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.