EWOT #10

Over this Thanksgiving weekend there was of course a lot of planning for Black Friday, even my 80 year-old grandmother was up at midnight snagging the door-buster deals. However, as I was looking around I saw a lot more people shopping than last year which made me think about the economy and if this surge in shopping meant the economy was better or if it would even allude to how the economy was this holiday season. After doing some research online I found an article that talks about how many people were out and shopping over Thanksgiving weekend, how much was spent, and all of this in comparison to last year. 

"The Problem With Price Gouging Laws"

Is Price Gouging Unethical?

The article written by Michael Giberson highlights the problems with many states attempting and succeeding in their use of price gouging laws. Price gouging laws seem morally correct, as the article shows, however it goes against all economic thinking. 

"Economic analysis of the effects of price gouging laws reveals concerns on both the demand and supply sides of the market. As already noted, price constraints will discourage conservation of goods at exactly the time they are in especially high demand. Simultaneously, price caps discourage extraordinary efforts to bring goods in high demand into the affected area. As Sowell explained, price gouging laws keep goods from being used where they are most needed. It is a result not intended by state legislators, but completely predictable."

The quote above shows simply the economic consequences of price gouging and how states such as Georgia, South Carolina, and others need to re-think their price gouging laws. I agree with Michael Giberson and think that by instating price gouging laws many states are just going against the natural flow of the economy. The more laws that are instated, like the price gouging law, the more our economy will continue to suffer. 

Class Summary 11/25

No class due to Thanksgiving Break. 

Class Summary 11/23

How Market Use Knowledge

De-centralized VS Centralized Knowledge 

What Rizzo is trying to say is that centralized knowledge is an impossible dream, but decentralized knowledge can, but not always, will work very well. Some types of knowledge are useful and others are not. The best systems are those that can gather and process decentralized knowledge; like democracy and well functioning markets are akin to giving people 'their own thermostat'. 

Prices adjust to clear the market, if a price is "wrong" we'll see a price rise or fall so that the number of people who want the good becomes close to the number of people who receive the good. A price however seems to be more than that; stuff gets on the shelves even though so many parts of our demand are constantly changing. There is more to just simply shifting supply and demand curves. 

When prices of a good change, various consumers will either purchase more, purchase less, or not change their behavior. What we're trying to get at is how much less or how much more; we're bringing in elasticity. SO... what we need to think about are how many substitutes are available to consumers. When we start looking at elasticity we need to think about the trade-offs suppliers make to supply their good. 

Class Summary 11/21

Equilibrium & The Price System

First we want to think about why we use money and the advantages that using money give society. We use money because it lowers the cost of exchange with anything else. In reality, with money we no longer have to use a bartering system, per say, if you went back to bartering you would end up trying to become self-sufficient because it is more costly to barter. "Double-coincedence of Wants;" what you barter with may not be what someone else wants, therefore it would become difficult to get the goods that we want and by becoming self-sufficient we would end up with the '100-mile suit'. When you think about money it is just used as a mode of transaction. Without money it becomes harder to divide goods and to trade. Money lubricates trade. Money is a "transaction-cost reducer". The process by which prices are determined is what is really important...

When looking at supply & demand curves you have to always have two questions in mind, how is each side of the market affected? And whose plans are satisfied within the market? When you think about each question in relation to buyers and sellers you can relate the supply and demand curve to each of the buyers and sellers and their outcome. (Think about when there is surplus of a good OR a shortage of a good).

Equilibrium is where at one particular price and quantity NO ONE wants to change their behavior. Neither buyers or sellers have an incentive to change behavior.

EWOT #9

After learning about how companies capitalize on events, and other various things it made me think about Thanksgiving tickets and how much the airlines capitalize on holiday flights.  A ticket from Rochester, NY to Kansas City, MO was costing close to $800 even in September. Even though the flights are expensive there is always someone willing to pay that price to get to family. We value something more than the price of the flight, if we didn't then we wouldn't pay for the airline ticket. Thanksgiving flights show exactly what Rizzo has been talking about this past week in class. 

Propaganda Posters in relation to Rationing Goods

World War II: Propaganda Posters and Rationing Mechanisms

This World War II propaganda poster urges consumers to reduce the use of their materials so that they can excel in the war. This poster is not suggesting that goods should be rationed, but that we need to conserve our energy and goods. Therefore, thinking back to our "water ban" example if people raised the price on these materials it would force consumers to make a value-cost trade-off. 

This poster is advocating for a rationing method in which one saves fuel by joining a car-sharing club. Again, like the poster above, they are trying to ration a good. Here, if the price of gas were to increase people again would have to make a trade-off. The poster plays toward one's emotions, by saying that by driving alone they are letting their country down and "riding with Hitler". 

The "Sacrifice for Freedom!" logo of this propaganda poster suggests a rationing mechanism known as "equal shares". I believe that this is "equal shares" because it is explicitly saying that the world cannot exist half slave and half free. Equal shares means that no matter how much one produces or works everything will be split equally between all of society. Therefore creating no gap between being a slave and being free. 

This poster shows the relationship between the people and the government during war time and how everything is connected. The government needs ration stamps for ration goods, and they want the people to pledge that they will accept all goods fairly as to not disrupt the economy during wartime. 

Class Summary 11/18

What are the advantages of using prices to ration goods?

The way we choose to ration goods defines how we compete for the good. The way you ration goods has long-term implications. Much of our economic activity happens over time. When consumers have no financial incentives to deliver more of a product, no one would innovate or create new products. When you ration by lottery, you let people decide for themselves what they want and when they want it. Can you actually allocate goods by people who need it most?? No, examples of how this doesn't work are financial aid and healthcare. The beauty of markets is there's no false choice, no "honor" standard. No one has a powerful enough persuasion to change incentives of individuals. Think of water shortages, water bans, and "water police". When water supply is reduced and the price of water goes up, because of this you will only use so much water, and you are forced to make a value-cost trade-off. The price system regulates our use. If you price water and it rises it provides short-term and long-term incentives. You ration by choice and create more abundance through incentives. 

Class Summary 11/16

The Challenge

The main problem is scarcity and the "price system" regulates this.  If we all have different willingness of what to pay some businesses will lose money, it's a cost. Market prices force us to consider somebody else. Someone is willing to pay a high price which is why they charge and price goods the way they do. Companies have to capitalize on high demand because of incentives.

When goods are scarce how do we ration goods?

1. Need

How do you convey what people need? This is costly and invasive. Won't satisfy it's own condition. 

2. Queues

The line is a price for some people but everyone has a somewhat equal chance.

3. Lottery

People who value the good the most won't get it. People who need the good the most won't get it because of the lottery system.

4. Equal Share

Everyone produces and it gets split equally. Making for communism.

5. "Kickin' Ass"

You can't plan for anything because you don't know what has to happen to get the good.

6. Merit

Wouldn't want to trust anyone to determine merit. How do we know what to merit? A society in which a person is valued for their effort and not the value they produce then we're going to have the "100 mile suit". There are real down sides to choosing the meritorious route. 

Evaluation of Rationing Mechanisms

"Where does competition come from?"

1. What is nature of competition; constructive or destructive?
2. How does mechanism impact supply (Q)?
3. Other considerations

Class Summary 11/14

The "Law" of Supply

What matters is opportunity cost when looking at prices of goods. 

When the price of a good goes up producers want to make more. 

Each point on the supply curve actually represents the marginal opportunity cost of producing that particular unit. 

What changes Supply?

Own price "Quantity Supplied" and when "Supply Shifts" 

Input prices, technology, expectations, and substitutes all can increase or decrease supply

Class Summary 11/11

Elasticity and Total Revenues

Total Revenues = P x Q, when P increases, Q decreases; and when P decreases, Q increases.
So if the change in total revenue and the change in price are in opposite directions... then?
Looking at a graphic example we saw that at Point B prices are higher and less customers buy, therefore there was a decrease of $180. You added $120 by increasing your price of a burrito by $30 you multiply $30 by 4, the amount of customers who still buy your burritos, to create your increase of $120. But you also need to look at your loss of 6 customers and each of their $50 that are no longer being paid. Therefore $50 multiplied by 6 is $300. This accounts for the decrease of $180.

We also talked about how elastic goods that we "need" are. When you look at the demand curve would it be perfectly "inelastic"? No, that is saying that there are NO substitutes for any good that is necessary. We need to look at both wants & ability when you think about demand curves. "People will do anything for healthcare." This statement is completely untrue. If we were so desperate to save our own lives at any cost then we would be exercising everyday and never take risks but we do make trade-offs.

The whole concept of cost is derived from scarcity. When you look at a cost you have to think of an action that is attributed to a cost, and to whom? The whole point of suppliers costs are opportunity costs.

Class Summary 11/9

ELASTICITY 

Today in class there were a lot of graphs and tables on the board that all helped the class to understand the concept of elasticity. Rizzo basically said that elasticity is the:

% of change in Quality Demand

% of change in Whatever else you're interested in (e.g. Own Price)

There are times when people are very sensitive to price change and other times when we are not. Big numbers from the formula above mean that we are very sensitive, small numbers means we are not very sensitive. Our big decisions happen over time. Even if we are ready to change our behavior producers need time to adjust too. 

Another major idea we talked about was substitution for goods, because our ability to substitute goods also impacts our elasticity. In regard to substitution, when you define your good more narrowly, the more substitutes you will have because there will be more elasticity. 

"The Theory of the Leisure Class"

After reading the designated pages I had some idea of what Thorsten Veblen was trying to show his readers. After doing some more research into the entirety of the "The Theory of the Leisure Class" it became more apparent to me how this relates to our economics class. I enjoyed reading reviews and then relating their ideas to what I had read. Thorsten Veblen combines philosophy and economics and I found coined the term "conspicuous consumption" which basically means you don't buy because you NEED something you buy because you WANT something. You want to show your status through the goods that you purchase. One establishes an identity in society through the goods that you purchase and how others perceive has a lot to do with how you view yourself. The pages that we read for Rizzo illustrated how each job is classified and what the status of that job entails as an individual in society. Some of the issues brought up are no longer relevant to today's society but it was interesting to read and reading reviews and thoughts on Veblen's book helped me gain more of an understanding of what was being said and how these ideas relate to class, society, as well as trade! 

EWOT #8

I have a friend who whenever someone eats meat constantly tells me that I am eating a carcass. What I don't think she understands is that if I were not eating meat, then all of these animals like cows, chickens and turkeys would die out on their own. If we as humans had no use for them then we would not need to keep them around. Just like Rizzo's example of how to stop tigers from becoming extinct was to "eat them". If we find a use for something it will never be completely gone. If everyone became a vegetarian and stopped eating meat then the animals whose rights they were fighting for would become extinct altogether because they would no longer be needed. Just made me think about the economic implications of everyone becoming a vegetarian and sharing the same beliefs. 

Class Summary 11/7

We talked more about moving from an Individual Market to a Market Demand. When we look at Market Demand we want to know how EVERYONE would behave if the price of the burrito is $3. (e.g. How many would you buy? You would then add up across horizontally the graphs of the individual market to make market demand curve)

Two important things to notice while looking at demand curves were the shape of market demand curve versus the individual demand curve and is it possible to aggregate further? We learned that the more aggregated we get the flatter the demand curve is going to be. And when you aggregate beyond a single good it becomes hard to define "Q".

We also talked about comparative statics and specifically what changes our consumption:
-Own price
-Everything else, which has 5 categories (Income, substitutes, expectations, tastes, and the number of individuals in the market).

There are also two types of goods:
-"Normal"where when income increases Q also increases, so the demand curve will shift right.
-"Inferior" where when income increases Q also decreases, so the demand curve will shift left.

Class Summary 11/4

Today in class we talked about Supply & Demand.

Looking at a simple chart of the relationship between the quantity of burritos eaten, and the price of the burritos showed us how much information we can obtain from a chart. One of the main points I took away from class was that price is constant and given in a chart and graph, and our behavior is the same, always, according to the Law of Demand. This behavior is that if prices go up, we will buy less. WHY? Because when prices go up we are poorer, so we spend less. Also, when we are deciding whether or not to purchase something, we aren't choosing between having "6 quarters" in our pocket or a burrito, we are choosing between whatever else we could buy with "6 quarters" and if we value everything else more than the burrito. So really, price should be re-named as trade-off.

"Economics of a P.O.W. Camp"

I found this article by Radford very interesting. It seems to make sense that a barter system and trade system would arise in a P.O.W. camp, but I never thought it would go so far as to have a common currency, the cigarette, and that prices for goods would vary so much throughout different huts and camps. Because of the stress, if people smoked more, cigarettes became more scarce, prices went up. This is astounding, such a simple society and the same impulsive buys that we experience every day. Businesses grew in the camp and Radford talks about these businesses and restaurants and how the whole scheme was vulnerable to deflationary waves. This article really captivated me, it gave an economic insight to a P.O.W. camp that I had never thought to explore before. Reading this article was like experiencing what living in a P.O.W. camp was like but through the eyes of a monetary expert. This article also gave insight into what we're learning and discussing about in class, the idea of free trade, local trade and local goods, as well as tariffs and supply and demand.

EWOT #8

Occupy Wall Street and the 99% phenomenon has been all over the news and CNN.com. After being in Rizzo's class and hearing about how many of our economic beliefs are misconstrued due to misleading information that is twisted to become something that we, as Americans find easier to believe and identify with. The 99% phenomenon has done just that, can 99% of America really be living in those conditions? Aren't there jobs? We seem better off than ever before, in fact we are better off! Rizzo has proven that through his lectures and his factual evidence. This article highlights that it may not be 99% of America that is feeling these needs to Occupy Wall Street. I found this article very interesting and seem to agree with the 53% of Americans, and their voices need to be heard.

Class Summary 11/2

"I give China $10."

1. You want to come back to America and buy $10 or $5 worth of goods.

2. If they don't buy American goods maybe they buy American assets. Remember all imports are exports.

3. Buy goods from other countries (e.g. Italy) If they do spend $10 on the Italian vendor, the Italian vendor would go back and spend the money on an American good. 

4. The "worst" thing they could do is eat the money. 

Money is only useful if you can buy other goods. Therefore even if one dollar, ten dollars, or ten million dollars are "eaten" it makes our money more valuable. In all cases of giving money to China, money comes back into America. FOLLOW THE GOODS NOT THE MONEY!

It's easy to say we shouldn't allow free trade, but if we do we're back to only producing locally. We're ignoring everyone else besides Americans when we impose tariffs against free trade. We blight the American poor and outsourcing of jobs but why do we not look at the benefits given to these around the world? 

Class Summary 10/31

No Summary. Class cancelled due to fire alarm.