Chapter 13: The cost of production (level of difficulty 2)

This chapter was mainly focusing on how firms took into consideration their costs, whether they were implicit or explicit. Since they want to maximize profit they have to subtract total costs of production from total revenue. The only difficulty is how to calculated all the production costs. This then includes every single little opportunity cost from either explicit or implicit reasonings. When quantity of an input increases the production curve become rather flat, meaning that there is a diminishing marginal product. At the same time when the input rises the total cost curve becomes steeper. Fixed costs and variable costs would be included in the curve. Average total cost can me found by dividing total cost by output quantity. The cost would usually fall but eventually rises as output rises. Marginal cost is a representation in regards to when increase in total cost when it comes to increase in output by one unit. If the costs for a firm is measured in the short term the cost is fixed. While if the costs for a firm are measured in the long run, there is more time elapsed this leaving space for flexibility and are to be variable. Plenty of costs can be added to a firm but will eventually reach a level that adjusts to the operations needed to maximize profit, efficiency for them. Overall the chapter was okay to understand, the curves were somewhat confusing, but when broken down make a lot of sense. There's costs for a lot of things but make sense once they are placed in the context of the economy.

China's frustration

Knowing that Carmen Reinhart is an economist that deals with international trade, allows me to interpret that what she states may be close to being completely accurate. With this being said I thought the article was rather easy to understand. Once again there is a discussion that talks about denying data to the public audience that causes a chain reaction close to being a crisis. China has allowed loans and shares to happen amongst other countries, but since the loans were not recorded with the rest of the international data, gaps within information leading to a potential economic crisis. According to the chart displayed Cuba owes the highest amount of debt to China compared to other countries, meaning that there are more than just one country that is bending the economy. Although some issues have been hidden, time eventually decides to bring about the reality, especially when it comes to debt. In general this debt is breaking the economic progress and making such things process at a slower rate. With this being said, the cost that is determined by the actions of those who got money money loaned are greater than the benefit that is being received. Holes within loans and other shares have cause China to be rather frustrated and angry, thus leading to a decrease in exports that are needed by certain countries. Once again the economy is suffering shakes within not only country issues but international issues as well. This weakening the economy as a whole.

Chapter Eleven: public goods and common resources (level of difficulty 1 1/2)

Chapter 11 discusses how free goods challenge the economic analysis that can be processed. Although most goods are allocated in markets, where prices determine the decisions that buyers and sellers make when there is a good free of charge market forces are absent. Thus there is no calculated amount of the good to be consumed or produced. Goods can be further broken down into excludable, which prevent people from enjoying the good, and rival, where one person's usage of the good diminishes another person's enjoyment. They can also be further broken up into four categories, private, public, common resources, or natural monopolies. Private goods are excludable and rival, public goods do not fit in neither of the two broad categories, common resources are rival, and natural monopolies are excludable. Free riders in other cases are people who receive a benefit but do not pay at all. They prevent markets from supplying public goods, although government can provide the public good as long as the benefit is to be more than the cost, or they can also use a tax revenue. Cost- benefits are estimates of total costs and benefits of a good to society as a whole. A Cost-benefit analysis can be created but is difficult to create be haze there is an absence of prices needed for social benefits and resource costs, while value of life, and other personal investigations cannot be conducted. Property rights cause a market failure if they are not distributed appropriately.  

Chapter Ten: Externalities (Level of Difficulty 2)

The impact that one person's decision has upon a bystander( or a third party) is considered to be an externality. Externalities can be either positive or negative. Positive externalities create a smaller quantity than socially desirable, where government can apply a subsidy. Negative externalities on the other hand have a larger quantity than socially desirable. Government can intervene in such situations to internalize the externality and alter the incentives that buyers have, since people will take into account the external effects of their actions. Taxes may be applied to a negative externality to lower the quantity provided, while subsidies are added to positive externalities to add upon growth. Public Policies are another type of solution that can be used to help externalities, whether it is by regulating  behavior or internalizing an externality using corrective taxes. Permits are another solution, where they can provide a minimum and a maximum amount of a good. In other cases externalities may be reasoned on by private agreements. Private agreements occur when the Coase Theorem comes into play. Thus, businesses or other companies may settle the problem in their own hands by agreeing with each other. However most of the time, agreements that are made privately do not come to happen due to such disagreements. The government helps the invisible hand solve problems that could not be done alone. Solutions are placed to help the market function reasonably, and help things market cannot fix on its own because sometimes what is most efficient, may not be "efficient" after all.  

Article Review

Stockman once again manages to take on against the Federal Reserve and against those who boast about the greatness of government involvement. He begins about explaining how there is a collapse in commodities in the market, and how perhaps after the bubble bursts a recession is possible to occur. He explains how there is such an increase in debt and how the GDP has also been increased, which radiated from such amount of money that has been poured onto the economic system. Causing inflation, no duh. He rages about the way the Fed has managed to manipulate data to make things seem smooth and steady by picking certain points and bragging about successes. Then he argues that one country cannot decide on monetary policy because policy occurs between countries and not amongst itself. In other news, unemployment rates are discussed to only have lowered for a certain period of time and not on average meaning that certain peeks in the unemployment were showed but not overall. Other neglected ideas involve international trade in which statistics do not make sense when placed in accepting articles. This happens when Germany has a higher rate than the U.S. but still manages to be underestimated due to overlapping information that has happened because of the past. Golden Sachs on the far side of the situation are still getting money for free without interest rates. Overall this article made me feel pretty pissed off, since a lot of things have happened, how much will be enough to make the public realize the type of crashes the market and the economy are facing?!

Chapter Eight: Application the costs of taxation (Level of Difficulty 1 ½)

When a tax wedge is applied on a good, a third party forms. The third party is known to be the government which measures its total revenue by the product of T (size of the tax) and Q (quantity demanded). Although the revenue is collected by the government it is spent on those who benefit. Losses to sellers and the buyers will exceed the total revenue given to government. Thus deadweight loss occurs since there is a market distortion where resources are allocated inefficiently, or without equilibrium price and quantity. Trade is also done inefficiently when a tax is placed upon a good since there is a discouragement in advantageous trade, meaning there will be a lower quantity demanded. The greater the elasticity, whether in supply or demand then the greater the deadweight loss, the same way that if a tax rises from being small to being larger the tax revenue increases as well as the deadweight loss. This trend is shown upon a gradual increasing curve that shows that as the tax size increases so does the deadweight loss. The Laffer curve on the other hand represents the trend where the larger thee tax size the less tax revenue collected, since people’s incentives change depending on the amount of taxes. In our economy how much the government gains or losses from a tax should be determined not only by tax rates, but also how it affects people’s behaviors.

Chapter Seven: Consumers, Producers, & the Efficiency of Markets (Level of difficulty 1 ½)

            The outline of this chapter covers how the allocation of resources determines the well-being of an economy, where equilibrium in supply and demand would maximize the total benefits shared by buyers and sellers. Buyers are dependent on how much they value a certain good, thus their willingness to buy the good placed in the market. Leading to the consumer surplus, which is willing amount paid minus the actual paid price, or the area below the demand curve and above the price. Consumer surpluses regularly show the preference of buyers. On the other hand, to the seller there is a focus on opportunity cost, and the producer surplus which is determined by subtracting the seller’s own cost from the amount the seller is being paid. In other terms the supply surplus is the area below the price and above the supply curve. Total surplus is generated by subtracting the cost to sellers from the value to buyers. This would measure the efficiency, maximization of total surplus received by society, and equality, uniformly distributed economic prosperity among the members in society. Free markets do not only allocate supply of goods to buyers who value them more highly it also allocates the demand for goods to sellers that can produce at the least cost, while also maximizing the sum of consumer and producer surplus by producing the required amount of goods. Market failures , when resources are used inefficiently, occur when there is a market power that stimulates the activity of supply and demand in an artificial way keeping away from the equilibrium price and quantity, or when externalities cause welfare to depend more than just the value to buyers and cost to sellers.  

The “booming” economy of ours, no seriously, BOOM- ing.

There is too much ‘crap’ involved in our economy. We literary have global deflation all thanks to the trading policies with certain countries that have lost control of their own economic failures—China. The Federal Reserve on the other hand has been standing by, doing nothing to help such measures; they have been indecisive and very unresponsive. There’s a large amount of companies that are really powerful that have found themselves to be abandoning such an economy struggle while others are struggling to hold on, like Alcoa Inc., who will split into two companies to keep up with the booming production. In other places, like China, companies have had such a large change I production that prices have reduced nearly fifty percent because of the over-production. There’s much more steel, less work input, and an obvious drop in the price for steel. While there’s too much unneeded space lots that are not in use, due to such a large amount of supplies but not such demand. Then bam China brings about deflation…

            Shares that CEOs and CFOs operate are losing value, from $106 to barely $95.  RECESSION, what the. . . Then there’s the central bank intrusion where there’s false information about the total asset prices, and there is an over evaluation in housings.  Wait for it, here’s the worst part, all central banks agreed to allow inflation to happen, so more money was printed, but turns out glitches are occurring now.

            Brazil have been suffering the economic status as well as other known countries like Mexico, Canada, etc. which all have ties with China. The Brazilians have cut their consumerism in such a drastic way, that is affects us because we were their largest trade. Inflation rose, but the unemployment rose as well, hmm… well that’s not supposed to happen. Not only did this happen, but the dollarized GDP rose by 20% and well people noticed it was fishy, thus made them move to Florida in huge waves, thank you global deflation. I guess we can say our economy today is full of holes, holes that are everywhere.

Chapter Six: Supply, Demand and Government Policies

(Level of Difficulty 1 ½) 

Certain government policies help underline the basis of certain goods. The total price of a good is split between two categories, either a price ceiling or a price floor. Price ceiling referring to the ‘legal’ maximum of a good or service, where there will be a need for sellers to ration the good amongst the buyers if the price ceiling is below the equilibrium price. On the other hand there is a price floor, which is the ‘legal’ minimum on the price of a good or service so if the price floor is above the equilibrium standard then there is a larger quantity supplied than the quantity demanded, where buyers’ demand will have to be rationed among sellers. Price ceiling and price floor can both be thought about to be extremes on the graphs, in other words a minimum and a maximum that are laid on by legal restrictions. Taxation on a good by the government causes the equilibrium quantity of the good falls making the size of the market for that good smaller than what it originally was. Tax imposes a conflict for both buyers and sellers, where there is a wedge between the price paid by buyers and the price received by sellers, the new equilibrium causes the buyers to pay more for the good and the sellers would receive less for it. Whether the good receives a tax or not depends on the elasticities of supply and demand, where the tax would be placed on the part that is less elastic because the quantity bought or sold can respond less easily.