Chapter 22/Course Reflection

Chapter twenty-two/Course reflection

I can truthfully say that I did find this course useful.  I greatly appreciate gaining knowledge about how our economy/country operates and the basic concepts that can be utilized to analyze how individuals make choices.

The thing that I found most useful is also the thing that I have changed my thinking about.  This was chapter three, particularly international trade.  I enjoyed being able to read about the benefits of trade and specialization and realize that there are benefits as well as drawbacks.  I love that that I have learned some substantial concepts, and it’s exciting to know that I don’t have to be uninformed or have set beliefs and make swift judgments.  It can be easy to get caught up with what other people are getting wound up about (like sending manufacturing jobs overseas) and be blinded by others’ comments and what “seems” to be happening.  That is why I love learning about alternate ways of thinking.  It prepares me to make informed decisions (which is amazing because I am passionate about voting) as well as have valuable conversations.

Thank you so much for a great semester and wonderful studies!

-Ashley

Chapter 21 Reflection

Chapter twenty-one: The Theory of Consumer Choice.

The section of this chapter that I found most confusing was how interest rates affect household savings, specifically the part about the income effect inducing Sam to save less.  I think I understand the theory, but I don’t see that happening in real life.  I have never known anyone to say “the interest rate on my savings account just went up, now I don’t have to save as much.”  It is likely that the person would continue to put the same amount in savings, or even more because of the incentive of a higher rate. 

One of the core concepts of the theory of consumer choice is that society faces trade-offs between work and leisure.  Also consumers are limited by budget constraints and what they can actually afford.  An indifference curve shows the consumption bundles that will satisfy a consumer.  The optimum point (where the highest indifference curve meets the budget constraint) is the best combination for the consumer.  Changes in income and in prices can affect the consumer’s choices by shifting their indifference curve.  With an increase in income, the consumer can buy more, so the curve adjusts (shifts to the right) for the increase in options.  On the other hand, if the price of one of the items that constitutes the curve increases, the curve would shift to the left, showing a decrease in options that the consumer can afford.



Chapter 20 Reflection

Chapter twenty: Income Equality and Poverty

Chapter 20 Summary 

 

           This chapter centers on equality, in particularly the redistribution of income.  The chapter discusses the numbers and data associated with the problem, various political views and philosophies, and potential solutions. 

There is great disproportion of income between the “poorest” and “richest” people in the United States, with the top fifth earning over ten times as much as the bottom fifth.  The rate of poverty was presented and statistics showed that female households with no spouse present had the highest rates, followed by Blacks and Hispanics.  However, this data is not always complete because it only takes into account money income.  It doesn’t consider things like in-kind transfers such as food stamps, housing vouchers, and medical services.  The economic life cycle (the regular pattern of income variation over a person’s life), transitory income versus permanent income, and economic mobility (the movement between poverty and wealth) also present difficulties for gauging actual poverty rate.

Numerous solutions to poverty have been presented.  Minimum wage laws have been passed.  Welfare presents various forms of financial assistance.  In-kind transfers (which are mentioned above) are nonmonetary aids.  The negative income tax is a system that collects revenue from high-income households and redistributes to low-income households in the form of subsidies.

There are different political viewpoints when it comes to solutions to poverty, in particular the redistribution of income.  Utilitarians favor the distribution of income and believe that government should enforce policies that maximize total utility of everyone in society.  Liberals believe that government should act as an impartial observer.  Libertarians believe that the government should promote individual rights and are against the redistribution of income.

Chapter 19 Reflection

Chapter nineteen: Earnings and Discrimination

Margin note 1. Page 398.
"Doesn't seem to take every nonmonetary aspect of a job into consideration."
The theory of compensating differential is the difference in wages that arises to offset the nonmonetary characteristics of different jobs.  Although I can think of think of some industries/jobs where this doesn't seem to come into play.  My family owns among other things a chain of convenience stores in Texas.  Four of these stores have QSRs (quick service restaurants).  I have spent time learning the ins and outs of those stores, as well as training managers for them.  So far in my experience the fast-food environment has been the most grueling to work in.  It can be hard work.  However, it requires no education background.  People who have never finished high school can learn how to drop a basket of french fries.  So in this industry, pay seems to be based on amount of education - not the amount/difficulty of labor. 
On the other end of the spectrum, there are people in the entertainment business - I'll focus on the movie industry.  Whereas shooting a movie may be physically taxing for a few months, actors get paid a ridiculous amount of money.  Their job is not particularly dangerous (the ones who don't do their own stunts) and some have gone to theater shcoool - some haven't.  The people in this industry aren't saving lives or producing an essential need for humans, it is simply entertainment.  Yet it can be one of the richest industries in the United States. 

Margin note 2. Page 399.
"Human capital view: People with a higher education make more money."
Human capital is the accumulation of investments in people, such as education and on-the-job training.  The text states that those with a college degree earn almost twice as much those without a college degree.  Depending on the type of job you are looking for, education and experience can make all the difference.  I know at the job I am at now, I was called for interview because I had previous experience at a business in the same industry.  When hiring, employers look for the right fit for the job, and education, previous training, and/or experience can signal that.

Margin note 3. Page 402.
"Signaling theory of education: a degree is almost a facade of ability, and does not enhance productivity."
Under the signaling theory of education, workers are not more productive because they have higher learning, it just seems like they are.  Where I do think that there is a morsel of truth in that, I don't believe it to be entirely true.  I do think that real-life experience can do more than any college classroom, but there are things an individual can learn from obtaining a degree.  The most important of which is broadening your perspective.  Earning a degree can also show that you are committed to that field.

Chapter 18 Reflection

Chapter eighteen: The Markets for the Factors of Production

1. What is the concept of diminishing marginal product? Draw a basic graph showing a production function curve.  What happens to the curve as the quantity of input increases?

2. Name one reason that can cause the labor-demand curve to shift.  Describe what would happen to the curve in your example (which way it would shift).

3. Describe what would happen to equilibrium wage and labor supply in a country that has seen a recent influx of immigrants?  What would happen to the equilibrium wage and labor supply of the country the workers immigrated from?

Chapter 17 Reflection

Chapter seventeen: Oligopoly

One of the prominent concepts we've learned so far throughout this course is that competition is healthy for the economy.  The Sherman Antitrust Act of 1890 was passed to prevent price-fixing which can enable firms within an oligopoly market to form a cartel and act as a monopoly.
The market of wireless providers could definitely be considered an oligopoly.  An oligopoly is characterized by a few number of firms offering identical or similar products.  Right now there are four top wireless providers: Verizon, AT&T, Sprint Nextel, and T-Mobile who dominate a majority of the market.  Obviously these companies have not formed a cartel, primarily because it is against the law.  But another reason I think is just as significant is the fact that they are also competing with self-interest in mind.  Each have different offers and utilize various forms of bundling, while trying to offer the best deal while making the most profit.
If AT&T would have been allowed to merge with T-Mobile, the number of governing providers would have dropped down to three, pushing the industry ever closer to monopolostic status.  Personally, I like having options when choosing who to patronize when it comes to a wireless provider.  I hold in high regard the ability to have a choice; to weigh the pros and cons of a business especially when I'm going to sign a contract with them.
This being said I do support antitrust laws and goverment intervention in preventing monopolistic behavior in firms.  But I think it's a tough battle.  The driving force behind business is success, profit, and being number one in the industry in which you are competiting.  Big companies often do this by acquiring their competition, reassuring their leadership status in the market.  But "Big Business" does need to be kept in check to assure that consumers have choices and aren't forced to pay outrageous prices.
Nothing about chapter seventeen was very unclear, but I found the chapter interesting - in particular game theory and the prisoners' dilemma.  With the visual of the decision box, it is interesting to see how two competitors choices affect both them and their competition.  If one acts out of self-interest and the other does not, then the selfish firm comes out on top.  If they both act out of self-interest, they are both at a mediocre standpoint, but if they both cooperate the result is most profitable for both. 

That's all for now....
Ciao!

Chapter 16 Reflection

Chapter sixteen: Monopolistic Competition

Monopolistic competition is when there are many firms in the market that sell similar but not identical products.  Some attributes of monopolistic competition are: many sellers, product differentiation, and free entry and exit into and out of the market.
An oligopoly is a market structure where there are few firms selling similar or identical products.  Both firms are a form of imperfect competition.
Advertising can be vital to both monopolistic competition and oligopoly firms.  These firms often use advertising to develop brand names and create consumer loyalty.  In our text it states that there is a bit of a fiery disagreement between economists over the role advertising plays and the intentions behind these firms when they utilize it. 
The critics state that firms use advertising to influence customers' preferences and inhibit competition.  The defenders say that advertising is used to inform customers and compete on price and product quality.
I have to say I think I'm stuck in the middle.  While I do see some firms using advertising for informational purposes, I also do think it is to thwart compeition by creating such a saturation for a product in a consumer's mind that it is the only one they think of and perceive it to be superior.  There really is no informational reason for firms to pay for product placement in movies and on TV shows, and some label it as subliminal messaging.  How many subtle messages have you seen-maybe without even realizing it?
ET loves Reeses Pieces.
Little Nicky thinks Popeye's Chicken is [expletive] awesome!
Rene Russo shotguns a Pepsi like there's no tomorrow.
When you come back from the future, Western Union may have a package for you.
And I am beginning to think I could jot on down to the local GM dealer and buy a car that transforms into a cool robot.
Got a zit? Put some Windex on it.
I don't know that any of these advertisements are informational (maybe the one for Popeye's Chicken, haha) but they sure are ingeniously building brand loyalty.
When advertising is successful, firms will attract consumers.  The consumer may turn into a loyal customer, and keep returning to buy the firm's products.  Therefore I would think that successful use of advertising can definitely give a firm an edge, and maybe even allow the firm to act as a monopoly in the short-run.

The most interesting thing to me in this chapter was the relation of the supply and demand curves of monopolistic competition.  I thought it was interesting how in the short-run, a monopolistically competitive firm will choose its quantity and price the same way a monopoly does - by producing at a point where MR=MC.  That being said, when a company is doing well, it is an incentive for others to enter the market.  When another firm enters the market it would decrease demand for present firms, shiftint the curve to the left.  In the long-run this could cause a firm's equilibrium to be at a point where P=ATC, and they would not have any profit.

That's all for now...
Ciao!