Chapter 18: The Markets For The Factors of Production

Chapter 18 discusses the effect of supply and demand of the labor market. The chapter started by describing what income was and how it was distributed in the markets for the factors of production. The factors of production included labor, land, and capital. Talking specifically about labor, the demand is determined through marginal product and the value of marginal product. In regards to supply of the labor market, it all depends on the worker's opportunity cost. The opportunity cost is battled between the work and leisure. In addition, the slope of this graph is an upward slope because that means that people respond to an increase in the wage being paid by enjoying less leisure time. The equilibrium reached by the supply and demand is according to the marginal cost. In equilibrium, each factor is compensated according to its marginal contribution to the production of goods and services. This way, any changes between supply and demand will always result in equilibrium.

Chapter 17: Oligopolies

Chapter 17 is all about oligopolies and the certain characteristics this market has compared to monopolies and perfect competitive market. As mentioned before, oligopolies are more similar to monopolies since a small group of firms controls 50 or more percent of the market. In addition, the price is always above marginal revenue, except over a period of time when more sellers enter the market. When more sellers enter the market, the price gets closer to marginal cost and the socially optimal quantity is produced, turning the market into a competitive market. A major problem that occurs with oligopolies is that cartels can be formed, producing a form of cheating. A firm is able to cheat the other seller in the compromise due to self-interest and the incentive provided. A good way at looking at these situations is through the idea of a mind-game.  The game being described is similar to choosing the dominant or most self-interested option. The game can be figured out through the charts presented in the books. 

Chapter 15: Monopoly

Chapter 15 is all about monopolies and their impact on the market and the economy. For starters, monopolies are not price takers, they are price makers. Since monopolies control a the main supply of a particular good, they are able to change the price of the good in order to maximize their own profit. In order for a market to be considered a monopoly, they must have a key resource owned by a single firm, the government gives a single firm the exclusive right to produce some goof or service, and the costs of production make a single producer more efficient than a large number of producers. In addition, when discussing the types of goods in a market in a previous chapter, government created monopolies are called natural monopolies. Natural monopolies included services such as water or electrical supply since the cost of a single firm to produce for the entire demand is less expensive for the consumers than having two or more supply firms.  It is also crucial to remember that that for a monopoly firm, the price must be greater that than the marginal cost and the marginal revenue, and that the profit created by monopolies create a deadweight loss. The government has some ways to control the power of a monopoly such as increasing competition, regulation, turning companies into public enterprises, or by simply doing nothing at all. By doing so, the monopoly will still have power but not too much and that will reduce the price discrimination. Overall, I think it was a long chapter to read and I would give it a rating of 2. I would however like a better understanding of the graphs.

Chapter 14: Firms in Competitive Markets

In Chapter 14, the costs and total revenue discussed in the previous chapter are applied on firms in competitive markets in order to maximize profits. For the market to be defined as competitive, there should be many buyers/sellers who are price takers, the goods are largely the same, and firms can enter or exit the market. A good example the book used was the Smith Family Dairy Farm and their production of milk. For the firms to maximize their profits, the marginal revenue and  the marginal cost should be exactly equal. If the marginal revenue is greater than the cost, the firm should keep on producing more but if the marginal revenue is less than the cost, they should decrease production. Also, the marginal revenue is the price of the good. It is also crucial to know that the marginal cost curve is the supply curve for the competitive market firms. In addition, the chapter discussed how to determine when a firm should exit or shut down their production in terms of price and the average variable cost (AVC). If the price is less than the AVC, then the firm should shut down. A sunk cost is the cost that has already been committed and cannot be recovered, such as the cost of land (a fixed cost). Overall, I understood the general concept of it but I found the charts to be rather confusing. I would rate this chapter a 2 since I really understood the first half of the chapter but the second confused quite a bit.

Chapter 13: The Costs of Production

Chapter 13, The Costs of Production, talked about how to determine the total costs and revenue the supply firms produce over a short and long run. To start off, one of the laws of economics is mentioned and is crucial to remember-the law of supply. According to the law of supply, suppliers are more willing to produce more goods at a higher price. Therefore, the firms will tend to produce more if they have the  money, which results from their profits. To determine, the profits a firm can receive is through the total revenue minus the production costs. The production costs include the amount of money it takes to buy the goods as well as how much opportunity cost is needed and left behind.

Article Review #4: Global Deflation Alert: Hidden EM Debts To China Could Be Immense

Surprisingly, this week's article was relatively short compared to previous times. This article, written by Carmen Reinhart, is discussing the hidden debts from the merging countries and how they can have a vulnerable effect at a global level. For starters, the article mentions how the conversation headlines at the International Monetary Fund’s annual meetings have changed from the recovery from the 2008 financial crisis to the potential financial crisis within the emerging nations, such as China. China was mentioned in this article to serve as an example of how a potential economic crisis can lead to negative effects towards others, such as the US, Brazil, or Argentina. They can create international damage since the major funding of their projects were made through the US dollar currency, thus lowering the dollar value if a crisis happened. By lowering the value of the dollar, that would decrease the revenue collected by the US government and would reduce our economic growth and power. Another important element about the article was the uncertainty of how to find the hidden debts within the records. The main problem that arises when discussing hidden debts, is the unavailability to quickly access exact figures of money trading since the records at major-level international organizations keep no track on this business.

Overall, the article was fairly easy to read and understand since it was short and it didn't contain many high-economic vocabulary words. 

Chapter 11: Public Goods and Common Resources

Chapter 11 is all about public goods and common resources within the economy. Despite the chapter being based solely on two types of goods, the chapter begins with explaining the four different types and providing examples of each. The four types of market goods are private goods, natural monopolies, common resources, and public goods. Ultimately, the major component of determining what a good falls under is found through two questions: are there rivals in consumption and is it  excludable? Rivals in consumption means the when a good is used, the ability of another person for that same item diminishes. Excludable means that the property if a good whereby a person can be prevented from using it. A good example of a public good would be a firework display. Usually, it comes out that it is more beneficial for the government to serve and produce a public good since a market failure would occur at a private supplier and buyer transaction was made. A key element with these two goods is the term of a free rider. A free rider is a person who receives the benefit of a good but avoids paying for it. A good example of a common good is the idea of congested roads. A good way of explanation the book did for a common good was to connect it to the Tragedy of the Commons story.
Overall, I would give the chapter a rating of two since it was a fairly easy read with many god descriptions but it was still too long in my opinion.

Chapter 10: Externalities

Chapter 10 mostly focused solely on the idea of externalities and the effects they can cause in a competitive market. Externalities are the uncompensated impacts of a third-party of bystander when a trade happens in a specific good market. Externalities can also be either positive or negative; positive symbolizing a good outcome such as education. and a negative externality could be one such as pollution or a gas tax. When looking at the visual interpretation of externalities on a supply and demand graph, a positive externality causes a change above the demand curve and a externality causes a change to the supply curve to the left.
Since all externalities are considered market failures, the government usually tries to fix the failure, or mitigate it, by passing taxes or subsidies. By doing so, the government is internalizing the externalitiy. Internalizing the externality means making or forcing the company/supplier to see the problem and find a solution to better the situation. Forms by which the government can implement these courses of action would be by either command-and -control regulation or market-based policies. Market-based policies include corrective tax and trading permits. In addition to the government trying to fix the problem of externalities, private solutions can occur through charities, moral codes, and self-interest of the relevant parties. Another important theorem/idea to go along with this subject would be the Coase theorem, which means that private parties can bargain without a cost over the allocation of resources and they solve the problem themselves.
Overall I would give the chapter a rating of 2 since it was fairly easy to read and understand through the examples. Yet, the chapter was very long and confusing at certain parts.

Article Review #3

Once again, the article review is about David Stockman and his hatred towards the Feds. In this week's article, Stockman is now looking at the global economy and the impact the Feds are having on it. To start off, Stockman is basically telling us, the reader, that the whole world is screwed and their is a potential global recession coming our way. The reason why there is a potential recession about to happen is due to the huge financial bubbles in the labor market that were caused by the different countries and the Feds. Basically, the countries all supported each other to fund trades with money that was already being blowing up with debt costs, just like China's economy. All of these ideas of debt costs are connected to the idea that the credit boost in the twentieth century is barely going to create an impact in today's world. Stockman also goes into detail about how the European countries tend to not mix their money funds with helping their economies come out from debt. 

Overall, the article was okay to understand but it did include a lot of abbreviations and charts that were confusing and a hassle to look up. It was a hassle to look them up since there were so many of them in the piece. For example, Stockman kept on writing Bernanke; who is this person?

Chapter 8: Application: The Costs of Taxation

Chapter 8 is all about the cost of having the government place a tax on a good and the effect it can create. As learned in Chapter 7, the total surplus of a good is the combined total of the consumer and producer surplus. However, when a tax is levied on a good, the total surplus diminishes, producing a tax revenue and deadweight loss. Deadweight loss is the fall in total surplus from a market distortion, such as a tax. Deadweight loss and changes in welfare go hand-in-hand with one of the ten principles of economics; people respond to initiatives. When comparing this idea to the world today, it still holds true. It is clearly visible during presidential campaigns since the citizens are always concerned of having to pay tax (example: labor tax). With a tax being placed, less sellers are willing to produce and less buyers are willing to demand the good. Therefore, many economists continue the debate whether or not deadweight loss is beneficial to the society. It is also important to know that the more elastic the curve is (supply or demand), the greater the amount to deadweight loss. Another important thing to mention about deadweight loss is that it creates a laffer curve. A laffer curve shows how the tax revenue is impacted through time. Also, the bigger the tax, the more deadweight loss produced.
Overall I would give the Chapter a rating of two since it was an easy read and it is now connecting what we learned to a bigger idea and the government's role in the economy. However the introduction of a supply-slide economics got me confused and I would like to understand more about it.

Chapter 7: Consumers, Producers, and the Efficiency of Markets

Chapter 7 was one of the easier chapters to read and follow along. This chapter is divided into three main concepts all relevant to the needs and willingness of the buyer/seller. The concepts are buyer surplus, producer surplus, and market efficiency. Quickly seen, buyer and seller surplus are extremely alike and they have similar forms of finding the total surplus. Another thing the chapter talks about is how the free competitive market produces efficiency and not so much equity. In the book, the reason for not including equity right now is because the social planner is only focusing on the efficiency of the seller/buyer. Now that I mention the idea of the social planner, the term “invisible hand” is also brought back to explain how the market balances out. At the end of the chapter, the concluding paragraph introduces the terms of market failure from externalities and market power. In the end, I think that a quick summary or further explanation of the 3 insights of market outcomes would be beneficial to understand the overall concept. I would like a better explanation of this because I was confused a bit about the purpose behind it and what they were saying. In conclusion, I would give the chapter a rating of 2.5 since it was an easy read but there was still some questions behind the meanings.

Article Review #2: David Stockman's Contra Corner

Overall, I didn't mind reading this article. In comparison to the first article review, this article was much easier to read and follow along with the comparisons and effects in the economy. In its totality, the article is discussing the effects of the bull and how the overall economy is heading for destruction. The two specific economies mentioned in the review were the Chinese and Brazilian economies. The Chinese economy was desperate to increase trade for their reds, or their currency. With the eagerness and pressure of increasing trade, a new conflict arose for the Chinese. According to recent news in the economic world, a new and huge steel-making company is staring in the Chinese nation. This steel corporation would be the biggest (by a lot) in the west hemisphere. Looking at the Brazilian economy, the Brazilians have a different problem on their hands. During the previous seven years, the sales of Brazilians have decreased, causing a surplus and inefficiency to produce buyers for their trade. All of these small things start to add up in the end and that is why there are financial bubbles all over the place. At first, the bubbles started with the fall of the commodities market. According to the article, the bubbles are all over the place and ready to explode!! I must admit, the article is extremely pessimistic and it makes me scared to enter the world and have to pay the broken plates of society. First it was paying the effect of the baby boomers and now it's this big mess. I like the article but the only thing that I need further explanation are for the abbreviations and the titles of trends.

Chapter 6: Supply, Demand, and Government Policies

                Chapter 6 was a relatively easy chapter to read and understand the concept of it. The main purpose and terms used are the same ones from the previous two chapters and how they tie in when the government steps in to promote a sense of fairness in price. The chapter also discussed the affects that taxes can cause on the buyers and sellers.
               One of the majorly interesting things that I found in the chapter was the connection between taxes and the rise of unemployment. I know that we had mentioned this situation in class before, but the book did a really good job explaining it and making sense out of it. I was so intrigued by the situation that I looked up the current minimum wage in Chicago, which is $10. This fact is interesting since I also looked up the minimum wage in Illinois and that comes out at $8.25. I found it quite peculiar to have different wages if we are in the same location.
               In regards to questions, the only part I need more clarification on is how the elasticity affects the burden on either the seller or the buyer. Besides that, the graphs in the text were limited and clear to understand. It was also helpful that this chapter included more cases to get a real-world example. Overall I would give Chapter 6 a rating of 1.5.

Chapter 5: Elasticity and Its Application

 Chapter 5 is all about elasticity and how you apply to supply and demand respectively. In order to go in depth about how you use elasticity with demand, elasticity is a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. When talking about demand, there are some general rules that apply, such as the availability of close substitutes, necessities v. luxuries, definition of the market, and the time horizon. Each one of these rules has different elasticities since they are all different levels of elastic price. The elasticity of demand also includes important formulas such as the midpoint method, total revenue, and income and cross-price elasticity. The general ideas of these applications can also be used for the elasticity of supply. Throughout the chapter, there were many graphs included that described and showed each of the situations and how it affected the curve. Overall, I would give the chapter a rating of 2 since it did thoroughly explain the applications of the formulas but it didn’t help to understand when faced to solve questions. I feel that it tried to mush all of the situations and terms into one chapter and I didn’t really understand it. Yet, they did do a good job of really trying to demonstrate the difference between supply and demand in regards of elasticity. 

Article Review #1: Why The Keynesian Chorus Is Cackling Like Chicken Little

I must admit, this article was definitely challenging to read but I managed to get the overall idea of the author’s main point. It seems pretty obvious that Mr. Stockman is against the Keynesian economic view and the way the federal government is attacking the issue. Keynesian economics is “An economic theory of total spending in the economy and its effects on output and inflation,” (Investopedia). According to the recent statistics of federal government spending, the government has been pumping free money into the walls of Wall Street with no success. I do recall hearing about a possible raise in interest rates due to Wall Street’s closing price falling, and this article seems to say the opposite. According to the data presented by Mr. Stockman, the input of money into the trade has had no impact on the housing rates or inflation prices, which was supposed to have had some change due to the government’s actions, or tightening. Tightening was a term that came up all the time in the article and I wasn’t quite sure what his stand was regarding the effects it has had. What exactly is tightening and has it been present before? I do recall Mr. Stockman mentioning the creation of the financial bubble in the past but is it likely to burst soon?  In regards to the graphs available in the article, I found them to be a bit hard to understand and an overall explanation would definitely be helpful. 

Chapter 4: The Market Forces of Supply and Demand

 Chapter 4 is discussing the market processes of supply and demand in a perfectly competitive product market. By having a perfectly competitive market, there is no chance of monopolies and the sellers must become the price takers. For the sellers to understand or predict what price to sell their product, for example ice cream as used in the chapter, is affected by the quantity demanded and supplied. For demand, it is also important to understand the relationship prices of related goods have on the main product, ice cream. These related goods include substitutes and complements, or frozen yogurt and hot fudge. All of the topics above are similar for supply and how these variables all have a direct correlation with the price and the quantity supplied. In addition, two major tools to help understand these concepts are the supply/demand schedule and curve graphs. But what happens if the supply and demand of the product is exactly the same? If these conditions happen to exist, we have reached the term of equilibrium. Reaching equilibrium is sometimes considered the market-clearing price since everyone involved in the market is satisfied with the results. Yet, a change in equilibrium can result in a surplus (quantity supplied is too much) or a shortage (quantity demanded is greater than what is being supplied). In conclusion, all of these terms and concepts all relate to the principle of how markets are a good way to organize economic activity.

Chapter 3: Interdependence and the Gains from Trade

Chapter three is mostly about comparative advantage and how it relates to the trade market. The overall concept was to stress the importance of how good trade is and the benefits of it at a national and international level. Trading and specializing in what you do best is important to raise the benefits and prices of the good. By doing so, the size of the pie gets bigger, which is the goal of the economy. The rate I would give this chapter is a 1, being relatively easy. The only question I have is why could trade by like war? An idea similar to this was mentioned at the end of the chapter and it left me uncertain.