Chapter 18

Chapter 18 move away from discussing about different types of markets, and instead focuses on the factors of production. Factors of production are the inputs that create good and services. The three biggest and most important ones are labor, land, and capital. The demand for these factors is controlled by the firms that use them to produce goods and services. The supply for the factors is determined by individuals' trade-off between work and leisure time. This trade-off can be changed based on wage, as the higher the wage, the more work people are willing to do. Profit maximizing firms use each factor till the marginal product of the factor is equal to the price. The marginal product of labor is the increase in the quantity of output for each additional unit of labor. The value of the marginal product is determined by the marginal product of an input times the price of the output. The marginal product of a specific factor relies on the amount of all other factors. Thus a supply change for one factor offsets the equilibrium earnings of all of the other factors. The labor factor is much different than capital, which is the equipment and structures that are used to produce goods and service. Labor, land, and capital each earn the value of their marginal contribution towards the production process. The equilibrium purchase price for land or capital is determined by the current value of the marginal product and the expected value of it in the future.

Chapter 17

Chapter 17 transitions to focusing on oligopoly markets. In oligopolies, there are only a few sellers, but they all sell similar or identical products. Competition in these markets is high, so the game theory was created, which analyzes how people behave in a strategic situation. In oligopolies its a lot about reaction, so firms gravitate to a nash equilibrium. This is when a situation in which economic factors interact with one another, and then each choose their best strategy, based on those around them. Firms in an oligopoly individually choose their output, which winds up being more than that of a monopoly, but less than that of a competitive firm. The oligopoly price is also less than that of a monopoly, but more than competitive price. Occasional, an agreement can occur in which firms in a market produce the same output or charge the same price. Groups of firms acting in unison are known as cartels. Duopoly are oligopolies that have only two members in the market. In oligopolies, firms also apply the dominant strategy, in which it is the best strategy for the firm regardless of what strategies other firms are employing. Oligopolies face the prisoners dilemma in which the situation explains why cooperation is difficult to keep mutually beneficial. Policy makers use antitrust laws that prevent oligopolies from reducing competition among themselves. However, this can interfere with legitimate business purposes.

Chapter 16

Chapter 16 adds on to the previous chapter by analyzing the behavior and traits of monopolistic competitive market. An oligopoly is when there are only a few firms selling a good that is similar or identical. However, a monopolistic competitive market has many firms that sell the same good that is similar, but not identical. Another characteristic along with many sellers and product differentiation is the fact that firms have free entry and exit. However, because of this, in the long run the number of firms in a market balances out to the point in which economic profits are not zero. However, since it is economic profits being zero, accounting profits is still positive as they do not include fixed costs like economic profits. Unlike perfectly competitive markets, a monopolistic competitive market has a downward sloping demand due to the fact that the goods in a monopolistic competitive market are not identical. This allows for profit maximization to occur. When analyzing the graphs for a firm in a market, if the average total cost curve is below the demand curve or "price," then it is making a profit, but if the average total cost curve is above the price, then the firm is making losses. However, just like monopolies, since the  price is over marginal cost, it deters some possible consumers from purchasing the good, leading to a deadweight loss. However, this cannot be fixed by regulation as it is like regulating natural monopolies in which the monopolies price would be lowered to that of its marginal cost, meaning losses for the firm.

Chapter 15

The previous chapter had focused on the aspects of firms in perfectly competitive markets. In Chapter 15, the focus shifts onto the aspects of monopolies. Monopolies are the sole seller in markets as well as the price makers. As there are no close substitutes, the company can charge what they want. However, monopolies do face some barriers, those being government regulation, production process, and monopoly resources. For example, De Beers used to have a monopoly on diamonds as they controlled nearly all of the diamond mines. Thus, they could set the price to what they desired. Natural monopolies occur when one company can produce the same amount of output for less input. In monopolistic markets, in order to support an increase in production, the price must be lowered. When marginal revenue is greater than marginal cost, increase production. However, when marginal revenue is less than marginal cost, decrease production. Profits are maximized when marginal revenue is equal to marginal cost. In competitive firms price is equal to marginal revenue which is equal to marginal cost. However, in monopolies, price is greater than marginal revenue, and marginal revenue is equal to marginal cost. A monopoly's profit is calculated by taking the area in between demand and average total cost, extending to the length of quantity. Deadweight can occur as well. Socially efficient quantity is seen where the demand curve and marginal cost intersect with each other. Price discrimination is the business practice of selling the same good at different prices to different customers.

Chapter 14

Chapter 14 expands and adds on to previous theories and concepts in the previous chapter. The chapter focuses on the actions firms take in competitive markets. Competitive markets are markets in which there are many buyers and sellers trading identical products, making each buyer and seller to be a price taker and an increase in competition. The chapter also introduces two new kinds of revenue, average revenue and marginal revenue. Average revenue is the total revenue divided by the quantity sold. Marginal revenue is the change in total revenue from an additional unit sold. Firms also make short and long run decisions based on their state and the state of the market. The short run decision to shut down is the decision to not produce anything during a specific period due to market conditions. The long run decision is exiting the market. The difference between the two is that firms can avoid fixed costs in the long run, but not in the short run. The chapter also discusses sunk costs. These are costs that once the action is committed, the cost cannot be recovered. Using this term, it can be observed that since the short term solution of shutting down does not get rid of fixed costs, then those costs are sunken costs. Lastly, changes in demand have different effects over the time horizons. In the short run, an increase in demand leads to an increase in prices and profits, while a decrease in demand lowers prices and leads to losses. However, in the long run the number of firms adjusts to shift the market back to the zero-profit equilibrium.

Chapter 13

Chapter 13 breaks away from previous chapters, focusing on costs and cost analysis. Total revenue is the amount the firm receives for the sale of its output. Total cost is the market value of the inputs a firm uses in production. Total profit is calculated by subtracting the total cost from the total revenue. In other words, total profit is how much the company makes after accounting for the costs of producing the good or service. The opportunity cost is the total amount of things forgone to get that item. Explicit costs are the input costs that need an outlay of money. While implicit costs do not require an outlay. Both of these types of costs are important in calculating the firm's cost. Economic profit is the total revenue minus the total cost, which includes both explicit and implicit costs. Accounting profit is the total revenue minus the total explicit cost. Profit is important because it motivates the firm to supply the good or service. The relationship between the quantity of inputs and the amount of output is known as the production function. The marginal product is the increase in output that comes from an additional unit of input. However, often the marginal input decreases as the amount of the input goes up. This concept is known as diminishing marginal product. Finally, there are 2 types of costs; fixed and variable. Fixed costs do not change as the quantity produce changes. However, variable costs on the other hand change as the amount of output produced changes.

Chapter 11

Chapter 11 builds off of the previous chapter by diving deeper into how government intervention can help keep a market from failing. The chapter also introduces 4 categories of goods. Those being private, public, common resource, and natural monopoly goods. Public goods are provided by the government and common resource goods are not excludable, but are rival and consumption. A good is excludable if it is possible to prevent someone from using it. On the other hand, a good is rival in consumption if a person's ability to consume the same good is hindered by another person. However, markets are best with private goods. Private goods are both excludable and rival in consumption. Although, markets do not work as well for other goods as private goods. Public goods are not rival in consumption or excludable. As public goods are not charged for, people have the incentive to free ride. A free rider is a person who receives the benefit of a good, but avoids paying for it.Therefore, public goods are provided by the government that makes the quantity of each good based on cost analysis. Cost benefit analysis is a study that compares the costs and benefits to society of providing a public good. Common resources on the other hand, are rival in consumption, yet not excludable. Since people are not charged for their use of common resources, they tend to use them excessively Thus, governments often use various means to limit the usage of common resources.

Chapter 10

Chapter ten focuses on externalities and how they can positively or negatively affect the market. Externalities are the impact that activities between two people or businesses have during a transaction on a third party person. Positive externalities cause a shift in the demand curve to the right, increasing the amount demanded. While negative externalities shift the supply curve to the left, displaying a reduction in the quantity supplied. In some cases the government can intervene to improve negative externalities by taxing. This use of tax is known as internalizing the externality as it alters incentives so people take account of their external affects of their actions. They can also subsidize positive externalities. Subsidies shift the supply curve down based on the size of the subsidy, which increases the equilibrium for the market. This intervention in a market is called industrial policy.Command and control policies can help a market by regulating or forbidding behaviors. In market based policy, the government can align private incentives with social efficiency. Taxes that help control negative externalities are called corrective taxes that aim to change a persons decisions. The tax is a negative incentive to stop the negative externality. However, the governemnt does not always have to intervene, as problems with externalities can be solved with moral codes and social sanctions because if buyers do not buy a good due to an externality the company create, the company will not survive. The coase theorem is the concept that if a private party can trade without a cost for allocating resources, they can remedy the externality by themselves.  Transaction costs  are the prices that parties receive in agreeing to and following through on a bargain.

Chapter 8

Chapter 8 directly adds to the concepts brought up in Chapter 7 by delving into a deeper analysis of consumer and producer surplus. Taxes cause a buyer to buy less and a consumer to produce less. They reduce welfare for both buyers and sellers of a good. If a government enforces a tax on a market it creates a deadweight loss. The government takes a large portion of the total surplus, leaving the consumer surplus and producer surplus much smaller than it was. However, when the government takes part of the total surplus, some of the surplus disappears. This surplus that disappears is called deadweight loss. Due to the loss in surplus, the market becomes inefficient.  One question I have is where does the deadweight surplus go? Does it just stay in the buyer's pockets until it is used on another purchase? Also, the size of deadweight loss grows faster than the government's tax as the tax is increased. This is due to the deadweight loss being a triangle and the tax being a square. Therefore the smaller the tax, the smaller the deadweight loss. However, if a tax is too large, it becomes  too taxing on a market and therefore tax revenue begins to decrease. The chapter then shifts to talk about how the price elasticity of supply and demand control the size of dead weight loss. The larger the elasticity, the greater the deadweight loss. Greater elasticity means that taxes distort the market more.

Chapter 7

Chapter 7 switches the view on supply and demand from positive to normative. In other words, where it is and where is should be. Consumers have an amount they are willing to pay, which is called willingness to pay. How does consumer surplus not apply to drug addicts, after all if they receive drugs for less money than they wanted to spend, it is still a consumer surplus? On the other hand buyers have a minimum price they are willing to receive, known as the cost. If a buyer spends less than intended, it is called a producer surplus. A decrease in the price of a good increases consumer surplus, while an increase in the price of a good causes producer surplus to rise. Total surplus is the addition of both consumer surplus and producer surplus. For both the demand and supply curve, an increase in inelasticity would mean an increase in surplus, respectively to each one right? So does that mean for inelastic goods, depending on the price, both the consumer and producer are better off than an elastic good? As learned in Chapter 4, the only place for the market to be balanced is at the equilibrium. To the left of the equilibrium, the value of the product is higher to buyers because it is cheaper, while the cost to sellers is below their necessary cost. To the right of the equilibrium, the value to the buyers is less due to the higher price, while the sellers is higher.

Chapter 6

The chapter opens up with the concept of price floors and ceilings, adding on to the previous 2 chapters' main concepts. A price ceiling is the maximum price that a good can be sold by the sellers for. A price floor is the minimum price that a seller can sell a good for. Both of these are government instituted policies, binding the markets to follow them. For example, if you take the hot dog industry, you could apply these policies to see their affects. If a price ceiling is set at $4, then the market can no longer raise it past that price. If a price floor is set at $2, then the market cannot sell below that amount. Whether or not the price floor and ceiling are binding depends on where the equilibrium is. If it is above the price ceiling or floor, then its binding, but if its below the equilibrium it is not binding. I thought it was interesting to see how an equilibrium price must change if the equilibrium was binded by the price ceiling or floor. It was also interesting to see how it affected supply and demand, each being affected differently based on whether its a price floor or ceiling, and where it is in relation to the equilibrium. If the price ceiling is lower than the equilibrium there will be a shortage, while if the price floor is above the equilibrium there will be a surplus. Another important part was on the mechanics of distribution and how different changes in the price floor and ceiling affect these methods.

Article Review

Hunt's article focuses on self-awareness and independence from others. He argues that the media and the government both use crisis actors and crisis management to control you.For example, the media chooses what to report on, what view to report from, how they shine the light on a subject, and how accurate their statistic are. If one only uses one news source, that source decided what he or she hears about and why it is a good or bad thing. In other words people are unable to make the decision for themselves if they rely on only one source, they have the decision made for them. This adds on to Hunt's comments on how persuasion works. For example, a presidential nominee may have different views from the majority of the public, but they will lie and tell them what they want to hear. At this point the nominee is not informing, he or she is persuading. And people fall for it all of the time. A race for a position is not so much on whether the person is good or not, its about how good they can lie and tell the audience what they want to hear.

Hunt argues that people are played all of the time, which is accurate. If people are told something, they more often than not will believe it without question. For example, if Aaron was to go online and find what the wage gap was between a woman and man, he would likely look at one or 2 sources tops on the first page of google. He would find his "answer" and considering its a "statistic," he will not question where it came from or how it was calculated. Now he is someone who has been played. If he spent an extra minute researching how the wage gap statistic was derived instead of taking it for how others say it is, he would know that the number is completely unreliable and vague. However, people tend to take information way too easily, making themselves gullible. They become the sheep, not the Shepard.

Chapter 5

Chapter 5 is a continuation and add on to chapter 4's supply and demand mechanics and concepts. It focuses mainly on elasticity, which is how the quantity of supply or the quantity of demand is affected based on the responses of consumers and sellers. It then talks about inelasticity and elasticity. An example of an an inelastic good is salt. If the price is increased, the demand would be largely unchanged as very few people buy it frequently. However, if the price of an elastic good like kit-kat were to increase, many people may switch to another type of chocolate. One question I had is for unit elastic products, how does it not effect total revenue since the price is changing? Total revenue is the amount paid by consumers and the amount received by sellers. Why is supply more elastic in long run than short run? Is it because that responses from buyers and sellers is usually only temporary until the good recovers back to equilibrium? The reason why some goods like water are inelastic is because they are very important and people are willing to pay a lot as its a need for survival. The cross price elasticity of demand shows how much the amount demanded changes based on the change in price of another good. After reading the chapter, although they were through with their general  descriptions, I think there could have been more quick/small examples to explain some of the concepts rather than having huge ones at the end after all of the reading.

Chapter 4 Blog

Gabriel Feldman
Period 2

Chapter 4 is centered around supply and demand. If the price goes up, demand goes down and vice versa. Like if the price for computers increased significantly, less people would by them in an order to save money. In supply, price and supply  have a positive correlation, both increasing and decreasing together. If prices go up, demand goes down, and the sellers are left with a surplus of goods due to the lack of consumers buying their products. People naturally want to get more for less, i.e. have a lower opportunity cost. It was interesting reading about how society's decisions have so much power in markets. For example, if society thought it best, they could drive a huge company like Microsoft into the ground very easily.
The concept and mechanics of equilibrium were intriguing, such as how a market naturally drifts towards equilibrium. Also how someone can figure out the state of a market by looking at where the market price is related to the equilibrium. Surplus occurs when the market price is above the equilibrium and a shortage occurs when the market price is below equilibrium. What surprised me however were competitive markets. The fact that in a competitive market, a seller could drastically change his price and not have any influence in the market. Although, if they lowered the price enough and for a long enough period for time, couldn't they undercut and drive out at least their nearby competition? In which they could have a sizable affect on the market. Through this they could create a monopoly correct?