Basic Economics - Prices and Markets - Research Paper Example

Basic Economics PART PRICES AND MARKETS Scar indicates limited or finite or limited sources whereas shortage is related to the amount a supplier is willing to provide at a given price in a given time and its demand exceeds its supply. There can be a growing shortage without growing scarcity as shortage is a short term phenomenon and does not affect scarcity. 2. A decision can be economic even if there is no money involved. Economics is a way of making the most out of an option that has been presented to us in life. It involves allocating time and resources efficiently. 3. There is enough food being produced in the world that not only would it be sufficient for everyone, it can also make them fat. In a society where ample food is being produced, most of it gets imported and the remaining is sold with high profits to the locals and the people who cannot afford it are deprived of the food. 4. If a housing shortage suddenly disappears without the construction of new houses, it probably means that the houses available had been availed at lower prices to more people sharing the same space. 5. a) If the price is not in equilibrium then there will be a difference in supply and quantity of goods. b) Prices increase because at a given price the amount of products being supplied is less than the demand of that product. c) The quality of the product is affected by the increase in price. Increase in price may lead to a decrease in quality. d) Price control on products is good for their sale in the black market in poor quality. e) Price control on products may result in hoarding of the product bought from the black market. f) The auxiliary services are also affected by price control and as a result of that businesses shift their clientele from normal household products to industrial investors. g) Efficiency in the allocation of resources is affected by price control. Prices force people to share, knowingly as well as unknowingly. If there is a shortage of a resource and its demand is increasing, by increasing the price the resource can be allocated to more people and the allocated resources can be shared by many. 6. After rent control laws are passed, resources like bricks and pipes etc used in construction of houses are allocated as such that the better quality material goes to the luxury housing building scheme as they can afford to pay more profit on the goods. 7. Prices are usually higher in low income neighborhoods because profits from sales are not as much in those markets as compared to stores in high income areas. 8. When a government program produces counterproductive results it is usually a result of the irrationality of the organization as they should have foreseen all the possible outcomes of the program and prepared accordingly 9. When government sets up policies in favor of national interests, it is generally not favored by the public as it may result in them having to pay more taxes and heavier interests. 10. Costs are generally taken to be the money we pay for things, when in fact; it actually is an inevitable opportunity to utilize our resources in terms of trade and exchange. So in a primitive society where goods and services are not charged, cost still exists. 11. Adam Smith’s contrasting opinions on capitalists and capitalism are deeply related to social causation and intentional causation as systemic causation is quite common and takes place through a process whereas intentional causation is spontaneous. 12. When the Soviet Union was in command, its industries used more fuel and resources than America yet their output was less. Russia produces a large amount of oil yet the oil is not used in the production of goods. 13. The price of baseball bats can be affected by the demand of paper following a general principal that if a producer is willing to pay a price for a certain raw material than other producers will be forced to pay the same price. 14. Price control causes shortage of those resources whose price being increased can allow food items to be affordable. Hence price control may cause shortage of gas yet fruits, say strawberries, will still be available. 15. Price control affects the quality of living of people. Due to price control, more people are forced to live in small spaces so that they give less rent and as a result the housing quality may be better but quality of living is not. PART II: INDUSTRY AND COMMERCE 1. Big corporations pay millions in severance package to employees who have not been a big asset of the company as well. By paying them the severance money the companies ensure that the employees have a sense of security and protect them when they leave the job. 2. Toyota makes components which are just enough for the next step in manufacturing because it helps in cutting down their cost in a lot of ways. On the other hand, Soviet Union makes enough inventories to last at least a year because they keep in view the long term effects and have inventories stocked in case of emergencies. 3. American manufacturers of TVs and monitors tend to have them transported rather than transport them themselves like Chinese manufacturers because they have employed agencies which are specific in their action of transportation of goods. 4. Movement of people from rural to urban America in the early 20th century caused inauguration of new supermarkets which were more easily accessible and could attract more customers even if their prices were relatively higher, putting the old stores like A & P out of business who did not move their stores to new locations where the population was shifting. As a result, A & P was undersold. 5. General Motors produce cars in bulk because by doing that costs them much less per car and they recover all the money which was spent on research and machinery by selling the cars in large numbers. Soviet enterprises on the other hand, took care of all their details themselves and do not squander their money in input. 6. Diseconomies of scale in agriculture had a negative impact on the tractor drivers in the Soviet Union. The drivers worked dishonestly and did not plough the areas properly where they knew no one would check like the centre of the field and focused on the periphery of the field where they knew they were being monitored. They would have worked better if the fields belonged to them and they were receiving profit from working on them. 7. When economic projects such as building roads or aircrafts are being initiated, they require much more money than an individual can afford to invest. To lure investors to invest money in that project, regulatory commissions are set up which set prices. 8. Advertizing may be a good thing for those who are selling, but it certainly is not good for the buyer. The consumer has to pay for the cost of the advertisement along with the cost of the product. Producers on the other hand believe that advertizing is good for the consumers as well as they are well aware of the commodities. 9. In capitalism, the capitalist is getting information from the market about the needs and what he will have to supply while the socialist gives the information and others are forced to obey. 10. Retired people get discounts on cruise ships because they are not bound by schedules and can easily take a vacation at any time of the year, and if they don’t get discounts they will go to the business’ competitors who are offering them discounts. 11. Elimination of the middle guy is a process which enables the economy to become stronger and leads to higher interest rates. 12. The A & P grocery chain, by cutting down its profit margins on sale increased their rate of profit in investment. By reducing their profits and hence price they attracted customers in hordes which resulted in them getting more profit from the increased amount of sale. 13. In order to utilize their capacities, some luxury hotels charge even lesser than economy hotels in a particular area, because unused space can cause price abnormalities in the economy of the hotels. 14. Government protects competition and competitors by ensuring that monopolies are not getting formed and enforcing antitrust laws. These antitrust laws hinder competition and harm the consumers, affecting their way of living. 15. A factor which can cause limitation in high stores in low income areas can raise their costs and make up for the high costs is that people with low income shop in areas of high income because of the lower prices. Therefore stores in low income areas can raise the price to an extent otherwise the people will shop in high income areas even if that costs them fare to travel to the stores. PART III: WORK AND PAY 1. As a result of industrialization human power has been replaced by machines and instead human intelligence, knowledge and skills are the traits being searched for. Industrialization caused the people to migrate to urban areas and a need for acquiring formal education. 2. Average nails hammered will be more in a poor country as they will not be using advance machines, rather very efficient tools and they work longer hours. In richer countries there is also a factor of corruption which hampers the average work done. 3. Some studies which attempt to determine how employment changes by motivating employees of minimum wage with increased salary and then surveying the results before and after the increase to see the difference has a methodological problem. By increasing the minimum wage decreases the employment of minimum wage workers. 4. Even if the average income of the family and household remains same, the per capita income can increase by 50% over a period of time by providing good education to the members of the family. 5. If the difference between top and bottom bracket increases, it usually means that the individuals are falling behind another given set of individuals. To move ahead the other individuals, one will have to bridge the gap between the brackets. 6. Economic and political transitions if go side by side, can result to be very profitable. If the country continues to develop while its economy is in a state of transition, then it is better than an economy which is in a settled state. 7. Wage laws are affected by sexual and racial discrimination. Wages law discrimination result in black people or women in a given group having lower minimum wage or any wage at all. 8. Income inequality is the unequal distribution of wealth in a group and is the gap between the rich and the poor. It tends to be greater in the short run as the poor make their conditions better eventually and the rich might lose their wealth. 9. Per capita Gross Domestic Product of a country is all its products and services divide by its population whereas household income is the sum of money received. The country’s per capita makes the economy look good. 10. Transportation provides mobility, job opportunities, shapes land and development patterns and these things are very important for the economy of a country. Corruption in a country is a cause of inflation and people lose their jobs because of it thus decreasing the demand of labor. 11. A South African manufacturer opens a plant in Poland in spite of having enough labor in spite of having sufficient labor because the total cost of production will be lower in Poland and South Africa has low political stability. 12. The productivity of an individual depends upon a number of factors other than his own input whereas efficiency is dependant only upon the person’s input. For Example, the baseball player had the highest percentage of home run as compared to the times he bat. 13. It has often been said that a high percentage of a country’s income goes to the wealthy. It is true. Statistically the top 1 percent of Americans is handling 43 percent of the country’s wealth. 14. Wages are lower and working conditions are bad in third world countries. The reason is mainly that employers keep the workers uninformed of their rights. To overcome that, the populace should be well educated and kept in a good health, and their product should be purchased to increase their wages and conditions. 15. The fact that most people reach their peak income at a much older age implies that age discrimination is a big factor in the industry. Further, difference in the salaries of men and women implies gender discrimination as we well. PART IV: TIME AND RISK 1. It will be economically sensible for a 90 year old to begin planting trees that will take at least two decades to reach maturity because it will increase the net worth of his land. He can sell the land after some time at a much higher price. 2. Individuals usually raise money by borrowing. However sometimes they also issue stocks. The reason behind issuance of stocks is that the value of the stock increases at the same rate as the business does and it has a relatively lower risk involved. 3. Statistics on the known reserves of natural resources show that the people are being misled as to how much of the resources are available. It is because more than of the country’s resources are being used to manufacture military goods. 4. Payday loans usually have an interest rate of 100% per year as compared to other loans whose interest rates are much lower. The loan issuers defend this high rate by saying that cost of processing payday loans is much higher than normal loans. 5. Commodity speculation is not the same as gambling. Commodity speculation is dealing with already present risks and dealing with them in such a way that they are minimized. The effect of commodity speculation is that the seller is guaranteed a particular price in advance. 6. An insurance company or a commodity speculator may be willing to pay a certain amount of money to an individual and the individual is willing to buy it because none of them know for sure when the individual will die and aware of the risks that are risks involved. 7. A government own bus company would charge low fares which are not even enough to replace the old buses so that poor people can also travel with convenience. If executives of private bus companies start keeping a portion of the fare to themselves then the stockholders of that company will not be getting as much profit as they are supposed to be getting and they might sue the executives. 8. Confiscation of business land owned by foreign companies in poor countries does not help in making the country’s conditions better because it would include corruption which is not good for a country’s economy. 9. International commodity markets can have an impact on small farmers in third world countries as well. Those poor farmers who lack education can take par t in international commodity market by working with speculators who know about the statistics of the land. 10. It makes sense for individuals to get their vehicles insured because in case of any accident the insurance company will cover the losses suffered. Hertz cars are usually self insured and their liability state is the minimum. 11. Regulation of insurance companies improves the efficiency of the industry by benefiting insurance companies and consumers as well. Insurance also protects one from the rising price of health expenses. However insurance is like laying a wager that everything will not go well. It is costly and with careful management, this cost can be avoided. 12. Manufacturers in some countries keep an inventory of many months’ supply of the materials needed in production because inventories are a substitute of knowledge. Keeping an inventory makes up for the lack of information one has. The implication of doing so is a waste of scarce resources like time, energy, effort etc which could’ve been used somewhere else. 13. Incomes which cannot be included in dynamic competition like rents are called unearned incomes. They are called so because they can be attributed to monopolization and because they are not a result of their jobs. When people living on unearned incomes leave the country they are unable to find jobs easily as they are used to getting money without working. 14. Investment rate affects the allocation of contemporary resources. A higher interest will motivate people to invest more than it will motivate them to invest at lower interest. A higher rate will motivate people to use less in the present so that they can have more in the future. 15. State’s bonds will be downgraded by bond rating agencies like Standard & Poor when their interest rates will increase and when the government puts taxes on capital gains from bonds. PART V: THE NATIONAL ECONOMY 1. Taxation is not simply the transfer of money from people to government. It affects the whole economy of a country. For example, during wartime, increasing taxes on the annual incomes to make weapons will result in scarcity of goods for civilian use yet increase in the amount of money. 2. Rent control may result in reduction of property rights to zero or even negative. Property rights are self monitored which is more effective and less expensive than a third party monitoring the property. Property rights also affect tenants. If following the property rights strictly, the owner may kick out a tenant whenever he wants, but doing so will have a negative effect on the landowner so he will tend to keep his property rented as long as possible. 3. Honesty is more than a moral. Honesty of a country’s citizens has a deep impact on its economy as well. The country with a higher level of honesty will have better economics as people will look beyond their personal gains and work for the gain of the country. 4. During the Great Depression in the 1930s, President Hoover as well as President Roosevelt tried that the prices of goods and labor remains up for humanitarian reasons as well as to maintain the purchasing power of workers but it was impossible to employ same number of workers at the same wages when the money supplied was one-third. 5. During inflation money circulates faster because the purchasing value of money is falls and general prices increase. As a consequence of inflation, inefficiencies are increased in the market. 6. During wartime people start bidding on gold instead of paper currency and this can cause civilian consumption add up to more than its output, without borrowing from other countries 7. It is difficult to make meaningful comparisons between the standard of living in a country whose population is on average, many years younger than the population of another country with which it is being compared because the absolute advantage of a country depends on a number of factors apart from the age and skills of the population. 8. The nationalization of Indian banks caused a great scope and expansion of banking in India. Indian banking to this date has been successful in achieving mass participation. 9. There are two assumptions regarding cutting down of taxes. Either the government revenue will fall even below or the debt will increase. Other people say that by cutting the taxes down economy will be stimulated and the government revenue will increase. 10. Even if all the statistics are available, the comparison over such a long time period is very difficult because not just the value of money changes overtime, but the matter against which money is evaluate (usually gold) also changes with a different rate. Even with the availability of statistics it is very hard to compare the national output at the beginning of the twentieth century with the national output at the beginning of the twenty-first century because there are a number of factors which determine the national output of the two centuries. 11. Albanian banks refuse to make loans and as a result they are an open marketed economy based on agriculture. 12. Fallacy of composition is considered to be committed when there are no justifications to the claim that two parts of a whole are two parts and should be true. 13. Money talks in the market but some decisions like buying of selling of houses take place outside the market because these assets contribute to the unearned income and are not subject to interests. 14. A debt is passed on to the next generation if the country’s economy is rising in terms of foreign deficits. 15. It is not easy to tell who is bearing the burden of taxes in an organization because in order to avoid paying taxes, individuals and organizations hide their annual income. PART VI: THE INTERNATIONAL ECONOMY 1. When foreign products are restricted from being imported it ends up reducing domestic employment because some of the domestic workers were also employed in the importing sector. 2. Britain imported dairy products at a time when its own dairy industry was quite efficient. This helped to form better trade relations with the country who exported their goods. 3. There are three reasons for carrying out international trade: Absolute advantage, comparative advantage and economics of scale. 4. A third world country may prefer smaller amount of money from foreign aid because it involves transfer of aid between governments not private organizations. 5. Honesty is more than a moral. Honesty of a country’s citizens has a deep impact on its economy as well. The country with a higher level of honesty will have better economics as people will look beyond their personal gains and work for the gain of the country. 6. Americans are consumers and they tend to buy everything they set their eyes upon even if they don’t need it. This leads to them being indebted to other nations and America is referred to as a ‘debtor’ nation. This position of America is in equilibrium for now however it is not beneficial because if the balance is disturbed then Americans will face high interest rates and higher price of anything which is not manufactured locally. In contrast to that, Switzerland being a ‘creditor nation’ will always be in the dominating end of any such imbalance. PART VII: SPECIAL ECONOMIC ISSUES 1. ‘If it saves one life, it’s worth it’ is the grounds for defending many costly safety measures and policies. However, keeping that in mind trivial things which cause accidental things like buckets, ladders Lego pieces should be banned as well as children drown in bucket, choke on Lego pieces, people die from falling from ladders and car accidents. 2. Price discrimination or physically identical objects having different prices are mainly based upon cost differences and competition. One of the major reasons behind that is tax and customs duties. 3. Mercantilist economists believed in increasing a nation’s wealth by having the government impose regulations, limiting imports and maximizing exports while on the other hand classic economists follow the modern school of thought and believe in flexible prices and wages. Apart from that classical economists approach is that supply creates its own demand. 4. Brands are a way of economizing scarce knowledge. Two different brands sell the same products under different names but still one brand is in more demand because people trust the brand names. 5. Economists believed that relative prices of goods reflected their relative costs of production. This theory faced a lot of problems because when goods are manufactured in bulk the cost of production is balanced out by the large volume of goods not the prices of individual goods. 6. Predatory pricing is a popular mistake occurring from antitrust laws. In this big companies remove its smaller competitors from the market and take over their share and lower their prices which will reduce sustainability hence eliminating them from the markets. 7. A government official in India said: “I don’t want multinational companies getting rich selling face creams to poor Indians.” This implies that he did not prefer international companies getting richer at the expense of the poor people of his country when they could use local face creams which were equally effective. 8. The three most foolish economic policies are rationalism, protection and increment of taxes in down turn. Before reading this book I had never thought about these policies as being unwise. Read More