macroecon2019-blog

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Microeconomics: Chapter 22 Reflection

This is the last chapter in the course.  I hope you have enjoyed the course and are saddened to see it end.  What concepts or theories did you find most interesting and/or useful?  Is there an area where you changed your thinking?

And on the content in this chapter - Asymmetric Information and Adverse Selection is a topic that many of you find interesting (and me also).  Here's a video on how it affects the used car market: 

https://www.youtube.com/watch?v=sXPXpJ5vMnU

 (Links to an external site.)

The concept of asymmetric information was very interesting to me because I often wondered why and how suppliers like insurance companies or used-car dealerships market and price their goods. It also made me think about whether there are some suppliers out there that are coming up with more equitable ways of providing the most preferable price for their various types of consumers.

The concept of behavioral economics is an area that has enlightened my mind on the current developments learned from this text. It is nice to know that the authors of the textbook recognize and explain how even though the economic theories developed have been done so to best explain rational behavior, they also claim that new findings and phenomena are ever present because people and life are greatly complicated and not always rational. It is best to refer to the theories and ideas developed but also be aware of the circumstances that challenge those theories as well.

How do you manage the effects of asymmetric information when you are shopping?

Typically, I try to do some research and take extra time to contemplate before shopping so that I feel more confident about the products I purchase. However, sometimes, I do not have the time, patience, or skills to decipher what is the best purchase option for me. Normally, this leads to repetitive purchases that has lead to satisfactory results. However, I would like to implement more rational purchasing behaviors in a consistent manner. 

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Microeconomics: Chapter 21 Reflection

This is a complicated chapter.  What did you find most confusing?  What do you think about the concept of indifference curves in the context of budget constraints?

Does the concept of indifference curves add to your understanding of demand curves?  The existence of prices and income clearly leads to budget constraints.  Do you think about trade-offs for large purchases (ie a car payment versus rent/mortgage)?  How about small purchases?  Does timing matter (probably you aren't purchasing both a car and a house at the same time)?  How does the concept of indifference curves inform your thinking about purchases?

I used to hear that idea of giving up many small purchases to make single large one is very difficult.  Is that because we have trouble estimating and comparing utility values between small and large purchases?  I once figured out that 3 trips a week to Starbucks added up to our monthly mortgage payment.  And of course one extra payment a year cuts you payoff time from 30 years to 19.  That's huge, but difficult to visualize and value.

When reading about the effects of a rise in wages, I found that when a person increases their leisure time, this results in a backward sloping labor supply curve. I understand the concept behind it, but when looking at the graphs, I was a little puzzled. 

The concepts of budget constraints and indifference curves seem to complement one another. One’s budget constraint permits a certain amount of various goods a person can consume, while one’s indifference curves show the amount of goods one prefers, and thus chooses. 

The concept of indifference curves does add to the understanding of demand curves because one’s demand curve is essentially comprised of the optimal decisions given from one’s budget constraint and indifference curves. 

I do think about the large trade-offs from large purchases, such as my car payments and school tuition. For me, those are considered my current large purchases. Since I commute to work and school on a daily basis, the trade-off for a new reliable vehicle is greater than the monthly payments for them. In addition, as time continues, I find it more difficult to take classes while working, so the trade off of paying for school right now is greater than school tuition and the leisure time I could have. 

While my large purchases seem to be fixed, I try to lower the amount I spend on my small purchases that seem to be more frequent. For instance, I set goals to cook more at home and spend less on take-out. At the same time, I try to lower the amount I spend when grocery shopping as well. This allows me to use more of my income for my large purchases. 

Learning about indifference curves has helped me visualize what my specific preferences are when it comes to buying various goods that are affected my budget constraint. For me, I would rather limit smaller purchases on goods that are cheap and single-use and spend a little more on goods that are more pricey but far more reliable and reusable. 

[macroecon2019-blog]

Microeconomics: Chapter 20 Reflection

Write a 200 to 250 word summary of this chapter.  Be sure you capture the main ideas.  (But don't go over the word limit -- the point is to try to write the summary.)

Economists have some difficulty in calculating the true degree of inequality in society due to the effects of other variations of income, such as in-kind transfers, the economic life cycle, transitory income, and economic mobility. There are several political philosophies that centers around the government’s role in distributing income. This includes utilitarianism (the distribution of income that maximizes the sum of the utility of everyone in society), liberalism (the distribution of income guided through unknown stations in life) and libertarianism (the fair process provided for all to determine their stations in life). Lastly, several policies aimed to assist the poor were discussed, such as minimum-wage laws, welfare, negative income taxes, and in-kind transfers. Although these policies help the poor in the short run, economists argue that the poor are ultimately discouraged from escaping poverty due to high effective marginal tax rates. 

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Microeconomics: Chapter 19 Reflection

Post three of your "margin notes" from your reading of the chapter to your blog.  Why did you make the comment you made in the margin?  What did you find confusing, useful, or important about the passage you commented on? (I know many of you don't use margin notes or even take notes as you read, for this blog just note down what you found interesting and might like more information on. What caught your eye as you read the chapter? Why did it catch your eye?)

There are two views of education analyzed: the human-capital theory and the signaling theory. Both views help explain why more educated workers tend to earn more than less educated ones. “According to the human-capital view, education makes workers more productive; according to the signaling view, education is correlated with natural ability. But the two views have radically different predictions for the effects of policies that aim to increase educational attainment. According to the human-capital view, increasing educational levels for all workers would raise all workers’ productivity and thereby their wages. According to the signaling view, education does not enhance productivity, so raising all workers’ educational levels would not affect wages.” The notes of these two views are important to me, especially as a current college student, because they help explain why education is an important human capital for both employees and employers. 

Because natural ability and many other personal characteristics determine how productive workers are, they also play a role in determining the wages they earn. “One interpretation is that good looks are a type of innate ability determining productivity and wages. Some people are born with the physical attributes of a movie star; other people are not. Good looks are useful in any job in which workers present themselves to the public—such as acting, sales, and waiting on tables. In this case, an attractive worker is more valuable to the firm than an unattractive worker. The firm’s willingness to pay more to attractive workers reflects its customers’ preferences.” I found this note interesting because attractiveness can vary from one employer to the next. However, if there is a general consensus of what an attractive person looks like, those who fit the mold have some advantages over those that unfortunately do not. 

“Competitive markets contain a natural remedy for employer discrimination. The entry of firms that care only about profit tends to eliminate discriminatory wage differentials. These wage differentials persist in competitive markets only when customers are willing to pay to maintain the discriminatory practice or when the government mandates it.” The summary of employer, customer, and government discrimination was very interesting to me. In particular, the historical analysis of such discrimination made it clear to me how profit can help deter discrimination, while customer and government policies can engage discrimination. I wonder if there is employee discrimination as well that can be measured and analyzed? 

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Microeconomics: Chapter 18 Reflection

Pretend for a moment you are the instructor developing this course.  Write 3 short answer questions for an exam over this chapter that you believe cover the most important points in the chapter. Post all three questions on your blog.  Give an example of a great answer and an okay answer to each question. (Be sure to differentiate between the two responses. Don't write simple definition or list questions.) 

Your overall goal here is to first choose questions that highlight the important part of the chapter - which means you have to decide what that is.  The second goal is to be sure you know the difference between a C answer and an A answer.  An A answer will talk about the theory covered in the chapter and will include some analysis of the concepts. A answers are almost always longish.

What is the theory most economists use to explain how labor, capital, and land are distributed throughout the economy?

C Answer: The theory that most economists use to explain how labor, capital, and land are distributed is called the neoclassical theory of distribution. 

A Answer: The theory that most economists use to explain how labor, capital, and land are distributed is called the neoclassical theory of distribution. To establish a basic framework, most economists use the neoclassical theory when distributing the economy’s income. This theory helps explain how the amount paid to each factor of production depends on the supply and demand for that factor. In particular, demand depends on that particular factor’s marginal productivity. In equilibrium, each factor of production earns the value of its marginal contribution to the production of goods and services. 

Does a change in the supply of one factor alter the equilibrium earnings of all the factors? 

C Answer: Because factors of production are used together, the marginal product of any one factor depends on the quantities of all factors that are available. 

A Answer: When the supply of any factor changes, the effects are not limited to the market for that factor. Commonly, factors of production are used together in a way that makes the productivity of each factor dependent on the quantities of other factors available used in the production process. Thus, when some event changes the supply of any one factor of production, it will typically affect not only the earnings of that factor but also the earnings of all the other factors as well.

Where does the supply of labor stem from? 

C Answer: The supply of labor stems from the trade-off between work and leisure. 

A Answer: The supply of labor essentially stems from the trade-off between work and leisure. An upward-sloping labor-supply curve represents the response to an increase in wages by working more hours and enjoying less leisure. In addition, the labor-supply curve, which reflects the labor-leisure trade-off, also responds to a change in that opportunity cost. An upward-sloping labor-supply curve means that an increase in wages induces workers to increase the quantity of their labor. However, since time is limited, additional work results in less leisure. 

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Microeconomics Chapter 17 Reflection

An oligopoly is a market or industry that is dominated by a few companies that sell the majority of a particular product. Disney is an example of an oligopoly in the American film industry that has recently purchased all the media assets of 21st Century Fox, making it the largest media powerhouse in the market. (https://www.investopedia.com/articles/financial-theory/11/walt-disney-entertainment-to-empire.asp)

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Microeconomics Chapter 16 Reflection

Advertising in industries such as monopolistic competition seems irrational. I understand that some industries that sell the majority of cereals or soft drinks try to create brand loyalty and show how they are willing to spend thousands of dollars on advertising to prove their quality. However, I tend to look at specific websites or stores that sell the type of goods I am looking for. As a consumer, I highly value the ingredients and quality of my products and would feel comfortable spending more for something that claimed to be or do as explicitly described. Ironically, I do not like to buy certain cereals that are advertised because of how irrelevant they are to improving health. From my experience, such irrelevant advertising makes me less likely to buy their products. This strategy could harm industries that are not aiming to persuade consumers who value their consumables in relation to their health.

In the case of the study that compared states that advertised lenses versus those that did not, it was surprising to know that the states that did not advertise lenses charged more for their products. Perhaps an item that is not advertised can mean a less informed public and therefore make the public more willing to take a higher price as is.

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Microeconomics Chapter 15 Reflection

Prior to reading this chapter, I did not make the connection of governments granting monopolies the exclusive right to produce a good. It made sense for goods such as new technology and pharmaceuticals but I was surprised to learn about other goods such as art and novels. In addition, I didn’t realize that a monopolist’s marginal revenue is less than the price of its good because a monopoly faces a downward-sloping demand curve. Because of this factor, I understand more about why a monopoly won’t jump at the opportunity of producing a large quantity of output, even if, from the standpoint of society, it may be preferable.

A regulated monopoly today would be a water company. Water companies typically produce a good that doesn’t have any close substitutes. Furthermore, the regulation and infrastructure of water has enormous capital investments involved and the quality and preservation of water is something the government has an interest in. Because of these attributes, water companies are constructed best as monopoly firms. If there were multiple water companies in a concentrated area, it would be possible to see a slight fluctuation of prices, perhaps in the attempt of gaining new consumers, or in the event that one water company doesn’t have as many consumers or experiences financial, technical, or quality difficulties and has to charge accordingly. 

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Microeconomics: Chapter 14 Reflection

A perfectly competitive firm maximizes revenues where P=MC, or price is equal to marginal cost. More so, a perfectly competitive firm will aim to provide a quantity of output where marginal revenue equals marginal cost. And since marginal revenue equals the market price, a perfectly competitive firm will choose the quantity from which price equals marginal cost. P = MR is used for a perfectly competitive market because in this market the market price is fixed from supply and demand. 

In perfectly competitive markets, there are many buyers and sellers; each firm makes a similar product; consumers and producers have access to data on price; and there are no barriers when entering or exiting the market. An example of a perfectly competitive market is the agricultural market. In this market, numerous farmers (producers) sell the same type of goods (fruits and vegetables) to many shoppers (consumers).

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Microeconomics: Chapter 13 Reflection

This chapter is critical to your overall understanding of economics.  Be sure to spend extra time deriving and drawing the various curves.

Why do marginal costs first fall and then begin to rise? (Think about productivity and how it is impacted by fixed resources.)

Why are marginal costs important to a firm when making decisions to increase or decrease production?

How can you apply these cost concepts to your own life? How do they relate to opportunity costs?

Marginal costs first fall and then rise. This is so because as the quantity of output increases, so does marginal costs. When depicted on a graph, this concept of diminishing marginal product forms an upward slope.

When small quantities of production occurs, there are typically fewer workers and/or less use of equipment, so the marginal product of one extra worker is typically large and the marginal cost of an extra product is small. 

On the other hand, when a company produces are large quantity of products, this can entail the condition of many workers using more and/or full use of available equipment. If equipment is limited, workers may have to wait for its use and/or spend more time coordinating the use of equipment. These extra steps can lower the marginal product and ramp up the marginal cost of production of an extra product. 

Understanding the mechanisms at play behind marginal costs can help firms decide the amount of employees, equipment, and facility space it should use to establish the efficient scale, or the quantity of output that minimizes average total cost.

The cost concepts analyzed can be translated to various aspects of daily life. For instance, I can use the mathematics involved to compute marginal costs to see what it takes for me to do all the chores at home, cook my meals, work full time, and go to school full time, verses hiring people to do some chores for me at home or go out to eat every so often. When gathered on a graph, I can visually see the opportunity costs from doing all activities myself (generalization) and paying for some services to be done by others, allowing more time for me to focus on school and work, for instance (specialization). 

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Microeconomics: Chapter 12 Reflection

If you want to read more about government expenditures one source is the Economic Report of the President, available online here:https://www.whitehouse.gov/wp-content/uploads/2018/02/ERP_2018_Final-FINAL.pdf  

 (Links to an external site.)

(Google to get the most recent version - it wasn't out when I was updating the class.)

Now that you have had a chance to think about tax systems which type do you prefer - progressive, flat tax, income, consumption - there are quite a few possibilities. How do you think the concept of equity or fairness fits into a tax system? How about incentives? President Trump says the last tax bill caused structural changes in the economy that will lead to more growth. What do you think? Can you find any data to support your view?

The Fiscal Ship game has a section on tax policies - http://fiscalship.org/

 (Links to an external site.) If you want to, go play that game and report back how your chosen tax policies affect the Federal budget.

After reading the text on various tax systems, my go-to on selecting favorable tax systems is generally on what is simple and easy to compute. Therefore, I prefer the qualities of a flat tax, but I would also like to aim that tax towards consumption expenditures rather than earnings. This would hopefully encourage more Americans to work and save more rather than spend more. I favor this system because it stands that nations that earn more and save more are more apt to enjoy a higher quality of life and prepare for fluctuations in the economy. 

Although it seems reasonable to want to find a tax system that is both efficient and equitable, it seems that when politicians run for office, their propositions may seem “equitable” for the general public, but the actual results from certain tax increases, such as increases in corporate taxes for instance, can be misleading. This is so because people inevitably pay taxes not corporations. 

Taxes should be aimed to incentivize more economic output, higher education, and savings. Lastly, with any new tax bill implemented, it may be difficult to analyze the immediate results, and therefore, it may be too difficult to determine whether recent tax implementations are generally efficient and equitable.

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Microeconomics: Chapter 11 Reflection

Think of an example of a Public Good (not a publicly provided good, but a Public Good using the definition from the chapter.) What are the costs of providing the good? What are the benefits? Is there another way to have the good provided? Did this chapter cause you to think of Public Goods differently? In what way?

Review the definition of a public good before answering this - not all publicly provided goods are public goods. Parks, for example, are both rival and excludable. Just think about Maroon Bells. If your good is provided both privately and publicly (recreation centers for example) it almost certainly is not a Public Good.

If you prefer to answer this question from the other direction:

The reverse of this question is to think about a good that is provided publicly, but is not a Public Good.  How else could it be provided? Why do we choose to provide it publicly? Would you continue to provide it publicly? Why or why not? (Denver-Boulder turnpike is an interesting discussion here.)

As described in the textbook, a public good is a good that is not excludable (people cannot be prevented from using the good) and is not rival in consumption (one person’s use of the good does not reduce another person’s ability to use it). 

An example of a public good is street lighting. Once the light is on, it is hard to prevent any single person around from seeing the light. In addition, when one person uses the benefit of the street light, this benefit does not prevent others from enjoying that same benefit. 

The costs of providing street lighting may come through local state taxes. These are used to manufacture, install, operate, and maintain the street lighting in a neighborhood, town, and/or city. The benefits include safer and quicker modes of traveling when there is adequate light available to navigate roads. 

Another possible way to provide this public good is to convert it to a private good. This would include a company owning the street lights and turning them on when property owners pay for the use of the street light. 

This chapter altered my views of what a public good is. It takes substantial data and knowledge for the government or the private industry to provide specific public goods to ensure that they are allocated efficiently.

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Microeconomics: Chapter 10 Reflection

This is generally a very interesting chapter for everyone. What is an  example of a negative externality that interests you? Could the problem be solved via negotiation (Coase Theorem)?  Why or why not? Do you favor regulation to solve this externality? Why or why not?  

(Don't respond "pollution". Be specific. What type of pollution, caused by what. There are many examples of externalities beyond "pollution" and of course many many types of pollution.)

Would you regulate your example via a tax or via a rule? Why do you prefer one solution over the other?

An example of a negative externality is the after-use of plastic containers, such as toothpaste containers. Generally, I try to recycle plastic toothpaste containers but among many other plastic containers, it seems like those items are tossed into the trash and end up in landfills, oceans, etc. 

In addition to regulation by tax, I would also encourage dental product companies to revolutionize their products and packaging, like Dirty Hippie or The Dirt, to name a few. These companies offer cruelty free, vegan, organic/natural, palm oil free, ethical sourcing, and thoughtful packaging tooth powder that come in glass jars that are refillable.

In terms of regulating the product content and packaging of toothpaste, a tax should be instituted. A tax is just as effective as rule regulation in reducing pollution levels. The higher the tax, the larger the reduction in pollution. If the tax is high enough, dental product producers that use questionable ingredients and rely on plastic packaging may close down their operations altogether, reducing plastic waste pollution significantly.  

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Microeconomics: Chapter 9 Reflection

After reading these essays what do you think about protecting manufacturing industries from international trade? Who is benefiting from the tariffs on steel and aluminum? Who is losing? Do you think more people will benefit than will lose? Why or why not?

Look up the employment trends in manufacturing. (Try the Bureau of Labor Statistics). When did manufacturing employment reach its peak? How about manufacturing output? Why do you believe manufacturing employment is declining while output increases?  

After reading the essays by Becker and Posner, it may be more beneficial for the U.S. to encourage manufacturing industries to trade internationally as advances in technology and comparative advantages of providing services can help boost the American economy in the long run. 

When there is a tariff on steel and aluminum, it impedes the process of manufacturing productivity. Whether the nation benefits most from importing or exporting manufacturing goods and services, the American economy does not benefit when tariffs raise the production costs and slows down productivity time. Thus, as manufacturing jobs are decreasing and the reliance on advanced technology and imports are rising, it is most effective that the resources required for manufacturing are allocated efficiently.

The U.S. government should assist those in the manufacturing industry that are adjusting to the market with technological advances and international trade to remain competitive. In addition, the U.S. government should delegate its resources to other sectors of the economy to boost productivity and create higher standards of living, such as the science sector, the technology sector, and higher education among the American public. 

According to data tables and graphs from the Bureau of Labor Statistics (see picture below), it appears that around year 1979 there was the highest amount of employment with about 20,000 employees. Furthermore, from year 2017 onward, it appears that the highest rate of productivity, 100 index of output per hour, has occurred (see picture below). A decrease in manufacturing employment and an increase in manufacturing productivity may have stemmed from advances in technology and outsourcing manufacturing production in other countries. 

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Microeconomics: Chapter 8 Reflection

Give an example of a tax that you have paid in the past. Pretend for a moment you are a member of the group considering imposing this tax (city council, state legislature, etc). Give three reasons from the text to impose the tax. Give three reasons not to impose it. What would the economic theory from this section of the course have to say about your tax? Will it raise much revenue? Will it change purchase decisions?

OR

Pick a concept from the chapter and summarize it in a single word. In a paragraph, explain why the word you chose summarizes or describes the concept.

Chapter 8 Concept Single Word: Deadweight

Deadweight is a term used to describe the effects of how a tax implementation can shrink consumer and producer surpluses as well as shrink the total revenue raised by the government. Deadweight losses can occur when certain taxes and the amount of a tax are imposed because they affect consumer and producer behavior, thus shrinking the scope of a market. In essence, large elasticities contribute to large deadweight losses in a market. If a tax severely distorts incentives of producers and consumers, the market may shrink so much that no tax revenue can expand or exist. In summary, certain taxes can kill or make a market “dead.”

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Microeconomics: Chapter 7 Reflection

1.  Describe efficiency from the perspective of an economist.

Economists may describe an efficient market as one that maximizes its total surplus when allocating its resources. Economists can calculate total surplus of a market by subtracting the total value to buyers of a good from the total cost to sellers of providing a good. From computing total surplus, economists can determine whether a good is being produced by the sellers with the lowest cost and whether consumption of a good is from a buyer with the highest valuation. 

2. Why are producer and consumer surpluses important in determining market equilibrium?

Producer and consumer surpluses are important factors that determine market equilibrium. The producer and consumer surpluses show the amount of buyers that do and do not value a good and the amount of sellers that have a low and high cost of producing a good. This data is useful when determining if the producer and consumer surpluses are efficient. 

3.  Should market efficiency always be the goal of policy setters?  Why or why not? What might an alternative be?

Market efficiency should be a prominent goal of policy setters to ensure that resources are allocated appropriately while generating a competitive market. However, it is essential that policy setters also consider externalities of efficiency to ensure that other side effects, such as earth sustainability and human health, are not neglected or compromised. An alternative approach should be to raise the efficiency standards of sustainable and health factors in consumer and producer systems rather than pure profit initiatives. 

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Microeconomics: Chapter 6 Reflection

A few years ago there was a flurry of blog posts from economists on price controls and inflation in Venezuela.

Read this article from the Times: http://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html?_r=1 (Links to an external site.)Links to an external site.

How does this relate to the theories from the chapter?

The article “With Venezuelan Food Shortages, Some Blame Price Controls” written by William Neuman describes the Venezuelan government’s attempt to provide better equality for the poor by imposing price controls. Due to the staggering inflation along with “companies causing shortages on purpose, [and] holding products off the market to push up prices” (par 10), government officials believed price controls was the solution.

The unintended consequences of the economic policies resulted in the prices of goods being set so low that companies and producers could not profit. As a result, “farmers [grew] less food, manufacturers cut back production and retailers stock[ed] less inventory” (par 12). Essentially, suppliers lost incentive to produce goods.

What was initially intended to help the poor afford goods led to a scarcity of goods and harmed both the producers and consumers of Venezuela. This articles represents some of the theories of price controls mentioned in the textbook. Specifically, “[w]hen policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society’s resources”.

Now consider a different case.  After Hurricane Katrina and after Hurricane Sandy speculators brought in bottled water, but charged quite a lot for it.  What might have happened had price controls been imposed? How might speculators have responded?  What would have happened to the quantity supplied of water? How about the quantity demanded? Where does the concept of fairness fit into this subject?

If price controls were imposed on bottled water during Hurricane Katrina, bottled water may have had to be rationed among the public. Or if bottled water were scarce in supply, it may have been sold on a first-come-first-serve basis, resulting in long lines and hoarding by consumers. These outcomes would not be fair nor ideal for the public who are trying to survive a natural disaster. 

Last, choose an article about increases in the minimum wage and comment on it using the theories from this chapter in your comments.

Writers Casselman and Casteel analyze the effects of increasing Seattle’s minimum wage from 11 dollars an hour to 13 dollars an hour in “Seattle’s Minimum Wage Hike May Have Gone Too Far”. Implemented in the beginning of 2016, the goal was to “deliver higher incomes to people who were struggling to make ends meet in the city” (qtd. Jacob Vigdor, par 4). However, a “team of economists at the University of Washington suggests … that the increase [in the minimum wage] led to steep declines in employment for low-wage workers, and a drop in hours for those who kept their jobs” (par 2). Furthermore, data revealed that “the negative impact of lost jobs and hours more than offset the benefits of higher wages - on average, low-wage workers earned $125 per month less because of the higher wage” (par 2). The outcomes from this article supports the theories captured in the textbook which states that “[i]f the minimum wage is above the equilibrium level, the quantity of labor supplied exceeds the quantity demanded [and] results in unemployment”.