is reached for such activities may be relatively small compared to market demand, hence why there there is room for many firms in the market

 Market Dominance: Do firms have enough market dominance that can be exploited to bring higher profits? In other words, to what extent do firms have the freedom to set prices at their preferred levels, and to what extent do they have to take into account the action of other firms or face other constraints? Even a monopoly has to accept the constraint of their market demand curve. Most countries have legislation to control a firms market dominance; to protect consumers from exploitation from firms. This suggests that there are firms that have enough market dominance to restrict supply and set prices and also have an incentive to use this dominance. A body will control such behaviour on behalf of the government e.g- Commerce Commission of NZ (Microsoft and OPEC cases)

In UK a firm has a dominant position if its market share exceeds 40%. Firms also face natural restrictions to market dominance such as other firms trying to contest away profits and enter the market. Unless there are significant barriers to entry a firms market dominance will fade away.

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“Once again, the Trump administration has agreed to do the bidding of the worst polluters in our country, and once again it’s putting the health of American families and communities at risk.”

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Billie Holiday

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“LAWMAKERS LAY GROUNDWORK FOR SPACE CORPS”

 Politicians within the House Armed Services Committee have introduced new legislation that would require the U.S. Air Force to establish a “Space Corps’ as a separate branch of the military - similar to the way the Marine Corps function in the Navy - by January 1, 2019.  The Space Corp would be led by its own chief, which would sit on the Joint Chiefs of Staff with a six-year term. This position would be equal in power to the Chief of Staff of the Air Force, and would answer to the Secretary of the Air Force.  “There is bipartisan acknowledgement that the strategic advantages we derive from our national security space systems are eroding,” Republican, Rep. Mike Rogers and Democrat, Rep. Jim Cooper said in a prepared statement. “We are convinced that the Department of Defence is unable to take the measures necessary to address these challenges effectively and decisively, or even recognize the nature and scale of its problems.”  Although there is a bipartisan support for this expansion of the military, current Air Force leadership opposes setting up a Space Corps, citing that this move would only cause confusion within the organization.

Read more about this fascinating story at: http://spacenews.com/house-panel-takes-first-step-towards-military-space-corps/

Image Credit: U.S. Air Force’s X-37B unmanned spaceplane via U.S. Air Force

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An all-girls science club from San Fernando Senior High School near Los Angeles has designed a solar-powered tent meant to help homeless and displaced people around the world.

The tent — designed by a group of 12 high schoolers with the help of an organization called DIYgirls — uses solar power to charge electronic devices, provide light and sanitize itself via a system of antibacterial UV lights. And it folds into a backpack for easy travel.

The electronics cost about $40. The tent itself is made out of highly durable and water-resistant material. The idea for the tent came after some members of the team saw increased homelessness in their neighborhood.

“These girls saw a problem in their community,” Evelyn Gomez, an engineer and the executive director of DIYgirls, tells NPR’s Morning Edition. The group aims to get young girls from under-resourced areas interested in the fields of science, technology, engineering, art and math.

All-Girls Teen Engineering Team Creates A Solar-Powered Tent For Homeless People

Photo: Courtesy of DIYgirls