Economic problems of the USA Essay Example | Topics and Well Written Essays - 2000 words

Economic problems of the USA - Essay Example AS-AD model will be used to determine the aggregate demand and supply of the country. The report also highlights measures taken by the government to recover from the economic problems along with the reasons behind government’s decisions for such measures. The evaluation of effectiveness and shortcomings of government measures is done to explore the net benefit of the measures to economy. The report will attempt to suggest the solutions of US economic crises of manufacturing concerns, balance of imports and exports and economic sustainability of the country. SUMMARY The Article reports about economic problems faced by the U.S. since almost past decade. The United States is going through the economic adversity or disaster on a very high scale for the last decade. The article refers that despite suffering, majority of people of U.S. are giving less or no attention to the sources of the current economic decline (Heffner, 2012). The article states that U.S. nation has become a seco nd class country in many aspects Reasons cited in the article for the above statement includes facts that United States no longer produce what they require to sustain their selves; the extensively increased imports than exports resulting in selling off U.S. assets and taking on huge debts to maintain a living standard. The article also refers to an important aspect of the US condition in international context. IT refers that it is the game plan of the US global challengers is to make the US totally reliant on overseas manufacturing, modernization and financing. In losing domestic self-reliance, nationalized security and power – the foreign affairs of a country will suffer to a great extent. Referring to impact of the current situation, the author of the article states that US is getting weakened even to admit greedy foreign trade practices bringing in depression US industry. Instead the economic players are giving confidence to US manufacturers to plan, engineer, and manufact ure in third world markets to minimize the production cost like Mexico and China. The article in addition to the problems being highlighted has also referred to the solution such as carefully managing access to market, re-assessing trade practices etc. (Economy in Crisis, n.d.). DISCUSSION OF THE ECONOMIC PROBLEMS ISSUES: Causes of Problem: High labor wage rates in U.S.: U.S. is facing challenge of high labor wage rate for the last few years due to which the cost of production or manufacturing in the US increased. To survive competitively in this situation U.S. started to shift its production or manufacturing plants in low wage rate countries like China and Mexico where cost of production is significantly cheaper as compared to U.S.. This prevailing situation in the economy bringing down the US manufacturing sector continuously giving rise to import and pressuring the import bill. Service sector growth downsizes the manufacturing and production industry: In the last two decades a bi g portion of investment in the U.S. have been shifted towards the service industry sector because of high manufacturing cost and low margin profits. The service industry of US is contributing 79.7% in the economy, 1.2% is the contribution of agriculture industry and 19.1% by manufacturing industry (CIA, 2012). With this huge side transferred to service sector it has made the manufacturing side weaker in the US and hence large number low wage labor force in US has become unemployed. Higher imports from china and other countries because of low cost: the prevailing situation in the economy of US for the last two decades has increased the percentage of imports over exports in the economy. The final manufactured goods are the major imports of

Overview of Immanuel Kants Grounding for the metaphysics of morals Essay

Overview of Immanuel Kants Grounding for the metaphysics of morals - Essay Example Kant uses Grounding for the Metaphysics of Morals to help people obtain a better grasp at what moral principles really are. Kant provides a description of some of the general principles surrounding moral duties. He states that actions can only be considered moral if they are undergone for the sole purpose of being moral and without an underlying purpose. The next principle is that the quality of an action is judged for its morality based on the motive that produced the action, as opposed to the consequence of the action. The final principle declares that actions are only considered to be moral if they are undergone purely out of respect for the law of morality. These three principles reveal that to be considered an act of morality, everything must be done for the purpose of being moral. As there are many situations and circumstances to be taken into consideration, but cannot be due to their quantity, Kant points out that there must be a universal formula that can be applied to every situation to determine if what was undergone was done purely out of morality. This formula is as follows: â€Å"we must be able to will that a maxim of our action should be a universal law.† While this law may be considered intuition to most people, Kant still found it important to remind people of its existence and its purpose.

Merging in the UK Package Holiday Market Essay Example | Topics and Well Written Essays - 2000 words - 11

Merging in the UK Package Holiday Market - Essay Example Both Cook and MyTravel enjoy an oligopolistic stature in the UK travel market as there are very few big players competing with one another over branded tourism products and services (HighBeam Research 1998). By the time Thomas Cook and MyTravel merged with each other to form the Thomas Cook Group, the trend in the UK travel sector was beginning to change. The concept of franchising was getting popular among giant business houses. As a consolidating approach to this changing scenario, another acquisition was soon on the cards. TUI Travel tied up with First Choice in September 2007, marking a milestone event in the UK travel industry. Following these two mergers, the entire travel sector assumed new looks in terms of operational mobility and packaged marketing initiatives. As the two major players in the global travel hunt, both operators took great care of their respective areas of interest, including hotels, cruises and charter airliners. Moreover, a seamless retail network involving major travel agencies was established to provide a convenient one-stop travel experience for vacationers. This paper is going to analyze in detail these two case studies and probe into a number of strategic issues that set off the mergers. Additionally, the paper will also look into the post-merger economic challenges and how they are going to affect the future of the travel market over the next few years. To address these issues systematically, the paper will answer three questions. 1. Why did Thomas Cook and MyTravel, and TUI and First Choice merge? What benefits have been gained from the mergers? What problems have had to be overcome, and what challenges do they face in the light of the current global economic downturn? The Mediterranean coast has always been the most sought after tourist destination in Europe. Whether it is leisure travel for rejuvenating the mind and the body or high-priority business trips, the Mediterranean destinations provide value for money for the travelers throughout the year.

Advanced Accounting Theory & Practice Assignment

Advanced Accounting Theory & Practice - Assignment Example In addition, IAS also prescribes for leases within the financial statements of both the lessees and lessors (Barth et al., 2008). The prescriptions capture both financial leases and operating leases. The main characteristics of IAS 17 include the classification of leases, both the finance leases and operating leases, within financial statements of the lessor and the lessee. The scope section outlines the lease agreements for which IAS 17 is applicable. Additionally, the section also lists various agreements in which IAS 17 does not apply. According to paragraph three of the Standard, agreements transferring an asset’s right-of-use require application of IAS 17 (Selling, 2013). The need for the lessor to provide considerable value of services with regards to the operation and maintenance of the leased assets does not nullify the application of IAS 17. Paragraph two of IAS 17 lists four instances that the standard may not be applied (IFRS Foundation 2011). The agreements are contracts for services lacking a transfer of the asset’s right to use (Selling, 2013). In classifying leases, the International Accounting Standards Board (IASB) took into consideration of both the lessee and the lessor (Reinstein & Weirich, 2005). Similarly, IASB also took into account the extent to which the lessee or the lessor may accrue subsidiary rewards from the possession of a leased asset. The risks taken into account include the possibilities of losses arising out of technological obsolescence or idle capacity. In addition, the risks also include potential losses due to digression in return as a result of varying economic conditions. On the other hand, the rewards are characterised by the prospect of a profitable operation over the economic life of the leased asset (Kirsch, 2012). The rewards also comprise the gains arising from appreciation in value of the leased asset. Additionally, the rewards also include any realisation of some residual value. A lease is

Social Problems Caused by Abortion Essay Example | Topics and Well Written Essays - 750 words

Social Problems Caused by Abortion - Essay Example For the conclusion, the summary of the researcher's learning outcomes will be enumerated. There is a huge difference between the number of Baby Boomers population (born between 1945 - 1964) with 76 million as compared to the Generation X's (born between 1965 - 1980) with 46 million. (Francis-Smith, 2004; Allen, 2004; Raines, 2002) Basically, the signficant differences on the number of population between the two generations contribute a lot to the increase of social problems related to the future pension plan for the Baby Boomers. Since the population of Generation X is significantly much lesser than the population of Baby Boomers, the amount of taxes that can be collected from Generation X would become insufficient to sustain the large sum of money needed to support the pension pay of each individuals belonging to the Baby In line with this matter, Senator Zell Miller stated that "killing: of unborn children has caused a number of social problems in the United States including limiting the number of people who could be productive workers and contribute to social security." (Ertelt, 2007) Also, given that millions of American fetus were legally aborted either intentionally or against the free-will of the pregnant American woman, the United States need to accept more highly literated foreigners to immigate into the country. Based on medical tests, women who has undergone the process of abortion may result to a long list of negative physical, emotional and psychological adverse effects. (Coleman, Rue, & Spence, 2007) As part of the negative psychological effects of abortion on young girls and women, more than 25% of them are seeking the professional help of a psychiatrist. (Badgley, 1977: 313 - 321) Some women who could not tolerate the emotion and psychological disturbances caused by abortion may also have difficulty in getting some sleep or experience nervous disorders and post-traumatic stress disorder (PTSD) which may require them to be admitted to a psychiatric hospital. (Barnard, 1990; Ashton, 1980) Some of these women may also have an increased risk to minor and major infections, the symptoms of excessive bleeding, chronic abdominal pain due to the tearing of the uterus, cervical injuries and gastro-intestinal disturbances. (Reardon, 1987) In case these physiological symptoms are not properly taken cared of, the woman may end up losing their own lives. (Frank et al., 1987; Reardon, 1987) Since women who has gone through abortion may be at risk of mental, psychological and physical problems, each of these women would not be effective enough in fulfilling their role in the society as a wife and a mother. Society's Contribution in the Development of these Social Problems The society has a

Comparing news reports Essay Example for Free

Comparing news reports Essay On the day of 3rd February 1998, a Marine Corps EA-6B Prowler jet crashed into a wire, along which a yellow cable car was running along in the Dolomites area of Cavalese, Northern Italy. The car fell, killing 20 people. The victims were nine women, ten men, and one child. At least six of them were German, whereas two of them were Hungarian, and two Polish. The operator of the car, who was Italian, also died. Three newspapers. The Times, The Mirror, and the American Newsweek was very different from the rest. It contained no pictures, and was very much more biased towards the Americans, and was trying to shift the blame from them, to the Italians: pilots flight plan had been cleared by Italian authorities. The Americans treated the tragic accident, as a political affair with Europe attacking America: Europe questions Americas character. The Times contains a great deal more fact than The Mirror which also contains fact, but with some opinion: Regional President Carlo Andreotti should stop these war games The Times and The Mirror contained much more factual information about the incident, than Newsweek did. The Mirror and The Times both commented on how the cars fell 300ft and killed 20 people. They also both say that a second car was left dangling precariously on the wire. The Mirror goes on to describe who the casualties were (men, women, and children), whereas The Times talks about what time the accident occurred at, and that if it were to happen in the morning, that the car would have been packed with around 40 people, as it would have been peek time: If it had happened in the morning, the car would had been packed and the death toll would have been even higher. This is because a lot more tourists would have been going up the hill, in the morning. The Times also gives, what I consider, as useless facts at the end, such as that the mountains have become a popular tourist spot. It also goes on to talk about irrelevant things about the area of the incident: The area The Val di Fassa is renowned for the quality of its wood, from which Strdivarius violins are made. The Newsweek report, does still have some fact, but a lot more of it, is political facts, trying to shift the blame onto the Italians: We fly the routs they lay out Here, the Americans are clearly trying to shift the blame, by saying that the pilots flying the EA-6B prowler, exactly where the Italians had told them to fly. The main differences between the English papers The Times, and The Mirror and the American newsmagazine Newsweek, is that there is no pictures or diagrams, helping to explain the incident in the Newsweek report. These pictures featured in the two newspapers, not only to help to explain what happened in the incident, and where it took place, but they also made a welcome break, from reading large sections of text. The language used in each report also is very different in each report. The Newsweek report has a lot of American language in it: hot dogging clipped tumbling returned safely fighter jet clipped cherry pie These words are not only the type you would expect from a typical American, but they are also a lot softer and less dramatic types of words: fighter jet clipped skiers tumbling returned safely , compared to the harsher, more dramatic words found in The Mirror and The Times: warplane screamed dangling precariously plunged horror smashed open like a cardboard box Sliced screaming collided smashed crumpled bad jolt twisted The tone also differs dramatically between the two British newspapers, and Newsweek. The Newsweek report is very sceptical, and is constantly tying to shift the blame, or to change the subject: Overshadowed by anti-Americanism This time analysts found links violence is as American as cherry pie The English news reports are laid out much better than the Newsweek report. The English newspapers have at lest two pictures, with captions per report. Both article also maps, which describe where the incident occurred. There are no pictures, captions, or maps in the Newsweek report. The extract is determined as an article, due to how it is split up, with three columns. The most predominant point, or main clause, it the last four words, contained within the sub-headline. Europe questions Americas character This is the main point, which the Americans are trying to argue in the report, so it is the point that stays in the back of the readers mind, throughout the report. The article that explains the incident most effectively is the extract from The Times. This is because the report form The Mirror contains a lot of opinion however, this report gets the main points over quicker. The Times contains a great deal of facts, so you could get the most information from this. The Newsweek report is basically a political argument conceived by the Americans about the Europeans. 1

Optimal Extraction Paths of Coal

Optimal Extraction Paths of Coal Chapter 1: Introduction 1.1. Motivation According to the World Energy Outlook (WEO 2007)[1], global carbon dioxide (CO2) emissions will increase by 1,8 % per year from 2005 to 2030, and 2 % per year for the period 2030-2050.[2] From 12.446 Mt of CO2 equivalent in 2002, emissions will reach 15.833 Mt in 2030 for OECD countries an average increase of 1,1 % per year. CO2 is the most important anthropogenic greenhouse gas (GHG), which is contributing to global warming. The primary source of the increased atmospheric concentration of CO2 since the pre-industrial period results from fossil fuel use, with land-use change providing another significant but smaller contribution.[3] Continued greenhouse gas emissions at or above current rates would cause further warming and induce many changes in the global climate system during the 21st century.[4] According to the Nuclear Energy Agency and the International Energy Agency the power generation sector will contribute to almost half the increase in global emissions between 2002 and 2030, and will remain the single biggest CO2-emitting sector in 2030. In OECD countries, its emissions will rise from 4.793 Mt of CO2 in 2002 to 6.191 Mt of CO2 in 2030, but the share will remain constant.[5] Today, power generation emits 65 % of industrial emissions of CO2 in OECD countries and is likely to become instrumental in countries strategies to reduce greenhouse gas emissions.[6] One of such instruments is the Kyoto Protocol. Under the United Nations Framework Convention on Climate Change (UNFCCC), more than 180 countries have recognised the need to stabilise the concentration of GHG in the atmosphere, which are causing climate change. The Kyoto Protocol to the UNFCCC, was adopted at the third session of the Conference of Parties in 1997 in Kyoto, Japan. It entered into force on 16 February 2005 with 184 Parties of the Convention who have ratified to date.[7] The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries (including Germany) and the European Community for reducing GHG emissions. These amount to an average of five percent of the 1990 levels over the five-year period 2008-2012.[8] The Kyoto Protocol includes specific flexible mechanisms such as Emissions Trading, the Clean Development Mechanism (CDM) and Joint Implementation (JI) for the countries to be able to reach their mandatory emission limits. Emissions trading, as set out in Article 17 of the Kyoto Protocol, allows countries that have emission units to spare emissions permitted to them but not used to sell this excess capacity to countries that exceed their targets. Thus, a new commodity was created in the form of emission reduction or removal assets. Since CO2 is the principal greenhouse gas, people speak simply of trading in carbon. Carbon is now tracked and traded like any other commodity. This is known as the carbon market.[9] In European countries the emissions trading system is the European Union Emissions Trading Scheme (EU ETS), the largest system nowadays. The CDM, defined in Article 12 of the Protocol, allows a country with an emission reduction or emission limitation commitment under the Kyoto Protocol (Annex B Party) to implement emission reduction projects in developing countries. Such projects can earn saleable certified emission reduction credits, each equivalent to one ton of CO2, which can be counted towards meeting the Kyoto targets. A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers.[10] The JI mechanism, defined in Article 6 of the Kyoto Protocol, allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B Party) to earn emission reduction units from an emission-reduction or emission removal project in another Annex B Party, each equivalent to one ton of CO2, which can be counted towards meeting its Kyoto target. JI offers Parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host Party benefits from foreign investment and technology transfer.[11] Germany is one of the worlds largest energy consumers and ranks third in total CO2 emissions within the G-7, after the USA and Japan.[12] Annually, Germany produces around 850 millions tons of CO2 equivalent gases, which is approximately 2,8 % of all worlds CO2 emissions.[13] On 31 May 2002, the Kyoto Protocol was ratified by Germany. After entering it into force Germany has played an active role in the European and world carbon markets. Electricity production in Germany is largely based on burning exhaustible resources, causing high CO2 emissions. That makes the issue of CO2 trade crucial for German power plants and the economy in whole. In 2008, the total amount of gross electricity supplied in Germany was around 639,1 TWh[14], that is slightly higher in comparison to the previous year. Nevertheless, during last years there is a tendency of increase in electricity supply (See Table 1). The electricity supply in Germany is based on several technologies and fuels. The distribution of net electricity supply in last years in Germany is shown in Table 1. Electricity production in 2008, as in previous years, was based mainly on coal-fired (hard coal and lignite) steam turbine (43,6 %) and nuclear (22,3 %) power plants.[15] Energy source Since the share of the coal based power plants in Germany is large and the amount of electricity produced is still growing, the impact of the CO2 emissions trade on the economy of these plants is very significant. According to data provided by the Nuclear Energy Agency and the International Energy Agency, the price for coal is rising during the economic lifetime of the coal-firing plants.[16] This rise partly can be caused by additional CO2 costs. The largest impact of the emissions trading on the electricity generation cost is felt by the lignite-fired power plants followed by the hard coal-fired power plants, since lignite while burning is producing more emissions than hard coal.[17] With an assumed emission price of 20 â‚ ¬/tCO2 the power generation costs of the lignite-fired power plant would increase by 63 % from 25,4 â‚ ¬/MWh to 41,4 â‚ ¬/MWh, whereas the generation costs with hard coal-fired would rise by 48 % from 30,2 â‚ ¬/MWh to 44,8 â‚ ¬/MWh.[18] The competitiveness of the coal-fired plants is also influenced by including the CO2 prices into the costs. 1 represents marginal cost curve based on the total installed capacity and facilities operating costs for Europe.[19] As can be seen, the addition of CO2 price to the production costs can make coal power plants less competitive. The sequence of most of electricity plants stays the same after addition of 20 â‚ ¬/tCO2 to the costs, though coal based power plants move to the side of less competitive plants. These facts and evident changes raise many questions such as following: how long will electricity from fossil fuels stay competitive, how the extraction of fossil fuels is influenced by CO2 prices. 1.2. Problem definition From all of the above it can clearly be seen that the CO2 price is influencing the value of coal and its extraction path.[20] Questions this thesis is dealing with are how the extraction path is affected by the CO2 price, and what the optimal path of using coal is. For many companies, i.e. in coal mining and coal utilizing, this question is essential, since they already face significant changes in profitability. The thesis is aimed at describing the optimal extraction path of exhaustible resource (coal) without and then with CO2 considerations. That will allow to compare and to see the changes in paths. Coal-related industries will be discussed here, but similarly the approaches can be used for other exhaustible fossil fuels. Since coal is an exhaustible resource, for describing its optimal extraction path we will use the exhaustible resource economic theory, to be more precise, Hotellings theory, which determines the optimal extraction path of exhaustible resource. Hotellings rule is one of the required conditions of optimality of the extraction path. The optimal extraction path means that the miner is maximising his profit if he follows this path. Besides that, we widen the scope of the work and change the condition of maximising the profit and look at the case when a miner aims to prolong the life-time of the mine as much as possible. We will also consider different markets types: competitive and monopoly. For modelling all the scenarios in the mentioned conditions, a single mine which is situated in Germany will be used, and we will assume that all coal is burned at the power plant for production of electricity which belongs to the same company as the mine. 1.3. Relevance We aim to determine how the EU ETS is influencing the extraction path of the coal and its value. This question is very important for the mine owner, as it allows him to choose the right strategy for production and exploitation, depending on the new market conditions with costs for CO2. That is essential for the economic survival of the miner. And for us, the task is therefore to determine the influence of CO2 price on the extraction path of a coal mine. First, we will construct the model without consideration of CO2 price in two different market conditions, and afterwards we include CO2 price considerations. As mentioned before, we will discuss the case when a miner wants to maximize the life-time of the mine. The reasons for that might be to save jobs or governmental directives. This case also will be studied in different markets. 1.4. Goals The goal of the work is to construct simplified models, on the base of Hotellings rule theory, which will determine the optimal extraction paths of coal and extraction paths leading to maximization of life-time, for one single mine situated in Germany in different market conditions without and with CO2 price consideration. Afterwards, on the base of models including into them numerical data, we aim to show the scale of the CO2 price affecting the extraction path. 1.5. Structure The current chapter, chapter one, gives an introduction into the topic, determines the goals of the paper, explains the motivation of the research done in the work, supports it with topical data. The second chapter contains the theoretical base for the further research. It describes Hotellings rule extraction of exhaustible resources, discusses the crucial points of the theory, and gives the basic model of optimal extraction of exhaustible resource. In the third chapter, models of optimal extraction of coal in different conditions are developed. At the beginning, the models represent the optimal extraction path of competitive market and then monopoly market. Next, cases are discussed in which the company is maximising the life-time of the mine also in two market types. Afterwards, the CO2 price is integrated into the models, and the change in extraction paths is described. At the end, two numerical examples are given, and calculated to find two optimal extraction paths without CO2 and then with it. The last chapter, chapter four, gives the summary of the whole master thesis and its results.  ­Ã‚ ­Chapter 2: The theory of exhaustible resources 2.1. Overview This chapter is dedicated to Hotellings theory itself, since we use it to determine extraction paths of coal. It contains the theoretical background for further models construction, and allows to understand the theory deeper. Next, Hotellings rule is discussed. Afterwards, we discuss different parameters which can influence the rule, since these considerations are necessary for construction of the models and making appropriate assumptions for them. At the end of this chapter the basic model of optimal extraction of exhaustible resource is given. On the basis of this model, in the following chapter, we will build models with considerations of different market conditions and CO2 price. The main questions of the economics of exhaustible resources are: what is the optimal rate of exploration of the resource by company, the price path of the exhaustible resource and how does it change through time? These are the questions which we are interested in. And since coal is exhaustible resource, this theory is applicable to our case. Exhaustible resources are those that are available in fixed quantities. They dont exhibit significant growth or renewal over the time. Coal is exhaustible resource; its amount in deposits is fixed and doesnt grow over time. Pindyck distinguishes between exhaustible and non-renewable resources[21] by noting that, while the latter do not exhibit growth or regeneration, new reserves can be acquired through exploratory effort and discovery.[22] Since the first one is more wide spread, in this work the term exhaustible resources will be used for indication of this type of resources. In 1914 L. C. Gray dealt with questions of natural resource economics. He examined the supply behaviour over time of an individual extractor who anticipates a sequence of real prices and attempts to maximize discounted profits.[23] Harold Hotelling extended Grays theory by predicting the sequence of market prices that Gray took as given in his work â€Å"The Economics of Exhaustible Resources† in 1931, which then became a seminal paper on the economics of exhaustible resources.[24] 2.1.1. Hotellings rule Hotellings rule, as described in his paper entitled â€Å"The Economics of Exhaustible Resources†, is an economic theory, pointing out how the prices should behave under a specified (and very restrictive) set of conditions.[25] It states that competitive mine owners, maximizing the present value of their initial reserves, should extract a quantity such that price of the exhaustible resource rise at the rate of interest.[26] In other words, if we assume that P0 is the initial price of the resource, Pt is the price of resource at some point of time, i is interest rate, then:[27] (1)Hotellings rule is based on the following assumptions:[28]  § the mine owners objective is to maximize the present value of his current and future profits. This requires that extraction takes place along an efficient path in a competitive industry equilibrium, which implies that all mines are identical in terms of costs and that they are all price takers in a perfect and instantaneous market of information.  § the mine is perfectly competitive and has no control over the price it receives for its production.  § mine production is not constrained by existing capacity; it may produce as much or as little as it likes at any time during the life of the mine.  § the ore deposit has a capitalized value. That is, a copper or gold deposit in the ground is a capital asset to its owner (and society) in the same way as any other production facility. Furthermore, he assumed that the richest and most accessible deposits would be mined first, and that increasing scarcity (after exhaustion of the best mines) would confer capitalized value on inferior deposits, which could then be mined.  § the resource stock is homogenous and consequently there is no uncertainty about the size, grade and tonnage of the ore deposit. Current and future prices and extraction costs are known. This implies that an ore body has uniform quality or grade throughout and that there is no change in grade of the ore as mining proceeds. Miners and grade control officers, who endeavour to supply the mill only with ore above a certain grade, recognize this fifth assumption to be major departure from reality. The topic of uncertain reserves is discussed in more details in section 2.1.5 of the thesis.  § The sixth assumption is that the costs of mining or extraction do not change as the orebody is depleted. Again, this assumption does not recognize that all mines face increasing costs as the ores are depleted. Underground mining costs increase as the mining face becomes longer and deeper and moves further away from the shaft system, while in open pit operations haul roads become longer and pits become progressively larger and deeper. A rider to Hotellings assumption that the marginal unit (standard mining unit) is accessible at the same constant cost, is the assumption that the marginal cost of extraction in this particular case is zero. In addition, it implies that the market price and the rate of extraction are connected by a stable, downward sloping demand curve for the resource.[29] In this constrained model the size of the remaining stock declines without ever being augmented by exploration discoveries. To the topic of cost of extraction is also dedicated the section 2.1.4 of the thesis.  § The final assumption is that there is no technological improvement during the life of the mine and that no new additions to the resource stock are contributed by exploration. Sections 2.1.7 and 2.1.8. are discussing technological progress and â€Å"backstop† resources, which are also connected to technological progress. Hotellings model predicts a general rise in commodity prices over time. The model has been used by numerous authors as a useful reference point in discussions on the various dimensions of mineral supply and availability. Among the factors that the model helps introduce are that:[30]  § Prices are a useful indicator of scarcity, if markets are functioning well (section 2.1.3 is discussing the question of resource scarcity)  § The effects of exploration and technological innovation significantly and importantly influence mineral availability over time  § Market structure matters (competition versus monopoly)  § Mineral resources are not homogeneous  § Backstop technologies limit the degree to which prices can increase  § Substitution is an important response to increased scarcity  § Changes in demand influence price and availability. In other words, the model provides a vehicle for introducing the various dimensions of mineral supply and scarcity.[31] But since Hotellings rule uses a number of assumptions, it might not coincide with reality completely. The next part discusses the empirical validation of Hotellings rule. 2.1.2. Empirical validation of Hotellings rule All the assumptions of the model mentioned before diminish the potential value of the application of the model for the miner in the real world. In an attempt to validate Hotellings rule, much research effort has been directed to empirical testing of that theory. But unfortunately, till now there is no consensus of opinion coming from empirical analysis.[32] One way of testing Hotellings rule seems to be clear: collect time-series data on the price of a resource, and see if the proportionate growth rate of the price is equal to r. This was done by Barnett and Morse. They found that resource prices including iron, copper, silver and timber fell over time, which was a most disconcerting result for proponents of the standard theory.[33] Other research came up with absolutely different results which could not assess whether the theory is right or wrong. But the problem is far more difficult than this to settle, and a direct examination of resource prices is not a reasonable way to proceed. The variable Pt in Hotellings rule is the net price (or rent, or royalty) of the resource, not its market price. Roughly speaking, these are related as follows: pt= Pt +b (2) where pt is the gross (or market) price of the extracted resource, Pt is net price of the resource (unextracted), and b the marginal extraction cost. According to the equation (2), if the marginal cost of extraction is falling, pt might be falling even though Pt is rising. So, evidence of falling market prices cannot, in itself, be regarded as invalidating the Hotelling principle.[34] This suggests that the right data to use is the resource net price, but this is an unobservable variable as well as i. So its possible to construct a proxy for it, by subtracting marginal costs from the gross market price to arrive at the net price. This difficult approach was pursued by a number of researchers. Slade made one the earliest studies of this type. She concluded that some resources have U-shaped quadratic price paths, having fallen in the past due to changes in demand or costs of extraction, but later rising.[35] The other study of this type is by Stollerys, which generally supported the Hotelling hypothesis with an example of the nickel market by calculating the resource rent per ton of nickel.[36] Thirdly, Halvorsen and Smith tested the theory and concluded, that â€Å"using data for the Canadian metal mining industry, the empirical implications of the theory of exhaustible resources are strongly rejected†.[37] If it can be shown that prices for exhaustible resource did not rise at the rate i, it does not necessarily mean that Hotellings rule is not right. There are several circumstances where the resource prices may fall over time even where Hotellings rule is being followed. For example, a sequence of new mineral discoveries could lead to a downward-sloping path of the resources net price. Pindyck first demonstrated that in his seminal paper. If the resource extraction takes place in non-competitive markets, the net price will also rise less quickly than the discount rate. And in the presence of technical progress continually reducing extraction costs, the market price may fall over time, thereby contradicting a simple Hotelling rule.[38] Named before facts show numerous contradictions which researchers face while dealing with Hotellings rule. But inspite of all these problems, the theory remains appealing. In their conclusion, Devarajan and Fisher state that Hotellings article is â€Å"the sole source of work in a vigorously growing branch of economics†.[39] Solow stated that, â€Å"Good theory is usually trying to tell you something, even if it is not the literal truth†.[40] So although the economics of exhaustible resources does not cover the real world of mining and mineral extraction to any large extent, it is still worthwhile to re-examine the theory. Also, many studies relaxed the assumptions of Hotelling, which introduced flexibility and widened the scope of the model applications.[41] Next some of the most important factors influencing the Hotelling model will be discussed. As can be clearly seen from formula 1, the main variable is the price of the resource. On what does it depend? Which parameters function is it? As in the thesis will be considered a single mine case, in the discussion we take into consideration mainly single mine factors, which are:  § scarcity rent ( see section 2.1.3)  § cost of extraction (see section 2.1.4)  § uncertain reserves the amount of the resource left in the mine, discovery of new reserves (see section 2.1.5)  § demand in the market (see section 2.1.6)  § technological progress (see section 2.1.7)  § â€Å"backstop† technologies (see section 2.1.8)  § market structure: competitive (see section 3.3.1) or monopoly (see section 3.3.2) Now we have a closer look at these parameters, since further description of the scenarios in different markets might require taking some of the facts into consideration. 2.1.3. Resource Scarcity Hotellings rule is determining the price of exhaustible resource and the extraction path of it. This price, along with other costs, covers resource scarcity, and a large part of the Hotellings theory is dedicated to resource scarcity. Since it may influence the price of the resource and the extraction path, we discuss it more in details. Worries about resource scarcity can be traced back to medieval times in Britain, and have surfaced periodically ever since. The scarcity of land was central to the theories of Malthus and other classical economists. What do we mean by resource scarcity? One use of the term to be called absolute scarcity holds that all resources are scarce, as the availab ­ility of resources is fixed and finite at any point in time, while the wants which resource use can satisfy are not limited.[42] But this is not the usual meaning of the term in general discussions about natural resource scarcity. In these cases, scarcity tends to be used to indicate that the natural resource is becoming harder to obtain, and requires more of other resources to obtain it. The relevant costs to include in measures of scarcity are both private and external costs. It is important to recognize that, if private extraction costs are not rising over time, social costs may rise if negative externalities such as environmental degrada ­tion or depletion of common property resources are increasing as a consequence of extraction of the natural resource. Thus, a rising opportunity cost of obtaining the resource is an indicator of scarcity let us call this use of the term relative scarcity.[43] There are several indicators that one might use to assess the degree of scarcity of particular natural resources, and natural resources in general including physical indicators (such as reserve quantities or reserve-to-consumption ratios), marginal resource extraction cost, marginal exploration and discovery costs, market prices, and resource rents. Scarcity is concerned with the real opportunity cost of acquiring additional quantit ­ies of the resource. This suggests that the marginal extraction cost of obtaining the resource from exist ­ing reserves would be an appropriate indicator of scarcity. Unfortunately, no clear inference about scarcity can be drawn from extraction cost data alone. Barnett and Morse, studying marginal resource extraction costs, found no evidence of increasing scarcity, except for forestry.[44] The most commonly used scarcity indicator is time-series data on real (that is, inflation-adjusted) market prices. It is here that the affinity between tests of scarcity and tests of the Hotelling principle is most apparent. Market price data are readily available, easy to use and, like all asset prices, are forward-looking, to some extent at least. Use of price data has three main problems. First, prices are often distorted as a consequence of taxes, subsidies, exchange con ­trols and other governmental interventions. Reliable measures need to be corrected for such distortions. Secondly, the real price index tends to be very sens ­itive to the choice of deflator. Should nominal prices be deflated by a retail or wholesale price index (and for which basket of goods), by the GDP deflator, or by some input price index such as manufacturing wages?[45] The third major problem with resource price data is that market prices do not in general measure the right thing. An ideal price measure would reflect the net price of the resource. Hotellings rule shows that it rises through time as the resource becomes progressively scarcer. But net resource prices are not directly observed variables, and so it is rather difficult to use them as a basis for empirical analysis.[46] Stern distinguishes two major concepts of scarcity: exchange scarcity and use scarcity. Rents and prices measure the private exchange scarcity of stocks and commodities, respectively, for those wishing to purchase them. They are not necessarily good measures of scarcity for society as a whole or for resource owners. Though originally intended as an indicator of the classical natural or real price, unit cost can be reinterpreted as an indicator of use scarcity. Unit cost or related measures are possible indicators of use scarcity but are not perfect either as a social scarcity indicator they do not reflect downstream technical improvements in resource use, availability of substitutes, or, as in the case of price, the impact of environmental damage associated with resource extraction and use on welfare. All individual indicators of scarcity have limitations. There is no â€Å"correct† way to measure resource scarcity.[47] 2.1.4. Cost of extraction The cost of extraction of an exhaustible resource is discussed in this section, since these costs, similarly to resource scarcity, are also included in the price of resource. Any changes in them can affect the resource price and the extraction path of it, and further we need to make appropriate assumptions. A number of researchers have attempted to provide deterministic explanations for deviations from the Hotelling price path based on the properties of the extraction cost function [Solow and Wan (1976), Hanson (1980), and Roumasset, Isaak, and Fesharaki (1983)]. They argue that, holding technology and knowledge of the stock of the resource constant, the most easily accessible sources of the resource will be exploited first. This suggests that extraction costs should rise over time, and this will affect the resource price path [Dasgupta and Heal (1974, 1979)]. However, extraction costs alone-unless changed unexpectedly-do not explain why prices have not risen.[48] 2.1.5. Uncertain Reserves The change in reserves may influence the resource scarcity value, the price of the resource and demand in the market, any of these changes affects the Hotellings rule. We discuss reserves change to have better understanding of it, as then we need to make an assumption about it to construct the model. Changes in extraction and exploration technology all affect the size of the stock of proven, or extractible, reserves. This uncertainty about the reserve base contrasts with another underlying assumption in the Hotelling model. Constant real appreciation in exhaustible resource prices is derived in this model because the reserve stock is known with certainty (as are the demand function and extraction costs). In practice, however, reserves are not known with certainty and have increased dramatically over time, often in large, discrete leaps.[49] The effect of uncertain reserves on the optimal depletion path has been examined in a number of studies. An unanticipated shock to reserves can cause a shift among optimal paths. A sudden, unanticipated increase in proven reserves causes the price trajectory to fall to assure full resource exhaustion. Observed prices in these models fall sharply when the discovery is made.[50] In addition to unanticipated shocks to the reserve base, a number of these models address the impact of endogenous exploration behaviour on the resource price path. As shown by Arrow and Chang, exploration tends to accelerate as the stock of known reserves declines and the price of the resource rises. With major new discoveries, exploration tends to slow until scarcity again becomes important.[51] The implied price path, therefore, is one that rises and falls, with little apparent trend. As pointed out by Pindyck, uncertainty about the stock of reserves is consistent with observed price behavior, although such uncertainty does not fully explain that behaviour.[52] Clearly, reserve shocks have played an important role in preventing the Limits to Growth scenario from occurring by consistently raising the size of the resource stock. The timing of reserve discoveries and shifts in price trajectories, however, do not coincide precisely as the theory would predict. Announcements of large new deposits have sometimes caused prices to move, but often there is little immediate response.[53] In any case, the frequency with which shocks to the reserve base have occurred either because of luck or because of the endogenous response of enhanced exploration activity raises an important issue regarding the degree to which these resources really are exhaustible. The steady rise in reserves, despite growing demand, which depict a steady upward trend in consumption), may argue for decreasing scarcity value of the resource over time.[54] D.B. R