Microeconomics Blog

What concepts or theories did you find most interesting and/or useful? Is there an area where you changed your thinking?

the part that I found interesting was the part speaking about companies and how they decide whether they should stay open or not, given that they always have a given amount that they have to pay they must stay open even if there is no profit in the short run in order to cover those baseline costs (I forgot the actual phrase). Not only was that what interested me the more but what also changed my way of thinking, because I always thought you had to make money or else you just wouldn’t own a business.

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

What did you find most confusing? What do you think about the concept of indifference curves in the context of budget constraints?

Indifference curves were the most confusing to me, the dialog used made complete sense to me and I understand the idea of them but when looking at the actual graphs they didn’t make sense. Combining Budget constraints and indifference curves made it way easier to understand how they would be used side by side, what also came to mind was about how the ideas of supply and demand combine along with how the markets would react when taking into consideration profit margin/revenue/etc when making changes to each of there items, like the ones that were used often pizza and Pepsi. Maybe I’m starting to think like an amateur economist, but I’ll wait until I get my final grade before I claim the title.

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? How does the concept of indifference curves inform your thinking about purchases?

I’m currently looking into getting a mortgage and this actually made a lot more sense to me when I started thinking about it that way. It doesn’t make sense to me trying to get a house and a new car at the same time, especially not if I don’t have a full career plan already laid out or on the path for already. Timing does matter because if you’re just about to start a new job and and a new place then you must take into consideration basic human needs and what comes first, House, Food, Health, etc. I compared indifference curves to my current situation, I really wanted a 2020 4Runner and then I really got to thinking and thought, “the money that I could put into the 4Runner now could be an investment into a house which will pay out in years ahead” if its not apparent I was weighting the outcome of the investing into real estate or the pleasure of having a nice car.

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, 52 weeks a year to Starbucks added up to more than our monthly mortgage payment. And of course one extra payment a year cuts your payoff time from 30 years to 19. That's huge, but difficult to visualize and value. (This was very useful financial advice for me. Making that extra payment - or 1/12 of the P&I extra every month - helped us become mortgage free fairly early in life. And that freed up money for other investments.)

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?

Compensating differentials really interested me, I always knew that more dangerous, uncomfortable, or unwanted jobs pay more but the way the chapter explained it as, wage differences which refer to non-monetary characteristics of different jobs. In addition to that, I’m glad to be able to expand my vocabulary with a term that I would often just refer to as a wage difference.

Human Capital interested me because it made me think of people as just how much has been invested into them. Like when you look at a Doctor, you would see a $200,000+ price tag.

When taking the production function into consideration, what are some other factors that decide what the income of the company will be besides the wages of the employees?

Answer A: Training could be taken into consideration in the production function, during training does the employee pull their weight enough to justify their compensation for the training? During training the employee isn’t necessarily expected to be able to do all the procedures thrown at them, ultimately this is an investment by the company expecting that they will receive what is originally expected from the production function.

Answer C: The cost of the tools for the workers because they are expensive and the company has to buy them.

What are some key components that workers must be able to do for a higher paying job and why?

Answer A: Being bilingual for one, if you can communicate to one set of customers easily and you can promise one source of income from that party, then a promise of income from another set of customers doubles your value as an employee, even if you don’t fluently speak Spanish but can communicate just enough to get by with a customer. Second, dressings nicely helps plenty, think about this, if you are dressed in ripped jeans a ball cap and a Metallica shirt I’m sure some people might not want to do business with you no matter just how smart you are since your appearance is what hooks people first. Now, if you are dressed nicely, have a descent haircut, a polo, etc most people would rather do business with you rather than Mr. Metallica.

1. Pretend for a moment that this is Twitter and you only have 140 characters to respond in -- write a tweet defining and/or describing oligopoly.

Coming at you from Glenwood Springs, CO. To all my followers it seems that I am in a city that would be considered the epiphany of an Oligopoly. We all know that Breakfast is my FAVORITE meal of the day, right? Well in Glenwood springs there are practically two places to eat breakfast, Daily Bread and Rosi’s, both of these restaurants are run by European owners, they serve nearly identical breakfast and operate at the same time, isn’t that crazy? Not only that but it’s the same for all the other food too, you want a steak? Well, there's Juicy Lucy’s, Smoke, and Colorado Ranch House which all operate on the same strip. How odd, anyway, to all my Micro-economists, have a great day! (I think this is 140 characters?)

2. Can you think of a market that was an oligopolistic market, but has changed and is now either leaning monopoly or Monopolistic competition? Were regulatory agencies involved? (Good or bad.)

1. Muse a little about the role of advertising in industries classified as monopolistic competition or even oligopoly. Can advertising make markets either more or less competitive? How?

For a Monopolistic Competition I instantly think of phone manufacturers - Apple, Samsung, ETC - I feel that the bigger the better in regards to this sort of market. Ultimately, when coming out with a new phone you want to let the public know about the best features, how great the camera is, how the processor works 10x faster than the last, before your competition does. Advertising makes markets more competitve, if you’re head of marketing and you’re getting ready to present the new and improved Mountain Phone X you want to be able to represent your self before everyone else, have the best advertisement as everyone else and have the best prices in regards to what your phone offers.

If I am presenting my Mountain Phone X I would pay a large sum of money to represent myself before Apple or Android. Not only will I have the wow factor of being a new firm in the sector, but I won’t be the second or third phone advertisment of the night where people sit there thinking “oh, wow, another phone”.

2. What was the most interesting thing you learned in this chapter? Why was it interesting to you?

How did your understanding of monopolies change after reading this chapter? What do you see differently now?

At first I though monopolies were plain and simple, do whatever it take to get money be it by raising the price of our product through the roof or forcing the public to need the product to survive. I saw them as the bad guy but clearly I was wrong. Now I see that monopolies function similarly to incredibly competitive markets, in the idea that they are publicly owned, face regulation, have to follow laws and ultimately also face deadweight loss.

Give an example of a regulated monopoly (a monopoly that exists due to government fiat). Why did we choose to give this particular firm monopoly status? Do you think it was a good decision? Why or why not? Would you expect prices to rise or fall if we allowed other firms to enter the market? Why? (Pricing is not always the reason we create a monopoly by government fiat.)

Why does a perfectly competitive firm maximize revenues where P=MC?

Because as marginal costs increases the product being created and sold is increasing as well. So, as long as they maintain their consistent sales of product and production of product the firm will maximize its revenues given the “perfect” environment.

Why is P=MR in this market type?

The reason why P = MR is because in this competitive market the company would be maximizing their income, they can only go down if the make a subtle change. Not only does MR = P in this market type but also AR as well.

Name a business you think belongs in this category. Why? Be sure you think and write about all of the assumptions about firms in this industry.

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

Marginal costs first fall due to the low production of a firms good, if they don’t make much, it doesn’t cost them much. Now, once the firm starts to make more of their product the Marginal cost begins to rise exponentially as the firm needs to buy more input to create more output product.

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

Marginal costs are important to a firm because if the cost is low in comparison to the gain in revenue they would continue to accrue Marginal cost. Once the Marginal cost becomes even or more than the gain in revenue accruing more Marginal cost would not be in the companies best interest.

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

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?

I believe the flat tax is the most efficient. say you’re making 30,000 a year, you pay a 10% tax ultimately making you pay $3,000 dollars, now someone that makes 120,000 a year paying the same 10% tax is paying $12,000 in tax a year. Yes, he makes 4x the amount that you do but he is also paying 4x the amount in taxes than you are.

Equity is important in the tax system, if you have more and have the ability to pay more than maybe you should, right? But what if you also worked for everything you’ve ever had, completely worked your tail off but now are taxed tens of thousands of dollars more than someone who doesn’t even try in day to day life, now that isn’t very fair to you. I believe that the extent of equity should be, can you pay or not? If you can’t, ok then you don’t have to, but if you can, no matter how little or how big your wallet is you should be paying the exact amount percentage wise. Now, if you work the system, and can find tax breaks and find ways to pay less in taxes or avoid this fee or that fee, good. I believe in merit, if you worked for it you earn the compensation. I believe incentive will diminish if tax rates go up for people that make more money, Yes, everyone should be taxed a little bit in order to keep our country running and take care of our elderly and make sure that people stay alive, but must how would you feel if you made $100,000 in a year after working your tail off and the government said, “wow, congrats. Give us 25% since you passed the threshold for the lower tax bracket.” I know that would make me instantly question of all my work was even worth it.

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?

Public good: goods that are neither excludable nor rival in consumption.

Sleep is a controversial public good for me, you can’t exclude it or else you die, and if you fall asleep that doesn’t mean any one else can’t. Now, at base level the costs of providing the good are zero, you sleep, you wake up and you do your job. But when you look deeper you notice just how much of a waste of time sleep is.

Sleep is time consuming, and inefficient. You lay in bed unconscious when you could be working, studying, or doing anything relatively productive. The benefits of it are amazing and much needed; you need to rest to be efficient, you need to rest in order to continue running, but imagine if you didn’t have to.

What is an example of a negative externality that interests you (be very specific in your response)? 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?

My negative externality would have to be the Sriracha production facility and the fumes that it emits to the neighborhood surrounding it. The big problem here was that they were producing tons on top of tons of sriracha and the fumes were just being expelled into the air, the cause of this was that if you walked outside and breathed in the fumes you wouldn’t be able to breath because the air would be too spicy.

This problem was solved by Coase Theorem, I believe. They practically requested that the Sriracha facility produce less hot sauce since it was endangering the health of the community, and ultimately its consumers. I personally do favor this regulation as I have asthma and if I got a whopping sniff of hot peppers straight into my lungs that would definitely call for a trip to the doctor or emergency inhaler time.

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

What would the information in this chapter predict about the effects of the steel tariffs? Does your article support those predictions? How has the steel industry responded? How about other industries that use steel as an input? Who was helped and who was harmed? Would you recommend tariffs in the future? Why or why not?

1. I would say that the chapter affects the idea of the consumer and producer surplus, the consumers had to pay 25% more for steel and 10% more for aluminum so they started turning to the domestic market which shot the prices up roughly $200 per ton, yet still cheaper than getting steal from oversees.

2. The article that I chose did support the above mentioned situation, domestic producers of steel faced an increase in surplus due to the tariff in addition to the average price of steel skyrocketing, along with a deafening loss of consumer surplus due to the consumers having to choose between paying a 25% tax on steel imported, or pay the increased price of domestic steel.

3. Industries that made nails our of Steel, for example, paid a lot more to make the nails, but sold them for much much more than they used to be able to, but I’m not sure whether or not that offset the loss that they faced due to the increase in steel price.

4. The domestic market was helped incredibly, creating roughly 1000 steel jobs in the US alone with increasing revenue for steel producers, but unfortunately the story isn’t the same fo the exporters.

I don’t necessarily believe there is any reason for tariffs, yes they help jobs here, increase markets there, but if we all focused on what our countries had a comparative advantage in and make a global market then we would be well off. Yet again, I’m not a professional in this.

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?

http://www.becker-posner-blog.com/2012/04/concern-about-the-decline-in-manufacturing-in-the-united-states-becker.html

1. I believe domestic manufacturing industries should be protected.

2. Domestic manufacturing industries are benefitting from the tariffs on steel and aluminum since they must satisfy the demand of steel ad aluminum in lieu of an incredible decrease of steel and aluminum imports. Thus increasing their profits and they begin creating more jobs since they need to produce more of the product.

3. In reality i can only see the world market as the real loser, having a world power deciding to trade with specific countries or else their people will be taxed seems incredibly crippling in the idea that the price of something will go up. I believe that the positive effects of the steel tariff outweigh the negative effects, just because it increased jobs made production more domestic and helped thousands of people

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?

1. June 1979 seems to be the peak of manufacturing employment.

2. 2001 seems to be the year that manufacturing output was at it all time high in the 21st century.

My term: Deadweight loss

My single word: Sashimi

Explanation: I work at a Asian restaurant, the sushi chef there can make Nigiri, Sashimi, or sushi rolls. Sashimi is cut much thicker (consumer surplus), Nigiri is cut much thinner and laid upon a piece of rice (producer surplus) and when rolls are made when the fish is cut into a long strip (tax revenue) - in this instance the roll is the tax revenue since most people order rolls, yeah, its a pretty large tax- now, often enough there is a piece of fish cut that doesn’t fit into a category, it’s nowhere near thick enough to be considered Sashimi, and its not thin enough to be laid on a bed of rice to become Nigiri, and its not long enough to go into a roll, it would simply break the seaweed.

So, that which at on point could’ve been a piece of Sashimi, and at one point could’ve been a piece of Nigiri was obstructed by the way the slice of fish for the rolls had been cut. Ultimately becoming unusable, and within the dead zone (deadweight loss).

1. Describe efficiency from the perspective of an economist.

A few things must be considered when questioning whether something is efficient or not.

a. Could your time be better spent somewhere else? If so, spend your time on the thing that’s worth more and hire some one else with a lower opportunity cost.

b. If it is worth your time, what are you sacrificing in order to get it done?

c. What do you get out of completing the certain activity, do the ends justify the means?

So maybe I don’t offer a description but a few guidelines to follow when questioning whether something is efficient/ worth your time.

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

Both consumer and and producer surpluses are important so that there is balance within a market (The equilibrium is the middle ground, or the threshold). One outweighing the other would be unfair to the side which is facing less of a surplus.

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

If I was the policy setter, efficiency would be my number one priority. Recently in my Business Law class I made a point about how even when there is rules or guidelines implemented about the inclusion of a race or gender sometimes it’s not the best idea. I gave the instance of working on a construction site, men have been scientifically proven to be stronger and often enough construction sites are physically tolling. Now, what if in our construction sight we implemented a 1:1 guideline? 1 female per 1 male, same pay, same work. Unfortunately the efficiency would fall, I’m not saying it would fall the entire 50%, I’ve seen some women move and I know how strong they can be but they’re not all on par with the physical male body. For example, in this instance you give up efficiency, for equality of gender (but it’s unfair to the men who can do the job to full capacity).

How does this relate to the theories from the chapter?

This is where the idea of shortage from a Price Ceiling can actually be implied. As said in the article, Hugo Chavez imposed strict price controls in order to supplement the poorer communities. Unfortunately, those items that did receive strict price controls seemed to have been shorted in everyday shops thus hinting towards that maybe he set the price below the equilibrium thus creating the shortage.

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 a price control was imposed it would have helped the people that suffered from the hurricanes greatly, since many of them had just lost everything they barely had food to give to their children or to even feed themselves, the idea of having someone that is quicte literally dirt poor pay an inflated price on water would be extremely unethical.

Unfortunately, if price controls were imposed the possibility of the speculators continuing to try and provide their asssistance would be much lower since they would be unable to capitalize off of it, thus depleting the supply of water being brought in.

The quantity demanded would remain the same but the supply would just continue to fall. Fairness seems to fit into the subject but not into the idea of the speculators, as I mentioned earlier this was incredibly unethical and maybe price controls should have been inplemented.

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