Chapter 18 Journal

Chapter 18 went in-depth about factors of production. The three main ones mentioned are land, labor, and capital. Labor are the hired workers who receive wages for working. Land is the physical spaced use to produce but land can be differentiated whether it's bought at a purchase price or paid at a rental price in which rental price is paying for a temporary period of time. Capital is the stock of equipment and structures used for production.

The book explains marginal product, value of marginal product, and brings back the term of diminishing marginal product. For a competitive market to maximize their profits, the wage has to equal the value marginal product of labor. This goes for land and capital. Land with a purchase price or rental price, their price has to equal the value of marginal product of the land. Value of marginal product is of any input is the marginal product of that input multiplied by the market price of that output. The book provided with some decent examples such as the apple orchard and I think I understand the big picture concepts but I may need to review the specifics and terms. The demand schedules were helpful. I would rate this chapter a difficulty rating of 2/3. 

Chapter 17 Journal

Chapter 17 elaborated about the middle ground between the two extremes seen in the previous two chapters, monopoly and competitive market. Chapter 17 talked about oligopolies, markets with few sellers as competition and has market power but not significant compared to the others. They maximize their total profits by forming a cartel and acting like a monopoly. But if all the firms make decisions based on their self-interest, the result is a greater quantity of output and a lower prince than under the monopoly outcome. The larger the number of firms in the oligopoly, the closer the quantity and price will be to the levels of a competitive market. An example that clearly depicts this problem between oligopolies is the prisoners' dilemma. It shows that self-interest can prevent people from maintaining cooperation, even when it is in their mutual interest. Both sides will succumb to their self-interest and it ends up worse than if they actually would have cooperated. Government could also play a role in this market. Policymakers use antitrust laws to prevent oligopolies from cooperation and engaging in behavior that reduces competition. Although some behavior that may seem to reduce competition may have legitimate business purposes. Overall, this chapter was a nice read and it was good to finally see the market between the two extremes. The multitude of examples made this chapter really easy to grasp. It was a easy read and on a scale of 1-3, I would give this chapter a 1.

Chapter 16 Journal

In chapter 16, Mankiw introduces a new economic system that differs from perfectly competitive markets and monopolies. Chapter 16 focuses on monopolistically competitive markets, one type being an oligopoly. Monopolistically competitive markets are characterized by having many firms, differentiated products, and free entry. Now for monopolistically competitive markets, the equilibrium differs from perfectly competitive markets in two ways. One is that each firm in a monopolistically competitive market has excess capacity. That is, it operates on the downward sloping portion of the average total cost curve. Secondly, each firm charges a price above marginal cost. In monopolistically competitive markets, there are deadweight losses resulting from the fact that the price is set above the marginal cost. Additionally, the number of firms can be too large or too small, and these inefficiencies are hard to correct by the government. The product differentiation inherent in monopolistic competition leads to the use of advertising and brand names. Critics of advertising and brand names argue that firms use them to manipulate consumers’ tastes and to reduce competition. Defenders of advertising and brand names argue that firms use them to inform consumers and to compete more vigorously on price and product quality. I would give this chapter a difficulty rating of 1/3 as there is not really any new complicated material. It contains the same content except we are just applying it differently. 

Chapter 15 Journal

Chapter 15 reintroduced and talked about a different type of market: monopolies. Instead of competitive firms being price takers, a monopoly firm is a price maker. A monopoly is a firm that is the sole seller of a product without close substitutes. There are three main sources that cause a monopoly: a key resource is owned by a single firm, the government gives a single firm the exclusive right to produce some good or service, and the costs of production make a single producer more efficient than a large number of producers. The book follows these three key points up with examples and case studies. Then, the book went into specific types of monopolies, such as a natural monopoly. A natural monopoly arises because a single firm can supply a good and it would be a smaller cost than two or more firms supplying it. The book goes over terms we have already learned before, such as marginal revenue, total revenue, etc. Afterwards, the book shows the graphs for monopolies and the different types of curves on a monopoly graph. In a monopoly graph, similar to the competitive market, the marginal cost curve and the ATC curve is the same. What differs is the demand curve and marginal revenue curve. The demand curve is a regular market demand curve because in a competitive market, demand takes the product at a fixed price. In a monopolistic market, as the firm (or firms) increase the price, quantity goes down, and vice versa. Also, the marginal revenue will be lower than the demand curve. Those are the only differences in the graphs between a competitive firm and a monopoly. To find profit, it’s the distance between the monopoly price minus the ATC multiplied by the quantity produced. This is because like the competitive firm, profit maximization occurs when marginal cost equals marginal revenue. I would give this chapter a difficulty rating of 1/3.

Chapter 14 Journal

Chapter 14 elaborates about competitive firms in the market place. Due to no single buyer or seller influencing the market price, they are price takers, and its revenue is proportional to the amount of output it produces. The price of the good in this market equals both the firm's average revenue and its marginal revenue. To maximize profit, the firm chooses a quantity of output such that marginal revenue equals marginal cost. This makes the firm's marginal cost curve equal to its supply curve. In the short run, the firm will choose to shut down temporarily if the firm cannot recover its fixes costs and if the price of the good is less than the average variable cost. In the long run when the firm can recover both fixed and variable costs, it will choose to exit if the price is less than the average total cost. In a market with free entry and exits, profits are zero in the long run. In this equilibrium, all firms produce at the efficient scale and the number of firms adjusts to satisfy the quantity demanded at this price. Changes in demand have different effects in time horizon. In the short run, an increase in demand raises prices and leads to profits, and a decrease in demand lowers prices and leads to losses. But if firms can freely enter and exit the market, then in the long run, the amount of firms adjusts to drive the market back to the zero-profit equilibrium. Since firms can enter and exit more easily in the long run than the short run, the long-run supply curve is typically more elastic than the short-run supply curve. On a scale of 1-3, I would rate this chapter a difficulty rating of 2. It was a bit overwhelming when all of the terms are used and connected to each other.

Chapter 13 Journal

Chapter 13 discusses the many different costs of production for firms. The goal of any firm is to maximize their profit, which is calculated by their total revenue minus their total cost. When analyzing a firm’s decision making, it is important to include all the different opportunity costs of production. Some of the opportunity costs, such as the wages a firm pays its workers, are explicit because you are actually able to see the money go out of the bank account  Other opportunity costs, such as the wages the firm owner gives up by working in the firm rather than taking another job, are implicit.  A firm’s costs reflect its production process. A typical firm’s production gets flatter as the quantity of input increases, displaying the property of diminishing marginal product. As a result, a firm’s total-cost curve gets steeper as the quantity produced rises. A firm’s total costs can be divided between fixed costs and variable costs. Fixed costs are costs that do not change when the firm alters the quantity of output produced. Variable costs are costs that change when the firm alters the quantity of output produced. From a firm’s total cost, two related measures of cost are derived. Average total cost is total coast divided by the quantity of output. Marginal cost is the amount by which total cost rises if output increases by one unit. I would rate this chapter a difficulty rating of 2.5/3 because there's so many new terms/graphs/math equations that it can overwhelm you initially. As we elaborate about the chapter, it should become like second nature. 

Article Review #4

This article was a nice change of pace compared to the previous more difficult Stockman articles. In the International Monetary Fund's annual meetings in Peru, global leaders talk about the economy of several countries, focusing on specifically issues and vulnerabilities. Emerging economics are now facing the risk of financial crises of their own. All financial crises share very similar symptoms: unwinding of asset-price booms, rising leverage, growing current-account and fiscal deficits, significant slowdown in economic growth and exports, and a reduction or outright reversal in capital inflows. The emerging economics are currently showing all of these symptoms. Most importantly, they are showing the biggest one yet, hidden debts. Hidden debts are extremely difficult to detect and measure until it's too late and inevitably lead to a crisis. They do not appear on balance sheets or standard databases, and they morph from one crisis to another. It wasn't until crises happened in countries that the IMF and financial markets found out about the countries' hidden debts, much larger than what it was assumed to be. The author questions about economies and where hidden debts are hidden in them. Reinhart talks about China and how they lend money to other countries, which still owe them money, but to what amount is unknown due to the hidden debts. They could be lower than estimated or much higher, if the data does not include everything. The author's opinion is that emerging economies' debts seem largely moderate, but it is likely that they are being underestimated, and by a large margin. If the economies are actually experiencing a large amount of hidden debt than is believed, it can be big enough to trigger a crisis. I give this article a difficulty rating of 2/3 and I think it was the easiest article to read because of its length and easy vocabulary.

Chapter 11 Journal

In Chapter 11, Mankiew introduces the different kinds of goods, and how people value them. Goods differed in whether they are excludable and whether they are rival in consumption. A good is excludable if it is possible to prevent someone form using it. Opposed to that, a good is rival in consumption of one person’s use of the god reduces other people’s ability to use that same good. The four different types of goods are public goods, private goods, common resources, and natural monopolies. This chapter focused specifically on public goods and natural resources. Markets tend to work best for private goods, and not as well for other types of goods. Private goods are both excludable and rival in consumption. Public goods, however, are neither rival in consumption nor excludable. Examples of public goods include firework displays, national defense, and the creation of fundamental knowledge.  Now, because people do not have to pay for their use of public goods, then they have an incentive to free ride when the good is provided privately. Therefore, governments provide public goods, making their decision about the quantity of each good based on cost-benefit analysis. Common resources are rival in consumption but not excludable. Examples include common grazing land, clean air, and congested roads. Because people are not charged for their use of common resources, they tend to use them excessively. Therefore, governments use various methods to limit the use of common resources. I would rate this chapter a difficulty rating of 1.5/3. I have a small trouble identifying whether a good is a public good or a common resource.

Chapter 10 Journal

Chapter 10 begins elaborating on a new principle of the Ten Principles of Economics: Governments can sometimes improve market outcomes. Specifically, Chapter 10 examines externalities. An externality arises when a person engages in an activity that influences the wellbeing of a bystander and yet neither pays nor receives any compensation for that effect. If the impact on a bystander is bad, it is termed a negative externality. If the impact of a bystander is beneficial, it is called a positive externality. Pollution is an example of an negative externality while education is a prime example for a positive externality. A government can use a tax to account for these externalities. When they government does that, it’s called internalizing the externality. It gives buyers and sellers in the market an incentive to take account of the external effects of their actions. Not only the government internalize the externality but private parties can also do the same. The Coase theorem can be very effective with the private market dealing with externalities. The Coase theorem says that private economic factors can solve the problem of externalities among themselves. Whatever the distribution of rights, interested parties can always reach a bargain in which everyone is better off and the outcome is efficient. There are two ways a government can respond when an externality causes a market to reach an inefficient allocation of resources. Command-and-control policies regulate behavior directly. Market-based policies provide incentives so that private decision makers will choose to solve the problem on their own.

Overall, I would rate this chapter a difficulty rating of 1.5/3. This is a more conceptually-based chapter opposed to graphs/math which are my strong points. I have no questions on this chapter.

Article Review #3

In this article, Stockman explains why he believes we are moving closer and closer towards an recession like the previous articles. His main reasoning is the collapse of commodities, capital spending and world trade. In this article Stockman specifically calls out the Fed for creating false data about our economy and Bernanke for praising the Fed's false success.  One point Stockman makes is that the Fed has manipulated data such as GDP growth rate and declining unemployment to make citizens believe that the economy is improving since the 2008 recession. Stockman also points out that the total global debt has grown from $40 trillion in 1994 to $225 trillion dollars in 2014. Furthermore Stockman bashes Bernanke for claiming the that the "labor market is close to normal" when in actuality virtually every job gained since December 2009 isn't a "new" job, but just a job regained since the economic crash in 2008. Bernanke also claims that the U.S. economy is growing at a faster rate than European countries because of the money the government printed to provide a stimulus for our economy. However, Stockman argues that the free money printed by the government will only increase the size of the financial bubble that is the global economy and that European countries have lower debt to GDP ratios than the United States. I agree with Stockman that Bernanke's decisions and the Fed's decisions are not beneficial to the U.S. or global economy. Stockman clearly shows how Bernanke is manipulating the Fed's data to make everything seem like our economy is growing, but really he is simply hiding the impending recession from the public. This Stockman article was the easiest of the 3 Stockman articles. However I would still give the article a rating of 2/3.

Chapter 8 Journal

Chapter 8 elaborated more about taxes and applying them which were initially introduced in Chapter 6. This chapter went more in depth into taxes and how it really affects the market, buyers, and sellers. A tax on a good reduces the welfare of buyers and sellers of the good, and the reduction in consumer and producer surplus usually exceeds the revenue raised by the government. The fall in total surplus is called the deadweight loss of the tax. Taxes have deadweight losses because they cause buyers to buy less and sellers to produce less, and these shrink the size of the market below the level that maximizes total surplus. Because the elasticities of supply and demand measure how much market participants respond to market conditions, larger elasticities imply larger deadweight losses. As a tax grows larger, it distorts incentives more, and its deadweight loss grows larger. Because a tax reduces the size of the market, however, tax revenue does not continually increase. It first rises with the size of a tax, but if a tax gets too large, tax revenue starts to fall. The examples and case studies used in the book like cleaning houses, deadweight loss debate, and the laffer curve and supply-side economics are all impacted by the deadweight losses. Overall, this chapter was pretty easy to read and understand. I would rate this chapter a 1/3 in terms of difficulty. The book provided many examples and graphs to explain the content. I have no questions about this chapter.

Chapter 7 Journal

Chapter 7 basically introduced us the basic tools of welfare economics which is consumer and producer surplus. Consumer and producer surplus is used to evaluate the efficiency of free markets. No dictator or political party can allocate resources efficiently with a central economic plan better than the forces of supply and demand, or the invisible hand. Even though every single buyer and seller only cares about their own little agenda, they are unknowingly led by the invisible hand to a point of equilibrium where it maximizes the profit for both buyers and sellers. 
  Consumer surplus is equivalent to the buyers’ willingness to pay for a good minus the amount they actually pay for it, and it measures the benefit buyers get from participating in a free market. Consumer surplus can be found by finding the area below the demand curve and above the price. On the flip side, producer surplus equals the amount of money sellers receive for their goods minus the actual amount of production, and it measures the benefit sellers get from participating in a market. Producer surplus can be found by finding the area below the price and above the supply curve. A maximization of the sum of producer and consumer surplus is the most efficient. 

I would rate this chapter a difficulty rating of 1/3. It was a very easy concept to grasp and the multitudes of graphs simplified the math portion of the chapter.

Article Review #2

This is another article written by David Stockman. He still uses a extensive economic vocabulary, but I found this article easier to comprehend than the previous "Chicken Little" article. His overall argument is that the economy is heading to another recession. The author rants about China, and claim that China's economy is in collapse due to capital outflows and that the Communist party is trying to prop up a house of cards with more controls on the market and through devaluation of the yuan.  The problem is that the owners of the goods are trying to sell to keep the value of the goods. This is causing a drop on the stock market and in the trades between countries, threatening to burst bubbles in global financial systems. He makes the argument that China is giving people a false sense of hope with it's large population. He then connects this collapse in Chinese financial markets with an overproduction of commodities, including steel, that has led to overbuilding in Chinese cities that now threatens to become a "freight train of deflation" that will eventually make its way over to America. It will begin to affect us the same way it affects other countries, causing our economy to reach a downwards spiral. I would give this article a difficulty rating of 2.5/3.

Chapter Journaling #6

In this chapter, we learn about how government policies affect supply and demand. This is the book’s first venture into real-world policies instead of just teaching basic theoretical concepts and principles that would only occur in idealistic markets, such as perfectly competitive markets for laws of supply and demand (as well as their shifting tendencies). Here, we learn about how policies set by the government often have unintended consequences, which I find interesting because I thought that the government would have several economists plan ahead and think the effects before implementing it in the real-world economy. However, this is far from the reality because policies that aim to make goods and services more accessible to everyone in the population often try to control the market price, and thus, disrupt the “invisible hand”. Equilibrium prices are altered, and new inequities arise. 
Overall the chapter was not as difficult conceptually as chapter 4 and 5, and the real world applications did a great job of clearing up the concepts. The concepts were not too hard to understand except for those near the end, and the vocabulary was not as challenging as in earlier chapters. I  rate the difficulty of this chapter  1/3, since there is a lot more discussion to be had about it and there are many more applications into economics in policy making. I'm excited to learn more about this topic though, and other policies that had unintended results as well as those that executed exactly as expected

Chapter Journaling #5

I found Chapter 5 to be slightly more challenging compared to the previous 4 chapters we read in the textbook. This chapter really builds on the previous chapter concept of supply and demand.  The concept of the price elasticity of demand measures how much the quantity demanded responds to a change in price. That means a good of high elasticity would mean a change in price would result in a huge difference of how much people want to buy the certain good. An inelastic good, like food, would have a very similar value of quantity demanded despite a major change in price. The elasticity concept is not too difficult to understand; however, the graphs really threw me off with the concept. Figure 4 in Chapter 5 confused me the most because the slope is constant but the elasticity changes midway through the graph. As I gain exposure to the graphs more, I'll be able to grasp the concept. On another topic, the total revenue is the amount paid by buyers and received by sellers of the good. To find the total revenue, you would find the area under the certain points of the graph.  I can see how being able to find the total revenue on a graph is extremely helpful. With that knowledge, you can determine which price/quantity will result in the largest revenue for the sellers. Overall, I would rate this chapter a 3 out of 5.  The chapter is a little difficult and takes a little bit more time, but it's certainly interesting.

Article Review #1

     I found the article "Why Keynesian Chorus is Cackling like Chicken Little" extremely challenging to read. It took me a while to read this article and I had to refer to a dictionary every couple sentences because of the large economic vocabulary that I was not familiar with. The difficulty of this article would be a three on the three point scale described on the home economics page. 
     I believe Stockman's thesis in this article is that the federal government is printing way too much money and pumping most of that printed money into Wall Street big firms which results in the creation of a large financial bubble. According to Stockman, the federal government should just tighten the money on Wall Street. However, a lot of other economists disagree and argue that the market is already tightening America's economy based on the "financial conditions" that is measured by the Goldman Sach's Index. The Goldman Sach's index is flawed because the data tables and graphs are eschewed to their benefit. The federal government expect the money to trickle down to the average Joe when they lend the printed money to Wall Street firms. Low interest rates were expected to help the market but it had a marginal effect because 90% of households are unable to borrow despite these low interest rates. 
     All in all, I have a lot of questions concerning this article. What exactly is a financial bubble? How is the author proposing to fix the issue of the bubble popping soon? What is Keynesian's Economics exact effect on our country's market and how does it affect the average citizen opposed to the C-class of corporate America>

Chapter Journaling #4

The first half of Chapter 4 continued the trend of all of the previous chapters, and I considered the chapter a relatively easy read. On a scale of 1-3, I would rate this chapter a 1 as well. The beginning of chapter 4 keyed in on three specific terms : supply, demand, and market. Mankiw defines a market as a group of buyers and sellers of a particular good or service. There are two opposite forms of markets that are depicted in the text book. There is the perfectly competitive market where the goods offered for sale are exactly, or almost exactly the same and the buyers and sellers are so numerous in count that no one buyer or seller has any sort of influence on the market place. An example of a competitive market would be the places that sell food near Whitney Young which includes Ella's, Billy Goats, and Pepperinos. The polar opposite of the competitive market would be a monopoly; that is when a single seller, or company sets the price in the market for a particular good or service. One example of a monopoly would be Monsanto. Supply and demand was an easy topic to grasp. Personally, I think the easiest way to think of supply and demand is the supply-demand graph. It's a downward slope; it starts with low supply which results in high demand. Then, it gradually shifts to the opposite.Basically, supply and demand has an inverse relationship. The examples in this chapter simplified supply and demand which helped me understand the concept a lot. I have two questions about this chapter. This was on the chapter 1-3 test that i find relative now. Do the governments regulate prices on goods and services to make it more"safe"? That would mean supply and demand can't really take it's natural course. My second question is: how would you graph a supply and demand graph if it involves more than 1 specific good if it's related to one another? 

Chapter Journaling #3

All in all, this chapter was a really interesting read. This chapter's focus was on opportunity cost, comparative advantages, and absolute advantages. The one thing that really surprised about how trade can benefit somebody even though they have an absolute advantage in producing the goods involved in the trade. I would give this chapter a difficulty rating of 1. I found this chapter easy because not only was it a short chapter (11 pages), but there were many examples given in the text to explain the concepts. The Tiger Woods mowing lawns, rancher and farmer situation, and the U.S. and Japan relationship were great examples that made the concept seem relatively easy.