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.