Nuclear+crisis+carries+big+risks+for+Japan+economy+by+Ji+Hun

__** Title of Extract: **__ = Japan's nuclear crisis continues to hit economy =

Deccan Herald []
 * __ Source: __**


 * __ Date Extract was Taken: __**

April 14, 2011


 * __ Explanation of the economic theory related to the article: __**

Last year Japan has been struck by Tsunami, causing the Fukushima nuclear power plant to be destroyed. This nuclear crisis brought a number of problems to Japan’s economy. First, the most direct result from the nuclear crisis was that a significant portion of land and capital, two out of the four **__factors of production__**, was damaged. This has caused the **__production possibility curve__** of Japan’s economy to shrink, causing the productions to decrease. This affected the **__economic growth__** rate, as the article mentioned that the economic growth rate of Japan is forecast to 1.4%--the original value was 1.6%. The fact that 400 large firms suffer from power shortage caused by disable of the Fukushima nuclear power plant, affecting the production rate of the firms. Because the production decreased, the **__supply__** curve of Japan’s economy shifted left, causing increase in the price and decrease in the quantity (Q demanded and Q produced). This occurs because as the supply curve shifts left, the equilibrium price increases and quantity decreases. The fact that the nuclear crisis occurred in Japan has caused the **__demand__** curve to shift left. The consumers began to fear buying radiation-inflicted products of Japan—the products do not fit “consumers’ taste.” As demand decreases, the price and quantity of equilibrium decrease. Decrease in both supply and demand curve cause the price to remain stable but the quantity to drop significantly, reducing the **__revenue__** of the producers sharply. The article also mentions that Japan and the United States are considering establishing a “reconstruction fund” with corporate investment from both nations. This means that the firms might get **__subsidy__** from the fund. If the firms get subsidy, then the supply curve shifts down as the price for each one unit of output of production decreases. As the supply curve shifts down, the equilibrium price decreases and the quantity increases, increasing the revenue of the firms.


 * __ Vocabulary Terms and Definitions __**


 * Factors of Production:** Four factors—land, labor, capital and management—that allow an economy to produce its output.


 * Production Possibility Curve (PPC):** A graph that shows the maximum combinations of goods and services that can be produced by an economy in a given time period if all the resources are being fully and efficiently used. The state of technology is fixed


 * Economic growth:** Quantitative measurement of the change in a country’s national output


 * Supply**: he quantity of a good or service that producers are willing and able to purchase at a given time period


 * Demand**: The quantity of a good or service that consumers are willing and able to purchase at a given time period


 * Subsidy**: amount of money paid by the government to a firm, per unit of output


 * Revenue:** Total income that producer earns. Revenue = Quantity * Price


 * Opportunity Cost:** The next best alternative choice when an economic decision is made


 * __ Diagrams: __**

Diagram 1: Production Possibility Curve

Diagram 2: Decrease in supply

Diagram 3: Decrease in Demand and supply (combined) + Revenue

Diagram 4: Subsidy


 * __ Evaluations: __**

The news that Japan and US might establish a “reconstruction fund” both has pros and cons. The positive effect of establishing a reconstruction fund is that if the fund is established, then the Japanese firms whose revenues decreased due to the Tsunami and devastation of the Fukushima Nuclear power plant can easily recover as the increased supply increases the firms’ revenue. As the diagram 4 shows, subsidy given by the government causes the supply curve to shift down (right), causing the equilibrium price to decrease and quantity to increase. The blue box is the additional revenue gained by the producers after being subsidized. Green box is the original revenue gained by the producers before getting subsidized. Subsidizing the firm brings more positive effects if the firms subsidized produce necessary goods. By subsidizing the firms that produce necessary goods, the price decreases sharply. Therefore the consumers can buy necessary goods with much lower price. Giving subsidy also helps the firms to compete with overseas trade. However, subsidizing the firms also has some problems. Giving subsidy to the firms always cause **__opportunity cost__**. The government can spend money (the area shaded in red in diagram 4 = amount of money government subsidized) on public health care, finding solutions for the nuclear crisis at Fukushima or helping the refuges who lost their homes after Tsunami struck the East coast and the nuclear crisis. Subsidy can also make the firms to become inefficient. If the firms get subsidy, then they take the dominant position on the competition between other firms that did not get the subsidy. As a result, the firms may not compete with each other and grow very inefficient, harming the economy. Furthermore, giving subsidy to Japanese firms might cause some conflicts between foreign companies who are competing with Japanese firms.