EconAir

  THE COMPANY Parker Hannifin (PH) is something of a mystery. How does economic theory explain the existence of a large capital goods corporation that produces 800,000 different industrial products, many of them commodities that could be produced by specialized small companies?  Parker Hannifin (PH) is a $12 billion industrial parts manufacturer that produces its 800,000 parts and systems in 100 divisions.  They produce valves, hoses, motors, pumps, tubing systems, metering devices, and many other products that are components in larger industrial products or systems. PH competes with other large, diversified capital goods companies.   Customers are large companies and wholesale distributors, in virtually all parts of the transportation, aerospace and manufacturing industries.  One example is Ingersoll-Rand, a large producer of industrial equipment, including Bobcat loaders and excavators.  The hydraulic system that opens and closes the d...

  To an economist, the word “cost” implicitly has the word “opportunity” in front of it.  Not knowing the difference between accounting cost and opportunity cost can lead to some serious pricing mistakes and misallocation of resources. Saudi Arabia is one of the world’s three large crude oil producers, pumping over 10 million barrels per day. (A barrel is 42 gallons.) About 2.5 million barrels per day are refined for domestic consumption. Consumption of domestic oil has been rising rapidly. Saudi Arabia is the world’s most inefficient   user   of oil. The country subsidizes the price of gasoline and electricity. It has the world’s highest oil consumption per capita. Besides fuel, oil is used to generate electricity and desalinize water. It has been common for families to leave their air conditioning on even when going on vacation. Some offices are so cold that employees wear sweaters.   Prices to consumers are low because of low crude oil production costs and th...