Ch 26

This chapter focused on saving, investment, and the financial system. Overall, it wasn't too difficult of a chapter, and Mankiw does a pretty good job about explaining everything in scenarios that make sense and we can connect do. It does introduce a lot of new vocabulary words, which can make understand the chapter a bit more difficult, especially when they contradict what the word means casually. The chapter discusses bonds, stocks, and how the borrowing and lending business works and how it created an interest rate relevant to the needs and risks in the market. The U.S. financial system is made up of different financial institutions which act to direct the resources of household that want to save some of their income into the household and firms that want to borrow. National saving must equal investment, because one person's saving is another person's investment. The interest rate is determined by the supply and demand for loan able funds. 

Ch 24

Chapter 24 wasn’t too hard to understand, but it did introduce new concept and discusses economic well-being more in depth. The chapter was about measuring the cost of living, and focused on consumer price index. Consumer price index is a measure of the overall cost of the goods and services bought by a typical consumer. You measure it by dividing the price of basket of goods and services in current year by the price of basket in base year multiplied by 100, and get the changes in the cost of living. Calculating the CPI also helps in finding the inflation rate: subtracting the CPI in year 1 from the CPI in year 2, and dividing by the CPI in year 1 and multiplying by 100. Measuring the cost of living can be difficult because the CPI ignores the possibility of consumer substitution and does not reflect the increase in the value of the dollar that arises from the introduction of new goods. The chapter goes on to compare the CPI to the GDP deflator; the first difference is that the GDP deflator reflects the prices of all goods and services produced domestically, and the consumer price index reflects the prices of all goods and services bought by consumers. The chapter also introduced inflation and how one figures out the actual value of dollars, in comparison between years and interest rates. Inflation can also cause the government to index wages and such. 

Ch 23

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.