Difficulty: 1/3 (Easy read, graphs may be somewhat difficult to decipher)
Review: 5/5 (The taxing part is hard to explain, but Mankiw does his best and it's good)
This chapter's focus is on policies, policy-making being the other role that economists take on other than being scientists. A variety of different policies affect the economy, including those of taxes, price floors/ceilings, minimum wage, etc. What are the effects?
For price ceilings, one above the equilibrium is non-binding, while one below the equilibrium is binding, and very detrimental to the market, causing shortage. It's the vice versa for price floors, they should be below the equilibrium to not be binding. (Minimum wage ends up falling in this category as a price floor for the labor market)
Next, Mankiw discusses taxes and tax incidence, the distribution of a tax burden. Taxes on buyers turn out to reduce the demand of the good by the amount of tax and reduces market size. Taxes on sellers reduce the supply of the good by the amount of tax and also reduces market size. Although in these two cases the buyer or the seller is taxed, it turns out both share the same tax incidence. So when the government tries to set tax incidence to fifty fifty, they should take into account supply and demand forces first.
Again, we turn to elasticity to measure whether the buyer or seller takes on more of the tax burden. Of course whichever curve is more elastic takes on less of the tax burden.
All in all, an economist policy maker must take into account elasticity and the laws of supply and demand if they are too successfully architecture a policy that does as intended.
Wednesday, September 28, 2016
Saturday, September 24, 2016
Crisis Actors? Economics? What?
Difficulty: 3/3 (Requires a lot of historical knowledge to read)
Review: 4/5 (Really interesting article, except the quotes and pictures at the beginning should have been dispersed throughout the article instead of before, very confusing)
*This blog post is not on Mankiw's Economics textbook. Rather, this is an exception, and will be an analysis of the Salient article: Crisis Actors and a Reichstag Fire. The link can be found here: http://www.salientpartners.com/epsilon-theory/crisis-actors-reichstag-fire/ *
There was once this Danish folktale about a foolish emperor. When a clever merchant told him of a beautiful garment that was transparent, the emperor gladly purchased it. Now, wearing this "garment", the emperor flaunted it around his people. Up front, the people would all praise the emperor for his fashion, but behind his back, they laughed at the silly naked emperor. Finally, a truly loyal friend reveals the truth to the emperor and he suicides in his own shame.
"...acting AS IF doesn't mean acting AS" This short quote is my favorite line in the article. It summarizes much of the main idea the author wanted to convey. The author's intent was to inform the people to not be like patsies, like the emperor described above. He tells us how the media is plagued with various self-interests, persuading rather than informing; it's just the way of human nature. But the author, Ben, tells us to be cautious and self-aware. Although we as individuals may not have it in our best interests if we do not comply with the messages, we should always keep the truth and look through the crisis actors (patsies putting a show up for the broadcaster), and instead keep in mind that everyone has a bias or a motive.
What has this patsy nonsense have to do with economics, you ask? Well, in keeping your mind above the crisis actors and twisted truths, you are more likely to identify actual problems in the world of politics and economics. Although central banks and such may blame various scapegoats, by following their motives and not falling for their narratives, one can possibly identify the catalysts and prepare for when the actual crisis hits.
Review: 4/5 (Really interesting article, except the quotes and pictures at the beginning should have been dispersed throughout the article instead of before, very confusing)
*This blog post is not on Mankiw's Economics textbook. Rather, this is an exception, and will be an analysis of the Salient article: Crisis Actors and a Reichstag Fire. The link can be found here: http://www.salientpartners.com/epsilon-theory/crisis-actors-reichstag-fire/ *
There was once this Danish folktale about a foolish emperor. When a clever merchant told him of a beautiful garment that was transparent, the emperor gladly purchased it. Now, wearing this "garment", the emperor flaunted it around his people. Up front, the people would all praise the emperor for his fashion, but behind his back, they laughed at the silly naked emperor. Finally, a truly loyal friend reveals the truth to the emperor and he suicides in his own shame.
"...acting AS IF doesn't mean acting AS" This short quote is my favorite line in the article. It summarizes much of the main idea the author wanted to convey. The author's intent was to inform the people to not be like patsies, like the emperor described above. He tells us how the media is plagued with various self-interests, persuading rather than informing; it's just the way of human nature. But the author, Ben, tells us to be cautious and self-aware. Although we as individuals may not have it in our best interests if we do not comply with the messages, we should always keep the truth and look through the crisis actors (patsies putting a show up for the broadcaster), and instead keep in mind that everyone has a bias or a motive.
What has this patsy nonsense have to do with economics, you ask? Well, in keeping your mind above the crisis actors and twisted truths, you are more likely to identify actual problems in the world of politics and economics. Although central banks and such may blame various scapegoats, by following their motives and not falling for their narratives, one can possibly identify the catalysts and prepare for when the actual crisis hits.
Wednesday, September 21, 2016
Economics: Elasticity and Its Application
Difficulty: 2/3
Chapter Review: 3/5 (Not enough discussion on using the midpoint method. Having trouble answering the problems at the end of the chapter involving elasticity calculations due to lack of example problems)
Last chapter we learned of the forces of supply and demand. This chapter is about measuring that force, determined by the price elasticity.
What is elasticity? Before studying economics, one might think of the word flexibility. And that is essentially what it means in economics. One type of elasticity, the price elasticity of demand, is essentially the flexibility of the demand in response to a change in price. Factors that affect this are availability of close substitutes, whether it is a necessity vs. a luxury, narrowness of definition of the market, and time horizon. To calculate, simply take percent change of quantity demanded over percent change in price.
Mankiw also introduces total revenue, a.k.a. Price x Quantity of a market. In inelastic markets, price and total revenue have a positive relationship, elastic ones have a negative relationship, and n unit elasticity, total revenue remains constant.
Some other "elasticities" include the income elasticity of demand, the cross-price elasticity of demand, and the price elasticity of supply.
All in all, using elasticity in economics is very important. It can be used in a variety of situations, like to analyze how technology really affects farmers, how OPEC controls oil prices, and possible options to fight drug related crime. Armed with this newfound information, an economist can do so much more.
Chapter Review: 3/5 (Not enough discussion on using the midpoint method. Having trouble answering the problems at the end of the chapter involving elasticity calculations due to lack of example problems)
Last chapter we learned of the forces of supply and demand. This chapter is about measuring that force, determined by the price elasticity.
What is elasticity? Before studying economics, one might think of the word flexibility. And that is essentially what it means in economics. One type of elasticity, the price elasticity of demand, is essentially the flexibility of the demand in response to a change in price. Factors that affect this are availability of close substitutes, whether it is a necessity vs. a luxury, narrowness of definition of the market, and time horizon. To calculate, simply take percent change of quantity demanded over percent change in price.
Mankiw also introduces total revenue, a.k.a. Price x Quantity of a market. In inelastic markets, price and total revenue have a positive relationship, elastic ones have a negative relationship, and n unit elasticity, total revenue remains constant.
Some other "elasticities" include the income elasticity of demand, the cross-price elasticity of demand, and the price elasticity of supply.
All in all, using elasticity in economics is very important. It can be used in a variety of situations, like to analyze how technology really affects farmers, how OPEC controls oil prices, and possible options to fight drug related crime. Armed with this newfound information, an economist can do so much more.
Wednesday, September 14, 2016
Economics: The Market Forces of Supply and Demand
Difficulty: 1/3
Chapter Review: 4/5 stars
The phrase "supply and demand" is indeed a well known one, and quite a simple, reasonable concept as well. Mankiw really goes in depth to explain and analyze this pattern in economics. The only issue I have with this chapter is that the figures are often placed on a different page from the explanations, and some figures are hard to read, especially the ones defining surplus and shortage.
One of the first things that Mankiw brings up is that the forces of supply and demand only occur in a competitive market (multiple sellers opposed to only one seller). This is very essential since without competition, such a monopoly would have sole control over prices and thus supply and demand.
Mankiw does a wonderful job of dissecting the force into demand curves and supply curves. He describes the factors that affect shifts in them, such as number of buyers, prices of related goods (substitutes vs. complements), expectations, and more.
Finally, the chapter concludes with the actual definition of this invisible "supply and demand" force. It is that supply and demand curves meet at an equilibrium where the supply and demand are equal so that there is no surplus or shortage. The market tends to move towards the equilibrium over time, and it is this movement that defines the supply and demand force. This invisible hand is exceptionally important in economics because many factors such as weather and input prices and technology could shift the demand and/or supply curves and thus shift the equilibrium, ultimately affecting the productivity and economic activity of a market.
Chapter Review: 4/5 stars
The phrase "supply and demand" is indeed a well known one, and quite a simple, reasonable concept as well. Mankiw really goes in depth to explain and analyze this pattern in economics. The only issue I have with this chapter is that the figures are often placed on a different page from the explanations, and some figures are hard to read, especially the ones defining surplus and shortage.
One of the first things that Mankiw brings up is that the forces of supply and demand only occur in a competitive market (multiple sellers opposed to only one seller). This is very essential since without competition, such a monopoly would have sole control over prices and thus supply and demand.
Mankiw does a wonderful job of dissecting the force into demand curves and supply curves. He describes the factors that affect shifts in them, such as number of buyers, prices of related goods (substitutes vs. complements), expectations, and more.
Finally, the chapter concludes with the actual definition of this invisible "supply and demand" force. It is that supply and demand curves meet at an equilibrium where the supply and demand are equal so that there is no surplus or shortage. The market tends to move towards the equilibrium over time, and it is this movement that defines the supply and demand force. This invisible hand is exceptionally important in economics because many factors such as weather and input prices and technology could shift the demand and/or supply curves and thus shift the equilibrium, ultimately affecting the productivity and economic activity of a market.
Monday, September 12, 2016
Greetings!
Greetings! My name is Kevin, and I am a junior taking AP Economics this year. This blog will be completely dedicated to the study of economics and will be based off of N. Gregory Mankiw's Principles of Economics, a detailed textbook that hopefully teaches all I need to know about how economics affects the world. Each post will be about a chapter in the book, and I will do my best to provide an explanation of each. Even if you aren't taking economics, please feel free to take a look at my blog, for I am sure there will be treasure troves of useful information regarding the economic cycle that everyone is a part of. Have fun!
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