How does private savings impact investment? Why is it important for individuals to save in an economy? How do public policies such as tax policies affect savings rates? How do government budget deficits affect interest rates?
Private savings impact investment by individuals choosing to add to the nations savings. It is important for individuals to save in an economy because by adding to the nation’s savings this contributes to the market for loanable funds. Saving is an important long-run determinant of a nation’s productivity. Public policies such as tax policies affect savings rates by taxing peoples income at a higher rate, leaving less to put into savings or investment. Government budget deficits affect interest rates by increasing them because the more the government borrows results in higher interest rates.
The US is running record budget deficits. Define crowding out. Look for an article talking about it. Do you think it’s a problem? Why or why not?
Crowding out is a decrease in investment that results from government borrowing.
I agree with a lot of the article in that debt is not necessarily bad but that eventually it will catch up with us. The problem will be when we eventually hit “present day”.
What affects human productivity? Does public policy affect the availability of resources people need to be productive? How? Give an example of a public policy you think either inhibits or promotes long run productivity growth.
I think many factors affect human productivity, the ability to be provided the correct tools to do the job, education of the workers, technological knowledge, and natural resources to name a few. I am much more productive in my academic studies when I have a computer, the support of a good teacher, and a good place to study. Public policy does affect the availability of resources for people to be productive. For example, support for technological advancements and knowledge can create a better environment for productivity, and allow for the economy to keep thriving to achieve long term growth. I think a good example of public policy that promotes long-run productivity growth is cutting mortgage interest rates. I think this promotes long-run productivity because ideally, it helps families into homes, therefore creating stability, and achieving the ultimate goal of long term growth.
Many of you live in an area with high cost of living. Is that something you considered before you moved to a ski area?
I do live in an area with a high cost of living. It was not something I considered when I moved here over ten years ago, however, it is something I think about today.
1. How much can someone change the rate of inflation they face by changing what they purchase? Is this a serious overestimation problem with the CPI? Do you time your purchases around sales? Do you change your purchases because of sales?
Someone can change the rate of inflation they face by changing what they purchase only in certain areas. Things like medical bills are needed expenses vs. clothing can be a choice. An increase in prices of goods have been normal year after year. There is a serious overestimation problem with the CPI. Personally, I do time my purchases around sales and I do change purchases because of changes.
2. What about the distortion caused by improvements in goods? Do you think that is a serious problem in measurement? Back in the 1970’s my Dad purchased an early calculator. It handled addition, subtraction, multiplication, and division. It cost nearly $100. Phones have a similar challenge as do cars and even airport bathrooms. If your raise last year was 2% and inflation was 2% did you break even? Or did your life improve?
The distortion caused by improvements in goods is it creates unmeasured quality change. If the quality rises from one year to the next, the value of the dollar rises. The BLS does not account for this change. I do not think this is a serious problem in measurement. I thinks someone could say it was a break even, however, one would need to consider the improvements on the day to day life.
1. What is the difference between an intermediate good and a final good? Why do we care?
The difference between an intermediate good and a final good is an intermediate good is part of the process that becomes the final good. In economics, we care because the GDP includes only the value of the final goods. By counting the value of the intermediate good and the final good would be double counting.
2. Is GDP a good measure of well-being? Why or why not? What is missing? Has what is missing changed over the years? (For example, if improvements in products are not counted, is that more important now than it was a few decades ago?)
No, the GDP is not a good measure of well-being. Yes, the GPD is considered the single best measure of the economic well-being, however, the GDP measures both the economy’s total income and the economy’s total spending on goods and services. The result is data regarding a person’s income and spending of the average person. This does not account for the wellbeing of family, quality of education, or strength of our relationships. The GDP cannot measure our happiness outside of income and spending. On the opposite side of the spectrum, the higher the GDP allows for better healthcare, etc. What is missing is the ability to account for the well-being. What is missing has not changed over the years besides establishing other ways to attempt to take into account the quality of life. I believe that there is so much more to life than my income and spending.
3. What do you think of other measures such as Gross National Happiness pr Gross Progress Indicator?
I think both the GNH and GPI are great ways to try to take into account the economic well-being of its people. I think we should support this style of research because economic well-being cannot only be judged on income and spending.
1. Describe efficiency from the perspective of an economist.
Efficiency from the perspective of an economist is defined as a state in which all resources are optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency.
2. Why are producer and consumer surpluses important in determining market equilibrium?
Producer and consumer surpluses are important in determining market equilibrium because this is the cost and the willingness to buy and sell that creates the market equilibrium.
3. Should market efficiency always be the goal of policy setters? Why or why not? Is there a trade-off between efficiency and equality? If you don’t like efficiency what is your preferred alternative?
I do not think market efficiency should always be the goal of policy setters because they also need two consider equality. There is a trade off between efficiency and equality. I think both need to be considered while allowing for a free market and the invisible hand to make the decisions.
How does this relate to the theories from the chapter?
The article about the Venezuelan government and its strict price controls on food in an attempt to help the poor relates to this chapter in a few ways. Food in free-market economies should follow the natural path of supply and demand, the Venezuelan government is trying to control this which creates a binding price ceiling. The effect of a binding price ceiling will create a shortage of the good and sellers must ration the scarce goods amongst a large number of buyers. In the ten principles of economics, we know that markets are a good way to organize an economy. Prices are decided by supply and demand. Most economists disagree with using price controls because of these reasons. Many economists think there are better ways to handle issues intended to help the poor besides price controls. An example would be giving the poor money to spend on food instead of lowering the cost.
Now consider a different case. After Hurricane Katrina speculators brought in bottled water, but charged quite a lot for it. What might have happened had price controls been imposed? Where does the concept of fairness fit into this theory?
In the case of Hurricane Katrina and the price gauging for a bottle of water, I think price controls could have been a good idea, for a limited time. However, I wonder if that would have affected the desire of speculators to bring in bottled water? I think that in this case water is an essential human need and after a natural disaster price controls for water should have been initiated for a limited time. I think fairness fits into this theory by the difference between a natural disaster vs. government. Either way, I do not think either situation is “fair”.
How are the two disaster situations different? Will supply and demand be affected in the same way? Why or why not? What information is conveyed by the price in both situations? Is it accurate? How do prices tell people to behave?
Both Venezuelen’s and Hurricane Katrina are disasters but for different reasons, government controls vs. natural disaster. I believe that supply and demand would be affected in the same way, the only difference is that water is a necessity vs. having to cook or eat differently. The effect of a binding price ceiling will create a shortage of the good and sellers must ration the scarce goods amongst a large number of buyers. Prices are decided by supply and demand. Prices, or shortages, could tell sellers who they want to sell to based on personal biases, in a free market the price is the rationing mechanism.
Last, choose an article about increases in the minimum wage and comment on it using the theories from this chapter in your comments.
This article from the New York Times debates the common topic of minimum wage and job loss. People for the $15.00 minimum wage increase believe this will help 1.3 million people out of poverty. Also, previous research saying an increase in minimum wage would put people out of work is substantially less than previously thought. People against the wage increase disagree with this bill because it will put 1.3 million people out of work. This is a highly debated topic amongst economists. Implementing a minimum wage means this it is a price floor imposed by the government. Workers determine the supply and firms determine the demand of the labor market. Based on our book, and the ten principles of economics we know that markets are a good way to organize an economy and prices (or minimum wage) are decided by supply and demand. I can see the debate that the minimum wage is a good way to help raise the income of the working poor. I can also see the debate that raising the minimum wage could cause unemployment. I like how the book gives another option of wage subsidies.
In many large cities you can now use your cell phone to call Uber or Lyft instead of hailing a taxi. Would you expect this to affect the prices of taxi medallions (that is really the supply of taxis)? Why or why not? Talk about supply and demand curves in your answer. Make sure you can draw them!
The price or supply of taxis would be affected due to the new option for Uber or Lyft. Income and prices of related goods all shift the demand curve. The demand for taxis would go down because of the new completion of Uber or Lyft. This shifts the demand to the left which would also effectively shift the price lower.
Can you think of an example where you watched the supply of a good or service change rapidly? (For example, a new hotel or restaurant opened.) Based on the chapter what would you expect to see happen? Why?
A new sister timeshare resort opened not too long ago. The new timeshare resort is more modern, different location, and newer. Many of the owners of the older timeshare decided to trade in for the newer timeshare. Based on this chapter, I would expect an increase in the supply of the units also increasing the cost.
Give another example of a concept from this chapter. For example I used AirBnB to rent an apartment in San Francisco a few years ago. How did AirBnB affect the supply of short term room rentals in San Francisco? How about the supply of long term rentals?
In resort communities there is a shortage of long term housing available to the people that live and work here. Due to the shortage, or excess demand, there are too many buyers meaning the cost of the goods will rise.
Prices will allocate resources in a single market. The purchases we make at a store feeds into the demand for the product.
What are two weaknesses in the buy local argument? A weakness in the buy local argument is that not much is 100% made locally in a modern economy and that some parts of production of an item comes from somewhere else. Also, buying locally would raise prices and limit the variety of products.
After watching the video are you still going to make an effort to buy local on occasion? Why or why not? After watching the video I am still going to make an effort to buy local on occasion for the reasons stated by the Professor; because the product might be better due to taste and uniqueness of the product.
What economic strengths of buy local are not mentioned in the video? An economic strength of buying local that is not mentioned in the video is that the product travels a fewer distance, which means less environmental impact.
From the perspective of Colorado, is trade with Wyoming different from trade with China? Why or why not? Keep in mind that Colorado doesn’t trade with Wyoming or China. Individuals in Colorado purchase items produced in Wyoming (coal probably :-)) and in China (maybe a t-shirt). From the perspective of Colorado trade with Wyoming is not necessarily different than trade with China because it creates interdependence and trade because it allows the world as a whole to benefit from a variety of goods and services.
How does the use of a very simplified model of the economy such as those found in a production possibilities frontier help you to understand the economy? Did you find it useful? The use of a simplified model the economy such as the production possibilities frontier helps me to understand the economy by providing a very basic standard that can be used when evaluating the combinations of output for production. The curved line establishes a basis and anything to the left of the line is a possibility and anything right of the line is not a possibility. I found this very useful as it simplified the idea of production possibilities.
Give an example of something you believed or heard frequently about the economy before reading this chapter. Did your belief/the comments lead to positive or normative statements? Why? And why does it matter? An example of this that is in the news a lot is international trade – we hear it talked about in terms of winners and losers, but when you make a trade with your local grocery store you both win. In fact, trades don’t occur unless both the buyer and the seller “win”. For other economic “myths” just google “economic myths”. I think with the recent elections a statement I have heard from the Bernie Sanders campaign is in regards to healthcare and that governments should provide free healthcare to all citizens. This statement leads me to a normative statement because this is a claim about how the world ought to be. It matters because positive statements are descriptive and specific to how the world is. Normative statements are prescriptive about how the world should be. It is my understanding that both these factors are needed to help make economic changes from a scientific point and as policy advisers.
What in this chapter made you think about an economic concept differently than your previous beliefs?
Chapter 1 touched on Principle 6: Markets are usually a good way to organize economic activity. This section touches on the difference between central planned economies and market economies and the preference for most countries to move to a market economy. I am aware of Adam Smith’s observation about the invisible hand and how this leads communities to desirable market outcomes. Principle 7 says that governments can sometimes improve market outcomes. I found this concept interesting because I always believed that the government had a bigger sway in decisions even in market economies, however, according to the principles I may have misunderstood how much government stays involved.
What new questions do you have now about the US economy based on this chapter?
After reading Chapter One, I would like to better understand how US Economists decide when to step in to affect the outcomes of the invisible hand, and who is responsible for making these decisions? Also, if Principle 5 states that trade can make everyone better off, why are we currently in so many trade wars?
Principles of Macroeconomics Spring 2020 