Economies of Scale: How to take advantage of them

One of the topics, I learnt in economics, fascinated me a lot. It was economies of scale.  It refers to reduction in per unit cost owing to increased production.

It explains how a firm can reap benefits by growing in size.  This concept not only proves helpful on production side but also in consumption. The greater the size of consumption the greater will be savings in per unit cost.

Heating expense, for example, for room is constant for any number of people. Hence more the number of people living in a room lesser will be the per person expenditure for heating. Same goes for housing space. More number of people needs more rooms but space requirement for kitchen, TV. Lounge, bathrooms per person reduces as number of people rises. Machine, vehicle, etc can also be shared if more people are living in a combined household.

It is not only the case with your housing budget; it does benefits nations as well. Any country having large size of population can reap economies of scale. China and India for example have huge population and they can use it to their advantage.  They have huge bargaining power. They can use it for getting discounts which smaller nations like Maldives cannot think of. Furthermore businesses based in these countries are better able to compete globally owing to economies of scale which they achieved due to huge consumer market in their native country.

The same benefit, nations try to achieve by forming free trade regions.

Let us take the example of ASEAN region.  Combined population of ASEAN member states is 625 million. The huge population will help people access good quality goods and services at low prices. For supplying these goods and services business community will need to operate their plants at full speed, this would reap economies of scale for them as well, hence more job opportunities for people living in these regions.

Learning about these benefits, you must be thinking of ways to reap these benefits for yourself and your family. Some of them are here; while you may think of many others.

You can start living in combined household and if possible by living tribal lifestyle, take advantage of companies that are owned by their customers, purchase in bulk, eat together, for housing; get a plot of land in cooperative housing society and the best way to reap these economies is strengthening family bond; through marriages, reducing divorce rates, and keeping good relationships with kith and kin.                                 

Can potato help Pakistan fight malnutrition, water shortage and poverty

During 2014, death of children in Thar made headlines. District administration provided 253,590 families with bags, containing 50 KGs of wheat. People in poor regions are facing malnourishment. People in many poor regions, like Thar, rely on wheat for fulfilling their calorie needs.

Wheat crop needs more water to grow than potato crop. Rice, second most consumed food in Pakistan, also uses huge water. Rather than letting people die of under nutrition, policy-makers should introduce potato as popular diet.

Earlier efforts were made by General Ayub’s military Govt. to introduce potato as staple food, but these were unsuccessful.

At present Potatoes, after rice, wheat, and corn, is the fourth-most-consumed food crop in the world.

Potato, first domesticated in areas of southern Peru and north western Bolivia, had played huge role in Europe rise. Since the time it was introduced by Spanish, it has revolutionized the Europe’s economy and impacted demographics. According to historian William H. McNeill : “By feeding rapidly growing populations, [it] permitted a handful of European nations to assert dominion over most of the world between 1750 and 1950”

Agronomists have long been in favor of potato farming in regions with malnutrition, pasture shortage, and poverty due to its high nutrient levels and the ability to grow in challenging conditions.

The potato stands out for its effective water use, yielding more food per unit of water than any other major crop. An increase in the proportion of potato in daily diet can help alleviate pressure on fresh water resources.

Furthermore, Potato production is two times more labor intensive than grain production. Hence more jobs for people living in unirrigated lands. Its productive land usage is another edge over other crops, as it yields four times more per hectare yield than wheat. It can free up land for rapid urbanization.

Replacing wheat with potato in our daily diet is not only healthy but also good for economy. 

Low birth rates in the advanced world

Germany is facing dearth of births. It has dropped below Japan to have the lowest birth rate globally.

It is expected that low birth rate would cause shrinkage in workforce by 6 million over the next 15 years.

With fall in birthrate the population between 20-65 years will fall to 54% by 2030.On the other hand, the life expectancy for women is expected to continue rising to 88 and for men to 84 by 2050. This will push the dependency ratio to 1.1, threatening the solvency of public pension system.

Germany is not alone. The entire developed world is facing the same problem. Japan, third largest economy in the world after United States and China, is also facing sharp decline in work age population.

According to U.S. Census Bureau, Japan will face 18% decrease in workforce and 8% decrease in consumer population by 2030. Fall in workforce and consumer population may hurt companies as they have to face escalating cost of labor along with loss of economies of scale.

United States is also facing workforce shrinkage, due to age, albeit at low rate than faced by the rest of the developed world. China, in order to avert population decline, has ended one child policy.

United States, China, Japan, Germany along with Italy, and Russia contribute nearly 50% of global GDP. Fall in their population can cause balance of power to shift away from these regions.

Eco-friendly shipping

Vindskip is a concept designed, by Norwegian firm Lade AS, for harnessing wind energy to propel cargo vessels.  The designed ship, Vindskip, uses a hull that acts as a sail.

According to its manufacturer, Lade AS, the designed ship reduces fuel consumption up to 60% while reducing greenhouse emission up to 80%.

It uses liquefied natural gas-powered generator for the remainder of its energy and get it moving from standstill.

Germany’s Fraunhofer Center for Maritime Logistics and Services has developed its software. This software will help choose best possible route in accordance with the wind direction. Cruise Control will balance the LNG-electric propulsion system with the Wind Power System - keeping a constant speed of the ship.

The development in wind-powered shipping is important as today 95 % of goods are carried through ships, furthermore, according to the guardian, one giant container ship can emit as much cancer and asthma causing chemicals as 50 million cars. Therefore, small reduction in emission by shipping industry can have great impact on the global greenhouse emission.

today 95 % of goods are carried through ships

For reducing greenhouse emission ships should be more fuel efficient, as reduced fuel consumption means reduced greenhouse emission.

Along with using renewable energy sources another way of reducing fuel consumption is slow steaming.

Marine engine manufacturer Wärtsilä estimates that fuel consumption can be reduced by 59% by reducing cargo ship speed from 27 knots to 18 knots, at the cost of an additional week's sailing time on Asia-Europe routes.

Fall in bunker prices may prove to be barrier in opting for slow steaming and going for renewable energy sources. Therefore UN's International Maritime Organization and the EU should intervene to tighten laws governing ship emissions and fuel efficiency.

 Related link

vindskip

slow steaming
shipping pollution