Chapter 18

Chapter 18 wasn’t too difficult, but it introduced a lot of new concepts and added onto old chapters. The chapter largely focused on labor, both the demand and supply, but also briefly talked about land and capital, and how a shift in one factor of production will affect the others. The markets were seen as competitive, so it focused on a lot of the earlier stuff, which made it easier to understand, but it is very dense. Most of the ways to read the labor market was through its marginal values, such as knowing that profit-maximizing firms hire each factor up to the point at which the value of the marginal product of the factor equals its price, and factor demand reflects the value of the marginal product of that product. In equilibrium, each factor is compensated according to its marginal contribution to the production of goods and services. 

Chapter 17

Chapter 17 covered oligopolies and how they worked. It was a pretty simple chapter, especially because it built off of the previous chapters, especially chapter 16. An oligopoly is a market with a few firms, where their actions and interactions affect each other, they are between a competitive and monopoly market, and the more firms there are, the more it acts like a competitive market, with price closer to marginal cost and quantity sold closer to the social benefit; self-interest prevents it from reaching a monopolistic profit. In a perfect world, the oligopoly will reach a monopolistic profit, where the firms maximize their profit, though it would not reach a socially beneficial quantity sold. Instead, the firms will reach, Nash equilibrium, where the economic actors interacting with one another each choose their best strategy given the strategies the others have chosen, due to the tension between cooperation and self-interest. There is also the prisoners’ dilemma, in which cooperation would benefit both parties, but self-interest and dominant strategy usually makes them choose a strategy in which both ultimately are worse off. In some instances, the “prisoners” don’t turn each other in and both receive the most efficient price, but this usually happens in players who do play more than once, learning that cooperation works best. In real life, due to regulation (the Sherman Act), even if firms were interested in cooperation and working it out so all parties could reach the maximized profit, it is difficult because they aren’t even allowed to discuss prices and quantity agreements. 

Chapter 16

Chapter 16 discussed monopolistic competition, and given that it builds off of our previous knowledge, it wasn’t an awful chapter. Monopolistic competitive markets have aspects for both a monopoly and perfectly competitive market, where there are multiple firms, with different categories. This can fall under books and movies, which there are many publishers and works, but each is different from each other. A monopolistic competitive market still allows free entry into a market, as well as exit, and wants to maximize profit. At profit maximization, marginal revenue is equal to marginal cost. It is similar to a monopoly in that is a price maker, the price must be above marginal cost, doesn’t necessarily produce welfare-maximizing output. It is similar to a perfectly competitive market in that it has many firms, has free entry in the long run, but cannot earn economic profits in the long run. The graphs seems fairly easily to understand, especially after the last chapter, nothing too new or surprising. I think at this point it is just remembering and understanding which traits the market shares with competitive and monopoly. The rest of the chapter discussed advertisements and brand names, their benefits and critiques, and how that affects the market. 

Chapter 15

This chapter focused on monopolies and how they operate. It compared them to a competitive firm or market, commenting on their differences and similarities, but also on how decide on production, prices, and how they are regulated. The chapter kept referring to how a certain rule or application was the same as in competitive markets, which helped since I have a stronger understanding of it. The idea of deadweight losses and the graph is still an iffy idea to me, but I think the class lecture should help. Monopolies arise from three factors: a firm owns a key resource for production, the government gives a single from the rights to produce a good, or the costs of one firm to produce a good is less than if other firms joined the market. Since monopolies have so much market power, they decide on the quantity to produce and the price to charge, but that doesn’t mean they can charge whatever they want. Their demand is downwards sloping, so the more the charge, the less of a demand, unlike price takers who jus decided the quantity to produce in a horizontal demand curve. Monopolies are regulated through pricing, antitrust laws, make them government owned, or are left alone, since the market can reach a socially profitable equilibrium on its own at times.

It’s a fairly easy chapter, but the graphs can get a bit confusing, I should be able to clear that up, and be reassured by going over the material is class. 

Chapter 14

Chapter 14 covered the firms in competitive markets and their costs and firms. A big theme was what causes a firm to shut down or exit a market. Meaning that it compared the costs firms face in perfect competitive markets to their profits, both in the short and long run. The chapter introduces many new equations and additions to old familiar graphs. Like, most chapters, this stuff seems pretty common sense-y, but also like one mix up could make you mess up a whole concept. Overall, a decently easy chapter, for now. Some ideas the chapter covers is a switch from marginal cost to marginal revenue and how that helps analyze how well a firm is doing. For instance, if marginal revenue is less than marginal cost, the firm is losing profit and should decrease their production. And marginal revenue and cost are equal when the firm is producing at maximum profit. We learn that firms choose to shut down, which is temporary and they still lose fixed cost, when their market price is less than the average variable cost, and a market will exit a market the price is less than the average total cost, and enter when price is more than average total cost. In some instances, a firm will be more profitable when it shuts down instead of exiting a market, because it of the sunk costs (fixed costs that still need to be paid during unproductivity), which can be irrelevant (this idea is still iffy to me).

Chapter 13

Chapter 13 seems to make sense once you read it, but I am worried about the new vocabulary added as well as the graphs introduced. The graphs more than the vocabulary. The chapter focuses on the costs in an economy and market. When a person starts a business, their costs aren’t just the money they put into it, we have to account for their opportunity costs (implicit costs, and usually an economic value). An economists will anyways, not so much an account. They only look at explicit costs vs the total revenue, the whole money made minus the money they spent would give them clear profits.

The graphs worry me because it isn’t straight lines anymore; the graphs curve depends on the circumstances, so drawing them is going to be more difficult, and even the graphs with overlapping curves causes a slight panic. The short run and long run graph is the most confusing one, but with given time I think it’ll start to click.

The costs are also divided into categories: implicit, explicit, fixed, variable, marginal. The groups may overlap, but still their distinctions are pretty apparent and even by looking at the word choice, it doesn’t seem too bad to memorize/learn. 

Article Review #4

I’ll start off by saying Carmen Reinhart was much easier to understand compared to Stockman. It was also a much shorter article, I think mostly because Stockman got a little too involved in his views. Reinhart talks about the financial crisis and its connection to the Chinese market and economy. And basically how everything connects to China’s economy. She also kept a pretty neutral ground throughout the article, while still getting to the same conclusion as Stockman: we are in big trouble.

One useful and notable thing she mentions: financial crises tend to share the following, “significant slowdown in economic growth and exports, unwinding of asset-price booms, growing current-account and fiscal deficits, rising leverage, and a reduction or outright reversal in capital inflows.” Not all of it makes sense, but it’s not too difficult to put together, and she goes on to explain how debt is playing a large in all of this. The big question: where is it coming from? She doesn’t provide an answer, but clarifies that the massive growth of depth isn’t being sourced right; underlying factors are taking place and right now, we have some we need to uncover. The rest of the article gave examples of her points, but kept it minimal, straight to the point and moving on, which, after Stockman, was quite refreshing.  

Chapter 11

A relatively easy chapter, chapter 11 makes sense to me, but the book goes into how the distinctions between public goods and common resources (and some of the other types of good) can become fuzzy and so I worry that labeling the types of characteristics can become slightly “subjective” in a sense, or at least easy to miss a detail and miss label it. This chapter begins to split goods into four categories according to two characteristics: is the good excludable, and is it rival in consumption. The categories discussed were public goods (neither excludable nor rival in consumption) and common resources (not excludable but they are rival in consumption). The other two are private goods (excludable and rival in consumption) and a good produced by a natural monopoly (excludable but not rival in consumption). The free-rider problem eludes to how certain goods cannot be in a private market because free-riders (those who benefit from a good but avoid paying it) don’t pay for the good and then the market doesn’t thrive or the supplier doesn’t have an initiative to supply the good because they don’t receive a profit. This is when the government steps in to either supply the good for the public through taxes/subsidies, or initiatives. A cost-benefit analysis studies the costs and benefits of providing a good to society, and this can be difficult in certain situations, such as dealing with people’s lives. Overall, I feel pretty good about the chapter, and just hope that the different concepts don’t become muddled in my head. 

Chapter 10

Chapter 10 was very dense. While all the concepts introduced make sense, there’s a lot to them. Chapter 10 focuses on externalities, which are the external benefits and/or cost to society a market will have, in the big picture, but is also the uncompensated impact on one person’s actions on the well-being of a bystander. A negative externality means that the bystander pays for the impact (e.g. pollution caused by big factories) and a positive externality means the bystander benefits from the impact (e.g. education creates well-educated neighbors and societal advances). In dealing with both positive and negative externalities, the government can take an active role to reduce the negative or enhance the positive externalities through subsidies or regulation and corrective taxes. For regulations, I wonder whether price ceilings and floors would either fall under it or correlate, or because they do not deal with externalities directly they are considered completely separate? While I understand that corrective taxes are better, in that case, would those taxes still create a deadweight, or would the shrinkage of the market be considered only beneficial to society and therefore not be considered? And with tradable permits, does the idea only fall under pollution, or would other substances be considered for allowing permits? Also trading permits is still a hazy idea to be just because of my more liberal views, but in either case, could this eventually lead to a decline in the amount of pollution or would it probably just stay capped at its max allowed amount? 

Article review #3

David stockman's article was confusing to say the least. He uses acronyms and vocabulary and names people and assumed his readers with be completely on board with what he is saying. Which is a reasonable assumption, but I don't understand it. While I look up a decent amount of his references, it doesn't always clear things up. He is passionate though, and obviously believes the economy is in the tank, or getting there. I'm not sure if he's a pessimist or a realist. He believes that the Fed has allowed a decline in our economy and he really thinks Bernanke is playing a big role on covering it up. He talks about rising inflation rates and zero-interest policies and an economic bubble. While I can see how it's bad, not all of it fits in together yet. He even connects the economic disparity to Brazil and their financial bubble. The real players he seems to keep referring to central banks, and mentions the increase in debt world wide. While I understand stockman's style and rhetoric more than before, the article still proved to leave me stumped except for the knowledge that the economy needs major help from non corrupt banks or government officials. 

Chapter 8

Chapter 8 wasn’t too bad to understand, but I did have to take my time to look and analyze the graphs along with the sections they correlated with to make sure the concepts made sense. Once the ideas processed, it was easy to see how they could be thought of as common sense or obvious responses. Hopefully I’ll still think that on test day.

The chapter focused on taxation effects on consumer and producer surplus, and how it negatively affects their gains. The tax reduces the amount of surplus gained by both consumers and producers, and the loss of the surplus often exceeds the gain of tax revenue gained by the government creating a deadweight loss. The deadweight loss reflects the loss of trades or market reduction caused the loss of incentives from producers and/or consumers created from the tax. The measure of the deadweight loss can be analyzed through the elasticity of the market; the more elastic a market, the larger the deadweight loss, and the larger the tax, the larger the deadweight loss. The tax revenue will increase at first with the increase of the tax, but will then decline with the growth of the tax until the market shuts down from loss of incentives. The chapter seems logical to follow, I think practice with the graphs would be helpful though. 

Chapter 7

Chapter 7 covered markets and welfare; it discussed how to see a market via the surpluses from consumers and sellers. The chapter overall was easy to understand but I think just practicing the graphs and getting a hang for everything would be useful. The money that consumers are willing to pay for their goods minus the money they actually pay for their good is called a consumer surplus, initially measuring the amount they save, or their “bargain.” The money sellers make minus the amount they were willing to give their good for is the producer surplus, showing the amount they gain. A large surplus, from both consumers and producers, demonstrates a good measure of economic well-being. In a free market, the buys who are willing to spend the most will always be included in the market, and the sellers willing to sell the goods for the cheapest will also always be included in the market. A perfect free market will have a lot of surplus from both sides, will have reached a natural equilibrium, and most at attempts are equalizing the market will disrupt this system. A market should be left alone to find its own equilibrium in most cases and will usually find its most efficient manner. The concepts in the chapter were very tangible and understandable. 

Article #2

In this article, Stockman talks about how the U.S. economy is going to be facing big trouble. Due the language in the article, I didn’t fully understand why or how this was taking place, but I understood that this is not just an American problem, the whole world’s economy is going to plummet soon. He talks about China’s problems and mentions how Brazil is facing massive consumer decline. Stockman makes a point to talk about Wall Street and the idea of the cover up of the economy but an elaboration in class would help me fully understand the point he was making. From my understanding, there was more things were being bought for more than they were worth, or perhaps I mixed it up and it is the other way around. Either way, there is a deflation problem that needs to be addressed, instead of pushed aside. While the graphs made the content a bit more clear, the article is still a jumble of economic confusion for me. He makes a connection to 2008/2007 which I can only assume is the recession that took place, and yet the connection is a bit hazy; understandably, we will face a recession of the same, perhaps larger, extremes, but I’m at a loss at to whether it will be for the same reasons, either because they were not resolved or the attempt at fixing things only made matters worse. Nevertheless, Stockman does not seem happy and seems to believe this could have been preventable, but is no longer at this point.

Chapter 6

Chapter 6 focuses on how government policies affect the prices and puts a “ceiling” and “floor” on them. For the most part, this chapter was understandable but going over it class would just help to make sure I fully understand the content. A price ceiling in the legal maximum price a good can cost and a price floor is the legal minimum a good can cost. The government creates these with polices and laws, such as rent control and minimum wage, and is meant to help the service be rationed between sellers and buyers, but can result in excess supply or demand. The government also uses taxes to affect the market, causing equilibrium of the quantity to fall and shrink the size of the market. The tax causes a wedge on the price paid and the price received by the buyer and the seller, so the movement of the equilibrium causes the buyers to pay more, but the sellers receive less. In these cases, the buyers and sellers then share a “tax burden” caused by the wedge. On the other hand, the burden usually falls on the less elastic side of the market because it can be less responsive to the tax by changing the quantity bought or sold since those goods tend to be more needed, and not seen as a luxury. The concepts chapter 6 covers seem pretty straight forward but the details can be a bit offsetting. I’m sure with review I’ll better understand the ideas expressed. 

Ch 5

Chapter five began to introduce more mathematical methods, but still kept a huge focus on conceptual and graphical understanding.

                We were introduced to elasticity, which is the measure of the change of quantity demanded or quantity supplied to one of its determinants, and applied to demand is referred to price elasticity of demand; applied to supply is referred to price elasticity . So the price of elasticity of demand measures how much the quantity demanded responds to changes in the price, and price of elasticity of supply measures how much the quantity supplied responds to changes in the price. If the elasticity is less than one, the quantity demanded/supplied moves proportionately less than the price (inelastic), when it is one, the quantity demanded/supplied moves perfectly with the price, just about at equilibrium, and when it is greater than one, the quantity demanded/supplied moves proportionately more than the price (elasticity). Using a time horizon , supplied/demand tend to be more elastic in long runs than in short ones, where people can gradually pick something up or stop buying it, and where sellers can change their productions, close shops, or even more sellers come into the scene.

                Total revenue is the total amount paid for a good, measured by the price of good multiplied by the total amount of the good sold. For the inelastic, it falls as price rises, and for the elastic demand curve, it falls as the price rises. 

Article Review #1

The article on its own was very confusing, and while I made notes and looked up many of the words or people mentioned to try to get a better understanding, it was still difficult to make all the connections. The author was discussing how Keynesian economics doesn't really work and really only benefits those on Wall Street, rather than actually taking into account the households and how they borrow money. From my understanding, this concept is actually causing inflation, and a bubble in the economy, and tries to show positive interest rates actually "help" the economy. While the U.S. prints more money, that money doesn't seem to be going into households, but back into the stocks, where business growth is actually slowed. 

I did not fully understand Stockman's idea of tightening and his graphs, but it is evident that he does not believe that the Fed has tightened enough, in contrast to what Keynesian economics tried to show. I did not understand his connection to household debt, saying it how gone flat and even decreased. Does the Fed's balance sheet show an increase in money, in which case, is that not good, even if it doesn't directly affect the household borrowing and spending? Or is that the problem, in which the Federal balance sheet changes but household spending and borrowing doesn't? Wouldn't we want household debt to decrease? So do low interest rates benefit households and high interest rates benefit Wall Street? Overall, the idea of an inflation bubble does seem as something to worry about. 

Ch 4

Chapter four goes into markets and the correlations of supply and demand. A market, some more organized than others, run usually on competition, supply, and demand. Demand often false into the realm of price, so the higher the price of a good, the lower the demand, and vise versa (law of demand). Demand can then be split into two categories: individual and market. Individual demand being exactly what it sounds like, the demand and willingness of an individual to pay for a good, and the market demand simple adds up the individual demands. A shift in demand can take place due to income, prices, taste, expectations, and the number of buyers in question. Demand can also be altered due to government and policy interventions, which can increase of decrease demands of goods, even if it is not the good in question. Supply works in a similar fashion, as prices rise, the supply rises as well, but when it drops, you can expect a decline in supply. The individual supply makes up the market supply, though the market supply shows the total quantity supplied at any price. Similar to the demand, supply can change because of input prices, technological advances, expectations, and the number of sellers in the market. Supply and demand is then needed at an equilibrium where the demand meets the supply exactly, and the seller and buyer can both be satisfied. It is up to the market to reach the equilibrium through a “trial and error” method in which prices rise and fall for goods to try to find that equilibrium so that there is no surplus or shortage of goods.

Chapter 3

Chapter three addresses principles one, two, and five: people face trade-offs, the cost of something is what you give up to get it, and trade can make everyone better off. Even if two people are able to produce the same products, it may still be beneficial for both to trade their products. Person A would specialize in Product 2, and Person B would specialize in Product 1; this especially works when Person A is more efficient in producing Product 2 and Person B is more efficient in producing Product 1.This is not always the case and Person A may be more efficient in producing both Product 1 and Product 2, but trade would still benefit both due to their opportunity cost and comparative advantage. In this case, both people would find themselves leaning towards producing more of one product and trading their excess production for the other person’s excess production, finding they both have more of each than if they were self sufficient.

This same concept is then applied to two people specializing in one area, or even countries trading and benefiting from it.