Chp. 18

Chapter eighteen is about the markets for the factors of production. The factors of production are the inputs used to produce goods and services (which are land, labor, and capital). Thee demand for a factor of producction is a deprived demand. A firms demand for a factor of producrtion is derived from its decision for supply a good in another market. Labor is the most important factor of production (workers receive the most of total income in the United States of America). The demand for laber: labor markets are governed by the forces of supply and demand. A competitive firm is a price taker. Hiring decisions take into consideration how the size of the workforce affects the amount of output produced. For example, how does the number od apple pickers affect the quantity of apples produced if it can harvest and sell the apples. Production function is the relationship between the quantity of inputs used to make a good and the quantity of output of that good. As  the quantity of the input increases the production function gets flattre reflecting the property of diminishing marginl product. Marginal product of labor is the increase in the amount of output from an additional unit of labor. Firms consider how much profit each worker would bring in. Because profit is total revenue minus total cost the profit from an additional worker is the workers contribution to revenue minus the workers wage. 

chp 17

Chapter 17 discusses an in between when it comes to monopolies and perfect competition which is referred to as imperfect competition. Firms in this in-between have competitors but at the same time do not face so much competition so as to be price-takers. The particular type of firm examined is the Oligopoly. An oligopoly is a market structure in which only a few sellers offer similar or identical products. The actions of any one seller in the market can have a large impact on the profits of all the other sellers. Economist measure a markets domination by a small number of firms with a statistic called the concentration ratio, which is the percentage of total output in the market supplied by the four-largest firms. A key feature of Oligopoly  is the tension between cooperation and self-interest. Sometimes a collusion may occure in an oligopoly which is an agreement among firms in a market about quantities to produce or prices to charge. A group of firms acting in unison is referred to as a cartel. Often times Anti-trust laws prohibit explicit agreements among oligopolies. A Nash equilibrium is a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen. Oligopolies would be better off cooperating and reafching the monopoly outcome yet because they pursue their own self-interest, they do not end up reaching the monopoly outcome and maximizing their joint profit. When firms in an oligopoly individually choose production to maximize profit, they produce a quantity of output greater than the level produced by monopoly and less than the level produced by competition. The oligopoly price is less than the monopoly price but greater than the competitive price. 

Chp 16

This chapter covers a separate type of market whic has characteristics of a monopoly and a competitive market and is simply referred to as Monopolistic Competition. Monopolistic competition is a market structure in which many firms sell products that are similar but not identical. There are many sellers, product differentiation, and also free entry.  Each fimr produces a product that is at least slightly differnt from those of other firms. Thus rather than being a price taker, eaceh firm faces a downward-sloping demand curve. A monopolistic competitive firm can choose the quantity at which marginal revenue equals marginal cost and then uses the deman curve to find the price consistent with that quantity. In the short run a monopilistic competition and monopoly are similar because both choose the quantity and price. In the long run the process of exit and entry continues until firms are at zero-economoic profit. Zero economic profit is not always at the minimun of ATC; it's where price meets ATC. Also, long run equilibrium is characterized by price exceeding marginal cost and price being equal to average total cost. Zeero economic profit would be a difference between a monopilistic competition and a monopoly since monopolies can earn positive economic profit in the long run. There are two noteworthy differences between a monopolistic competition and a perfectly competitive market: excess capacity and the mark-up. Under monopolistic competition fimrs produce on the downward-sloping portion of the ATC whereas free entry in perfectly competitive markets drive firms to produce at the minimum of ATC. 

Chp 15

Chapter 15 coveres the behavior of different types of monopoly firms. A firm is a monopoly if it is the sole seller of its product and if its product does not have close substitutes. Monopoolies are said to be price-makers because there are no close competitors. The price set are often times higher than if it were a perfectly competitive firm however monopolies cannot achieve the level of profit they want because high prices reduce the amount that costumers buy. The fundamental cause of monopoly is barriers of monopoly. Barriers in entry have three main sources, a key resource is owned by a single firm, the govermenet gives a single firm the exclusive right to produce some good/service, and the cost of production make a single producer more effiecient than a large number of producers. The simplest way for a monopoly to arise is for a single firm to be own a key resource, in practice however, there are few firms that own a resource for which there are no close substitutes. In many cases monopolies arise because the goverment has given one person or firm exclusive right to sell some good or service. Patent and copyright laws are two important examples of how the goverment creates a monopoly to serve the public interest. Patents and copyright laws have benefits and costs. One benefit of patent and copyright laws are increased incentive for creative activity. An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. A natural monopoly often arises when there are economies of scale over the relevant range of output. 

Chp 14

Chapter 14 examines the behavior of Competitive firms, which is a market where there are many buyers and sellers and the goods offered by the various sellers are largely the same; which means that buyers/sellers have a small influence on price.  A third characteristic being that Firms can freely enter or exit a market. In a typical firm the total revenue is proportional to the amount of output. Average Revenue is simply total revenue divided by the quantity sold. The Average Revenue is used to tell us how much a firm receives for a typical unit sold (aka the price of the good). Tbh Mr. Waller I'm just typing random definitions and sentences that are italized. But I mean that illustrates the point of this chapter, right? Along with Average Revenue is also Marginal revenue which is the change in total revenue from an additional unit sold and is *gasp* equal to the price of the good. When trying to maximize profit is the marginal revenue is greater than the marginal cost  then production should increase, if it marginal revenue is less than the marginal cost then production should decrease. This would be an example of thinking at the margin. By making incremental adjustments to the level of production then firms are naturally led to produce the profit-maximizing quantity. The firm maximizes profit by producing the quantity at which marginal cost equals marginal revenue. When looking at the graphs of all these curves, because the firm's marginal cost curve determines the quantity of the good the firm is willing to supply at any price, the marginal cost curve is also the competitive firm's supply curve. When it comes to stopping production a shortdown refers to not producing anything during a specific period of time whereas an Exit refers to leaving the market for a long period of time. 

Chp 13

Chapter 13 examines firm behavior in more detail beginning with a discussion on costs. The amount a firm pays to buy inputs is called total cost. A firm's cost of production includes all opportunity cost of making its output of goods and services. Aside from opportunity cost a firm also deals with explicit and implicit cost. An explicit cost is an implicit cost that requires an outlay of money by the firm, such as Helen paying wages. An implicit cost is one that does not require an outlay of money by the firm which is basically just opportunity cost, an example being Helen giving up the income she could earm as a programmar.  Profit is a firm's total revenue (amount received from sales) minus it's total cost (implicit plus explicit). In terms of weighing out these factors the author threw shade at accountants because they often times ignore implicit costs whereas an economist takes into consideration both. Another difference between an accountant and economist is the way profit is measured. An economic profit is the total revenue minus total cost, including both explicit and implicit costs. The accountant profit is the total revenue minus total explicit cost. For a business to be profitable total revenue must cover all opportunity cost (implicit and explicit). Production function is the relationship between quantity of inputs used to make a good and the quantity of output of that good. The  marginal profuct is the increase in output that arises from an additional unit of input. The marginal product in the cookie factory if the number of workers increase from 1 to 2 and cookie production from 50 to 90 would be 40. When the marginal product of an input declines as the quantity of the input increase is called diminishing marginal product. 

Article #4

Article number four dealt with hidden debt that leads to huge underestimations of what, specifically what kind/ degree of crisis,  could happen in the future. Currently the debt of countries around the world seem normal, or moderate, when compared to historic standards and previous crisis. But as previously stated the numbers are could quite possibly be underestimated. An interesting fact that struct me was the fact that recently ecuador received Chinese loans that exceed 10% of it's GDP. I still can't quite picture what GDP is but it seems that the amount of money that China has loaned Ecuador is ridiculously large. Also China has borrowed a ton of money, primarily US dollars, that make the situation a bit worse. The article also mentioned the increasing economic vulnerability of the emerging world which pose risk to emerging economies in the world. Many economies are revealing "tell-tale" signs of future economic crisis such as a slowdown in economic growth, growing current-account and fiscal dificits, and a reduction or outright reversal in capital flows and I'm not sure what that means but now I know that thats a negative. Although all of these "symptoms" are pretty bad and potentially detrimental to the economy it's not as bad as hidden debt because, well, the debt is hidden and by the time it's found it probably is too late. The author was not as biased as the previous authors (awkward if it's the same one but I'm too lazy to check). There was not as much "the world is doomed" type of thing going on.

Chapter 11

Chapter eleven discusses public goods (good that are neither excludable nor rival in consumption) and common resources (rival in consumption but not excludable), both of which are closely related to the study of externalities. Goods in an economy are grouped according to their excludability and its rivalry of consumption. Excludability is the property of a good whereby a person can be prevented from using it. Rivalry in consumption is the property if a good whereby one person's use diminishes other people's use. Public goods in a private market often encounter the free-rider (a person who receives the benefit of a good but avoids paying for it) problem. Because it is impossible to prevent someone from obtaining the good it's difficult to to make them pay for it because people are cheap like that and like free stuff. The best way to make a public good work is to use the government. The government can use tax to fund public goods. The government decides what public goods to provide and the quantity by conducting a cost-benefit analysis which is a study that compares the cost and benefits to society of providing a public good. Today's important goods include National Defense, Basic Research, and the fight against poverty. Common Resources deal with a separate problem that is understood by the "parable" (whatever that is) called the Tragedy of the commons which illustrates why common resources get used more than is desirable from the standpoint of society as a whole.

Chapter 10

Chapter ten introduces a reason of why a market, even if it is at an equilibrium quantity and price, can be inefficient. A market equilibrium is not efficient in the presence of externalities (uncompensated impact of one person's actions on the well being of a bystander) because buyers and sellers neglect external effects and fail to maximize total benefit to society as a whole. This can be fixed by internalizing the externality which is basically altering incentives so that people take into account the external effects of their actions. Remedies  include taxing a negative externality and subsidizing a positive externality.  Public policies include regulation. In the case of pollution, the government can tell a factory to reduce its pollution by a certain amount. Regulations, however are not as effective as a corrective tax because once the limit/target is reached factories have no reason to continue reducing emission whereas a tax gives factories the incentive to reduce pollution. Aside from taxing or regulating chapter 10 also mentioned the Coase theorem which proposes that if private parties can bargain without the cost over allocation of resouces. they can solve the problwem of externalities on their own.

Article #3

The article began with another "the world's economic situation is doomed and so are you" type of thing, which seems to be an ongoing theme in Stockman's articles until he gets to say "I told you so". Apparently after 20 years of global credit bingeing, capital spending, world trade, and deflation the US and world economies are on the brink of another recession. These past three articles have included the word "false" so many times it makes me feel very paranoid. Other economist and authors claim that the U.S and world economy is all good and keeps getting better. Although Debt has gone up GDP has gone up as well. But according to David Stockman the GDP growth is "phony growth" and when you look at the slope of of growth in debt and GDP, it cost a sh*tload of debt for a teeny bit of GDP growth. Stockman also included some talk on unemployment. The U.S economy almost reach it's "full potential" when it hit a 5.1% unemployment rate. Bernanke takes some credit for that but stockman claims that the Fed's ZIRP and QE policies "had absolutely nothing to do with the hiring of more home health care workers, nurses, and teachers aides".

Chp 8

Chapter 8 introduced the concept of dead weight loss by using, once again, taxation to visually show what it is. Dead weight loss is the fall in total surplus that results from a market distortion such as tax. As usual the graphs made the concept a lot easier to understand. I really like how the author also creates scenarios that are easy to relate to and apply the concepts in the chapter. Such as Joe and Jane's situation. Unfortunately at the end, because of the outrageous (exaggerating of course) taxation, Joe is left without an income and Jane is left with a dirtier house. This is a perfect example of how taxes cause dead weight losses because they prevent buyers and sellers from realizing some of the gains from trade. Before the tax was imposed the total surplus was 40 dollars, 20 to Joe and 20 to Jane, but after the taxation they each get nothing and to add on top of that the losses of Joe and Jane from the tax exceed the revenue raised by the government, The size of the dead weight loss also depends on the elasticity of supply and/or demand. The more elastic the curve is the greater the dead weight loss. Except, in the real world, no one can agree about the size of relevant elasticities; or other things such as which side of the laffer curve a country is on which seems pretty important since countries such as Sweden went a while with really high tax rates that lowered revenue.

Chap7

Chapter 7 was pretty easy. Some of it seemed like a review. It went over the topic of welfare economics. Welfare economics is how the allocation of resources affects economic well-being. To study the welfare of buyers and sellers in a market economist use Consumer and Producer Surplus. Consumer surplus is the amount a buyer is willing to pay minus the price he actually pays. The most obvious scenario is an auction. In the example given in the textbook that one dude was able to get his Elvis CD for $90, even though he was willing to pay $100. Consumer surplus can be visually seen and calculated in a demand curve by finding the area below the demand curve and above the price. Producer Surplus is basically the same thing, the difference being that the price a seller is willing to get paid for depends on the sellers opportunity cost that include time, supplies, and other stuff. To visually see and calculate the producer surplus you just have to find the area below the price and above the supply curve. Total surplus is just the value to buyers of a specific good minus the cost to sellers. In a supply and demand curve the area above the equilibrium price is the consumer surplus and the area below is the producer surplus.

Article #2

This article was a bit harder to comprehend then the last one. I don't know if it's because I THINK I understand the last one but in reality I don't and have the wrong idea or something else. What I understood from the article is basically that we are in the midst "of an unprecedented global deflation". What I followed the most was Brazil's current economic crisis. It was something previously discussed in class that has to do with inflation and such. Brazil has an inflation rate of over 5%. Inflation can be a good thing a the short run because it stimulates the economy and encourages consumers to spend more which can clearly be seen in the charts presented. The charts visually show peaks of high spending in February of 2009 and May of 2011. In March of 2008 and March of 2011 there are huge peaks  of employment. But after 2011 both spending and employment plummet. The author also mention that the US is connected to Brazil by a "two-way highway of financial and trade flows that penetrated right into the heart of the US economy". That goes to say connections are very important and if one goes down, the other could be pulled with it. So reading about China and its description as a "freakishly unbalanced,  credit saturated, out-of-control economy" is not very reassuring.

Chp. 6

Chapter 6 was about the effect on markets due to goverment policies such as imposing price floors and/or price ceilings. A price floor/ceiling can go either of two ways; binding and non-binding. If there is a price ceiling it's all good (non-bindning) until equilibrium price is above the price ceiling. This case would result in quantity demanded exceeding quantity supplied (a.k.a shortage). When it comes to a price floor, the market will do just fine as long as  is not below the the price floor. If it is then the quantity supplied exceeds the quantity demanded (a.k.a surplus).  I found it rather funny how everytime a solution is though up it's always knocked down by some other factor. In the case of price ceilings, price ceilings are motivated by the desire to help buyers of ice cream but not all buyers will benefit. When it comes to housing, price ceilings are imposed to make rent more affordable to some but will end up in landlords not feeling the need to keep the apartments decent enough to live in. As one economist,full of rainbows and sunshine, put it "rent control is the best way to destroy a city, other than bombing". Then there is earned income tax. It sounds like a nice and dandy solution since it helps supplement the income of low-wage workers but then you realize that because this is more goverment spending than that means taxes will increase which sucks because it techinacally makes business less profitable and discourages market activity. 

Chp. 5

Chapter 5 is getting a little more in depth with the patterns involved in economics. It's something I've heard about but unlike supply and demand it's something I've never took the time to understand. Last I took the time to understand an "elasticity" concept was with physics. Elasticity in this case is how willing people are to continue buying/selling a certain thing if the price changes. An inelastic demand would be something like food, a necessity. If the price rises you can't just stop eating. An elastic demand is something of a luxury or a narrower/more specific thing that has substitutes, like ice cream. Ice cream is food but is narrow, has many substitutes, and is more of a luxury food not a necessary food. Elasticity and Inelasticity also applies to supply. Except that in the long run price change is elastic whereas in the short run it is more inelastic because it's hard to get an entire firm to change direction unlike a single person that can do whatever they want with there money. The concept was not too bad when it came to understanding it but what I'm not excited about are the calculations. I had to read the midpoint formula thingy majig twice to try and absorb it at least 50%. Also, I'll probably forget once in a while that a linear supply curve is not completely elastic/inelastic. I'll try not to though.

Article #1

"Why the Keynesian Chorus is Cackling Like Chicken Little" included a lot of finger pointing towards people that were making up numbers, data, and measuring systems. Such as the Goldman Index that "consists of financial variables that are so powerfully influenced by Fed Policy" or news speakers that "create appearance of growth and gains in the macro-aggregates by the presumption of theory". I can't verify anything the author says. I don't exactly know who to trust. For all I know the bad guy (if there is one) is the author himself. But the way all the information is presented to me convinces me that Fed policy isn't doing much to help households. Currently big corporations such as wallstreet are borrowing tons of money with very little interest rate which is bad for the economy in the long run because it causes mispricing and generally "does not fuel an outbreak of borrowing and spending" in households. There money currently being spent is just money previously saved. The funny thing is all this is stuff I can't notice, stuff many people don't actually notice.

Chp. 4

Chapter 4 was about Supply and Demand which is pretty fundamental. It's so basic and important you don't have to take an economics class to know about it. Basically the supply available by firms depends on the demand. Each individual that buys a certain object will increase the overall Market demand. The same goes for supply. Each firm that decides to take upon  a business of any sort will contribute to the overall Market Supply. When a factor that is not represented in a graph (income, taste, etc) changes the graph will shift. If it deals with prices and such that are represented in a graph then the market will not shift but simply move along the market/supply curve. Taste is very important when it comes to demand but it is difficult to determine how taste changes/ came to be. The demand of one supply can also determine the demand of another. The two types of relationships would be a substitutional one or a complemental one. So basically Frozen yogurt vs ice cream or Peanut butter and jelly, both of which differentiate by the use of "vs" and "or"....kinda. It can get a little complicated though, such as the cigarettes and marijuana example. I thought theyd be substitutes...but they're complements. 

Chapter 3

Chapter three covered the reasons for Economic interdependence and the gains of trade, hence the title "Interdependence and the gains from trade". It covered key concepts such as absolute advantage and comparative advantage by applying them into a simple world where only a farmer and rancher exist. The farmer and rancher could be antisocial and never speak to each other as they each live their owns lives eating potatoes and meat. Or they could glorify their lives by trading and getting a bigger share of both potatoes and meat. But of course they just can't throw around whatever surplus they have they. There must be some sort of plan to have an efficient trading system, which luckily the rancher figured out and it includes specialization! The rancher has absolute advantage but has the comparative advantage when it comes to meat, so, simply put it, he makes the meat and the farmer makes the potatoes.
That is how the world goes round...most of the time