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Sunday, October 31, 2010

The US Dollar value: A Negative Externality

Today, the US dollar dropped in value to $1.3972 per euro from 1.3947 a couple of days ago, October 29. It is currently at 80.35 yen. I believe this is proof that it is a negative externality within the economy. Even though the economy is recovering from this recession, the value compared to the euro is dropping at a slow rate. There are some who believe that this is helping the economy because we can produce goods that are cheaper and more competitive when compared to goods from other countries. I do think that is a good thing.
For example, as the dollar drops the Saudi’s will raise the price per barrel of oil to still make a profit, this is because the Saudi riyal is set to the US dollar so it dropped in value also. This means that they, the Saudi’s, are paying higher prices for things that are not in their country such as milk, if they get it from England or another country in Europe. So as business people, the Saudi's will raise the price on oil eventually to still make a profit. That is a bad thing for us, as a people, due to there are those who are in a pinch to pay for gas right now as it is and cannot afford higher gas prices due to the economy right now. I believe the effect of the US dollar value has an impact in many other countries other than our own. I believe that right now it is affecting a lot of people in a negative way financially. Which also has a negative effect within the economy because if a good portion of people still are having to continue to cut down on paying for certain things because prices for foreign products are rising due to the dropping value of the US currency then it, the economy, will continue to get worse.

Sources:
Harui, Ron and Monami Yui. "Dollar Falls for Third Day Versus Euro on Fed Easing Bets; Aussie Climbs." 31 October 2010. Bloomberg. 31 October 2010 .

Amadeo, Kimberly. "Value of the US Dollar." 19 August 2010. About.com. 31 October 2010 .

Comments:
An externality is an unintentional, nonmarket interdependence. This would not be an externality. The value of money is manipulated by government actions, and thus, if this were an issue of efficiency, the issue would be about government failure, not market failure.
 
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