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.