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")

Rizzo

-Daniel Gaona

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.

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

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?

1. 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). 
2. 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. 

1. Any change in factor (input) prices)
2. Expectations
3. Technology
4. Changes in other markets
5. 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