#cmcsummer2015

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.

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.

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.

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.

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.

1. I am still glad to now know the difference between comparative and absolute advantage. I have seen and been using the term comparative advantage for years, but only today put the numbers behind it.

2. It is someone’s favorite soundbite that global capitalism is responsible for bringing more individuals out of poverty than any other force in the history of the planet. In that spirit, I will say that international trade is a net positive, though there is a world of room for improvement. 

3. My opinion of trade remains the same.  It is nice to have the beginning of a numerical understanding of how trade operates, however. In that light my opinion has not changed, but has become more well-informed.

1. Simplified models help us understand complex economic ideas without getting bogged down in detail. They allow an understanding of main economic drivers that is thorough enough to convey real economic activity, but not so detailed that it is incomprehensible.

1. I finally learned what comparative advantage really means.  I always confused it with absolute advantage, but now I know the difference between the two.

2. International trade is a net positive.  It allows international economies to operate much more efficiently and can create opportunities that are not as widely available in countries excluded from trade.

3. No, my opinion of trade stayed about the same after reading this chapter.  That opinion is now backed by the wonders of mathematics, so it was nice to add a quantitative angle to my soft, liberal arts-educated mind.