microeconomics

1) What knowledge of Business Finance that you already have: In the past, I have engaged in not only developing my knowledge base of business finance through higher education - but through practice after forming multiple LLC’s in the last 7 years. In educating myself, and immediately applying said education while continuing to educate myself -- I have enables a process of growth and development not only personally but as a medium-sized business owner/operator. This foundational knowledge that I have been developing over the course of 12 years has provided me with ample knowledge/capability in my business pursuits. Understanding economics both macro and micro, as well as the dynamics of business finance has provided me with the capability to develop businesses from the ground up, as well as provide business consultation services for other business owners. Having such an ability and comfort level in the business-world provides me with numerous opportunities in engaging with business development/growth projects. 

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

The idea of political influence upon an economy that is as ‘free’ as that of the U.S. economy has come to my attention in the past few months. With political policy having such an instrumental effect in business practice, I can only speculate the true influences behind Donald Trump’s political aspirations as a whole. If Donald Trump has any power over the way that the U.S. economy functions, I can only imagine the positive effects that his business, and furthermore ideal business model will see both instantly and over time. 

Prior to the understanding of true political influence and policy ‘control’ over any economy, I believed capitalism and furthermore economies such as the U.S. economy to be somewhat unswayed by political pressure and policy (beyond taxes anyways). At the very least I am concerned, both that the U.S. economy is dependent on the next leader(s) intuition on economic policy, and in Trump’s case, vested interests. 

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

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?

Initially, I found it confusing that indifference curves cannot and will not cross when graphed. Though after considering the rate of consumption and satisfaction that any given consumer may approach on an indifference curve understanding a crossing of indifference curve lines would indicate all points on all crossing lines would induce satisfaction in a consumer.

Each and every day, I practice and accept that constraints of a budget, and therefore understand the concept of indifference curves. If I had five dollars to spend, and needed to buy lunch at a pizza ‘dive’, I would not buy five dollars in Pepsi. I would purchase enough pizza, and Pepsi to satisfy myself rather than look for the best deal possible on either/or item.

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?

Income distribution is a topic of constant controversy not only in the United States, but throughout the world. The United States practices a system of welfare policy for those that are at the bottom of the ‘food-chain’ so-to-speak regarding income acquisition. To provide a lesser-than-extreme environment of extreme poverty in communities and furthermore demographics that are in a position of need, government systems have been put into place to distribute wealth in the form of necessities like food, housing, and if need-be, cash assistance.

As consumer goods and inflation rates continue to rise the ability for government to regulate wage-floors is increasingly desired by those in the position of receiving minimum wage. Surviving, and surviving in an acceptable ‘fashion’ is the driving force behind major discontent with wealth distribution. Understanding that one cannot survive in a world of increasing prices without government help on a wage between minimum (8-10 dollars) and 13 dollars an hour is necessary for solution and resolve to take place. However, as a system, without low wage earners and furthermore welfare programs, economies such as that in the U.S. would not maintain itself as it does today.

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?

“Economists use the term compensating differential to refer to a difference in wages that arises from non-monetary characteristics of different jobs. Compensating differentials are prevalent in the economy”. - Note : These compensation differentials often hold demand and willingness to preform said job(s) as a factor in wage determination. If there are a million people willing to do ten thousand jobs for a certain wage, those workers will be compensated less than if there were one thousand workers willing to do that same job. The increase in wage would be an attempt at luring in the necessary workers for said job(s).

“Workers who work the night shift at factories are paid more than similar workers who work the day shift. The higher wage compensates them for having to work at night and sleep during the day, a lifestyle that most people find undesirable”. - Note : I have worked a night shift for a month at a time, and it was one of the most physically confusing and least healthy work activities that I have ever participated in. Of course there was a pay differential to that shift over the day time shifts, however the idea that I would get normal sleep, and would be able to eat meals at times that my body is so used to was seemingly worth losing that differential.

Why does an engineering firm require more human capital than a convenient store?

Average answer: The engineering firm has duties that exceed those of the convenient store’s. 

Excellent answer: An engineering firm must provide a service that is much more dependent on high-quality, and furthermore educated employees. This necessity of education and ability provided by an engineering firm provides the means and requirement for a higher level of human capital.

Why does an engineering firm provide a higher rate of pay to it’s workers than a gas station does to it’s employees?

Average answer: A gas station doesn’t need educated employees and an engineering firm does. 

Excellent answer: Engineering firms demand an educated and qualified employee, of which are in less of a supply than those that are qualified to work in a non-skilled labor environment such as a gas station. This education and level of supply paired with demand provide a situation in which pay is higher for an engineer and less for a non-skilled gas station employee. 

Why would the rate of pay for a nurse be lesser in an area where a large number of nurses live as compared to an area where nurses in lesser supply?

Average answer: When there are more people competing for a certain job in a certain location an employer does not need provide as much of an incentive for prospective employees to a certain extent. 

This chapter and blog post wraps up this module with the last type of market - oligopoly.  Oligopoly is a great word to use in casual conversation, so pay attention to this chapter.  The next time someone talks about how nice it would have been if AT&T had bought TMobile you can say "I agree!  The phone industry would still have been an oligopoly, there was no risk of creating a monopoly."  Of course a few people will wonder if you have perhaps started drinking, but most people will be really impressed.

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.

When a select few (or even a couple) companies or interests control a market niche, that market is controlled by an oligopoly.

What still confuses you about this chapter?

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?

Brand building through advertising is a goal that most if not all for-profit companies have in mind when creating a marketing strategy to boost sales. Advertising itself can turn into a brand boxing match of sorts, promoting one product over another, and further implying said product is better than other products in that products niche. Competition can be created through advertising campaigns, and furthermore can effectively create a monopoly after a brand has established itself over it’s competition to the consumer. This brand recognition is such a strong influencing power that brand recognition and preference can seemingly eliminate niche competition.

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

Understanding that product and service providers that build a strong brand reputation and recognition do not have to have the best product to be a best-seller is not understood by the average consumer. This ignorance of quality and price by the average consumer is a goal that a number of high-volume consumer goods producers aim for in a marketing plan. 

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

Prior to reading this chapter, I had not considered raw resource allocation to be such a common factor/tactic used by producers/businesses in the establishment of monopoly. Whether through legal means, or physical domination of resources, many businesses try to monopolize resources in any respective niche whether it be by controlling the brightest/best employees or through direct raw resource possession. Recently American Airways and U.S. Airways have merged to be one of the largest airways in the country, and furthermore one of the greatest in the world. As a matter of fact "The post-merger American Airlines now has the largest fleet in the world, with more than 900 mainline aircraft" (business insider), which gives the airline an upper-hand in ability when it comes to route expansion and control. This attempt at semi-monopolization is a business tactic that I believe will improve stock-holder confidence in the company, which in turn provides the corporation with an increased amount of resources to expand its business model.

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?

Utility companies are regionally regulated monopolies that are enabled and given permission to operate via government administration. There are various utility companies in different regions across the United States, though due to high-cost of establishment and business model implementation, these businesses survive in a monopoly-type environment that is highly regulated by U.S. government energy policies.

Works Cited:

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

Perfectly competitive firms are involved in a market where price equals demand. This type of perfectly competitive market promotes a level of profit that equals zero, though revenues are maximized as much as possible. 

Why is P=MR in this market type?

Price in a perfect competition is stable, furthermore in a perfect competition market price promotes a zero-profit environment. With a stable marginal revenue being equal to the price that it costs to produce and sell said product--P=MR.

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?

At the point of marginal costs being below average total costs, marginal costs are at a level of low output. When marginal costs are low, this indicated a falling rate of average total cost, though when marginal rates are high, an increasing average cost is bound to said increased marginal rates. At levels of high output, marginal costs rise due to increased costs associated with increased production.

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

Effective economic decisions are determined valid for a company if resources and costs are determined to be viable and beneficial in nature. When resources are stretched out, and marginal costs increase due to a need for more of said resources, and employees, productivity and production values must also increase accordingly. If there is a negative effect, or loss possible due to increased production, a firm will not lean towards making the decision to scale production. Furthermore, if decreasing production is a viable answer in being more profitable as marginal costs are cut, a firm will likely lean towards decreasing production. 

How can you apply these cost concepts to your own life?

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? Last year Colorado voted on a progressive tax system - the initiative failed and we still have a flat income tax system here (4.63%).  After reading this chapter would you change your vote?

At this point in my life, and income for that matter, an income based tax makes the most sense to me. Though I do believe the amount of tax that is collected from income currently is 5-10% too high on all tiers of income level. I cannot at this point in my life speak upon experiencing 30-35%+ tax rate, though I believe if I did have to experience almost half on my income being taken from me for taxes I'd consider moving to another area where that wouldn't occur. Though if that weren't plausible I'd find the best way to write off substantial amounts of my taxes, whether that be through investing in a small business of my own or another.

I do believe government spending to be out of control, and would think that income taxes could be lowered by 5-10% if government were down-sized significantly in areas that would not alter national security standards.

Finding a way to tax 'vices' at an increased rate (Colorado and Washington state are already doing so with marijuana) could be a method of bringing in enough tax revenue through sales/production tax to lower income tax levels. Though it would take time to accumulate enough money through sales tax on various 'vices' to even consider doing so in the longer-term.

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?

Paying for things that benefit a community as a whole are examples of public goods that are in many cases essential for a quality of life that any given community is accustomed to. For example, in the United States, as is referenced in Chapter 11 reading, national defense organizations/services by the U.S. government and affiliates are essential in protecting society in the United States of America. Taxes are implemented upon members of the protected community in various ways, of which funds the services that are classified as national defense services. Those taxes are then disbursed through government budgeting decisions after a sum of taxes are collected, and furthermore those funds are disbursed to various national defense interests. The ability to tax a relatively small amount of money from each citizen that is protected by national defense services is much easier than asking for large donations/handouts from those truly educated and interested in the security that is provided by U.S. national defense projects/services. It is only fair that each and every person provided with the security that the national defense industry provides pays into the programs/services through taxation.

What is your favorite example of a negative externality?  Could the problem be solved via negotiation (Coase Theorem)?  How or why not? Do you favor regulation to solve this externality?  Why or why not?  

As is mentioned in the chapter 10 aplia assignment as well as the chapter 10 reading, pollution is a negative externality. This example of a negative externality can be solved through the engineering of 'green' or environmental sustainability focus production methods. It may very well be plausible to negotiate lesser pollution outputs by manufacturing companies that are producing pollution through said processes of manufacturing. Though it in the current system, regulating pollution output standards for various companies is difficult due to the ability for any given company with enough money to in essence purchase the right to produce more pollution. This ability to purchase pollution rights from other companies/producers that are maintaining a lower level of pollution than is called for by regulations causes a heightened level of pollution by those who position themselves and require the ability to exceed any given pollution standard through the purchasing of pollution rights.

What was your opinion about restrictions on international trade before reading this chapter?  Have you changed your mind? Strengthened your opinion? In what ways and why?  What was the most interesting part of the chapter to you?  Why?

I previously believed most restrictions on international trade to be politically motivated, most often fueled by economic power struggles. Now, understanding that taxes and furthermore business ethics fuel a number of international trade rules and restrictions in order to promoted national economic stability within any given economy. I find it interesting that foreign competition is blocked out by any given government when that government or a countries economic regulators find it necessary to protect a domestic product or producer. It makes me wonder if those regulators are provided with or already hold a vested interest in that domestic producer/supplier in many cases.

As an additional reading here are two posts on support of manufacturing employment by Gary Becker (Nobel prize in economics) and Judge Richard Posner: http://www.becker-posner-blog.com/2012/04/concern-about-the-decline-in-manufacturing-in-the-united-states-becker.html (Links to an external site.) and the post before this.  This was a great blog with many economics oriented posts, but sadly Gary Becker has passed away. This particular pair of posts is focused whether or not trade restrictions to support US manufacturing employment are a good idea.

After reading these what do yo think about protecting manufacturing industries from international trade? (The flip side, if you want more to think about, is our ban on exporting natural gas. Does that make sense to you? Why or why not?)

Protecting manufacturing jobs in my opinion is essential in maintaining a strong grip over global economics for the United States. Providing companies that are focused on manufacturing and manufacturing technologies within the United States should, in my opinion, be given incentives for continuing to hold a majority of production and business operations within the country. I believe incentives to be necessary because of the obvious realities of outsourcing manufacturing processes to be cheaper in a number of other countries.

Give an example of a tax that you have paid in the past.  Did it affect your purchase decisions?  Do you think the tax created dead weight loss?  Why or why not?  How is the market for the good affected by the tax?

1.  Describe efficiency from the perspective of an economist.

Efficiency to an economist, is the distribution of resources in the most productive and productive manner possible. Economists are essentially referring to an even distribution of welfare throughout society regarding resources.

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

Market price stability is determined by the price that a seller can produce and item and furthermore sell an item for a profit, and the price in which consumers are willing to pay for said item. When producer surplus (the amount of money that a producer receives for an item after subtracting the amount that it costs to produce an item) is equal to the consumer surplus (the amount that a consumer is willing to pay for an item minus the amount that the consumer actually pays) a market price generally maintains stability (market equilibrium).

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