INTRODUCTION

Supply is a very useful tool in economics and when used in conjunction with demand can be used to predict and analyze market equilibrium. We will save our discussion of demand and market equilibrium for later chapters, for now let us look at supply in more depth. From the perspective of a consumer (an individual, customer, purchaser or buyer), supply reflects the availability of products that you can purchase. Modern companies spend lots of time each year analyzing the supply for goods that must be purchased for use in their business as well as their competitors supply and take this into account when making business decisions. From the perspective of a producer (a business, firm, seller or supplier), supply reflects your desire and ability to provide products or services. Supply represents the minimum quantity of a particular good that producers are willing and able to sell during a specified time period. The fundamental character of the concept of supply is the relationship between the price of a good and the minimum quantity that is supplied and is described by the Law of Supply. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand. The Law of Supply Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at higher price increases revenue.

A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantities supplied (Q) and price (P). At point B, the quantity supplied will be Q2 and the price will be P2, and so on. (To learn how economic factors are used in currency trading. Time and Supply Unlike the demand relationship, however, the supply relationship is a factor of time. Time is important to supply because suppliers must, but cannot always, react quickly to a change in demand or price. So it is important to try and determine whether a price change that is caused by demand will be temporary or permanent. Assumptions of the Law of Supply (1)There is no change in the prices of the factors of production. (2)There is no change in the technique of production. (3)There is no change in the goal of the firm. (4)There is no change in the prices of related goods. (5)Producers do not expect change in the price of the commodity in the near future.

Exceptions to the Law of Supply (1)The law of supply does not apply strictly to agricultural products whose supply is governed by natural factors. For example: - if due to natural calamities, the production of wheat is less, then its supply will not increase, however the price may move. (2)Supply of goods having social distinction will remain limited even if their price may rise high. (3)Sellers may be willing to sell more units of perishable goods although their price may be falling. Supply and Demand Relationship Now that we know the laws of supply and demand, let's turn to an example to show how supply and demand affect price. Imagine that a special edition CD of your favorite band is released for $20. Because the record company's previous analysis showed that consumers will not demand CDs at a price higher than $20, only ten CDs were released because the opportunity cost is too high for suppliers to produce more. If, however, the ten CDs are demanded by 20 people, the price will subsequently rise because, according to the demand relationship, as demand increases, so does the price. Consequently, the rise in price should prompt more CDs to be supplied as the supply relationship shows that the higher the price, the higher the quantity supplied. If, however, there are 30 CDs produced and demand is still at 20, the price will not be pushed up because the supply more than accommodates demand. In fact after the 20 consumers have been satisfied with their CD purchases, the price of the leftover CDs may drop as CD producers attempt to sell the remaining ten CDs. The lower price will then make the CD more available to people who had previously decided that the opportunity cost of buying the CD at $20 was too high.

Equilibrium When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.

As you can see on the chart, equilibrium occurs at the intersection of the demand and supply curve, which indicates no allocative inefficiency. At this point, the price of the goods will be P* and the quantity will be Q*. These figures are referred to as equilibrium price and quantity. In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply.

E. Disequilibrium Disequilibrium occurs whenever the price or quantity is not equal to P* or Q*. 1. Excess Supply If the price is set too high, excess supply will be created within the economy and there will be allocative inefficiency.

At price P1 the quantity of goods that the producers wish to supply is indicated by Q2. At P1, however, the quantity that the consumers want to consume is at Q1, a quantity much less than Q2. Because Q2 is greater than Q1, too much is being produced and too little is being consumed. The suppliers are trying to produce more goods, which they hope to sell to increase profits, but those consuming the goods will find the product less attractive and purchase less because the price is too high. 2. Excess Demand Excess demand is created when price is set below the equilibrium price. Because the price is so low, too many consumers want the good while producers are not making enough of it.

In this situation, at price P1, the quantity of goods demanded by consumers at this price is Q2. Conversely, the quantity of goods that producers are willing to produce at this price is Q1. Thus, there are too few goods being produced to satisfy the wants (demand) of the consumers. However, as consumers have to compete with one other to buy the good at this price, the demand will push the price up, making suppliers want to supply more and bringing the price closer to its equilibrium. Shifts vs. Movement Movement along the supply curve means that the supply relationship remains consistent. Therefore, a movement along the supply curve will occur when the price of the good changes and the quantity supplied changes in accordance to the original supply relationship. In other words, a movement occurs when a change in quantity supplied is caused only by a change in price, and vice versa.

if the price for a bottle of beer was $2 and the quantity supplied decreased from Q1 to Q2, then there would be a shift in the supply of beer. Like a shift in the demand curve, a shift in the supply curve implies that the original supply curve has changed, meaning that the quantity supplied is effected by a factor other than price. A shift in the supply curve would occur if, for instance, a natural disaster caused a mass shortage of hops; beer manufacturers would be forced to supply less beer for the same price.

Price Elasticity of Supply

Price elasticity of supply is a measure of the responsiveness of quantity to a change in price. In other words, it the percentages change in supply as compared to the percentage change in price of a commodity.

% change in quantity Supplied Price Elasticity of Supply = % Change in price Elasticity = 0 : if the supply curve is vertical, and there is no response to prices. Elasticity = infinity: if the supply curve is horizontal. Supply is price elastic if the price elasticity of supply is greater than 1, unit price elastic if it is equal to 1, and price inelastic if it is less than 1. Supply is Price Elastic when the percentage change in quantity supplied is more than the percentage change in Price of the commodity. PES is more than 1. Supply is Price Inelastic when the percentage change in quantity supplied is less than the percentage change in Price of the commodity. PES is less than 1.

Types of Price elasticity of Supply

Unitary Elasticity of Supply: - when proportion change in quantity supplied is equal to the proportionate change in price.

Perfectly inelasticity of supply: - It means there is no change in supply regardless of change in price .

Perfectly elasticity of Supply: - There is an infinite change in quantity supplied due to a very small change in price.

More than unitary elasticity of supply: - It means rate of change in quantity offered is greater than the rate of change in price.

Less than unitary elasticity of supply: - It means the rate of change in quantity supplies is smaller than the rate of change in price.

Supply Chain Management

Supply Chain Management is consists of all parties (Including Manufacturer, Marketer, Suppliers, transporters, Warehouses, Retailers and even customers) directly or indirectly involved in fulfillment of a customer. The main objectives of Supply chain management are to improve the overall organization performance and customer satisfaction by improving product or service delivery to consumer. Supply Chain Management involves Movement and Storage of all materials including Raw Material, WIP (Work in Progress) and Finished Goods.

1. To maximize overall value generated The higher the supply chain profitability or surplus, the more successful is the supply chain. The supply chain profitability is the difference between the amount paid by consumer to purchase the product and the cost incurred by organization to produce and supply the product to the customer at right time.

2. To look for Sources of Revenue and Cost There is only one source of Revenue i.e. customer. Appropriate management of the flow of information, product or funds is a key to supply chain success. 3. Replenishment of the Material or Product whenever required 4. Cost Quality Improvement 5. Shortening time to Order 6. Faster Speed to Market

Factors affecting supply in economics

The supply of a commodity is the amount of commodity a producer is willing to put in the market at a given time at a given price. The factors affecting supply are1. Price of the commodity- More the price of the commodity, more the supply and less the price of the commodity, less the supply. 2. Price of factors of production (e.g. land, labour) - More prices of factors of production results in less profit for the producer therefore reduced supply. 3.Price of related goods - If a producer sees more profit in another good, and if the producer is easily able to switch, it will start making the other good, thereby reducing the supply for the good in question. Eg: If a farmer is currently growing wheat and he calculates more profit in growing barley, next year he will plant barley, thereby reducing supply of wheat. 4. Environmental: Weather/Natural Disasters 5. Subsidies: If government decides to subsidize a good, there will be more profit for producer. (Opposite of Tax) 7. Indirect Taxes: If the government increases the taxes that it takes from producers, there will be reduced profit therefore less supply.

The Price of Inputs In addition to the price of the product being the main factor as stated in the Law of Supply, the price of production inputs also plays a part. The lowest price at which a firm can sell a good without losing money is the amount of money that it costs to produce it. Producing a good or service involves taking inputs and applying a process to them to produce an output. The output is the finished good or service, and inputs are raw materials, labor, utilities, licensing fees, or even other goods. These inputs are also known as factors of production. If the price of inputs goes up, the cost of producing the good increases. And therefore at each price producers need to sell their good for more money. So an increase in the price of inputs leads to a decrease in supply. Similarly, a decrease in the price of inputs leads to an increase in supply. The Current State of Production Technology Production of a good involves taking inputs, applying a process to them, and producing an output. Well, production technology is involved in the process part. Increases in the level of production technology can make that process more efficient. For example, imagine that you run a basic T-Shirt screen printing business out of your home. Now lets say you decide to invest in a workshop installed with the latest production technology. With this use of technology, the operation becomes more efficient and you are able increase the supply of T-shirts. If you decide to expand even further, some added technological improvements might be warranted. This further increases your ability to supply t-shirts since it reduces your labor costs. By automating the process, reliance upon labor is lessened and those resources are released for utilization elsewhere. The Producer's Expectations It doesn't just matter what is currently going on - one's expectations can also affect how much of a product one is willing and able to sell. For example, if your firm produces mp3 players and you hear that Apple will soon introduce a new iPod that has more memory and longer battery life, you (and other producers) may decide to hurry up and sell your players to stores before the new iPod comes out. When people decide to increase production/sales today,

they are increasing the current supply for mp3 players because of what they EXPECT to happen in the future. The Number of Producers in the Market As more or fewer producers enter the market this has a direct effect on the amount of a product that producers (in general) are willing and able to sell. More competition usually means a reduction in supply, while less competition gives the producer a opportunity to have a bigger market share with a larger supply.

HOW SUPPLY AFFECTS ECONOMY WITH REFERENCE TO THE US ECONOMY

The Major Components of Supply Input is basically everything that is used to create the goods and services in the economy, also known as output. The major components of input are

Labor, which is the employees who work in the businesses. Capital, which is money used to invest in the businesses that make the output. Money includes cash, stocks, bonds, loans, grants, options. Capital also includes the equipment used to make the output. Natural Resources, which is the raw goods and materials used by the employees to make the output.

Output is everything that is produced. GDP is the common method of measurement of final output. The major components of output are:

Products, which include autos, furniture and gasoline. Services, which include healthcare, finance, and housing. Business investment and government spending.

Most of What is Produced is for Personal Consumption Over 70% of what the economy produces is for personal consumption. Over 40% is for services, with housing (10%) and health care (12%) being the largest components. Another 20% of the total economy output is nondurable goods, such as food (10%), clothing (2.7%) and fuel (2.4%). Durable goods for personal consumption, like autos (3.6%) and furniture (3%) make up 8% of the total economy. The remaining 30% of the economic output goes to business investment (16%) and government (19%), of which one-third is defense. The percentages given do not total, because of calculations made to net out exports from imports. and from changes in inventory. How Supply Affects the U.S. Economy Here, in a snapshot, are the key rules an economy must follow: 1. Supply must equal demand. 2. To make supply equal demand, prices change. 3. When prices of output declines, businesses eventually decrease supply OR they lower the cost to the output to maintain profit margins OR they go out of business, thus decreasing the output. 4. Everything else is just very complicated interpretations of these three basic rules.

How Demand & Supply Affect Economic Growth

The relationship of supply and demand to the economy involves understanding basic economics. The economy functions as an infinite tug-ofwar between the forces of supply and demand. Customers must have a need for products or services that are available in the economy. If customer demand decreases, then suppliers will typically reduce their production, which slows down the economy.

Consumer Buying Power

One way to study economic growth is to look at a consumer's buying power. In an economy with high inflation, a consumer will have less buying power. The cost of each product or service will be high in relation to the consumer's financial resources. A consumer has more buying power when the costs of products are relatively low compared to his financial resources.

Food Commodities and Inflation Example

Food prices offer a good example. If the demand for food commodities is really high, but the availability of food commodities is lower than normal, consumer prices for food will sharply rise. Paying more for food will affect a consumer's buying power. She will have to spend more for food, giving her less money to spend on other products and services. Therefore, the supply and demand of food commodities would have spillover affects on other parts of the consumer economy.

Consumer Buying Power

One way to study economic growth is to look at a consumer's buying power. In an economy with high inflation, a consumer will have less buying power. The cost of each product or service will be high in relation to the consumer's financial resources. A consumer has more buying power when the costs of products are relatively low compared to his financial resources.

Food Commodities and Inflation Example

Food prices offer a good example. If the demand for food commodities is really high, but the availability of food commodities is lower than normal, consumer prices for food will sharply rise. Paying more for food will affect a consumer's buying power. She will have to spend more for food, giving her less money to spend on other products and services. Therefore, the supply and demand of food commodities would have spillover affects on other parts of the consumer economy.

ARTCILES

When the supply shocks are demand shocks and the demand shocks are supply shocks MATT YGLESIAS muses on the threat of oil prices to the American economy: As Michael Levi writes we've traditionally wanted to distinguish between supply shocks and demand shocks as drivers of price spikes. When oil gets expensive because of a supply disruption, that hurts America. But when oil gets expensive because there's lots of demand and economic growth, that's just a sign of growth... For things to go wrong for the U.S. economy something else has to go wrong over and above the oil. We can see what those "some things" might be, related to exchange rate issues or the failure of the US government to issue a quantity of bonds commensurate to global demand. But it looks to me as if a demand-side oil issue is really just the same old issue of the trade deficit and the international balance of payments and not the second coming of a 1970sstyle oil price shock. Perhaps it's a monetary policy issue...The chain will only be broken here if the Fed decides to ignore its own self-guidance and target headline inflation instead of core inflation. We need to be careful here, in a few different ways. First, one can talk about different fundamental changes in oil markets that potentially contribute to economic activity in different ways. For instance, there might be a shortfall in oil production generated solely by action that results in pipes that had been running full to run dry. Or there might be secular stagnation in oil supply. Or there might be a rise in price generated by rapid growth in global demand. Or their could be an oil-specific increase in demand prompted by concerns about the stability of future supply. These changes are likely to impact the American economy in different ways, but it's sure to be tricky to pull apart the different oil-market causes (political supply shocks might well occur alongside global demand growth and precautionary demand growth), and trickier still to separate out oil-market causes from other shifts in the global

economy. Rising oil prices generated by increasing global demand could be relatively benign while precautionary demand growth might be less so, but what if the first leads to the second? In practice, there is less agreement among economists about how differently oil-supply and oil-demand shocks affect the economy than we might hope for. While some argue that demanddriven spikes are less problematic, others, like James Hamilton, have written that the spike of 2007-08 had an impact very similar to that associated with the more political shocks of earlier eras. Second, we also need to note that rising oil prices represent both demand shocks and supply shocks to the American economy. Dear oil can impact demand directly, by reducing real household income, and indirectly, by influencing consumer confidence. If rising oil prices were purely a problem of demand, then the only thing to fear would indeed be fear itselfby households or by overactive central banks. They are not, however. Soaring oil prices can also dent an economy's productive capacity. America relies on petroleum as an input to production in lots of different waysdirectly, in the case of things like chemicals and plastics, indirectly, in the role oil plays in supply chains and labour markets (as in commuting). When oil prices spike some American production becomes uneconomic. Were the central bank to treat this disruption as a purely demand-oriented phenomenon, it would generate lots of inflation without returning the economy to its previous output peak. For this reason, central banks tend to approach oil spikes by taking some of the hit in inflation and some in reduced growth (admittedly, they may opt for too much of the latter relative to the former). The hit to supply needn't be permanent. The spike may dissipate. Or production patterns may adjust such that the American economy can return to its previous potential path at a lower oil intensity. If we're concerned about the effect of this latest price rise on the American economy, we need to be concerned about lots of thingsthe nature of the shock, its size and persistence, and the policy reactionbut also on whether firm and household behavior has changed in recent years to adapt better to big increases in the cost of oil.

Brent slips to $114 as demand outlook worsens

SINGAPORE: Brent futures slipped to $114 on Monday, falling for a second day due to worries over the worsening outlook for demand growth, although mounting supply concerns over escalating tension in the Middle East kept losses in check. A poll indicating China may have expanded in the third quarter at the slowest pace since the first three months of 2009 overshadowed data over the weekend showing an improvement in commodity imports by the world's second-biggest oil consumer. Prices were also hurt as the International Energy Agency (IEA) last week cut its demand growth forecast for next year. Brent crude had slipped 56 cents to $114.06 a barrel by 0629 GMT, after sliding 75 cents in the previous session. U.S. oil fell more than $1 to $90.82 earlier in the session and traded 79 cents lower at $91.07. "China is now shifting to a more moderate growth rate of 7 to 8 percent, but most investors are seeing it as a negative," said Tetsu Emori, a Tokyo-based commodities fund manager at Asthmas Investment. "The heating up of tensions in the Middle East and limited spare supply capacity are supporting prices." The IEA said ample supply from North America and Iraq, coupled with declining global demand, could ease prices over the next five years. It also cut its demand growth projection for 2011-2016 by 500,000 barrels per day (bpd) from its previous report and cut its 2013 demand outlook by 100,000 bpd, citing lower consumption in Europe, the Americas and China. China's annual growth probably slowed for a seventh straight quarter in the July-September period to the weakest level since the depths of the global financial crisis, a Reuters poll showed. The median forecast of 26 analysts is

for the economy to expand 7.4 percent from a year earlier, down from 7.6 percent in the second. The weak growth expectations overshadowed data this weekend that showed China's commodity imports recovered in September. Crude oil imports were 12.8 percent higher on a daily basis than the 22-month low of 4.33 million bpd in August. "A GDP reading far below the official 7.5 percent growth target could be taken negatively by market participants," analysts at Credit Suisse said in a note. "However, our economists argue that while the latest economic numbers may still look weak, growth momentum should improve in Q4." SUPPORTING PRICES Increased tension between Turkey and Syria put the brakes on declining prices as it threatens to add to a geopolitical crisis over concerns about Iran's disputed nuclear programmed. In the latest development, Turkey has banned all Syrian aircraft from its air space. The crisis has worsened in the past two weeks because of cross-border shelling and touched a low when Ankara forced down a Syrian airline. "Geopolitical tensions have been intensifying again lately and causing oil market participants to re-price the geopolitical risk premium," Credit Suisse said. "As physical supply and demand balances have remained relatively tight, we think the oil market bias should remain to the upside in the weeks ahead." Brent is expected to fall to $111.85 per barrel as a rebound from $107.67 has finished at $116.02, while U.S. oil could fall to $88.30 per barrel, according to Reuters technical analyst Wang Tao. "Oil markets should continue to swing between tight supply concerns and slowing global demand this week," analysts at ANZ said in a note. "Crude prices are expected to move lower this week unless Middle East tensions escalate."

FOOD PRICES AND SUPPLY NEWS

In the summer 2012, scorching heat and the worst drought in nearly a halfcentury sent food prices up, spooking consumers and leading to worries about global food costs. On July 25, the United States government said it expected the recordbreaking weather to drive up the price for groceries in 2013, including milk, beef, chicken and pork. The drought has affected 88 percent of the corn crop, a staple of processed foods and animal feed as well as the nations leading farm export. The governments forecast, based on a consumer price index for food, estimated that prices would rise 4 to 5 percent for beef in 2013, with slightly lower increases for pork, eggs and dairy products. The drought comes along with heat. So far, 2012 is the hottest year ever recorded in the United States, according to the National Oceanic and Atmospheric Administration, whose records date to 1895. That has sapped the production of corn, soybeans and other crops, afflicting poultry and livestock in turn. The impact of the hot and dry weather on the nations farmers has put new pressure on Congress to move ahead on a pending five-year farm bill. But House Republican leaders have been reluctant to act because of divisions within the partys rank-and-file about the cost of the nearly $1 trillion bill. The legislation includes several federal agriculture programs that farmers have come to expect, though it does not include any specific drought assistance. Several important disaster relief programs expired at the end of 2011, leaving farmers and ranchers who have lost cattle or grazing land with few options without Congressional action. For now, analysts said they expected the broader economic impact of rising food prices to be modest. Americans spend just 13 percent of their household budgets on food. Economists fear a far greater impact outside of the United States because America is a major exporter of a broad variety of agricultural products. Experts Warn of a Global Spike in Food Prices In early September, agricultural experts urged international action to prevent the global spike in food prices from causing global hunger. The directors of three major United Nations food and agriculture programs

sounded the alarm both on the immediate problem of high food prices and the long-term issue of how we produce, trade and consume food in an age of increasing population, demand and climate change. Agricultural production fell in a number of major crop exporters during summer 2012. Besides damaging the corn crop in the United States, droughts also hit Russia and Ukraine, hurting the wheat harvest, as well as Brazil, affecting soybean production. Low yields have translated into high prices. In late August, the World Bank reported that food prices climbed 10 percent from June to July, with the price of both corn and wheat jumping 25 percent to records. Soybean prices climbed 17 percent over the same period, and rice prices declined moderately, the Washington-based institution said. The World Bank and the United Nations food agencies along with other development and aid groups have urged countries to prepare for what seems likely to become the third food price shock in five years. Low-income countries that rely on agricultural imports should invest in safety-net programs for the poor, they recommended. They also urged countries to bolster local production. Groups including the World Bank and the United Nations have also warned against trade protectionist policies in light of climbing food prices. International groups increasingly see inconsistent yields and drastic swings in food prices as a problem driven by climate change and a global challenge that is not intermittent, but here to stay. Since the food crisis in 2007 and 2008, they have bolstered international cooperation to help foster more stable food supplies and keep the most vulnerable countries prepared. Oxfam, the international non profit, issued a report in early September estimating how extreme weather events might affect food prices in the coming decades forecasting that the prices of a number of food staples could surge far beyond the projected increases. The United Nations agencies warned that too few countries were producing too large a proportion of staple crops leaving the world more vulnerable to droughts and floods.

BRITAINS GAS SUPPLY PREY TO QATAR MARKETING STRATEGY

LONDON (Reuters) - Britain is in danger of suffering a long-term loss of liquefied natural gas (LNG) supply as top exporter Qatar sends only left-over short-term deliveries to the UK while more and more of its LNG goes to higher paying Asian customers. Analysts and British energy companies say the strategy rewards Qatar but puts Britain at a significant disadvantage. Britain depends increasingly on Qatar to plug a growing energy supply deficit but has so far failed to receive a supply guarantee from the Gulf producer. Instead, Qatar is trying to lock the majority of its gas into the Asian market through signing long-term supply deals with customers in Japan, South Korea and emerging markets like China and India, where gas demand is rising fast and prices are higher. Qatari shipments provided a quarter of Britain's gas needs last year. Supplying unattractively priced British markets currently works to Qatar's advantage as it withholds gas from Asia and keeps prices in target markets like Japan and South Korea high, just as long-term contracts are being negotiated. But the lack of binding supply agreements means that a sudden rise in Asian demand could leave Britain short of much needed LNG imports. "The UK's security of supply is not as good as previously thought," Niall Trimble, director of the Energy Contract Company said. Fearing a sudden LNG supply disruption, especially during the high demand winter heating season, the British government is closely monitoring Qatari LNG flows, sources close to the matter said. "This is compounded by the fact that we are the only importer on the planet without guaranteed supplies of LNG, so if there is another Fukushima-style event, it's our supply that would be hit," Trimble added. The crisis at Japan's Fukushima nuclear power plant in March last year and resultant idling of the country's nuclear power plant fleet spurred record imports of substitute fuels like LNG, with many cargoes diverted away from markets in Europe. "Preliminary estimates for the first half of 2012 suggest that LNG imports in

Europe were down a quarter compared to the same period of 2011, with the UK reduction close to 43 percent," energy consultants Wood Mackenzie said in a research report. "European LNG imports peaked in 2011 and will decline through the medium term," it added. British government documents seen by Reuters show that Qatari officials have repeatedly resisted calls to guarantee shipments, preferring instead to decide deliveries based on strategic objectives and market conditions. "The draft agreement presented by the Qataris is not acceptable to Centrica the cargos could be fully diverted, and price is high, and the contract duration (3 years) too short," the document says. The details of a three-year, two billion pound ($3.23 billion) gas supply deal between British utility Centrica and Qatar signed in 2011 show that up to a quarter of Britain's gas may be diverted at Qatar's behest, according to briefing documents prepared for former UK energy minister Charles Hendry and supplied to Reuters by Greenpeace. It also shows that Centrica failed to lure the gas-rich Gulf state into an initially proposed 20-year supply agreement worth 30 billion pounds. LOOKING EAST LNG exporters have largely set their sights on an Asian future as European gas demand is set to stagnate as a result of slow economic growth and low increases in population while there are plentiful pipeline supplies from Russia, Norway and North Africa. "With Qatar now producing at full capacity, attention has turned to increasing market share in Asia," Wood Mackenzie said, adding that several long-term supply contracts with Asian partners had been signed with Qatar this year. Because Qatar is producing at full capacity and has set a moratorium on expanding its export terminals, these new long-term supply deals mean that less Qatari gas will be available to be sent to Britain during a time when global gas markets are expected to tighten. Some British officials have set their hopes on LNG exports from the United States, where a shale gas exploration boom in recent years has opened up vast new reserves that U.S. companies hope to export from 2015. But analysts say that U.S. LNG exports are likely to be capped in order to guarantee domestically low energy prices, and that most U.S. LNG exports would likely flow to Asia, where prices are expected to remain higher for the foreseeable future.

Despite this risk, it is unlikely that Qatar will completely stop sending LNG tankers to Britain. "It is not physically possible for Qatar to divert everything to Asia since its large vessel sizes are not compatible with many ports," an executive at Centrica said, ensuring that the UK continues received deliveries. Additionally, Qatar holds significant LNG import assets in Britain, owning the South Hook terminal in the Welsh port of Milford Haven, and letting it sit idle would delay returns on investment for Qatar. The Energy and Climate Change Secretary Ed Davey also defended Britain's handling of its gas supplies. "The great strength of the UK's liberalised gas market is that it has the ability, through market means, to attract gas shipments as and when they are required," he told Reuters earlier this year. So while Britain's chances of losing all its LNG supply to Asia for good appear slim for now, the threat hanging over Europe's biggest gas market is the prospect of large-scale periodic disruptions, which could cause sharp rallies, especially during peak-demand periods like winter. ($1 = 0.6186 British pounds)

SUPPLY CHAIN NEWS:- COMMODITIES LARGELY UP IN Q3 BUT REMAIN DOWN FOR FULL YEAR TO DATE

CONLFICTING REPORTS OVER CHANGES TO WALLMARTS RELATIONSHIP TO TRADING GIANT LI AND FUNG

Commodity prices mostly made a comeback in Q3, led by sharp rises in many agriculture products driven by the drought in the US, but all told prices are mostly down for the full year, as the steady, multi-year rise in input prices has reverse itself since early 2011. Overall, commodity prices had been on the march higher for nearly a decade. After rising rapidly during the mid-2000s, commodities naturally enough hit the skids in late 2008 and 2009 during the financial crisis, finding a bottom in about November of 2009, according to the often cited Reuters CRB Commodity Index (see graphic below). But as growth in China quickly returned, the commodities index headed up again, moving higher in a nearly straight line except for a few months in early 2010, peaking in about April of 2011. From there it has been mostly down, providing some measure of relief to input costs for most companies, as a combination of slowing growth in China as well as India and Brazil and continued financial troubles in the Euro zone, have reduced global demand and set many prices tumbling. A strong US dollar, which is used to price most commodities globally, has also kept a lid on costs from a US perspective. The Reuters CRB index has fallen about 18% from its peak in 2011 through early this week. But as the chart shows, commodities made a bit of a rally in Q2 after bottoming in May. To look at individual commodities, we used data from the World Bank, which tracks average prices in a wide number of commodity categories. In most cases these are global prices, which could be different than the pricing dynamics specific to the United States, but in most cases they reflect the same general direction as changes in the US.

In some cases, such as natural gas, where there is a huge delta between the US and global price, the World Bank does separately list a global and regional price.

Reuters CRB Commodity Index over Past Five Years

We selected specific commodities from the World Bank dataset across four categories to show changes in Q3 and year to date in 2012, as shown in the table below:

Select Commodity Price Changes in Q3 and Year to Date Q3 Chang e 3.2% 18.5% -3.6% 15.4% 8.4% YTD Change -17.9% 5.0% -3.9% -10.1% -6.7%

Energy Coal (Australia) Oil (Brent) Nat Gas (Europe) Nat Gas (US) Group Average Food/Agric ulture Cocoa Palm Oil Soybeans Corn Wheat (US) Rice (Thai) Beef Chicken Sugar Cotton Group Average Industrial Inputs Rubber Wood Pulp Potassium Chloride

15.7% -2.6% 18.7% 20.1% 28.0% -5.4% -1.8% 1.2% -8.2% 2.4% 6.8%

19.3% -5.3% 42.0% 24.1% 43.8% -9.5% -5.2% 6.5% -27.4% -11.8% 7.6%

-5.0% -7.1% 45.2%

-10.2% -9.4% -2.3%

Group Average Metals Aluminium Copper Iron Ore Nickel Platinum Zinc Silver Group Average Source: Supply Chain Digest

11.3%

-7.3%

9.2% 9.0% -26.1% 4.5% 12.5% 8.2% 20.1% 5.3%

2.1% 6.9% -27.0% -5.4% 11.6% 5.5% 10.9% 0.7%

Source: World Bank Data All four of our categories saw prices rise in Q3, while even with that rise all but food/agricultural products are still down so far in 2012. Some notable increases in Q3 include Brent crude oil (the international price standard) up 18.5%; natural gas prices in the US up 15% (though off of and still at historic lows); soybeans, corn and wheat all surging due to the US drought, and most metals making a sharp run up, with the exception of iron ore, which plummeted 26%. That drop is finding its way into steel prices as well. With the IMF just this week predicting even further slowing of the global economy and China expected to see its growth fall for the seventh straight quarter in Q3, the pressure on commodity prices is likely to continue to be downward, good news for input costs but perhaps worse news for the top line.

Supply Chain News: US Manufacturers Turning Lean Attention to Factory Labour Manufacturers Increasingly Turning to Casual to Reduce Costs, Improve Flexibility; Staying Profitable Even in Recessions?
Despite the wide adoption of Lean practices by thousands of US manufacturers large and small, many companies are seeing more opportunities to get still Leaner - by focusing on shop floor employees. The changes not only reduce costs, they can give companies the potential to remain at least marginally profitable even during economic downturns, as the near death experience of 2009 for many created a new sense of urgency. Growing use of temporary labour is a key part of the equation, as are more widespread adoption of robotics and changing work rules. Case in point: motorcycle giant Harley-Davidson, which has a factory in York, PA that now employees just 1000 factory labourers, down from about 2000 three years ago in a nearby facility. Of those 1000 left, 100 or so are "casual" workers, brought in as needed to help when demand surges. In addition, under a new contract signed a few years ago with the International Association of Machinists and Aerospace Workers, (IAM), the number of job classifications in the plant was reduced from 62 to just 5, giving the plant even more flexibility by being able to put different workers where the company needs them with far less union restrictions. The previous 136-page labour contract has been replaced by a 58-page one, according to a recent article published any the Wall Street Journal, making shop floor changes faster and easier. "This is a big bang transformation," according to York plant manager Ed Magee in the same WSJ article. The moves are hardly unique to Harley-Davidson. Global equipment giant Caterpillar, for example, now has about 16% of its factory workers globally

being temporary employees, up from 11% in 2009. In Harley's case, the new union agreement allowing these kinds of labor changes was struck under duress for the workers, as the company threatened to move the plant's work to Kentucky if it could not strike a deal that would allow it to become more cost competitive. And the changes include other cost improvements. There are now far more robots on the floor to do highly repetitive tasks. And with the new job classification program, most workers move through different tasks throughout the course of a shift, reducing their boredom and injury from too much repetitive motion from toiling on the same job all day. The financial results have been substantial, a fact that will not be lost on other US manufacturers. With similar changes under way at Harley's two other US plants in Kansas City and Milwaukee, the net savings per year is likely to total some $275 million, bringing hog cheer to HD's shareholders. One analyst says the changes are helping to drive Harley-Davidson's operating profit from 12.5% in 2009 to 16% in 2012, which will be a huge boost to the bottom line. And that cushion should enable Harley and others embracing similar strategies to stay in the black even in recessions. "There is a focus on performance and remaining profitable no matter what the business environment is," says Daniel Meckstroth, chief economist at the MAPI - Manufacturers. At Harley-Davidson's factory in Kansas City, temp workers make just $14 per hour, versus about $22 for full-time union employees. In 1989, according to a forthcoming article in the Industrial and Labour Relations Review, only 1 in 43 manufacturing jobs were temporary. By 2006, 1 in 11 was. Additionally, to some extent tax payers somewhat subsidize the practice, as temporary workers are generally available to receive unemployment when they are not working at a company employing the temps.

Global Supply Chain News: European Union Says it Is Considering Carbon Tax on Container and Bulk Ships Into and Out of Ports

Move Would Mirror Controversial Approach for Airlines; Tax Would Likely be on Full Voyage Distance
There has been a lot of controversy over the announcement last year by European Union authorities that would begin taxing foreign airlines based on CO2 emissions flying into and out of the EU. China, for example, has threatened to cancel orders from Europe's Airbus, and a bill just passed in the US Senate on a unanimous vote would prohibit US airlines from paying the tax, among other actions. The controversy is in part that the airlines are required to pay the tax based on the entire length of the flight, not just the time over European airspace. Now, the EU is looking to take the same type of actions against ocean container and bulk ships moving into and out of European ports. On Monday, the European Commission issued a statement saying they were moving forward with an effort to reduce greenhouse gas emissions from international shipping because the industry was not moving fast enough on changes. "Shipping is a global industry and needs global solutions to address its environmental footprint. As a result, we are all working towards an internationally agreed global solution to decrease greenhouse gas emissions from ships," said European Commissioner Sim Kailas and EU Commissioner for Climate Action Connie Hedegaard in a joint statement. The statement continued that "Discussions about further global measures are on-going at IMO [International Maritime Association] level, but we need intermediary steps to quickly deliver emissions reductions, such as energy efficiency measures also for existing ships." The EU Commission also said it is considering possible action in 2012 in

regards to including shipping emissions into the EU's greenhouse gas emission reduction commitment. The statement further said that "At EU level, we consider several options, including market-based mechanisms. A simple, robust and globally-feasible approach towards setting a system for monitoring, reporting and verification of emissions based on fuel consumption is the necessary starting point." The statement further said that "It's therefore our joint intention to pursue such a monitoring, reporting and verification system in early 2013. At the same time, we will continue the debate with stakeholders on which measure can successfully address the EU's greenhouse gas reduction objectives." The new plan is, as noted above, is supposed to be ready by early next year. The EU has previously suggested it might tax carriers for the emissions produced by their vessels, similar to what is being tried with airlines. It has also said in the past that it will establish its own regulations on shipping emission if the IMO fails to act. Would the carbon tax again be based on the full length of the voyage? It would seem likely so, as the distance travelled in Euro controlled waters would be a tiny fraction of the full trip from say the US or Asia into Euro ports. There US has already seen some opposition to the concept. "The European Union is threatening a new set of taxes on Americans. After introducing an illegal tax on all flights to and from Europe, the EU announced that it wants to force a similar scheme on shipping," said Republican Rep. Jim Sensenbrenner of Wisconsin. Countries like China and India are also coming out in opposition to the EU unilaterally imposing an emissions tax on shipping. "India has argued that imposition of carbon tax on aviation or maritime activity must adhere to the principles agreed to under the UN Framework Convention on Climate Change," reports the Times of India. "China, like many other countries, is firmly opposed to the EUs unilateral legislation on carbon tax," Chinese Foreign Ministry spokesman Hong Lei said at a press briefing.

Is the New Supply Side Better Than the Old?

THE presidential campaign has brought back to the fore the vexing question of how much to tax high-income Americans. For the most part, the arguments have run strictly along party lines. The leading Democratic contenders would allow President Bushs tax cuts to expire for the very well-off those earning more than, say, a quarter-million dollars a year on the grounds of restoring balance and raising money. All the major Republican candidates have called for extending the Bush tax cuts indefinitely, and several advocate several hundred billion dollars in additional high-income cuts on the grounds that this would help the economy grow. The Republicans have not been shy about claiming the old mantle of supplyside economics, proclaiming that tax cuts will pay for themselves by getting people to work harder or to start their own companies. In some circles, supply-side economics fell into disrepute because it didnt seem to work. After all, the budget deficit exploded when the government cut taxes in the 1980s and again in the 2000s, and it disappeared when the government raised taxes in the 1990s. But many critics have missed important research by some very prominent economists that has revived some supply-side ideas, giving them an aura of academic respectability. The leading Republican candidates do not advertise their academic influences, but they appear to have adopted these ideas. The work of the new supply-siders shies away from the old claims that low taxes will generate an explosion of entrepreneurship or extra hours on the job. Instead, it just looks at the data. When top marginal rates fell, as they did under President Ronald Reagan in 1981 and 1986 or under President Bush in 2001 and 2003, taxpayers whose rates declined the most reported the biggest increases in income in the following years. The supply-side advocates attribute those gains to tax cuts and argue that the Lifer curve which suggests that some tax cuts can pay for themselves may live yet. Some of the most important research was done by Lawrence B. Lindsey, former head of the National Economic Council under President Bush and now the senior economic adviser to the Republican presidential contender Fred D. Thompson. But the origins of the current debate, and the seriousness with which it is taken in academic circles, largely centre on the work of the Harvard economist Martin Feldstein.

Professor Feldstein, head of the National Bureau of Economic Research, is perhaps the godfather of modern public-sector economics and is often cited as a potential Nobel laureate. The former chairman of President Reagans Council of Economic Advisers, he has always been known for his conservative views. He has brought more comprehensive data to bear and has made the most influential case; if you accept the evidence he offers, progressivity in the tax code appears very damaging. Raising taxes on highincome people seems to make the economy much less efficient and raises little revenue. As he put it in a 2006 interview published in a magazine of the Federal Reserve Bank of Minneapolis, when you raise top marginal rates, it shows up as lower taxable income. He added: A reduction in taxable income, whether it occurs because I work less or because I take my compensation in this other form, creates the same kind of inefficiency. But for all the renewed interest in supply-side ideas, the politicians espousing these views have missed three important points that have come out of the continuing academic debate. First, the impact of high-income tax cuts depends on how much additional income a person can keep. When President John F. Kennedy cut top marginal rates to 70 percent from 91 percent, take-home pay more than tripled for these taxpayers, to 30 percent from 9 percent. That is a big difference. By contrast, letting the Bush tax cuts expire so top rates rise to 39.6 percent in 2011 from 35 percent, cutting the take-home share to 60.4 percent from 65 percent, hardly seems the stuff of tax revolution. Second, other research has shown that the new supply-side movement missed a fundamental shift over the last 30 years the dramatic, disproportionate rise in the compensation of high-income people. The new supply-siders have confused this shift with the impact of tax cuts. An example illustrates the point: Emmanuel Suez, a professor of economics at the University of California, Berkeley, has compiled data on the incomes of the very rich from 1913 to 2006. Using his data, my calculations show that in the four years after top marginal rates were cut in 1981 and 1986, and in the three years after the rate cut of 2003, average real salaries (subtracting inflation) for the top 1 percent of earners grew 18.8 percent, 22.5 percent and 17.4 percent. But for the bottom 90 percent of earners over those periods, the average salary changes were 2.6 percent, minus 0.3 percent and minus 0.1 percent. A supply-sider might see this as evidence of the growth power of

cutting top rates. But the data also show that incomes at the top have been growing rapidly regardless of what happened to tax rates. In the four years after the increase in top marginal rates in 1993, average salaries grew 18.7 percent among the top 1 percent of earners and less than 0.1 percent for the bottom 90 percent. Seeing the same pattern when taxes rose as when they fell indicates that tax cuts werent responsible. It suggests that cuts for high-income taxpayers likely gave windfalls to those whose incomes were already rising sharply because of broader market forces. Third, recent research has documented that much of what the new supplyside economics attributed to tax cuts was really just the relabeling of income. Sometimes the increase in personal income was matched by an equal and opposite decrease in corporate income. At other times, increases in personal income turned out to be a result of corporate executives shifting the timing of their year-end compensation from a high-tax year to a low-tax year. Shifts like these have nothing to do with supply-side economics. The academic debate continues, but thus far, the new Lifer curve has looked more like a fleeting figment of economic imagination. That is sad, because it would be great if we could cut taxes and raise revenue at one stroke. Alas, the research suggests that we will have to pay for highincome tax cuts the old-fashioned way by actually cutting spending or just busting the budget.

Links

1. http://www.technologyevaluation.com/search/for/supplychain- management- video.html 2. http://topics.nytimes.com/top/reference/timestopics/subject s/f/food_prices/index.html

URLs

Making Supply Schedule http://www.youtube.com/watch?v=ucXqf8wEzt4 Shift in supply Curve http://www.youtube.com/watch?v=SzP6ISwcHqY&feature=related Shift in Supply http://www.youtube.com/watch?v=CTUpItRj81M&feature=related Change in Supply and shift in Supply http://www.youtube.com/watch?v=JiGhGzCL7Js&feature=related Change in Supply http://www.youtube.com/watch?v=z6ZZhHvHHo Elasticity of Supply http://www.mindbites.com/lesson/7772economicsidentifyingdeterminan tsofelasticity

as the price of quantity demanded increases the price for the product increases,consider the example of maruti suzuki,the price for maruti cars have increased over the years due to increase in quantity demanded.

Think of the iphone 4th generation that came out recently. When it first came out there were lineups of people wanting to get the product. So a large amount were being produced and the prices were able to be maintained very high because they were being bought out so quickly. As the demand an hype over the IPhone diminished and more people purchased one, a lesser amount need to be produced, so the price will eventually fall. every item on a supermarket's shelf is priced after conducting surveys of supply and demand, this is how they maximise their profits, which occurs when supply equals demand, governments use the same data to maximise revenue from taxable goods. in simple form only about 2% of mushrooms produced are marketed, this keeps the market price high and transportation costs down. as with anything relating to production if you double your output your costs are squared, it's also referred to as the law of the 29th day (eg if the weeds on your garden double every day and on the 28th day it is half covered in weeds how long before it is totally covered)

The recent Cash for Junkers program is a good example. Demand for new cars dropped because of the failing economy. Manufacturers stopped making cars (creating supply). The government offered incentives to trade in your old car for a new one, and created a demand. The car manufacturers responded by creating more supply. Prices are affected by demand only when you make the goods yourself with little cost for parts. You can raise your prices or drop your prices to meet demand or create demand. When you have to purchase your parts from someone else, you can not drop your prices below the cost of parts or you will go out of business. This is why the car manufacturers stop producing instead of lowering price

Consider the example of gasoline as the demand for gasoline increases the price also increases