11/28-12/2 EWOT

If I can convey that I value a good more than any of my fellow college students, I have a better chance of getting it then they. The only exception is if we were looking for apartments which are limited  by a price ceiling rendering value of a good useless

11/30

Economics of Price Controls: Price Ceilings and Rent Controls

• Rent: Two meanings
• payment for use of a unit
• something that is accrued to you that was not the result of your abilities; income not earned(economic meaning)
•  ex: landlord receiving a rent of $200 in addition to his normal  prices
• should this kind of rent be taxed
• Equilibrium [important]
• Market
• example alpha: P= $1000 Q= 12,000 (set as 1 Q)
• Controlled
• change from market equilibrium
• example alpha (cont.): P= $800 Q1= 14,000 Q2= 10,000 (Binding)
• Q1 is now more than 1 Q this means: this equilibrium is NOT MARKET CLEARING
• Price Ceiling [important]
• Binding: when it is set below the level that would have brought about market clearing
• Does lowering the price of a unit means it has become more scarce? [important]
• It depends on reason for lowering the price
• price ceiling change for a controlled equilibrium = no
• no explanation available = yes
• Consequences of Rent Control
• Reduced availability and harder to get
• many people, few apartments
• Lower Quality
• have to tolerate it because others are willing to have your room
• Other $ will be paid
• Black Markets will emerge
• Misallocations
• side deals left on the table; this time people who value the unit the most won't get it
• Other Markets are impacted
• increased prices in the city causes shortage of consumers who will look to live outside of the city which will raise their prices
• look at example alpha, Q1 to Q2 there is a shortage of 4,000 apartment renters
• Fairness
• what about the poor
• Discrimination
• the costs of doing so are not felt; many people will come to rent
• race, looks, size, gender, etc.
• Monitoring/Enforce Costs: 3
• long run supply curve will shift in and become flatter
• monitoring itself is destructive
• no production of goods and services that people want; 
• taxes to fund them which is costly
• Price ceilings are destructive and too constraining 
• Recitation
• public good- no one is excluded from sharing the benefits
• free rider- person who benefits from a public good without contributing to it 

11/28-12/2 reading

The economic problem which our society faces is how to best allocate the scarce resources that we have. It's said that this problem could be solved through an economic organization just that this kind of facilitation is not a sure-fire guarantee. The major obstruction is how to decide who would do the planning, who to be the planner. In this sense, it's difficult to construct an efficient economic organization as no one retains tacit knowledge. So, it comes down to whether the planning should be centralized or divided among multiple members. It is more efficient to pick the latter which would then shift the choice from who will the planner be to who will the qualified members be. The more people chosen, the more knowledge is obtained as well as a variety of skills. Through the joint effort of the members of the economic organization, it can be ascertained how to adapt to circumstances dealing with both time and location. Communicating information is the essential key and we have already begun to figure out how to do so through the price system and to an extent the feedback loop. These institutions relay information through prices and create a division of labour which help facilitate efficiency. Through improving on these institutions can we make more efficient our economic system

11/28

• EQ (equilibrium)
• Stylized economy with an equal number of sellers and buyers(not necessarily distinct)
• "No money on the table" which = efficient market with equal amount of buyers and sellers
• Unless you pick the right consumer, you leave valuable side deals and money on the table
• X Graph: Sellers SW to NE, Buyers NW to SE. Equilibrium price Centered
• Side Deals
• Can create surpluses
• Example: person 4 values guitar $15 while person 2 values guitar $25; person 4sells guitar to person 2 which results in $10 surplus (25-15)
• Final Price to make a good
• Salary to the worker
• Cost of making the product using the necessary inputs
• Opportunity cost of making a profit off another good
• How can you determine the Central Price?
• Consistent problem with equilibrium
• Set it too high: side deals left on the table and low quantity sold/low profit
• Set it too low: side deals left on the table and low prices/low profit
• Ration by price and the buyers who value the good the most will get it
• Sellers only need to know the price of the good relative to the amount they'll sell
• Buyers only need to know the price of the good relative to the value they place on the good
• Decentralizing decision making as best as you can is the best way to survive in this complex society
• partial solution is to experiment with different policies not infringed by government
• Rent Control and Price Ceiling
• price ceiling: landlords can't raise the price and renters can't bid higher prices

11/18

• Responses to increased demand
• accept less customers
• rationalize more narrowly
• Advantage of the market and the price system
• don't need police to ensure products aren't stolen/wasted
• we are the product police
• prices compel us to act in our self-interest
• Price System
•  forces us to make a Cost-Benefit Ratio
• we do this naturally without the enforcement of police or a czar
• force us to realize how much others value a product like water
• without this, no way/no signal to tell what people want
• under this, giving supply to people who don't want it opposed to wasting it is unethical and stupid because there will be someone who will value it more and will pay for it
• provides means to obtaining  a product even in shortages
• Black Market sales
• results in zero sum transactions
• legalization of one of these activities, ex: kidney sale, raises unethical incentives
• What determines who gets what
• usually the higher valuer
• exception: health care
• is it possible to make it independent of income
• if it is possible should it be desirable
• if it's not possible why the continued debate
• Meddling with the price system as a means to a solution makes things worse
• Money changes the nature of transactions
• solves the double coincidence of wants problem
• universally accepted currency
• divisible 

11/14

• Supply Curve
• Supply Curve= Marginal Opportunity Costs
• Costs more to make more
• Points represent the cost of producing the unit
• Curve moves up because of diminishing returns
• As Price of good goes up, willing to produce more
• 4 Main Points
• Marginal Cost= each point on the curve
• Total Cost= MC #1 + MC #2 
• Total Revenues=  P x Q
• Producer Surplus (Profits?)
• "Law" of Supply- wages go up and so will production
• false and disproven
• Behavior toward a good changes
• price
• moves along the supply curve
• it's said the quantity supplied changed
• any other factor 
• shifts curve
• ex: any change in input costs
• Expectations matter more for producers
• affect supply by shifting the curve
• prices expected to rise, buy it today
• Technology
• ex: machines, worker skill improvement etc.
• causes movement along supply curve
• Price Elasticity of Supply
• % change in quantity supplied / % change price of this good
• two results
• Relatively Elastic >1
• Relatively Inelastic <1
• Price System is the method for rationing goods

11/7-11/11 reading

The Leisure class has and still is linked to ownership which can be referred to as property rights. Therefore, if this class would have any hierarchy or ranking system, it would be whoever has the most goods is among the leisure elite.  Reputation is defined by what you own, how much, and its quality. Leisure class is also in some ways made by society. I say this meaning that whatever kind of occupation society holds in high honor is usually the highest paid. This is different through history as priests and barbarians used to be dominant in this sense but now are replaced by doctors and lawyers. I would say that in short the leisure class is the class of the privileged or the wealthy, anyone who has an abundance of goods could be part of this class.

11/11/11

• A perfectly inelastic curve, which would be a vertical line, is impossible
• Almost everything has a substitute
• Checks are always split (ex: health care)
• 50 % expenditures government
• 40 % expenditures insurance
• Income and consumption are different from prices and consumption
• Cross-price Elasticity
• pizza price increases, burrito quantity demanded increases"+" substitutes
• pizza price increases, burrito quantity demanded decreases"-" complements
• Income Elasticity: % change in quantity demanded / % change in income
• > 0 = "normal goods"
• < 0 = "inferior goods" 
• Example: Income = $50,000 Environment spending= $500 Elasticity for environment= 2
• income increases by 20%
• environment spending increases by 40%
• $500 + $200 
• 40%(change in quantity demanded) / 20%(change in income) = 2(income elasticity)
• Producers produce more when quantity demanded rises
• they primarily care about the relative opportunity cost
• mountain bike maker vs table maker
• the inputs needed to make the mountain bike have more foregone opportunities which is why mountain bike inputs have more value
• Other costs matter besides price
• Relative Opportunity Costs greatly matter in decisions
• What are Costs?
• they are anything that consumes resources
• however They Have To be Attached to Two Important Factors
• Actions
• a sacrifice must be incurred
• "what does it cost to obtain a college education" is not a complete statement
• To Whom
• "what is the cost of you obtaining a college education" is a complete statement
• distinguishes relative opportunity cost
• Talent vs Opportunity
• the person with more foregone opportunities is more valued (paid more) than someone who is more talented but has less foregone opportunities 
• skilled workers are paid more than unskilled workers only if their skills are valued somewhere else
• Costs and Supply: Quantity Supplied vs Law of Supply
• quantity supplied= amount of a good that firms are willing and able to produce at a particular price
• law of supply = when the price of a good rises, seller will produce more of the good

EWOT week 11/7-11/11

If I have an increase in my income and I decide to buy more pizza and less stamps, then pizza is a normal good to me and stamps are an inferior good to me

11/9/11

• Elasticity
• the equation: %change in quantity demanded/% change in whatever you're interested in
• whatever you're interested in = price, temperature, etc.
• ex: quantity demanded initial = 6 lbs apples
• quantity demanded final = 2 lbs apples
• price initial= $1.50/lb
• price final= $2.00/lb
• [(2-6)/6]/[(2.00-1.50)/1.50]
• What Impacts Elasticity?
• Time
• long-run change in elasticity is greater than the short-run change
• Budget
• goods that make up a small portion has a barely existent elastic change especially compared to those goods which take up a large portion
• Substitutes
• if prices rise for one good, we switch to another
• Elasticity in Picture
• calculate elasticity on the curve using the elasticity equation
• Elasticity Rates
• < 1
• inelastic; not very sensitive to price changes
• 1
• "unit elastic"
• > 1
• elastic; people are very sensitive to price changes
• Which good would be more elastic
• Minivan           Ford Minivan           Red Ford Minivan
• Look at the 3 impact factors: Time, Substitutes, Budget
• More narrowly that you look at a product, the more substitutes you will find
• Time not mentioned therefore not a factor
• Budget is basically the same for all three because they are all minivans
• Answer: Red Ford Minivan
• Reason: More Substitutes available
• Law of Demand
• when  a trade-off becomes worse (more expensive) we do less of something
• using salt as an example 
• cheap; inferior good
• no real substitute 
• there is a price somewhere down the line where you will stop
• for salt, the price would just be much higher
• Total Receipts= P x Q TR= total receipts   P= price   Q= quantity demanded (inverse relationship)
• if P increases, Q decreases
• if P decreases, Q increases
• total receipts is same as total expenditures
• example-
• P= $50 Q= 10 TR= $500
• Then raise P = $80 which lowers Q= 4 So TR= $320
• Expenditures are not the same as costs
• P x Q skyrocketing for health care
•  cost  does NOT equal PxQ

11/7/11

• At each price you sum up the quantities for all people involved to get the market quantity 
• Comparative Statics: what things impact how much we buy?
• Prices of the Good in question
• "Other Stuff"
• if this is the cause, changes the way you think about prices
• aka Changes in Demand 
• Income
• price does not change yet you buy more of the good then demand shifts out
• more income does not mean you'll consume more
• income increases, quantity demanded increases because some goods are perceived as "normal" goods
• normal goods vs. inferior goods
• Prices of other things
• substitutes vs. complements
• ability
• Expectations
• future prospects
• price of substitutes 
• willingness
• 'Tastes'
• # of participants              
• Preferences: subjective by nature
• "Normal" Goods = quantity demanded increases when income increases and quantity demanded decreases when income decreases ( direct relationship)
• "Inferior" Goods = quantity demanded deceases when income increases and quantity demanded increases when income decreases (inverse relationship)
• Substitutes
• replacements
• only classified as substitutes if the relationship between the goods (inverse relationship) contributes to the claim
• Complements
• goods which augment the other; they go together
• hot sauce's price increases, you consume less burritos because you use hot sauce for burritos 
• Elasticity:  How  much more!
• price change effects consumption = elastic
• price change does not effect consumption = inelastic
• anything can be measured in regards to elasticity 
• Own Price Elasticity of Demand
• it is the % change in quantity demanded/ % change in price 
• ex: 50%/25% = 2                                                  

week 10/31- 11/4 EWOT

The 10th anniversary remake of Halo is out and I really want this game but its price is $60. I know that most video games when released cost generally $50-60 for a short time and then they lower the price. I really want the game but I am unwilling to pay the price so I will purchase the game when its price falls to $40 or $30

week 10/31- 11/4 reading

In RA Radford's The Economic Organization of a P.O.W. Camp, it is stated that the social norms that transpire in the free world are but the same in P.O.W. camps. Each prisoner holds the prison group to be of a vital importance for their futures but are aware that the outside world remains unaffected by the social group of their prison. What we take granted such as razor blades, cigarettes, or writing paper is wanted by prisoners in a level of urgency that is far higher than the norm. This makes trade among them nothing other than essential.  The essential factor comes from the fact that prison economy arises from a response to needs and wants rather than an imitation of another country. Prison economy is very small and simplistic, very enviable qualities for an economy, but is mostly sociological dealing through bartering. Cigarettes are the currency of the land and is usually traded for food(or another cigarette brand sometimes). Later on, "goodwill" became a market method to leave your cell with a certain amount of food and return with more than you left with. Their market is not perfect as increase in volume would result in very rough trade scales. Cigarettes continued to be the currency until around D-Day when the people who owned/helped the POW camp decided to host a restaurant and established paper currency for the restaurant. It worked relatively well with no loss of market value. Price fixing and changes stirred public opinion, deemed unfair to those with few cigarettes, forcing prices to shift in accordance with cigarette supply. In summary, 1944 it started out very well. However, deflation and cigarette shortage in 1945, left things in an unknown state. From that point on, economics was the science of distributing limited means among unlimited and competing ends. This lasted until it was agreed that with infinite materials, economics has no place.
Short Main Lessons from reading

• trade-offs can occur anywhere
• money is not the only currency by any means
• an organized economic system can arise in response to a group's wants/needs
• whether we're aware of this or not, we will use economics to obtain goods so long as scarcity exists

11/4/11

• Every trade-off causes people to act differently after the fact
• When the price is too high, you are either not willing or unable
• You usually never buy the good; you buy the services that can be obtained from the good
• There is no correct way to consume something
• Prices force you to..
•  Prioritize what you want
• Think about values
•  Think about everyone else's values
• Why do I purchase less of something when it becomes more expensive? (Why do demand curves slope down?)
• Wealth Effects
• prices increase, you're poorer
• when poorer, you consume less
• Substitution Availability
• Diminishing Marginal 'Utility'
• each purchased good provides less satisfaction than the previous one
• What can be obtained from a chart?
• Marginal Values
• Total Expenditures
• amount of good x price of good
• Total Values
• "Buyers' 'Net' Gains"(Consumer Surplus)

11/2/11

• Price
• signal to buyers about scarcity
• signal to sellers about value
• information
• emerges from markets
• Information Problem
• with the exception of a small group, it's extremely difficult to ascertain what people want
• if you figure out what is wanted, you then need to find out how to obtain it
• Markets
• any decentralized, unorganized interaction between potential buyers and sellers
• $ prices and/or non-$ prices emerge
• the goal of a market is to produce order
• order = commodities on the shelf
• market process is where a price is determined
• buyers
• "demanders"= households and firms
• households buy goods
• firms buy services (ex: labor)
• sellers
• "suppliers" = firms and households
• firms supply households with goods and services
• households supply firms with money and labor
• Perfect competition
• no one really wants it
• it's the process that matters
• Transactions
• regular transactions don't effect prices for other people
• Demand
• relationship between desired amount of a good and sacrifices necessary to obtain said good
• quality demand = amount of a good that buyers are willing able to consume at a particular price
• law of demand = quantity of a good falls when its demand rises