Thanks Alex!!!!
I dedicate this post for you bro haha and well last day of classes is tomorrow so I am pretty exited for that and gettin ready for finals.
Go Economics!
Monday, 12 December 2011
Class #42 "The Last Class of the Semester" (12/12/11)
What is Interest? Just another price set by supply and demand for credit
- Emerges from desire to have purchasing power at a time when you don't have it on your own.
-We are willing to pay a price for obtaining unearned resources.
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Profits are what is leftover.
Two types of profits.
1) Accounting profits: Revenue - costs(Explicit)
2) Economic Profit: Revenue - Implicit costs(Opportunity Cost: forgone rent, wage, interest, ect.) - Explicit Costs
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-Profits and Losses are signals.
-Profits are a signal that you are making good decisions, Losses are signals that you made bad decisions.
"Capitalism makes you pay for sucking" - Rizzo
Why losses need to be allowed:
-Losses are destroyed/wasted resources. So when a company is allowed to operate in a loss (i.e. subsidies) resources are being wasted.
-By taking away the potential of a loss, you risk less, so investors back by government take unsafe risks knowing their are big potential rewards and little potential loss.
-When losses are allowed there are no feedback systems. Losses mean your are doing a bad job, but government entities (USPS, AMtrak) operate at losses, and have have no reason to improve.
- Emerges from desire to have purchasing power at a time when you don't have it on your own.
-We are willing to pay a price for obtaining unearned resources.
------------------------------------------------------------------------------------------------------------------------------------
Profits are what is leftover.
Two types of profits.
1) Accounting profits: Revenue - costs(Explicit)
2) Economic Profit: Revenue - Implicit costs(Opportunity Cost: forgone rent, wage, interest, ect.) - Explicit Costs
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-Profits and Losses are signals.
-Profits are a signal that you are making good decisions, Losses are signals that you made bad decisions.
"Capitalism makes you pay for sucking" - Rizzo
Why losses need to be allowed:
-Losses are destroyed/wasted resources. So when a company is allowed to operate in a loss (i.e. subsidies) resources are being wasted.
-By taking away the potential of a loss, you risk less, so investors back by government take unsafe risks knowing their are big potential rewards and little potential loss.
-When losses are allowed there are no feedback systems. Losses mean your are doing a bad job, but government entities (USPS, AMtrak) operate at losses, and have have no reason to improve.
Rizzo
-Daniel Gaona
Sunday, 11 December 2011
EWOT Goggles #14 "Dinning Halls" (12/11/11)
Let´s make a strategy to make Dining Halls less intense....
The dining halls can get insanely crowded during peak hours. Everyone wants to eat during dinner time, and that is generally between 530-730. As the school expands, as it plans too, one of the issues will be the availability of space in these dining halls that are already packed. Most likely they will build more dining halls. But I argue that the school system could expand significantly and survive easily with the dining halls we already have. Right now, no matter when you go it costs the same. Instead the school could charge more for meals at the peak hours. This would discourage many people to go during the peak hours and even out demand throughout the day. By forcing the price to stay the same, the school is creating shortages in some hours and huge surpluses in other hours. Instead they could charge different prices at different times to even demand out. Another case of the forced and arbitrary setting of a price with no respect to the relevant supply and demand curves.
The dining halls can get insanely crowded during peak hours. Everyone wants to eat during dinner time, and that is generally between 530-730. As the school expands, as it plans too, one of the issues will be the availability of space in these dining halls that are already packed. Most likely they will build more dining halls. But I argue that the school system could expand significantly and survive easily with the dining halls we already have. Right now, no matter when you go it costs the same. Instead the school could charge more for meals at the peak hours. This would discourage many people to go during the peak hours and even out demand throughout the day. By forcing the price to stay the same, the school is creating shortages in some hours and huge surpluses in other hours. Instead they could charge different prices at different times to even demand out. Another case of the forced and arbitrary setting of a price with no respect to the relevant supply and demand curves.
Saturday, 10 December 2011
Class #41 "Proft, Losses and Entrepreneurs" (12/09/11)
Profits, Losses, and Entrepreneurs
Society doesn't celebrate the accumulation of wealth, only its distribution.
Entrepreneurs - When starting a business, the most important thing to do is understand your real costs.
Factors of Production: (1) land, (2) labor, and (3) capital. You can about explicit and implicit costs
1) Explicit:rent ; Implicit: rent (cost of forgone opportunities)
2) Explicit:wages ; Implicit: forgone wages
3) Explicit: rent (projectors, laptops) ; Implicit: forgone rent
Profitability = Rental Rate + Appreciation Rate - Interest Rate
Benefits of buying an asset: its the forgone rental payments you would have to make.
So annual:
[(rental payments) / (price of good)] + [(Change in asset price)/(price)] - 10% = 2.5%
37.5% + (-25%) - 10% = 2.5%
2.5% means: how much richer I am each year from owning the car as compared to if I rented the car. If the number is positive you should buy; if the number is negative you should rent. If you buy, you are $250 richer than if you had rented the car.
Society doesn't celebrate the accumulation of wealth, only its distribution.
Entrepreneurs - When starting a business, the most important thing to do is understand your real costs.
Factors of Production: (1) land, (2) labor, and (3) capital. You can about explicit and implicit costs
1) Explicit:rent ; Implicit: rent (cost of forgone opportunities)
2) Explicit:wages ; Implicit: forgone wages
3) Explicit: rent (projectors, laptops) ; Implicit: forgone rent
Profitability = Rental Rate + Appreciation Rate - Interest Rate
Benefits of buying an asset: its the forgone rental payments you would have to make.
So annual:
[(rental payments) / (price of good)] + [(Change in asset price)/(price)] - 10% = 2.5%
37.5% + (-25%) - 10% = 2.5%
2.5% means: how much richer I am each year from owning the car as compared to if I rented the car. If the number is positive you should buy; if the number is negative you should rent. If you buy, you are $250 richer than if you had rented the car.
Rizzo
-Daniel Gaona
Wednesday, 7 December 2011
Class #40 "Cost of Taxes" (12/07/11)
In contrast to the excise tax, which is targeted at sellers, the legal incidence of a sales tax is on the buyers. However by graphing supply and demand before and after the tax, we see that the economic incidence of the tax is exactly the same as the excise tax. 75% lands on the buyers, and 25% lands on the sellers.
The cost of taxes is the value of the forgone trades The value of all the bubble gym that doesn't get sold = deadweight loss.
Taxes are merely transfers - the problem is that they change people's behavior. The tax makes you substitute away from bubble gum. Tax gives sellers an incentive to sell something else other than gum.
How big is America's deadweight loss? 30% of the value of taxes is lost because it costs resources to collect taxes and the way we currently collect taxes is very inefficient.
If you want buyers to pay the tax (i.e. sales tax), which side of the market will be affected? Buyers. What happens to their demand curve? Demand cure will shift by the entire amount of the tax.
The Excise and Sales tax graphs look identical. Conclusion: the legal incidence of a tax doesn't matter. Legal an economic incidence are independent.
Economic incidence is determined by the relative elasticity of the supply and demand curves. A very steep demand curve means it is very inelastic (people will buy a lot regardless of the price).
Whichever party is less sensitive to price change will bear the burden of the tax.
The cost of taxes is the value of the forgone trades The value of all the bubble gym that doesn't get sold = deadweight loss.
Taxes are merely transfers - the problem is that they change people's behavior. The tax makes you substitute away from bubble gum. Tax gives sellers an incentive to sell something else other than gum.
How big is America's deadweight loss? 30% of the value of taxes is lost because it costs resources to collect taxes and the way we currently collect taxes is very inefficient.
If you want buyers to pay the tax (i.e. sales tax), which side of the market will be affected? Buyers. What happens to their demand curve? Demand cure will shift by the entire amount of the tax.
The Excise and Sales tax graphs look identical. Conclusion: the legal incidence of a tax doesn't matter. Legal an economic incidence are independent.
Economic incidence is determined by the relative elasticity of the supply and demand curves. A very steep demand curve means it is very inelastic (people will buy a lot regardless of the price).
Whichever party is less sensitive to price change will bear the burden of the tax.
Rizzo
-Daniel Gaona
Class #39 "Costs of Drug Wars/Taxes" (12/05/11)
Continued from last class, some costs of the war on drugs:
-the obvious cost of taxes needed to support all the people and equipment needed to fight the war.
-But also the less obvious opportunity cost of all the people and money employed. they could be working on something like medicine or science or whatever, instead they are fighting a "War On Drugs"
________________________________________________________________________________
Exercise taxes on bubble gums.
-Taxes are not a cost, it is just moving money from one spot to another, taxes in and of themselves are not costly.
- However taxes create dead weight in the supply/demand graph, which IS A COST. The task is to make the dead weight as small as possible.
- The goal of the excise tax is to target the suppliers, (the stores). But the actual cost ends up being shiftef 75% to the consumers, and 25% to the suppliers.
Rizzo
-Daniel Gaona
Tuesday, 6 December 2011
Reading Analysis #14 "The Heart That Pumps Innovation" (12/06/11)
A)
Kling claims the reason for America's economic success stems from the innovation of our entrepreneurs. He contrasts our private-ownership system with Europe's public-ownership system. I wish Kling would give statistics to back up his claims that Europe's economy is stagnating when compared to the U.S., or that "it is easier for large businesses to fail in America." I found the claim that only paranoid businesses survive very interesting; entrepreneurs must adapt to constantly changing market conditions in order to keep up with the competition. Many entrepreneurs usually experience failure before success. I also found the Intrapreneur's Ten Commandments were really interesting - its basically saying that in order to help the company, you must defy it first. However, intrapreneurship forces companies (i.e. shareholders) to bear most of the cost rather than the intrapreneur. My favorite line is: "Someone who fits the description of an un-entrepreneur would be perfectly suited in another role - as a bureaucrat."
B)
1. How many businesses does the typical entrepreneur start before creating a successful business?
2. Is the appeal of starting your own business greater today than it was 10 or 20 years ago?
3. Can you think of any businesses that actually promote intrapreneurship?
C)
Entrepreneurialism advances the market, while benefiting the consumer, because of competition between rising and incumbent firms. However, in order to create a successful business model, entrepreneurs must be able to adapt to the ever changing preferences of consumers.
Kling claims the reason for America's economic success stems from the innovation of our entrepreneurs. He contrasts our private-ownership system with Europe's public-ownership system. I wish Kling would give statistics to back up his claims that Europe's economy is stagnating when compared to the U.S., or that "it is easier for large businesses to fail in America." I found the claim that only paranoid businesses survive very interesting; entrepreneurs must adapt to constantly changing market conditions in order to keep up with the competition. Many entrepreneurs usually experience failure before success. I also found the Intrapreneur's Ten Commandments were really interesting - its basically saying that in order to help the company, you must defy it first. However, intrapreneurship forces companies (i.e. shareholders) to bear most of the cost rather than the intrapreneur. My favorite line is: "Someone who fits the description of an un-entrepreneur would be perfectly suited in another role - as a bureaucrat."
B)
1. How many businesses does the typical entrepreneur start before creating a successful business?
2. Is the appeal of starting your own business greater today than it was 10 or 20 years ago?
3. Can you think of any businesses that actually promote intrapreneurship?
C)
Entrepreneurialism advances the market, while benefiting the consumer, because of competition between rising and incumbent firms. However, in order to create a successful business model, entrepreneurs must be able to adapt to the ever changing preferences of consumers.
Sunday, 4 December 2011
EWOT Goggles #13 "Final Exams" (12/04/11)
Finals are here!
With finals bearing down on us, I just want to take a minute to discuss the rationing of study space. Since Gleason is open 24/7, students are able to take over a booth and literally "hold" it throughout finals. Usually, they leave their belongings to indicate the space is reserved - some even sleep there. Because there are now less spots to study, they raise the marginal cost of a study spot in Gleason. Students who leave belongings to reserve a spot also pose as a negative externality to students who would otherwise use that space to study. One way to deal with the high demand of study space is to increase the cost. But what's the best way to raise the cost? You could forbid people from sleeping in Gleason. But then you have to find people who will enforce the new law - which is a waste of resources because they are not producing anything of value.
With finals bearing down on us, I just want to take a minute to discuss the rationing of study space. Since Gleason is open 24/7, students are able to take over a booth and literally "hold" it throughout finals. Usually, they leave their belongings to indicate the space is reserved - some even sleep there. Because there are now less spots to study, they raise the marginal cost of a study spot in Gleason. Students who leave belongings to reserve a spot also pose as a negative externality to students who would otherwise use that space to study. One way to deal with the high demand of study space is to increase the cost. But what's the best way to raise the cost? You could forbid people from sleeping in Gleason. But then you have to find people who will enforce the new law - which is a waste of resources because they are not producing anything of value.
Saturday, 3 December 2011
Reading Analysis #13 "Bethpage Gray (Market)" (12/03/11)
A)
At Bethpage Golf course, which is a public golf course, a shortage currently exists because there are not enough tee-times to meet the demand of golfers. Also, the allocation of tee-times has allowed a black (secondary) market to emerge. With roughly 70,000 golfers trying to play the course, and only 35,000 rounds per year, a secondary market was bound to emerge. While tee-times are free if given out by Bethpage, nygolfshuttle.com plays the system in order to create a business of supplying tee-times (albeit for upwards of $500) to golfers who value playing on Bethpage on a given day, at a given time. Bethpage has taken issue with a company making money off a public golf course by "scalping" tee-times. The golf course has tried to combat the problem through various measures, but NYgolfshuttle adapts to accordingly. The problem Bethpage officials have is they have to find a balance between keeping tee-times from scalpers without "encroaching on the real life schedules of everyday golfers." I found it interesting that NYgolfshuttle is expanding into other public golf courses - clearly this shows they believe this is a viable business model.
B)
1. What could Bethpage officials do differently to keep NYgolfshuttle from obtaining tee-times?
2. Do you believe what NYgolfshuttle is doing is unethical?
3. What could Bethpage do to increase the supply? Reduce the demand?
C)
Bethpage's golf course has seen a secondary market emerge because supply cannot meet demand. Therefore, the market for tee-times at Bethpage is in a shortage.
Friday, 2 December 2011
Class #38 "Price Floors - Minimum Wage" (12/02/11)
Price Floors:
- Most common price floor = minimum wage
- When you set a price (or wage) floor,
* Quantity demand for employers goes down because firms don't want to hire as many workers
* Quantity supply for employers goes up because more workers want to make more $
- As a result of all this, a surplus of workers develops and this causes higher rates of unemployment
- Is there a better way to pay workers --> E.I.T.C. (Earned Income Tax Credit)
Illegal Drugs
- making them illegal means you keep the same point (price) of equilibrium, but the supply curve becomes steeper because it costs more to supply these drugs
- As a result, the people who handle drug transactions are only those who know what they're doing
- Most common price floor = minimum wage
- When you set a price (or wage) floor,
* Quantity demand for employers goes down because firms don't want to hire as many workers
* Quantity supply for employers goes up because more workers want to make more $
- As a result of all this, a surplus of workers develops and this causes higher rates of unemployment
- Is there a better way to pay workers --> E.I.T.C. (Earned Income Tax Credit)
Illegal Drugs
- making them illegal means you keep the same point (price) of equilibrium, but the supply curve becomes steeper because it costs more to supply these drugs
- As a result, the people who handle drug transactions are only those who know what they're doing
-Rizzo
Daniel Gaona
Class #37 "Price Ceilings" (11/30/11)
What do Price Ceilings do to Markets?
Looking in depth at controlled rents, in which there is a binding maximum rent.
> A shortage occurs. Because the low cost raises quantity demanded while simultaneously lowering quantity supplied. Thus a shortage occurs, the market is not cleared.
Outcomes:
- Reduced availability, when the goal was to increase availability.
- Overall quality decreases. Owners cant increase RENT to pay for upkeep, quality declines.
- Black markets emerge from displaced competition (bribes ect.)
- Misallocations arise,
- Other non rent controlled neighborhoods feel effects of the nearby shortage. Increased demand.
- Fairness issue (poor cant move to other areas as easily, cant bribe, ect)
- Discrimination is free because there is a line, so there is lots of discrimination.
-Rizzo
Daniel Gaona
Class #36 "Price Fixing" (11/28/11)
By using prices to decide which goods get produced, people are forced to economize their decisions in a market. When you ration by price, only the people who desire the good the most get it.
Centralization vs. Decentralization
Central Planner must decide: (1) who produces it, (2) who gets it, (3) how much to produce. There is no way for one person to know all of this information.
The market is more inclined to experiment as opposed to the government who tends to use 1 size fits all interventions.
Price Fixing
The price of a good is a reflection of what is going on in an economy. A response from policy makers, if they don't like the price, is to change the price. Buyers don't like high prices; sellers don't like low prices.
If gas prices go up, you always hear complaints of price gouging. If you see low prices, then firms are exploiting workers and unfairly competing against other firms. If prices are all equal, then firms are colluding with each other.
Price Fixing Example: Rent Control
Centralization vs. Decentralization
Central Planner must decide: (1) who produces it, (2) who gets it, (3) how much to produce. There is no way for one person to know all of this information.
The market is more inclined to experiment as opposed to the government who tends to use 1 size fits all interventions.
Price Fixing
The price of a good is a reflection of what is going on in an economy. A response from policy makers, if they don't like the price, is to change the price. Buyers don't like high prices; sellers don't like low prices.
If gas prices go up, you always hear complaints of price gouging. If you see low prices, then firms are exploiting workers and unfairly competing against other firms. If prices are all equal, then firms are colluding with each other.
Price Fixing Example: Rent Control
-Rizzo
Daniel Gaona
Sunday, 27 November 2011
EWOT Goggles #12 "Thanksgiving Break" (11/27/11)
Every family in America who can afford it celebrates Thanksgiving by buying a turkey. Is there ever a shortage in turkeys because of the high demand? What kind of price changes do turkey consumers experience at this time of year? What kind of market exists for turkeys on the days following Thanksgiving? There are still turkey sales after Thanksgiving but they're obviously reduced significantly. It always seems as if a family needs to get a turkey, they can somewhere. So the supply must be reasonably high during this time of year. I'm sure this happens with other products that experience mass purchases at one time during the year and hardly any at any other time (ex: Christmas trees, pumpkins, etc.).
Class #35 "Supply Curve and Price System" (11/23/11)
The advantages of decentralized knowledge over centralized knowledge: centralized knowledge is an impossible dream for overall economic development but decentralized knowledge can (but not always) work. Well functioning markets and democracy help aggregate decentralized knowledge.
Supply curve: if its very easy for producers to draw titanium out of the ground, when the price of titanium goes up by a little bit, producers will respond by trying to dig a lot of it up. But if its really hard to draw titanium out of the ground, the supply curve will be steeper.
Czar of titanium: needs to know a lot of stuff he wouldn’t know (and couldn’t possible know) in a million lifetimes. And even if you figure it out, it changes instantly.
Prices solve the problem that the czar would be tasked to solve.
If someone can change their behavior, the price goes up less, and the quantity supplied doesn't have to increase as much to solve the problem when demand is elastic.
The market solves the problem just the way the czar would have (if they could). It steers resources into titanium excivation, into the hands of engineers and out of the hands of club makers and surgeons by using the knowledge that existing demanders can find substitutes. Prices reveal that someone can do the adjusting.
-Rizzo
Daniel Gaona
Saturday, 26 November 2011
Class #34 "Equilibrium and The Price System" (11/21/11)
Supple and Demand (look at graphs)
Ask yourself two questions when thinking about changes in supply and demand:
1) How does each half of the market respond? Buyers and sellers
2) Whose plans are satisfied? Buyers and sellers
Surplus - At a particular price when the quantity supplied > quantity demanded.
Shortage - At a particular price when the quantity demanded > quantity supplied.
Buyers and sellers don't compete in a market, buyers compete against buyers and sellers compete against sellers. Being at equilibrium is not inherently good.
A high price signifies that the good is relatively scarce. As prices are increasing, a shortage is being alleviated.
A low price signifies that the good is relatively not scarce. Scarcity talks about the relative abundance of a good, not its absolute abundance.
Equilibrium - At a price where neither buyers or sellers have an incentive to change/alter their behavior.
Types of Equilibrium:
1) Market Clearing ("good"): Quantity demanded = Quantity supplied
2) Non-Market Clearing ("not good")
Ask yourself two questions when thinking about changes in supply and demand:
1) How does each half of the market respond? Buyers and sellers
2) Whose plans are satisfied? Buyers and sellers
Surplus - At a particular price when the quantity supplied > quantity demanded.
Shortage - At a particular price when the quantity demanded > quantity supplied.
Buyers and sellers don't compete in a market, buyers compete against buyers and sellers compete against sellers. Being at equilibrium is not inherently good.
A high price signifies that the good is relatively scarce. As prices are increasing, a shortage is being alleviated.
A low price signifies that the good is relatively not scarce. Scarcity talks about the relative abundance of a good, not its absolute abundance.
Equilibrium - At a price where neither buyers or sellers have an incentive to change/alter their behavior.
Types of Equilibrium:
1) Market Clearing ("good"): Quantity demanded = Quantity supplied
2) Non-Market Clearing ("not good")
Rizzo
-Daniel Gaona
Wednesday, 23 November 2011
Reading Analysis #12 "Price Gouging" (11/28/2011)
A)
Price gouging occurs when, based on outside forces (i.e. natural disasters), producers charge a higher price for the same good than they charged before. Consumers are willing to pay higher prices because, at the margin, a bag of ice when there is no power is much more valuable than when they had power. Economists against price gouging laws show that by putting a cap on a goods' price, consumes are not encouraged to conserve the good, despite the fact that good is high in demand. One of price gouging laws' unintended consequences is that they discourage efforts to increase the supply to meet the increased demand. Price gouging laws are a relatively new phenomenon in the United States - the earliest laws have been around 40 years. There are ethical and emotion reasons behind the implementation of price gouging laws. Instead of selling their goods at elevated prices, in order to keep a "fair" reputation, producers may shut down altogether (thus reducing supply even more). Many believe that is better for merchants to be open with high prices than to not be open at all. When a disaster strikes, wholesalers redirect goods to regions with the greatest demand (this means slightly higher prices for non-disaster struck regions but it also means goods are getting to disaster struck regions).
B)
1. Did your views on price gouging change after reading the article? Why?
2. Are you willing to have higher prices in order to help those in disaster areas?
3. What are the moral and ethical responses to price gouging?
C)
While price gouging laws are intended to help consumers, in reality, they interfere with price signals and thus fewer resources get to where they are most needed.
Price gouging occurs when, based on outside forces (i.e. natural disasters), producers charge a higher price for the same good than they charged before. Consumers are willing to pay higher prices because, at the margin, a bag of ice when there is no power is much more valuable than when they had power. Economists against price gouging laws show that by putting a cap on a goods' price, consumes are not encouraged to conserve the good, despite the fact that good is high in demand. One of price gouging laws' unintended consequences is that they discourage efforts to increase the supply to meet the increased demand. Price gouging laws are a relatively new phenomenon in the United States - the earliest laws have been around 40 years. There are ethical and emotion reasons behind the implementation of price gouging laws. Instead of selling their goods at elevated prices, in order to keep a "fair" reputation, producers may shut down altogether (thus reducing supply even more). Many believe that is better for merchants to be open with high prices than to not be open at all. When a disaster strikes, wholesalers redirect goods to regions with the greatest demand (this means slightly higher prices for non-disaster struck regions but it also means goods are getting to disaster struck regions).
B)
1. Did your views on price gouging change after reading the article? Why?
2. Are you willing to have higher prices in order to help those in disaster areas?
3. What are the moral and ethical responses to price gouging?
C)
While price gouging laws are intended to help consumers, in reality, they interfere with price signals and thus fewer resources get to where they are most needed.
Sunday, 20 November 2011
Class #33 "Price Systems and More" (18/11/11)
The goal of the market economy is to get goods and services to the people who value them most. People get a notion that there are certain economic rights - but these right's can't exist separate from duties and obligations.
Advantages of the Price System
Markets organize themselves; prices force people to economize. Without the price system, there is no way to know anyone else's needs because there are no signals. If you price water, and its price rises, it incentivizes people to produce more water (develop new technologies). Rationing occurs through individual choice.
Healthcare
Kidneys: by banning the sale of kidneys. the profit opportunity is actually higher on the black market. Zero sum world when we talk about kidneys. When you're not selling kidneys, the marginal value of a kidney is much higher.
Transactions
Money changes the nature of the transaction as opposed to bartering. Bartering is really inefficient because of all the transaction costs you must endure (i.e. finding someone to trade with, dividing up your good). Money solves the double consequence of wants problem: suppose we didn't have money, over time, money emerges. Prices emerge to allocate goods - we use price sot assign a monetary value to goods because it lowers the transaction cost of engaging in market activity.
Rizzo
-Daniel Gaona
Advantages of the Price System
Markets organize themselves; prices force people to economize. Without the price system, there is no way to know anyone else's needs because there are no signals. If you price water, and its price rises, it incentivizes people to produce more water (develop new technologies). Rationing occurs through individual choice.
Healthcare
Kidneys: by banning the sale of kidneys. the profit opportunity is actually higher on the black market. Zero sum world when we talk about kidneys. When you're not selling kidneys, the marginal value of a kidney is much higher.
Transactions
Money changes the nature of the transaction as opposed to bartering. Bartering is really inefficient because of all the transaction costs you must endure (i.e. finding someone to trade with, dividing up your good). Money solves the double consequence of wants problem: suppose we didn't have money, over time, money emerges. Prices emerge to allocate goods - we use price sot assign a monetary value to goods because it lowers the transaction cost of engaging in market activity.
Rizzo
-Daniel Gaona
Class #32 "Scarcity / Systems" (11/16/2011)
Scarcity is an axiom, it happens no matter what. Thus rationing of some form has to exist no matter what. And thus competition exists no matter what. The economic system in place has no effect on these statements. The question is which system of rationing is the most constructive and efficient at rationing.
Short list of potential ways to ration (excluding the price system):
- Need - Equal Shares -Queues
-Kickin' Ass - Lottery - Merit ("beauty" "effort" "smarts")
Analyzing the effectiveness of systems, ask these questions:
1) Will the system channel competition constructively or destructively?
2) Does the system create a mechanism to call forth more supply?
All of these above possibilities fail in some form to these two question
Rizzo
-Daniel Gaona
Class #31 "Supply" (11/14/2011)
Supply
Each point on the supply curve tells you the cost of producing that particular unit. As the price increases, you would be willing to increase production. As price increase, the quantity supplied increases - it costs more to make more.
Why do supply curves slope up?
Each point on the supply curve tells you the cost of producing that particular unit. As the price increases, you would be willing to increase production. As price increase, the quantity supplied increases - it costs more to make more.
Why do supply curves slope up?
- Diminishing returns - its harder to make more. Cheaper to grow the first 10 acres of corn than the next 10 (more fertilizer, more water etc).
- Additional factors of production - if any additional factors of production have diminishing returns, you incur those returns.
What can change supply?
When price of the good changes, you move along the existing supply curve. But a change in supply shifts the supply curve.
- Any change in factor (input) prices)
- Expectations
- Technology
- Changes in other markets
- Elasticity
Price Elasticity of Supply - How much more will I produce when price goes up?
m = %change in quantity supplied / % change in prie of the good
Rizzo
-Daniel Gaona
Saturday, 19 November 2011
EWOT Goggles #11 "Eating More....spending more?" (11/19/11)
I've been going to the gym a lot lately to lift. As a result, I've been eating a lot more food and taking in a lot more calories. What does this do to my wallet? Well, obviously I'm spending more but since I'm using declining, does that have an effect. YES! Since all my declining has already been paid for, buying more food doesn't change the amount of money I'm spending. Therefore, it's a sunk cost and only my marginal cost increases due to the fact that my declining balance goes down. So, unless I go over the declining limit, I'm not spending any more money (more or less) on food.
Reading Analysis #11 "Propaganda Posters" (11/19/2011)
A)
This week's reading assignment consisted of 4 propaganda images that sent messages to the American public about WW2, slaves, and the economy. When looking at the images in the context of supply and demand, we can say that:
1.) For the first image, the demand for (war) resources is obviously very high and so the image associates wasting resources to essentially aiding the opposition. Based on the message the image is sending, the supply is relatively low, so the prices for these resources are likely low as well.
2.) Virtually the same message is seen in the second piece of propaganda. The picture suggests that by driving your car alone, you are riding with Hitler, or, you're "teaming up" with Hitler. The message here is to conserve gasoline and materials to make cars by sharing cars, so it's assumed that the demand for these resources is again very high and the supply is low.
3.) The third image consists of a slave family that is being whipped or at least abused by their slave master. The family is shown in the light while the slave master is shown in the dark, specifically inside a cast shadow that shows a picture of someone holding a whip. The slave family is in a position of helplessness and the slave master in a position of power. The propaganda wants a change in society where no slaves exist and everyone is free. The demand for freedom is high but the supply is low and since a change is favorable it is a shift towards a higher supply and lower demand of freedom.
4.) The fourth image shows a picture of a woman who makes a pledge to only pay for goods that are reasonably priced and to stop settling for rationed goods. The demand curve has experienced a shift to the right as the prices are higher than they were before for the same quantity demanded. The hope for the U.S. Dept. of Economic Stabilization is to get back to the point where the quantity demanded is at a lower price (shift back to the left). The same goes for the supply curve except the shift occurs in the opposite direction.
B.)
C.)
This assignment was assigned because it is an application of the theories of supply and demand in the U.S. economy, particularly during times of hardship. The images demonstrate the dramatic effects that these events had on supply and demand.
This week's reading assignment consisted of 4 propaganda images that sent messages to the American public about WW2, slaves, and the economy. When looking at the images in the context of supply and demand, we can say that:
1.) For the first image, the demand for (war) resources is obviously very high and so the image associates wasting resources to essentially aiding the opposition. Based on the message the image is sending, the supply is relatively low, so the prices for these resources are likely low as well.
2.) Virtually the same message is seen in the second piece of propaganda. The picture suggests that by driving your car alone, you are riding with Hitler, or, you're "teaming up" with Hitler. The message here is to conserve gasoline and materials to make cars by sharing cars, so it's assumed that the demand for these resources is again very high and the supply is low.
3.) The third image consists of a slave family that is being whipped or at least abused by their slave master. The family is shown in the light while the slave master is shown in the dark, specifically inside a cast shadow that shows a picture of someone holding a whip. The slave family is in a position of helplessness and the slave master in a position of power. The propaganda wants a change in society where no slaves exist and everyone is free. The demand for freedom is high but the supply is low and since a change is favorable it is a shift towards a higher supply and lower demand of freedom.
4.) The fourth image shows a picture of a woman who makes a pledge to only pay for goods that are reasonably priced and to stop settling for rationed goods. The demand curve has experienced a shift to the right as the prices are higher than they were before for the same quantity demanded. The hope for the U.S. Dept. of Economic Stabilization is to get back to the point where the quantity demanded is at a lower price (shift back to the left). The same goes for the supply curve except the shift occurs in the opposite direction.
B.)
- What determines whether a propaganda poster is effective or not other than the response it administers?
- What events do you think would produce the biggest shift in the supply/demand curve?
- What was the process of coming up with a propaganda image like?
C.)
This assignment was assigned because it is an application of the theories of supply and demand in the U.S. economy, particularly during times of hardship. The images demonstrate the dramatic effects that these events had on supply and demand.
Sunday, 13 November 2011
Class #30 "Demand Curve and Elasticity" (11/11/2011)
Elasticity and Total Revenues
Total Revenues = P * Q
- when price goes up, Q goes down
- when price goes down, Q goes up
- Example: P goes from $50 - $80 and Q goes from 10 - 4..... is it elastic?
* TRA = $50 x 10 = $500
* TRB = $80 x 4 = $320 ...... decrease in total revenue = price change and TR change in opposite directions = ELASTIC
Income Elasticity of Demand
- (% change in Q)/(% change in income) ......
* > 0 = normal good
* < 0 = inferior good
We also began very preliminary discussions on the law of supply....
Total Revenues = P * Q
- when price goes up, Q goes down
- when price goes down, Q goes up
- Example: P goes from $50 - $80 and Q goes from 10 - 4..... is it elastic?
* TRA = $50 x 10 = $500
* TRB = $80 x 4 = $320 ...... decrease in total revenue = price change and TR change in opposite directions = ELASTIC
Income Elasticity of Demand
- (% change in Q)/(% change in income) ......
* > 0 = normal good
* < 0 = inferior good
We also began very preliminary discussions on the law of supply....
-Rizzo
Daniel Gaona
Class #29 "Elasticity and Demand" (11/09/2011)
Demand, and quantity demanded can clearly change through change in prices, substitutes, income, ect. HOW MUCH QD changes is what elasticity is.
Elasticity = (%Change in QD) / (%Change in area of interest, ex. price)
Essentially elasticity is how sensitive consumer(s) are to change in prices, or other factors. A high elasticity ( i.e. over 1) means you will react more drastically to changes in prices.
What impacts elasticity?
1. Time: Long term elasticity will not be the same as short term elasticity.
(EX. gas goes to $10, at first you will have to keep driving, but eventually start carpooling, and maybe buy a electric car, move closer to work, ect.)
2. Budgets: If you have more extra income, you will tend to be less sensitive to price changes.
3. Substitutes: The amount of available substitutes will affect elasticity.
Rizzo
-Daniel Gaona
Class #28 "Market Demand/ Elasticity" (11/07/2011)
From Individual to Market Demand
Comparative Statics: What things impact how much we buy.
(1) When the price changes, you move up and down the demand curve.
(2) Changes in demand, not quantity demanded - things that might change, other than the price, which impact consumption choices: (1) Changes in income - when you get more income, it doesn't mean you'll consume more of everything, (2) prices of other things may change, (3) expectations change - expectations about the price of burritos will impact our decision to consume burritos, (4) tastes might change - your preferences might change, and (5) the # of participants - adding consumers will change.
Normal Goods - when income increases, quantity demanded increases.
Inferior Goods - when income increases, quantity demanded decreases.
Substitute Goods - As the price of good X increases, the demand of good Y increases.
Compliment Goods - As the price of good X increases, the price of good Y increases.
Quantity Demanded: how much of a good we consume as a function of our ability and willingness to pay.
Elasticity
Law of demand tells us as tradeoffs get worse, we do less, but when tradeoffs get better, we do more.
For goods, when your consumption is very response to a change in its price we say the good is elastic. When prices change widely but your consumption does not change, a good is said to be inelastic.
We can measure elasticity using Own Price Elasticity of Demand:
m = %change in quantity demanded / %change in price. If m = 2. Then if the price of the good incases 10%, you consume 20% less of that good.
Comparative Statics: What things impact how much we buy.
(1) When the price changes, you move up and down the demand curve.
(2) Changes in demand, not quantity demanded - things that might change, other than the price, which impact consumption choices: (1) Changes in income - when you get more income, it doesn't mean you'll consume more of everything, (2) prices of other things may change, (3) expectations change - expectations about the price of burritos will impact our decision to consume burritos, (4) tastes might change - your preferences might change, and (5) the # of participants - adding consumers will change.
Normal Goods - when income increases, quantity demanded increases.
Inferior Goods - when income increases, quantity demanded decreases.
Substitute Goods - As the price of good X increases, the demand of good Y increases.
Compliment Goods - As the price of good X increases, the price of good Y increases.
Quantity Demanded: how much of a good we consume as a function of our ability and willingness to pay.
Elasticity
Law of demand tells us as tradeoffs get worse, we do less, but when tradeoffs get better, we do more.
For goods, when your consumption is very response to a change in its price we say the good is elastic. When prices change widely but your consumption does not change, a good is said to be inelastic.
We can measure elasticity using Own Price Elasticity of Demand:
m = %change in quantity demanded / %change in price. If m = 2. Then if the price of the good incases 10%, you consume 20% less of that good.
-Rizzo
Daniel Gaona
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