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.