Price of Gold and Carbon Emission Reduction

The price of gold differs on the supply and demand of the product, and pricing is also influenced by the demand of individuals. The report showcases different components which set the price of gold, and government has to take initiatives in order to make a constant supply of the same.

ECONOMICS FOR BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN FACTORS DETERMINING THE PRICE OF GOLD........................................................1
NEGATIVE EXTERNALITIES ARISES FROM PERSONAL USE OF CAR.............................5
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

ILLUSTRATION INDEX
Illustration 1: Diagram of Negative externalities.............................................................................5

INTRODUCTION
Economics for business is a field in applied economics that comprises of economic
theories as well as quantitative methods which help in analysing the business factors which
generally contributes towards the diversity of different organizational structures. Further, these
economics help the business enterprise to make a healthy and effective relationship with labour,
capital and product markets (Himmelberg, Mayer and Sinai, 2005). Moreover, these economics
usually fluctuate on the demand and supply of products and their price also changes as per the
fluctuation in the market decision.
In the above context, this present report has been prepared by considering the demand
and supply analysis which are treated as the main factors for determining the price of gold whole
around the globe. Moreover, fluctuations in gold prices occur because gold investors invest for
different purposes such as for jewellery, chemical purposes, medical purposes, electronics and
technological advancements. Further, this report will also emphasize on the negative externalities
that come into play from the personal use of car. Report will also show the remedies which are
taken by the government to impact the personal use of cars in order to accommodate the negative
externalities.
MAIN FACTORS DETERMINING THE PRICE OF GOLD
Gold is treated as the most complicated asset to price. Further, currencies, stocks and
other commodities depend on the fundamental data of stock which fluctuate the demand and
supply of mentioned commodity. Further, if fundamental data of gold comes out then even an
inexperienced investor will also be able to understand the price movements of the mentioned
commodity. Moreover, gold is considered as money and because of this, it is a subject of
psychology, speculations and also of manipulation. Further, trading and investment of gold is
done for different purposes and change in the volume of investments lead to the fluctuation of
prices of Gold (Neumark and Wascher, 2006). Further, gold has been used for different purposes
from personal consumption to the technological reasons and also for creating the value of
product as well. However, with the fall in gold prices in the year 2013-14, investors generally
caught to the wrong foot and they were speaking the controversial theories and also the market
manipulation. Further, investors also said that gold does not bring any real income and
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sometimes, it is a cost to carry. There are majorly six fundamental drivers of gold and it has been
discussed as under:
 Price fluctuations of other commodities in relation with the global demand for these
commodities acting as indirect pricing.
 Imbalance of trade against US which is resulting in twin deficits can be seen as a fear
factor for gold.
 Global and specifically, US inflation is leading towards the rise in money supply.
 Commercial banks are choosing practice like money printing or gold purchase and sale
leading to increase in price of gold whole around the world.
 Real interest rates and specially the one which is followed in US impacting the growth
and overall demand of gold in different countries.
 Private physical demand and supply (Carroll and Shabana, 2010).
Moreover, there are also some factors which determine the changes which are made in
the Gold prices and some of them have been discussed as below: Demand of gold in market: Individuals demand for gold for different purposes and these
demands only impact the price of gold in the global market. People use gold as a sign of
dignity as well as status, a source of investment and also, a store of value in a physical
format (The 6 Major Fundamental Factors That Determine Gold And Silver Prices,
2013). Apart from this, gold is used for different purposes like in medical and
technological purpose. However, if the demand of gold exceeds the supply then it
generally brings inflation i.e. a hike in price for gold. Some uses of gold has been
discussed as under:
 Jewellery: The Primary Use of Gold- Gold is generally used in the preparation of
ornament objects as well as jewellery since decades back. In today's world, most of
the gold which is newly mined or recycled is generally used in the purpose of
manufacturing jewellery. Pure gold is considered as 24 karat gold and is market with
"24K". Further, an alloy which is 50% gold by weight is treated as 12 karat gold
(12/24ths) and the same is marked with "12K". An alloy that include 75% gold by
weight is 18 karat (18/24 = 75%) and the same is marked with "18K". Moreover, it is
used for the beauty and social status and the demand for gold is high in countries like
India, China and USA.
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 Financial Gold- This type of gold is used for the purpose of making coins and
bullions (Snowdon and Vane, 2005). Further, gold is generally highly valued
commodity and is very limited in supply and the same is considered as a medium of
exchange. Moreover, countries like USA are using “gold standards” and with the help
of this, nation is maintaining a reserve in order to back every dollar into circulation.
 Gold in electronics- A little amount of gold is used in most of the electronic devices
and it includes cell phones, calculators, personal digital assistants and other small
electronic devices.
 Medical industry and technology- The purpose of Gold has been evolved from the
monetary exchanges to the use in medical and technological purposes. Further, due to
high resistance and thermal conductivity, the use of gold has been emerged such as
for medical in the form of stents or in cutting-edge technology or nanotechnology
(Top 6 Common Uses for Gold. 2015). This causes jump in demand and raises the
prices of Gold. Supply of gold in market: Supply of gold plays a significant role in the determination of
price of Gold. Further, if the demand of gold is high and supply of the sale is also
adequate then the price of gold will genuinely meet the needs and demand of customers.
However, fluctuations in both the factors can create disequilibrium in the market
(Griffiths and Wall, 2008). Gold in market is supplied from the fresh mining process or
by the help of recycling of existing Gold. Given below are the factors which generally
affect the supply of gold:
 Recycled Gold: Most of the gold is regulated or supplied in the market in the form of
recycled gold as the value of same does not get diminished and individuals use it in
future time period for making jewellery or by making in use for any other item.
Recycled gold is accounted for one third of the total supply gold in the global market.
 Production: Till the year 2006, South Africa was considered as a dominant leader in
production of gold but in last half a decade, countries like China, Russia, USA, Peru
and Australia have started their own production process and this is the only reason of
decrease in the gold prices. Moreover, more than 60% of the production of Gold is
from the mines and rest from the recycled form. Fluctuation in volume of gold also
affects the prices of commodity at the global level. Further, different changes in
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volume can be due to different government policies of different nations, regulations
from the legislative of international bodies like environmental groups, etc.
Sometimes, it also inhibits the extractions or processing that generally creates
shortage of gold in the market (Andrés and Arce, 2012). Moreover, by seeing the
ongoing demand of gold, mining companies are investing more of their fund in
processing and technologies so that they can come up with the best products for
customers. Monetary system and Bank reserves: Central banks of different countries keep their
monetary assets either in the form of paper currencies or gold reserves. Moreover, gold is
considered as an important tool for regulating the money supply in economy. By
considering the following context, banks generally started to increase the gold reserve
ratios in prominent economies of continent namely US, Germany and France. Further, the
banks of these countries are keeping more reserve in the form of Gold as compared to
paper currency and securities (Schumacher, 2011). However, extend buying of Gold by
the central banks and other monetary institutions are affecting the price of gold. The bank
buys gold at the time of recession and conversely, it sells the gold assets to control and
regulate the money supply and circulation in the economy. Central bank uses this process
as a tool in order to maintain as well as to stabilize the economic condition of country.
 Value of US dollar: US Dollar is one of the key determinants which decide the value of
gold. Further, the mentioned currency is universally accepted and it has the right to
control the price of gold. Further, US also being the exporter of gold shows an interlinked
relationship which helps in deciding the economic scenario. However, there also exists
some inverse relationship between Gold prices and also for the value of dollar. If the
dollar is in commanding position then the price of gold genuinely diminishes and
individuals tend to invest more in order to get the higher returns in future. On the
contrary side, if US dollar is in weak position, then the price of gold will also fall and
people will invest in some other securities like shares and debentures.
From the above study, it is clearly evident that from demand and supply of Gold, global
economic scenario and value of US dollar are the major determinants of the price of gold (Baye
and Beil, 2006). Further, the equilibrium of demand and supply of Gold is stabled for short
duration of time only. Moreover, the supply is affected by various factors like production of
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different volume and the relatedness with intensity of demand. If the demand and supply of gold
is high then consumers will be able to purchase the gold at an affordable price but if the demand
is high and supply is limited then the price of gold will not fulfil and satisfy the needs of
customers and if they tend to purchase then they have to pay high amount for the same.
NEGATIVE EXTERNALITIES ARISES FROM PERSONAL USE OF CAR
From economics perspective, negative externalities are generally the cost or benefit that
affects a party who does not choose that cost or benefit. Negative externalities generally occur
when production and consumption imposes the external costs on the third party outside the
market and for the same, no suitable or appropriate compensation is paid (Steurer and et.al.,
2005). Further, these externalities are measured in terms of social costs and social benefits.
These social benefits are always more than the social costs. Further, social costs can be
calculated with the help of above formula:
Social cost = private costs + external costs
Illustration 1: Diagram of Negative externalities
(Source: Negative externalities, 2015)
Moreover, whenever there is separation between social costs and private costs,
externalities do exist (Fourcade and Khurana, 2013). Further, negative externalities exist when
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social cost surpasses the private cost and the market failure happens as manufacturer doesn’t take
external costs into consideration. However, if goods or services have negative externalities, then
this will lead towards the failure of market. In order to prevail these negative externalities and to
achieve a socially efficient outcome, government has to impose some taxation policy in order to
meet these externalities and this will state that the consumer has to pay the full social cost. To
achieve more socially efficient outcome, the government can try tax the good with negative
externalities (Teixeira and Rocha, 2010). This means that consumers would pay the full social
cost.
Some core examples of negative externalities include:
 Burning of fossil fuels causing air pollution
 Water pollution from industries which are causing damage to plants and animals
 Noise pollution occurs at the time of production of goods
 Depletion of the stock of fish in sea just because of overfishing
Now, as per the scenario of case study, negative externalities may arise in the form of
personal usage of cars in different areas (Pitelis, 2005). Further, the use of personal car leads to
many negative effects like affecting the environment, infrastructure, pricing, etc. In relation to
the given scenario, some major points have been discussed as below:
 Physically affects: Personal usage of car is having enormous drawback and tentatively, it
is impacting the daily life on individuals and different other components. Further, it has
impact on several areas namely:
 Traffic volume: Dream and willing to use the personal cars in order to have personal
benefit is treated as a sign of social status. However, this is generally increasing the
traffic in countries and due to these, people face transport difficulty in the form of
slow speed and at times, it leads to the blockage of lane.
 Vehicle stock: Vehicle stock shows the inconvenience to individuals due to different
perspectives such as in the form of parking, security, maintenance and different others
(Verhoef and Leeflang, 2009). It also elaborates the increasing density of vehicles per
square km in a specific area.
 Multiplier effect: Automobile companies in order to increase their market share and
brand image are innovating new models and modifying the existing one's in order to
satisfy the needs and demand of customers. With better specifications, design and
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variations, individuals seek to purchase that and in contrary, it having a multiplier
effect as the number of personal cars are increasing constantly.
 Economic causes: Personal use of car is having a negative impact on the country's
growth and same is treated as a negative externality which is a affecting the economic
environment of country (Schulze, Warning and Wiermann, 2008). Further, these
economic causes are having direct impacts on some areas and same has been discussed as
under:
 Prices: Nowadays, use of cars is treated as a symbol of dignity and status and people
are purchasing it in order to show their reputation and dignity in society. In relation to
it, automobile companies are also producing cars by considering the need and budget
of individuals. However, some car enterprises are having a significant brand image
and these companies’ produce cars only for the richer segment of society and this
generally helps them to increase more revenue and profits. Due to this, it increases the
import quantum and also results into the deficit in balance of payment.
 Financing: Different financial sources help individuals to purchase the car of their
choice as it allows them to apply for loan and easy instalment payments which do not
lead as a burden on customers (Cusack, Iversen and Rehm, 2006). With increasing
financial sources and easy availability of funds, people are convenient in order to
purchase a car and due to this, tally is increasing in a significant manner.
 Policies and Regulations: If government comes with some policies and regulations
then functioning and operational activities of automobile companies will be affected
and the owners who use personal car will not be able to operate their purchased
vehicle without permission of government. For instance, in India, CM of capital
country has passed a law where cars which are of odd digits will run on Monday and
alternate days (Bowen and Sosa, 2014). On the contrary, cars which have even
number will run on the roads on Tuesday and alternate days. This step is taken in
order to reduce the carbon impulsion and pollution within country.
 Environmental issues: Negative externalities that arise from the personal use of car are
drastically impacting the environment as well as atmosphere. Further, personal use of car
is increasing the number of vehicles for each family and the same is leading towards the
increase in density. Moreover, atmosphere and the environment of locality are badly
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affected with the use of car as it is increasing the pollution and carbon emission with
some harmful gases. These gases include CO2, sulphur, nitro oxides, etc. that are causing
destruction and damaging the environment (Carlin and Soskice, 2005). Further, due to
this, people are getting affected and they are suffering from various diseases like malaria,
headache, etc. From a research, it has been evident that Beijing, the capital of China and
New Delhi, the capital of India is the most polluted cities of the world.
Further, for solving negative externalities raised by the personal use of car, Government,
legislative bodies and international organizations are framing some policies and regulations in
order to reduce these negative externalities. Some methods which government can impose are
mentioned as under:
1. Taxes and tariffs: Best method or technique which government can adopt is by imposing
high taxes and tariffs on automobile sector. These taxes can be imposed on different
grounds and on legal basis.
2. Import and export: The fundamental way to address the issue and accommodate the
negative externalities is by imposing taxes on cars at the entry and exit from nation. This
means that the government should increase the taxes and tariffs on exports and the
custom duties on imports. Also, by imposing the import quotas that is limiting the
quantity of imports, the number of vehicles in country can be managed (Liao and et.al.,
2009).
3. Congestion tolls: Implementation of congestion tools by the government will help the
public to reduce congestion of traffic on roads. Further, highway authorities can also
increase the toll price in order to reduce the number of shipments trips and also the turn
of cars.
From the above content, it is clearly stated that with the formation of healthy policies,
government can reduce the number of personal cars which is leading to the increase of pollution
and emulsion.
CONCLUSION
From the above report, it is articulated that the price of gold differs on the supply and
demand of product and the pricing is also influenced by the demand of individuals. Further, this
report showcases different components which set the price of gold and also, government has to
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take initiatives in order to make a constant supply of the same. Further, this report also articulates
the personal use of car and local body of each and every country needs to take some necessary
steps in order to reduce the carbon emulsion for protecting the environment and daily life of
individuals.
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Online
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