Chapter 16

Chapter 16 was about oligopolies. Most firms are not either perfectly competitive or completely monopolistic. These are two extremes that rarely occur in real life. What is more of a realistic situation is a firm that is somewhere in the middle. The two kinds of firms that are in the middle are oligopolies or monopolistically competitive. When there is a competitive market that makes different products instead of the exact same one, like books or music, they still have some kind of market influence and it is therefore not a perfectly competitive market. We call this scenario a competitively monopolistic market. There is also the case where just a few companies produce nearly all of the output of a market, which is basically more than half. An example is tennis balls and this scenario is called an oligopoly. Oligopolies have the potential to be a monopoly if they collude together to form a cartel, like OPEC, but that is rarely the case. It is hard for firms to work together because everyone watches out for their own interests and that results in the total profit for everyone continually decreasing until a natural equilibrium is reached. This is illustrated through the example of the Prisoner's game. Antitrust laws also prevent collusion legally but the main reason it does not occur is probably that the needs of the individual often collide with the needs of the cartel. It can be a negative thing for society with cases like the arms race but beneficial with oligopolies.

Article Review 5

Scott Adams had an interesting way of looking at success. He went against a few commonly accepted methods of achieving success and offered his own methods. Some of his most notable proclamations include that passion isn't helpful. He claims that passion does not last and that if a business venture or any idea succeeds, he tended to have more passion for the idea. If the venture started failing, that passion slowly turns into frustration and eventually the individual quits whatever they are attempting. The bank that Adams used to work at held the same philosophy. They would give out loans to start businesses to individuals that had no passion for their work and that were opening the types of businesses that really didn't require a whole lot of passion, like dry cleaning. But when an individual walked in with an idea like a sports store because they had loved sports their entire life, Adams, alongside the rest of the bank employees, was taught to not lend that person any money because they were a lot more likely to fail. Adams also claimed that goals were for losers. He said that until a goal is reached, if it is ever reached, a person is always in perpetual failure, and once that goal is reached the person does not have any more motivation and they don't know what to do next but restart the cycle. He suggested that people followed a system rather than a set of goals.

Chapter 15

Chapter 15 dealt with monopolies. Monopolistic firms are price givers, not price takers, because they can manipulate the price of the good through the quantity they supply because they are essentially the market. There are three ways that monopolies are created, through a restriction on resource access, through government given power, and because natural monopolies are more efficient. Natural monopolies occur when there is a monopoly because of an economy of scale. If the ATC of a single large firm keeps decreasing the more quantity it sells, then it becomes difficult for new firms to enter the market and try to overthrow the large firm, so the large firm maintains market power. In order to maximize profit, a monopolistic firm find the point where MC=MR and produces that particular quantity. However, instead of choosing to charge MR and gain zero economic profit, they charge the price along the demand curve which is significantly higher, gaining a positive economic profit. The invisible hand would choose the point where MC(firm's supply curve)=Demand curve because that is equilibrium, but a firm chooses to produce at the point where MC=MR, causing inefficiency and dead weight loss. There are a couple of methods that the government can take to try to regulate monopolies like not allowing mergers and splitting large companies, regulating pricing, and having the government itself be the market for monopolies such as water and electricity. The government can also do nothing because, in reality, no market is perfectly competitive, it is always a matter of how imperfect a market is, and that factor can be less than the imperfection of government involvement thanks to corruption. Therefore, at times, it is better for the government to not intervene at all.

Chapter 14

Chapter 14 dealt with competitive markets. In a perfectly competitive market, as is assumed throughout the chapter, there are so many buyers and seller that no single person or firm has the power to affect the supply or demand. They're referred to as price takers. All of the goods produced are also identical. With the goal of any firm to try and maximize profit, we learned in the last chapter that the point at which you want to operate is when the marginal cost curve meets the average total cost curve which is also the lowest point on the average total cost curve. If the marginal cost is higher than the ATC, then production should be decreased and vice versa. There are times when the AVC is higher than the price and that means that for each good produced and sold, you are actually losing money, so the more goods you make the more money you lose. That is when a firm should shut down production, at least temporarily. A firm could be operating between AVC and ATC in the short run because they are still making money by selling goods and they expect to be making money in the future. In the long run, only profit is acceptable so if a firm is not operating at ATC or higher then it needs to shut down and exit the market.

Chapter 13

The main topic of chapter 13 was the cost of production. The chapter starts off with defining what total revenue is for both economists and accountants. The book is clearly biased towards economists but the information was still straightforward. When accountants determine how profitable a business is, they consider the total input cost and the total revenue gained and take the difference of the two to get the profit. The total revenue gained is easy to measure but accountants only use the explicit costs to determine the total cost. Explicit costs are things that actually come out of the business like the costs of inputs or the cost of workers. Economists view profit differently. For the total cost, economists consider both the explicit costs and the implicit costs, to sum up all of the opportunity costs since the price of something is what you gave up for it. So a business will almost always have a higher accountant profit than a economic profit but a business hat has very little economic profit is probably still going to be worth the effort. The second part of the chapter discussed the property of diminishing marginal production and how, with the equipment kept constant, too many cooks ruin the stew. The last part of the chapter discussed ATP, AVC, AFC, and MC and the relationship among the four.

Article Review 4

The article was not by Stockman! However the main topic was still impending doom. Reinhart starts off by talking about some tell tale signs that an economy is about to fail or have a recession. With the crash of 2008 behind the world, they are moving on to other things and the main topic of the day is the future of emerging economies. The problem is that a lot of emerging economies are showing a lot of these tell tale signs of a failing economy. China is also the main culprit helping perpetuate some of these failures. With almost all of the tell tale signs relatively easy to spot, there is a characteristic that is more difficult to measure and countries like China make it even tougher than before. A lot of emerging countries have hidden debt, when the severity of their economic failure is disguised or the amount of debt owed to various nations is blurred. It is hidden because there is not data to show for it and that is because of various reasons. China takes loans out from various start up banks who don't keep extensive public records. Most of the countries transactions aren't kept track of by the World Bank and with the estimates already taken, there is a lot of leeway in either direction because of unaccounted projects and borrows and lenders. However this is still valuable data that can possibly tell the world what is about to come even if it cannot do anything to stop it.

Chapter 11

The main topic of this chapter was the various ways that goods and markets are classified. There are two main tools used, whether a using a good diminishes the next person's use of the good, or rival in consumption, or whether someone can be kept from using the good. All private markets that economists normally analyze are positive for both of these characteristics. Public goods, in the book a tornado siren was given, are neither of these. Everyone can hear the siren and everyone also gets the same benefit from the siren. Common goods such as fish and animals cannot be restricted in use but their use diminishes the use by others. Then there are goods whose use doesn't get diminished when others use them but they are often restricted. The main problem comes with common goods and public goods. For one, they are both free so there is no incentive to create a supply. It may also be difficult to charge people for the service, such as fireworks, even though people would generally be okay with paying a small fee. This is when the government steps in and does its job. It may place a restriction like a fishing restriction or a pollution restriction, in the case of the public good clean air, or a tax on everyone to generate revenue to be spent on things like fireworks. The government has to be careful with the specifics of the policy but these free markets are naturally considered market failures in need of assistance.

Chapter 10

This chapter talked about a specific kind of market failure, externalities. They are a type of market failure because the market is not able to function at equilibrium and one of the purposes of government is finally put into action. There are two types of externalities, positive ones and negative ones, and both need to be dealt with. With a negative one, like pollution, a tax or production limit is imposed which helps to deal with the hurt third party and it creates an incentive to find a method of production that no longer hurts the third party. Another method of dealing with a negative externality is through a kind of limit. With pollution, for instance, companies may be given a number of permits which represent how much pollution they are allowed to permit. The benefit to this method or the method of taxes is that a whole new market is created. For some companies, it is extremely expensive to reduce pollution while for others it is cheap to reduce a glop. So the companies that cannot reduce much pollution value these permits more highly and are more willing to pay a higher price for the permits. That way, those companies that can easily reduce pollution sell their permits and it ends up being more cost efficient overall than imposing a tax or forcing all companies to reduce their pollution by a specific amount. With a positive one, like education, the government usually subsidizes in order to make it available for more people. There is still a deadweight loss with subsidies but that deadweight loss is supposed to be eliminated once the failed market has been fixed by the government with that same subsidy.

Article Review 3

Stockman just tears apart Ben Bernanke's article in the Wall Street Journal. Ben Bernanke was a former head of the Federal Reserve and in his article he talked about how the government is doing such a great job and how the nearly zero interest rate policy has brought the economy back to the way it was just a few years ago. However just a few years ago is defined as the height of a recession so job growth figures are extremely misleading when the original comparison is with a period of economic turmoil. Outside of jobs created through government funding in specific fields, there has been very little job growth since 2001 yet the national debt has been multiplied again and again. The national debt of China has also skyrocked with an increase of 27.5 TRILLION dollars of the past 20 years. The reason for Brazil's short term spurt of economic success is also because of the credit borrowed by China during this time and so Brazil's current state of economic failure is the fault of China. Stockman insinuates that the reason for the article is to assure investors and the country that everything is fine and dandy when in reality it is all falling and apart and the bubble is only being postponed. Banks such as Goldman Sachs are successfully pushing the government to extend the policy halfway through 2016 and they will still have a large warning before the policy wears off in another attempt to postpone the burst. But the bubble will eventually burst and its just about that time to pay the price for the last two decades of false prosperity.

Chapter 8

The general topic of chapter 8 was taxation and the negative impact it has on a market. The government needs revenue to do its job and so taxes are necessary. However taxes still cause market distortion that can and needs to be minimized. In addition to the revenue that the government takes and the total surplus shrunk, which in turn decreases market efficiency, dead-weight loss is created which represents all of the transactions that would have occurred if not for the tax. The revenue lost from dead-weight loss is not gained by the government or by buyers or sellers, it is simply lost. That is why it is important to be careful about which commodities to tax as a policymaker. It generally does not matter if a tax is levied on the demand or supply side since it will end up being shared by both but it does matter which markets are taxed. Whoever is more inelastic, demand or supply, will continue to bear the majority of the burden of the tax so choosing a market in which many small businesses have inelastic with their supply will cause them to go shut down while choosing a market where people will continuously buy the product such as health care will just hurt the common people. However inelasticity also causes the least amount of market distortion and creates the smallest deadweight loss. That is why policymakers must evaluate which market can survive a tax without hurting the public too much and which market is close to perfectly inelastic, if one exists.

Chapter 7

IT FELT LIKE CHAPTER 7 WAS A DRAWN OUT EXPLANATION OF SIMILAR CONCEPTS SO OVERALL IT WASN'T DIFFICULT TO UNDERSTAND. THE MAIN POINT OF THE CHAPTER WAS THAT EQUILIBRIUM IS BEST FOR EVERYBODY INVOLVED AND IT WENT ABOUT PROVING THIS IN DIFFERENT WAYS. TWO TYPES OF SURPLUSES, CONSUMER SURPLUS AND SUPPLIER SURPLUS, WERE DISCUSSED AND EXAMPLES USING MUSIC ICONS WERE USED. MAXIMUM EFFICIENCY IN A MARKET IS HAVING THE MAXIMUM AMOUNT OF TOTAL SURPLUS OR THE SUM OF THE TWO TYPES OF SURPLUS. MAXIMUM EFFICIENCY SEEMS TO BE PRESENT WHEN THERE IS UNIT ELASTICITY. ELASTICITY OF THE SUPPLY AND DEMAND CURVE DETERMINE WHO HAS THE MOST SURPLUS. INELASTICITY IS THE GOAL AS IT ALLOWS YOU TO GAIN THE MAJORITY OF THE SURPLUS.THE CHAPTER ALSO TALKED ABOUT THE MAIN GOAL BEING MARKET EFFICIENCY WHICH ALLOWS A HEALTHY MARKET TO THRIVE OVER FORCED EQUITY. OTHER TOPICS DISCUSSED INCLUDE THE IDEA THAT CONSUMERS WILLING THE PAY A LARGE SUM OF MONEY FOR A GOOD AND PRODUCERS WILLING TO SELL THAT SAME GOOD FOR A VERY LOW PRICE ARE ALWAYS THE FIRST PEOPLE TO COMPLETE TRANSACTIONS WITHIN A MARKET. THOSE TO THE RIGHT OF EQUILIBRIUM REPRESENT TRANSACTIONS THAT WILL NOT HAPPEN. THE BUYER WILL NOT VALUE THE GOOD HIGH ENOUGH TO PAY A PRICE THAT THE PRODUCER IS WILLING TO SELL THE SAME GOOD AT, THEREFORE NO ONE IS BENEFITING AND THE DEAL DOES NOT GO THROUGH.

Article Review #2

This article uses easier vocabulary and is just overall simpler than the last one we read. The main topic discussed was global deflation and how he believes the U.S. is headed for a recession soon. Using China and Brazil as examples of what our fate may look like and as causes to our own future, Stockman discusses the failures of commodity markets and how bubbles years in the making are about to burst and how they have already begun to do so. In the case of China he discusses the overproduction of products that they already produce a large amount of, causing a plummet in prices. Commodity prices have dropped 50% in three years world wide and China's economy is so based on credit and bubbles that the past decade is finally catching up with it. The country's inflation rate is also incredibly high in an attempt to try to devalue the debt that it owes. With the future looking bleak, investors have no reason to try to pump money into the system and just lose it all. This forecast has caused stock market prices drops back here in the U.S. and it only propels the inevitable recession that we're going into soon. A similar issue is also happening in Brazil. With its relatively recent industrialization, its economy relied heavily on exports and boomed. However it peaked very quickly and a ton of new factories opened up and new jobs were available, only to be shut down once the eventual decline came around and the decline has been here for some time now.

Chapter 6

Chapter six dealt was a fairly easy chapter that did not take a whole lot of thought to decipher. The chapter dealt with ways in which the government interferes with the natural flow of the economy and the various techniques the government employs to get what it wants. The two main tools of the government discussed in the chapter were limits, either through price ceilings or price floors, and taxes. All three mess with the natural equilibrium price of goods and costs efficiency in the name of equity. Price floors are minimum prices for goods set by the gov and this results in an apparent shift in demand because of the suddenly higher required prices and producers as a result produce more goods to try to meet that apparent demand but they end up with a surplus of goods because consumers never asked for more supply in the first place, it was the government that made it seem that way. Price floors are usually set to be fair to the producers of the raw materials used in production, not the seller or the buyer. Price ceilings on the other hand cause prices of goods to go down and as a result the demand for those goods goes up, but producers are making less money and often times cannot produce those goods as cheaply as before the price ceiling and there is therefore a shortage of goods. Taxes are the largest source of revenue for the government and used in a number of goods but in items like cigarettes, they are also used as a weapon, somewhat ineffectively too.

Chapter 5

Chapter five was relatively difficult but very doable. It was once again slightly more difficult than the last chapter but probably easier than the next one and I assume the pattern will continue. Chapter five was a progression meaning that it built on the material learned from chapter four and it brought math into the equation which I've been excited about for a while now. The main topics discussed were the elasticity of demand and supply curve as well as the different kinds of curves that exist. Elasticity generally means how flexible something is and that applies to economics. In economics it is how much either of the curves shift or react when there is some kind of change. If there is a lot of change, it is known as elastic and when there is barely any change it is considered inelastic. The effect of the changes in price was exemplified through necessities and luxuries by the book. The book also showed how to calculate the elasticity of a curve with percent changes and that wasn't difficult to understand. This makes me wonder how the elasticity factor of a graph that we learned about in pre-calculus last year comes into this. Availability, time, and income are also three major factors that effect the elasticity and they generally determine the value. All in all, it wasn't a difficult chapter but starts getting into the nitty gritty bits of econ.

Article Review

The article was a big jump from the simplicity of the first four chapters we've read from the book but after a few days of thinking it over and rereading and researching, I've found that the general gist of the article was as follows, Keynesian economics is a failure. They have led to nothing positive in the long-run and are only stalling an inevitable crash of a bubble they have created themselves. Essentially, wall street has been taking free money from the government for the past 80 months. This has lead to a creation of a bubble around wall street, which like the internet bubble and the housing bubble, will eventually crash. Large corporations have also been loaned money from the government at a very low interest rate and this money was supposed to be loaned out to the general public in hopes of helping to alleviate some of the financial struggles they may face and and in turn promoting spending overall. However these corporations have actually been keeping the money by charging really high interest rates themselves. The author argues that these economies are nothing but bad news and it is the low interest rates that are causing most of the issues and the buildup that will lead to a crash. The author is also very against government interference in most cases. He believes that the government hasn't positively affected wall street and that most policies and actions, like inflation by printing more money, have only perpetuated the bubble once more.

Chapter 4

Supply and Demand were the two main topics of the chapter. There is a direct correlation between them, they have an inverse relationship. Supply is controlled by the seller and demand is controlled by the buyer and there is rarely a single entity that has the power to drastically change either one if there is healthy competition. When there is one entity, it's known as a market failure and the government usually steps in. Whenever there is a change in demand or supply at EVERY price, not just a single price or a few, then it's known as a curve shift. This is an important distinction since in order to change the demand or supply at every point it must be a drastic change, whether that comes as a result of a public shift in opinion or government influence. The main example used was ice cream in a small town. In any given town there will be a number of ice cream shops and people that buy ice cream from those shops. Price is the main motivator when people decide whether or not they want to buy something and the quantity that they want to buy and the equilibrium, or where the supply and demand curve meet, is where the price is located. It is at the equilibrium that the buyer's value of a product and a seller's cost meet. That is why price is so important and such a valuable indicator of natural economics and trade and why government interference tends to hinder trade rather than help it.

Journal 1

    Chapter 3 wasn't really difficult to understand. I liked it since the next few chapters will probably be harder. The chapter focused on the different aspects of a trade and what both sides can bring to the table. The main analogy used was that of a farmer and a rancher. Both of these people produced meat and corn but at different rates. By having each of them produce only one of these and not both and trade with each other, everyone was able to have more than what they were originally supposed to have. The chapter explains that this is because of their comparative advantage, or who essentially has less opportunity cost, or all of the other possible options when making a choice, when producing one product or making a choice, and much less their absolute advantage, or who was able to produce more of both every product. By specializing, the farmer and the rancher were able to consume more than what they would have if they tried to manage both farming and herding on their own. This analogy was meant to represent any market in Capitalism. By having everyone within a market or even an economy specialize and do what they are best at and then trade with each other, everyone is able to receive a bigger portion of the bigger overall pie, all thanks to the different opportunity costs of people. This chapter illustrates this point very well and in an easy to understand way.