cmcecons2015-blog
CMC Summer 2015 Economics Blogapalooza
Microeconomics reflections labelled "micro" : Macroeconomics reflections labelled "macro"
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Ch 19 Reflection
1. Signal theory - this is an idea that I have heard of a lot, but have never seen described in these words. Working in a school, I sometimes tell students that it is not that they need to know algebra (they should, but try telling that to a 15 year old), it is that completing high school with good grades shows that they can stick with something and do well at it.
2. Above equilibrium wage - This is another topic that the book has referenced a bit in previous chapters but never named as a concept. It was interesting to see the reasons why a firm would go above market value on wages. Minimum wage has been discussed quite a bit in the text, and old Greg has had plenty to say about unions, but the efficiency wages are a pretty new concept that I had not considered before.
3. Economics of discrimination - As conversation so troubling that it is even uncomfortable to discuss in economic terms. The homework questions couching this idea in terms of height and hair color was interesting.
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CH 21 Reflection
Lots of questions in that last paragraph. Let’s see if I can hit them all.....
1. This chapter seemed really intuitive to me. Maybe I’m weird? It all seemed to make sense, and felt a bit like basic algebra. Well, it was basic algebra, but in direct application. It was the platonic ideal of what one thinks about in household economics: actions within budget constraints. Many people do this every day.
2. The indifference curves to add to my understanding of demand curves. It was nice to get that extra layer of complexity by learning how to derive demand curves from indifference curves.
3. Like any other curve in economics, there are a lot of variables that will affect an indifference curve. Those factors that you mentioned (trade-offs, timing, etc) would all move the consumer’s preference along the curve. Income and prices do create budget constraints, and these curves are an interesting way to compare two consumer preferences against each other with regard to those constraints.
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CH 22 Reflection
1. I think the most interesting part of the course for me was learning about market efficiency and all of its many variables. It was interesting to go from the basic concept into more complex effects and learning how things like taxation, or a change in market factors would affect the curve. It was kind of technical, but it was a good constant through some of the middle chapters of the course.
2. I try to read a lot of reviews before I make a major purchase. I assume that there is a good chance that any good I buy will not be up to snuff, especially since I tend to look for bargains. Researching past consumer experiences is the best bet I have found at mitigating the affects of asymmetrical information.
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Ch 17 Micro Reflection
1. I believe (perhaps in error!) that the cell phone industry could easily be an oligopoly. A few major players control the infrastructure, and a new competitor would either have to pay to use that infrastructure or develop their own at huge cost. To get to the last question first: anti-trust action in the cell phone service market probably promotes competition an improving products enough that it is worth keeping around. And the way that T-Mobile restructured contracts on a more European model is pretty cool--it would be no fun to see AT&T gobble that up.
2. The decision box shows a matrix of two actors faced with a dilemma and each has two possible options. Each actor’s decision will affect the other actor’s outcome. In collusion, both can determine which decisions will allow for the most profitable outcome. In isolation each actor will try to maximize its benefits.
These decision boxes appear to be the concept that I have the most trouble with. I may have just been thrown by the questions on the homework, but they did not make a ton of sense.
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Ch 16 Micro Reflection
1. Advertising could make monopolistic competition more or less competitive. On the one hand, it allows smaller or newer firms to raise consumer awareness of their products, which could allow them to compete. On the other hand, advertising is mainly crap lies to trick people into buying things from established companies with huge marketing budgets. This serves to reduce competition by allowing those well-entrenched, name-recognizable firms to dominate these markets. The truth is probably somewhere in the middle depending on the firm, the product being advertised and the targeted market.
2. Excess capacity was a pretty interesting concept. It is funny to think that firms benefit from operating at less than their most efficient capacity in order to maximize profit. It makes sense given the evidence, but seems counter-intuitive on its face.
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Ch 15 Micro Reflection
1. This chapter made me realize how monopolies are kept from raising prices by their downward-sloping demand curves. It makes sense that buyers would avoid a monopoly’s product or seek it through illicit means if prices are too high, but I had never considered it in the formulaic way that the chapter used.
2. The government maintains a monopoly on the legitimate use of force within our borders. This is not a service that is often bought or sold openly in this country, but that is partly because of that particular market’s ramifications on society if left unregulated. I believe that it is good for the government to maintain that monopoly, since a market-based approach to violence has the potential to get out of hand quite quickly and to the detriment of everyone’s welfare--economic and otherwise.
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Ch 14 Reflection
1. Efficiency is achieved when marginal cost equals marginal revenue. Since price and marginal revenue are the same in the model, it follows that revenues will be most efficient when price equals marginal cost.
2. The marginal revenue will be constant in all of the examples in the text. The price must equal the marginal revenue because the price in these instances stays constant.
3. Clothing manufacturers operate in a market that is more like this model than most others. There are several dominant players in the large scale, but firms can still enter the market and be competitive at smaller scales. I can think of several small companies that manufacture clothing and maintain efficient businesses. The economy of scale is at play in this market space, however it does not always smother competitors.
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Ch. 13 Micro Reflection
1. As inputs increase, the marginal cost may decrease because of specialization or better utilization of inputs leading to greater proportional outputs. The text gives examples mainly of labor. Marginal cost may decrease because production tasks are better spread through the labor force in a more efficient manner.
2. A firm must weigh the investment in increasing marginal costs against its goal of maximizing profit and minimizing costs. A rational firm will not allow increasing marginal costs to negatively affect its profits.
3. I know that in my own work there are marginal costs to performing tasks. For instance, there is probably a sweet spot of the number of economics chapters that I can effectively get through in a given time frame. There comes a point when the marginal cost of completing the chapter’s work increases as the numbers blur together and the terms become meaningless symbols, which will affect the profit that I seek: a good grade. This is probably a decent example of diseconomy of scale.
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Ch. 12 Micro Reflection
So far as I can tell, progressive taxes are the best way to maximize both efficiency and equality in government budgeting. Fairness should play a great role in how that system is designed. Someone on a social worker’s salary might feel that 4% flat as a loss of ability to buy clothes or heat his home, whereas that ‘fair’ proportional tax might make an executive in Denver sweat a little about the payments on his second home. Colorado’s tax structure is not at all surprising given the demographics at work. As a poor man I would vote for a proportional system; however I maintain the right to vote against it as a poor man with aspirations to get paid one day.
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Ch 11 Micro Reflection
These definitions seem a bit slippery, so here’s a try: a few years ago the town renovated the main street. The refreshed street is non-excludable because anyone can walk there, and it does not exhibit rivalry in consumption because the number of people on the street does not affect one’s enjoyment of it. A crowd might be a welcome change, but that’s a different story. Keeping the street clean and in good repair costs the town money and manpower. There are no real alternatives to provide this good since no businesses, private individuals or other entities would have a substantial enough benefit to invest in that kind of restoration. It provides an attractive place for business and visitors. It’s the only street in town with flat sidewalks!
I had not considered public goods in terms of their lack of rivalry for consumption before reading this chapter. I also still wonder about the divide between public goods and common resources, especially given the road examples. If a congested road is a common resource and a non-congested road is a public good, then where does one draw the line between the two? The book admits that it is murky, and I tend to agree.
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Ch 10 Micro Reflection
One of the most interesting examples of externality that I have seen recently is the debate over uranium mining in southwest Colorado. The mine would create wealth and meet a demand for uranium, however the health risks to the miners, the environment and the surrounding community are very great. To my knowledge the Coase theorem has not worked out in this case because the opposition to the mine are against it in any form and will not equivocate.
Were a mine to be reopened, then I would support regulation to mitigate the externalities. A cap-and-trade system is not terribly effective when the externality is so closely tied to health, so the only way to reduce the affect is to command the mining company to adopt certain policies to reduce or eliminate the affects of the externality.
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Reflection Ch 9 Micro
1. Prior to reading the chapter I believed that international trade is, on the whole, a positive thing. The book did not do a whole lot to change my opinion of international trade and the examples continue to be inelegant and strangely contrived. Could there be room for subtlety in an undergraduate text? I do not know. I do not think that this text will answer that question.
To get back to the question at hand: I couldn’t find anything to really sink my teeth into in the chapter. International trade is a really interesting topic, but a lot of that color exists in complexities that the text did not broach. I might just be a jerk, I don’t know.
2. I don’t think there is very much merit in protecting American manufacturing from foreign competition, other than in extreme circumstances. After 2008, for instance, it made some sense to adjust policy in such a way that kept certain sectors from collapsing forever because of relatively short-term excesses in the financial sector. On the whole though, under normal circumstances wherein bankers operate at only incredible levels of criminality rather than inexpressible levels of the same, domestic manufacturers should compete globally. There is much more to lose from being in isolation.
The ban on exporting natural gas is also strange and wasteful. Driving past a well or refinery that flares natural gas constantly is absurd enough in itself without the knowledge that there is a market for that ‘waste product,’ but it is inaccessible.
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Ch 8 Reflection - Micro
I honestly cannot think of a time when I have been deterred from a purchase by a tax. I found the text’s examples of taxation to be a bit much, if I can be honest. In the homework items were taxed at 75% of their value, which is incredible. Maybe I’m not buying the right stuff, but I can’t think of a time that I have encountered a product with a tax greater than 10%. Even then the rate did not deter my purchases. The aggregate that I may have saved by not having those taxes may have giving me more spending power, but that is the only deadweight that may have been experienced. The examples in the text would have had much less dramatic graphs with more everyday rates of taxation.
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Ch 7 Micro Reflection
1. An economist sees efficiency as the product of market interactions that maximize surpluses. The most efficient allocation of resources will have no waste and see both consumers and sellers receive the greatest possible surplus.
2. Surpluses determine welfare in an economic sense. The goal of both consumers and sellers in a market is to get the best deal possible, which means getting the largest surplus. Equilibrium is the price and quantity that the market determines from those desired outcomes.
3. The proper economics thing to say is that efficiency conquers all, however I have concerns outside of getting the most money possible. Efficiency is a good goal, but equality is also an important goal. Minimizing exploitation and violence in economic activities are also good goals, even at the expense of efficiency.
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Ch. 5 Micro Reflection
1. The most notable sales practice based on elasticity that I can think of is the way that live sports are packaged in television products. Live sports are the only TV program to maintain some inelastic demand: one has a vested interest in seeing the actual broadcast and streaming options are limited. Television providers can charge a premium for that content and package it with other channels that one may or may not want. This sales practices seems to be working pretty well, but will probably lose its effectiveness as technology makes more convenient substitute products easier to access.
2. I didn’t realize it until the aplia homework, but I struggled with graphs of the long term v. short term changes in elasticity. I understand the theory, but it took me a while to wrap my head around the graphic representation. I also kept flipping Q and P in my equations, but I think I got that one figured out. It all seems pretty intuitive, but I start to second-guess myself when faced with some of the very abstract questions. Unit elasticity is a concept that seemed very simple, but the examples in the problem sets threw me.
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Ch. 5 Macro Reflection
1. The most notable sales practice based on elasticity that I can think of is the way that live sports are packaged in television products. Live sports are the only TV program to maintain some inelastic demand: one has a vested interest in seeing the actual broadcast and streaming options are limited. Television providers can charge a premium for that content and package it with other channels that one may or may not want. This sales practices seems to be working pretty well, but will probably lose its effectiveness as technology makes more convenient substitute products easier to access.
2. I didn’t realize it until the aplia homework, but I struggled with graphs of the long term v. short term changes in elasticity. I understand the theory, but it took me a while to wrap my head around the graphic representation. I also kept flipping Q and P in my equations, but I think I got that one figured out. It all seems pretty intuitive, but I start to second-guess myself when faced with some of the very abstract questions. Unit elasticity is a concept that seemed very simple, but the examples in the problem sets threw me.
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Ch. 4 Micro Reflection
1. One would expect Uber or Lyft entering a market to reduce the demand for taxi medallions. Those services serve as substitutes for taxis, so the demand curve would shift to the left for taxi medallions.
2. I lived in the DC metro area during the notorious cupcake boom. Within a year or two there were boutique cupcake shops opening up in all of the desirable neighborhoods. In early days those shops could charge an immense amount for one of their treats as people flooded in to be part of the new fad. Shops opened at about the same rate as people getting tired of expensive cupcakes, so the supply surged while demand plummeted. A lot of those shops either closed or changed to selling doughnuts, which I think was the next confection fad to sweep our nation’s capitol.
3. I live in a town that, according to the most recent census, houses 485 people. As of last month, it is also home to two movie theaters. They are across the street from one another. With the new establishment came a surge of interest in going to the movies among residents in town. In a perfect market, one would expect the the quantity of movies available to increase, with the movement of the price unknown to me but ultimately based on how much demand increased along with supply.
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