Case Study Rent Control In The Short Run And Long Run

One common example of a price ceiling is rent control. In some cities, the local government places a ceiling on rents that landlords may charge their tenants. The goal of this policy is to help the poor by making housing more affordable. Economists often criticize rent control, arguing that it is a highly inefficient way to help the poor raise their standard of living. One economist called rent control the best way to destroy a city, other than bombing.

Oligopoly In The Beer Industry

The beer industry was once populated by dozen of firms and an even larger number of brands. It now is an oligopoly dominated by a handful of producers. The brewing industry has undergone profound changes since World War II that have increased the degree of concentration in the industry. In 1945 more than 60 independent brewing companies existed in Canada. By 1967 there were 18, and by 1984 only 11.

Demand for a Factor Input When Only One Input Is Variable

Demand curves for factors of production are downward sloping, just like demand curves for the final goods that result from the production process. Unlike consumers' demands for goods and services, however, factor demands are derived demands-they depend on, and are derived from, the firm's level of output and the costs of inputs. For example, the demand of Microsoft Corporation for computer programmers is a derived demand that depends not only on the current salaries of programmers, but also on...

Variables Constants and Parameters

A variable is something whose magnitude can changc, i.e., something that can take on different values. Variables frequently used in economics includc pricc, profit, revenue, cost, national income, consumption, investment, imports, and exports. Since each variable can assume various values, it must be represented by a symbol instead of a specific number. For example, wc may represent price by P, profit by tt, revenue by R, cost by C national income by F, and so forth.

Implications of the First Welfare Theorem

The two theorems of welfare economics are among the most fundamental results in economics. We have demonstrated the theorems only in the simple Edgeworth box case, but they are true for much more complex models with arbitrary numbers of consumers and goods. The welfare theorems have profound implications for the design of ways to allocate resources. Let us consider the First Welfare Theorem. This says that any competitive equilibrium is Pareto efficient. There are hardly any explicit assump-...

How Taxes On Buyers Affect Market Outcomes

We first consider a tax levied on buyers of a good. Suppose, for instance, that our local government passes a law requiring buyers of ice-cream cones to send 0.50 to the government for each ice-cream cone they buy. We decide whether the law affects the supply curve or demand curve. 2 We decide which way the curve shifts.

Schumpeterian and Kirznerian Entrepreneurs

Israel Kirzner's book Competition and Entrepreneurship contrasted his view of entrepreneurs who equilibrate markets with Schumpeter's entrepreneurs who generate economic progress through creative destruction, disequilibrating markets. This section considers in more detail the differences between Schumpeter's and Kirzner's depiction of entrepreneurial activity.

Conventional Payment Process

A conventional process of payment and settlement involves a buyer-to-seller transfer of cash or payment information (for example, credit card or check). The settlement of payment takes place in the financial processing network. A cash payment requires a buyer's withdrawal from his bank account, a transfer of cash to the seller, and the seller's deposit of the payment to his account. Non-cash payment mechanisms are settled by adjusting, that is, crediting and debiting, the appropriate accounts...

Principle 4: People Respond To Incentives

Because people make decisions by comparing costs and benefits, their behavior may change when the costs or benefits change. That is, people respond to incentives. When the price of an apple rises, for instance, people decide to eat more pears and fewer apples, because the cost of buying an apple is higher. At the same time, apple orchards decide to hire more workers and harvest more apples, because the benefit of selling an apple is also higher.

Jesses Decision Making Grid

A popular model economists use to illustrate the concept of opportunity cost is the production possibilities frontier, a diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed. In the classic examplea mythical country called Alpha produces two goods—guns and butter.

Two Ways To Reduce The Quantity Of Smoking Demanded

Public policymakers often want to reduce the amount that people smoke. There are two ways that policy can attempt to achieve this goal. One way to reduce smoking is to shift the demand curve for cigarettes and other tobacco products. Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of cigarette advertising on television are all policies aimed at reducing the quantity of cigarettes demanded at any given price.

Tax Haven New Zealand

New Zealand is located in the Pacific Ocean on the southeast coast of Australia. The population of New Zealand is approximately 4.3 million people. Over the years New Zealand has developed into a country which helps clients tax advantage of international tax planning. New Zealand has a very well developed economy. The country depends mainly on free trade with its main export industries being agriculture, forestry and fishing.

Friedmans Modern Quantity Theory of Money

In 1956, Milton Friedman developed a theory of the demand for money in a famous article, The Quantity Theory of Money A Restatement. 12 Although Friedman frequently refers to Irving Fisher and the quantity theory, his analysis of the demand for money is actually closer to that of Keynes than it is to Fishers. 12Milton Friedman, The Quantity Theory of Money A Restatement, in Studies in the Quantity Theory of Money, ed. Milton Friedman (Chicago University of Chicago Press, 1956), pp. 3-21. Like...

Trade-Offs in Economics

Beach replenishment was designed for the specific purpose of saving the federal government millions of dollars that would otherwise be spent in disaster assistance. More than 60 years ago, the U.S. Army Corps of Engineers designed a detailed cost-benefit analysis to determine which disaster-prone coastal areas could be protected through beach replenishment.

Early Christian attitudes towards merchants

Roman law was not the only influence on economic ideas in the Middle Ages. Ambivalent attitudes in the early Christian tradition also proved highly important. Economic matters were of course scarcely central to either the Old or New Testament, and scattered economic pronouncements are contradictory or subject to ambivalent interpretation. Fulminations against excessive love of money do not necessarily imply hostility to commerce or wealth. One remarkable aspect of the Old Testament, however, is...

Components of Public Opinion

Political scientists and public opinion experts often describe public opinion in terms of three features direction, intensity, and stability. Here is what they mean. One key question is whether public opinion on any given topic is positive or negative. For example, are people for or against spending more money on national defense Do people support or oppose a cut in taxes On most topics, public opinion is mixed with some people expressing positive opinions.

Caribbean Tax Havens

Caribbean tax havens are amongst the world's most popular and well respected tax havens. The Caribbean region has been known to produce outstanding tax havens which are also offshore jurisdictions. Tax havens in the Caribbean are known for the benefits they provide for a large client base some of the benefits of Caribbean tax havens include, reducing tax liability and providing privacy.

Tax Haven Singapore

The Republic of Singapore is situated at the end of the Malay Peninsula and is the smallest nation in Southeast Asia. Singapore has a population of about 4.80 million people. Singapore is very stable politically and has a favorable environment which encourages business investments. Singapore offers offshore services to clients around the globe. These offshore services include incorporation of companies, offshore banking, and the formation of offshore trusts among other efficient services.

Why Study Banking and Financial institutions

Part III of this book focuses on financial institutions and the business of banking. Banks and other financial institutions are what make financial markets work. Without them, financial markets would not be able to move funds from people who save to people who have productive investment opportunities. They thus also have important effects on the performance of the economy as a whole. Structure of The financial system is complex, comprising many different types of private sector the Financial...

127 Legitimate Work From Home Jobs That Really Pay

Do you dream of one day working from home Wish you could make it happen but don't know where to begin No worries we've done all the work for you. We've painstakingly researched one work from home opportunity to the next to cut out all the nonsense and scams. It took a lot of effort but we really wanted to create the ultimate guide to legitimate work from home jobs.

Tax Haven BVI

The British Virgin Islands of the BVI as they are commonly known is a group of islands in the Caribbean, an estimated group of fifty four (54). The BVI is made up of four main islands and fifty smaller cays. The BVI forms part of British Overseas Territory in the Caribbean. The capital city of the BVI is located on the island of Tortola.

Case Study Why The Cow Is Not Extinct

Why The Cow Not Extinct

Throughout history, many species of animals have been threatened with extinction. When Europeans first arrived in North America, more than 60 million buffalo roamed the continent. Yet hunting the buffalo was so popular during the nineteenth century that by 1900 the animal's population fell to about 400 before the government stepped in to protect the species. In some African countries today, the elephant faces a similar challenge, as poachers kill the animals for the ivory in their tusks. Yet...

Precision Or Standard Errors Of Leastsquares Estimates

From Eqs. (3.1.6) and (3.1.7), it is evident that least-squares estimates are a function of the sample data. But since the data are likely to change from sample to sample, the estimates will change ipso facto. Therefore, what is needed is some measure of reliability or precision of the estimators jj1 and j2. In statistics the precision of an estimate is measured by its standard error (se).17 Given the Gaussian assumptions, it is shown in Appendix 3A, Section 3A.3 that the standard errors of the...

Guiding Function Of Prices

For instance, assume that consumers decide they want more fruit juice and less milk than the economy currently provides. Those changes in consumer tastes will be communicated to producers through an increase chapter four an overview of the market system and the canadian economy guiding Function of prices The ability of price changes to bring about changes in the quantities of products and resources demanded and supplied. The hypothesis that the creation of new...

The Slope Of A Curvilinear Function

Curvilinear Function

The slope of a curvilinear function is not constant. It differs at different points on the curve. In geometry, the slope of a curvilinear function at a given point is measured by the slope of a line drawn tangent to the function at that point. A tangent line is a straight line that touches a curve at only one point. Measuring the slope of a curvilinear function at different points requires separate tangent lines, as in Fig. 3-4(< i). The slope of a tangent line is derived from ihc slopes of a...

The Keynesian model in a closed economy

Smith Diagramm

Before introducing international trade, it may be useful to review briefly the closed-economy Keynesian model, in part because it is no longer included in some introductory or intermediate macroeconomics courses. Our economy is assumed to have two sectors a business sector and households. We assume for the time being that it has no government, meaning no taxes or public expenditures, and no transactions with the rest of the world, and that prices remain unchanged. The model will, of course,...

How the Budget Line Changes

Budget Line Microeconomics

When prices and incomes change, the set of goods that a consumer can afford changes as well. How do these changes affect the budget set Let us first consider changes in income. It is easy to see that an increase in income will increase the vertical intercept and not affect the slope of the line. Thus an increase in income will result in a parallel shift outward of the budget line as in Figure 2.2. Similarly, a decrease in income will cause a parallel shift inward.

Equivalent Uniform Annual Cost

This method is also known as the uniform annual cost or unacost method 4 . The uniform annual cost is obtained by calculating the present worth of all cash flows associated with the operation through the use of assigned interest rate for discounting purposes. The present worth is then converted (at the same interest rate) to an equivalent uniform annual cash flow over the life of the project. It can be calculated either as a uniform end-of-year payment, using discrete interest, or as a...

Why Economists Differ

Wfi Choosing which economic policies will work best is difficult. The proposals economists offer often seem contradictory, which adds to the difficulty. These differences, however, are smaller than most people realize. Economists who choose one policy over another normally do so because they think that some problems are more critical than others. For example, one economist might think that unemployment is the crucial issue, while another believes that inflation is. if you were to survey all...

The Classical model

In the textbook model, the three central tenets of the Classical school are Say's Law, the Quantity Theory, and the coordinative role of the interest rate. Say's Law is normally transformed into a claim about the relationship between an aggregate supply and an aggregate demand curve. More precisely, Say's Law ('supply creates its own demand') is said to imply that aggregate supply would always equal aggregate demand. The argument is that sales of goods supplied in the market produce the income...

Autarky Equilibrium

We begin by describing the autarky equilibrium. The price of the final good at each point in time is P(t). If the consumer spends E(t) on this good, then the quantity Y(t) E(t) P(t) will be purchased, and we assume that this provides instantaneous utility of lnY(t) lnE(t) - lnP(t). The consumer's problem is then max f e-p(T-t) lnE(x) - lnP(x) dx, (10.18) 10 If o 1, then output will increase by a finite amount when new inputs are introduced, as shown in (10.17). 11 This is like the so-called y...

Properties of the Budget Set

The budget line is the set of bundles that cost exactly m These are the bundles of goods that just exhaust the consumer's income. The budget set is depicted in Figure 2.1. The heavy line is the budget line the bundles that cost exactly m and the bundles below this line are those that cost strictly less than m. The budget set. The budget set consists of all bundles that are affordable at the given prices and income. We can rearrange the budget line in equation 2.3 to give us the formula This is...

Changes in technology and resource availabilities

Technological advance has a direct effect on the production possibilities frontier and on the market for loanable funds. Although a typical technological innovation occurs in one or a few markets, it allows, through resource reallocation, for increases in the production possibilities all around. That is, the frontier shifts outward and possibly experiences a change in shape depending on the specific nature of the change in technology the demand for loanable funds shifts to the right, as...

The classical labour market

Mpl Revenue Model

In the classical view the labour market is seen as being just like any other market. The good being traded on this particular market is labour (measured in work hours). It is supplied by (potential) workers, and demanded by firms. The price for one unit of this good, the hourly wage, adjusts so as to balance supply and demand. The marginal product of labour schedule indicates the additional output produced by one more unit of labour that obtains at various levels of employment.

The Group Lending Methodology

Access to finance via groups is not new. The example of ROSCAs in chapter 3 shows how groups function to give participants access to a pot of communal money, and credit cooperatives similarly function to allow members to obtain loans from their peers. The place of groups in microfinance, however, strengthens and extends earlier uses of groups although not without some added costs . To see this, we describe Grameen-style group lending. The model has been adapted in different contexts, but...

Aggregate Demand Aggregate Supply And The Phillips Curve

Aggregate Demand Curve

The model of aggregate demand and aggregate supply provides an easy explanation for the menu of possible outcomes described by the Phillips curve. The Phillips curve simply shows the combinations of inflation and unemployment that arise in the short run as shifts in the aggregate-demand curve move the economy along the short-run aggregate-supply curve. As we saw in Chapter 19, an increase in the aggregate demand for goods and services leads, in the short run, to a larger output of goods and...

The Classical Dichotomy And Monetary Neutrality

We have seen how changes in the money supply lead to changes in the average level of prices of goods and services. How do these monetary changes affect other important macroeconomic variables, such as production, employment, real wages, and real interest rates This question has long intrigued economists. Indeed, the great philosopher David Hume wrote about it in the eighteenth century. The answer we give today owes much to Hume's analysis. Hume and his contemporaries suggested that all economic...

The Lag And Difference Operators

A convenient device for manipulating lagged variables is the lag operator, Some basic results are La a if a is a constant and L(LXt) L2Xt Xt-2. Thus, LpXt Xt-p, Lq(LpXt) Lp+qXt Xt-p-q, and (Lp + Lq)Xt Xt-p + Xt-q. By convention, L0 Xt 1Xt Xt .A related operation is the first difference, Obviously, AXt (1 - L)Xt and Xt Xt-1 + AXt. These two operations can be usefully combined, for example, as in A2Xt (1 - L)2Xt (1 - 2L + L2)Xt Xt - 2Xt-1 + Xt-2. (1 - L)2Xt (1 - L)(1 - L)Xt (1 - L)(Xt - Xt-1) (Xt...

Leontiefs Paradox

Leontief (1953) was the first to confront the HO model with data. He had developed the set of input-output accounts for the U.S. economy, which allowed him to compute the amounts of labor and capital used in each industry for 1947. In addition, he utilized U.S. trade data for the same year to compute the amounts of labor and capital used in the production of 1million of U.S. exports and imports. His results are shown in Table 2.1. Note Each column shows the amount of capital or labor needed per...

The dotcom Bubble

Stock markets in the United States and elsewhere rose strongly in the 1980s and 1990s, interrupted only briefly by the crash of October 1987 (which, in retrospect, fostered the illusion that any decline in stock prices would be quickly reversed). By 1996, the boom had reached the point where, with the Dow Jones index at 8000, Alan Greenspan warned of the dangers of irrational exuberance in asset markets. Greenspan never repeated the warning and soon returned to his customary role as a...

The Noncoincident Demand Peak Responsibility Method

A different version of peak responsibility is illustrated on the right hand columns of Table 3.1. This is the non-coincident demand approach. The table shows that the individual peaks of each of the three classes of service occurred at different times. The residential peak occurred at 6 p.m., the small commercial peak a 2 p.m., and the large commercial and industrial peak at 8 a.m. Only the peak of residential service occurred at the same time as the overall system peak. The cost responsibility...

The Frisch Slutsky Paradigm

We have already implicitly discussed the main ideas behind the Frisch-Slutsky paradigm when we drew an analogy between business cycles and reservoirs.6 The Frisch-Slutsky paradigm identifies three components in business cycle fluctuations as shown in Figure 14.10. The first component is an impulse or a shock that triggers business cycle fluctuations. In terms of our metaphor, the impulse is the pebble or automobile that is thrown into the reservoir. However, as in our metaphor, the fluctuations...

VARMA models

As mentioned in the introduction, the VAR class of processes sometimes has the disadvantage that a quite large order p is necessary for a proper representation of the DGP. In fact, in some cases theoretical considerations lead to infinite order VAR processes (see also the section on linear transformations). Therefore we consider the following more general process class which includes infinite order VAR processes as well. It is assumed that the DGP of the K-dimensional multiple time series y1, ,...

Intertemporal Price Discrimination and Peak Load Pricing

Intertemporal Price Graph

Intertemporal price discrimination is an important and widely practiced pricing strategy closely related to third-degree price discrimination. Here consumers are separated into different groups with different demand functions by being charged different prices at different points in time. To see how intertemporal price discrimination works, think about how an electronics company might price new, technologically advanced equipment, such as videocassette recorders during the 1970s, compact disc...

Principle 7 Governments Can Sometimes Improve Market Outcomes

Although markets are usually a good way to organize economic activity, this rule has some important exceptions. There are two broad reasons for a government to intervene in the economy to promote efficiency and to promote equity. That is, most policies aim either to enlarge the economic pie or to change how the pie is divided. The invisible hand usually leads markets to allocate resources efficiently. Nonetheless, for various reasons, the invisible hand sometimes does not work. Economists use...

Poverty traps in the Solow model

Poverty Traps Solow

Poverty traps may occur if one or more of the assumptions employed in the Solow model are violated. We look at the three building blocks of the model's graphical form to give examples of what may go wrong. Figure 10.7 One type of poverty trap may occur when there are economies of scale at low levels of the capital stock. Then a second (positive) level of the capital stock exists at which the savings and required investment lines intersect. Since here the savings line cuts through the required...

What does 1 million pennies look like?

This is what 1 million pennies looks like. 1 million pennies is a total of 10 000 dollars and weights about 2.3 tons. An interesting fact about pennies is that because of the falling dollar 1 penny is actually worth more when sold as metal as opposed to its nominal value. The US government passed a special law that says it is illegal to sell pennies as metal.

The Rise Of The Robber Barons

Whether in England or the United States, there is a sharp contrast between those entrepreneurs focused on the honest production of more and cheaper products and those fascinated with making money for unscrupulous ends by unscrupulous means. Men like Henry Ford and Thomas Edison were thought to characterize the former. We next turn attention to the most notorious of the latter, who bequeathed an age with their name. Andrew Carnegie was somewhere in-between. The amount of financial capital needed...

Monopolistic Competition

Diffuse Illumination Picture

In many industries the products that firms make are differentiated. For one reason or another, consumers view each firm's brand as different from those of other firms. Crest toothpaste, for example, is different from Colgate, Aim, and a dozen other toothpastes. The difference is partly flavor, partly consistency, and partly reputation-the consumer's image correct or incorrect of the relative decay-preventing efficacy of Crest. As a result, some consumers but not all will pay more for Crest....

The Production Possibilities Frontier

Points along a production possibilities frontier show combinations of two goods here, lives saved and other goods' that can be produced using available resources and technology. At point A, all resources are used to produce other goods, and no lives are saved. At point F, 500,000 lives are saved, but no other goods are produced. The concave, bowed-out shape of the frontier reflects the law of increasing opportunity cost. other goods we're producing. In Figure 1, the quantity of other goods is...

Supply And Demand For Loanable Funds

Vietnam War Political Cartoon

The economy's market for loanable funds, like other markets in the economy, is governed by supply and demand. To understand how the market for loanable funds operates, therefore, we first look at the sources of supply and demand in that market. The supply of loanable funds comes from those people who have some extra income they want to save and lend out. This lending can occur directly, such as when a household buys a bond from a firm, or it can occur indirectly, such as when a household makes...

Obstacles To Collusion

Normally, cartels and similar collusive arrangements are difficult to establish and maintain. We look now at several barriers to collusion. Demand and Cost Differences When oligopolists face different costs and demand curves, it is difficult for them to agree on a price, which is particularly true in industries where products are differentiated and change frequently. Even with highly standardized products, firms usually have somewhat different market shares and operate with differing degrees of...

Oprah Winfrey

Oprah Winfrey Harpo Productions

Oprah Winfrey-known to millions simply as Oprah-is one of the richest and most powerful women in America. Most people know her as a talk show host, but she has other talents. As an actress, she received an Oscar nomination for Best Supporting Actress in The Color Purple. As a businessperson, she is the third woman in history after Mary Pickford and Lucille Ball to own a major television and film studio. With an annual income of about 100 million, she is poised to become the country's first...

The Relationship Between Average And Marginal Costs

Although marginal cost and average cost are not the same, there is an important relationship between them. Look again at Figure 6 and notice that all three curves MC, AVC, and ATC first fall and then rise, but not all at the same time. The MC curve bottoms out before either the AVC or ATC curve. Further, the MC curve intersects each of the average curves at their lowest points. These graphical features of Figure 6 are no accident indeed, they follow from the laws of mathematics. To understand...

Evaluating the Gains and Losses from Government Policies Consumer and Producer Surplus

We saw at the end of Chapter 2 that a price ceiling causes the quantity of a good demanded to rise consumers want to buy more, given the lower price and the quantity supplied to fall producers are not willing to supply as much given the lower price , so that a shortage results. Of course, those consumers who can still buy the good will be better off because they will now pay less. Presumably, this was the objective of the policy in the first place. But if we also take into account those who...

Con The Central Bank Should Not Aim For Zero Inflation

Although price stability may be desirable, the benefits of zero inflation compared to moderate inflation are small, whereas the costs of reaching zero inflation are large. Estimates of the sacrifice ratio suggest that reducing inflation by 1 percentage point requires giving up about 5 percent of one year's output. Reducing inflation from, say, 4 percent to zero requires a loss of 20 percent of a year's output. At the current level of gross domestic product of about 9 trillion, this cost...

Possibilities Frontier

Production Possibility Frontier Diagram

A decision-making grid lists alternatives and criteria to help evaluate choices. I What do economists mean when they talk about costs IMSDDDSS Economies face trade-offs when deciding what goods and services to produce. Economics amp You You just learned that you face trade-offs and opportunity costs when making choices. Read on to learn how opportunity cost applies to countries as well as individuals. To illustrate opportunity cost, economists use the production possibilities frontier, a...

The Novelty Of Modern Economic Growth

If we are to understand why a vast gap between rich and poor exists today, we must return to the very recent period of human history when this divide emerged. The past two centuries, since around 1800, constitute a unique era in economic history, a period the great economic historian Simon Kuznets famously termed the period of modern economic growth.

The Firms Employment Decision When Only Labor Is Variable

In Table 1, we return to a firm we first met in Chapter 6 Spotless Car Wash. The first two columns in the table are reproduced from Table 1 of that chapter and introduce nothing new. Column 1 shows different numbers of workers that Spotless can hire, Column 2 the quantity of output produced each day. Column 3 shows the marginal product of labor (MPL) the additional output produced when one more worker is hired. For example, when the firm hires the third worker, output rises from 90 to 130, so...

Economic Systems

Command Economy

To deal with the fundamental problem of scarcity, different types of economic systems exist. market economy, per capita GDP, command economy, socialism, communism, mixed economy Reading Strategy Organizing Information As you read the section, complete a diagram like the one below by describing three characteristics of a market economy. How does a market economy work What are the characteristics of a command economy How does a market economy work What are the characteristics of a command economy...

Price Floors

Supply Loanable Funds Curve

Sometimes, governments try to help sellers of a good by establishing a price floor a minimum amount below which the price is not permitted to fall. The most common use of price floors around the world has been to raise prices or prevent prices from falling in agricultural markets. Price floors for agricultural goods are commonly called price support programs. In the United States, price support programs began during the Great Depression, after farm prices fell by more than 50 between 1929 and...

Use ThredUP to Save Money & Look Great

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Monopoly And Imperfect Competition

In Chapter 14, we saw that a purely competitive market will produce the economically efficient level of output all Pareto improvements will be made. But we also saw that when competition is less than perfect, firms produce less than the efficient quantity of output and leave opportunities for mutual gain unexploited. Therefore, market structures other than perfect competition can be regarded as market failures. The most extreme departure from perfect competition is monopoly a market with only...

Economic Choices and Decision Making

Trade-offs are present whenever choices are made. Reading Strategy Graphic Organizer As you read this section, complete a graphic organizer similar to the one below by explaining what you need to know to become a good decision maker. trade-off, opportunity cost, production possibilities frontier, cost-benefit analysis, free enterprise economy, standard of living After studying this section, you will be able to 1. Analyze trade-offs and opportunity costs. 2. Explain decision-making strategies....

Shift Of The Demand Curve

Total Revenue Supply Demand Graph

A change in any influence on demand besides the price of the good causes the entire demand curve to shift. An increase in income, for example, causes the demand for maple syrup, a normal good, to shift from D, to D2. At each price, more bottles are demanded after the shift. the total value of everything you own (cash, bank accounts, stocks, bonds, real estate, valuable artwork, or any other valuable property) minus everything you owe (home mortgage, credit card debt, auto loan, student loans,...

Reading a Time Zone Map

Different Time Zones United States

The world is divided into 24 different time zones. Six of them divide the United States. Communicating or traveling between them To read a time zone map., follow these steps Trace the vertical sections dividing the map. Each section represents a time zone. Observe the east-west progression of the zones across the map. The starting point is 0 longitude. Read the labels showing the time in different zones. Subtract or add hours among zones to determine time differences. Read the map above then...

My verdict on Zeitgeist and The Venus Project

If I had a pound for every person who emailed me to ask me if I had heard of the Zeitgeist Movement (TZM) and The Venus Project (TVP), then we'd probably already have a home for the first experimental moneyless village. Together they are an Internet phenomenon, and millions of people have either joined TZM or watched some of their downloads, such as the excellent Zeitgeist Addendum.

The Duties and Responsibilities of Citizenship

The privilege of U.S. citizenship brings with It certain responsibilities. Some are legal, such as obeying laws and paying taxes, and some are voluntary, such as participating in the political process and being Informed. responsibility, duty, draft, tolerance Reading Strategy Summarizing Information As you read, on a web diagram like the one below list the legal responsibilities of U.S. citizens. Legal Responsibilities cil U.S. Citizens Legal Responsibilities cil U.S. Citizens Read to Learn...

My Sitter City Review - How to Find a Babysitter

My review of SitterCity and how we used it to find a reliable babysitter quickly and easily. A few months ago my wife and I decided we needed to find a reliable babysitter. In the past we've always relied on my sister watch our kids, or we traded babysitting services with friends who also had young children. But there were times when our friends were busy and we didn't want to have to rely solely on my sister who might also have plans.

Characteristics of entrepreneurial alertness

Boldness, impulse, hunch are the raw materials of entrepreneurial success and failure . It is important to examine the unique characteristics of entrepreneurial alertness if we are to appreciate this elusive concept and to understand the types of institutions and economic policies that are likely to be conducive to it. A general point is that entrepreneurship is not a factor of production, not even a special kind of productive factor Kirzner 1979 180-181 . The characteristics of entrepreneurial...

Marginal Revenue Curves

Negative Marginal Revenue

We saw in the last section that marginal revenue is given by We will find it useful to plot these marginal revenue curves. First, note that when quantity is zero, marginal revenue is just equal to the price. For the first unit of the good sold, the extra revenue you get is just the price. But after that, the marginal revenue will be less than the price, since Ap Aq is negative. Think about it. If you decide to sell one more unit of output, you will have to decrease the price. But this reduction...

Producer Choice And The Law Of Supply

Now let's shift our focus to producers and the supply side of the market. How does the market process determine the amount of each good that will be produced To figure this out, we first have to understand what influences the choices of producers. Producers convert resources into goods and services by doing the following 1. organizing productive inputs and resources, like land, labor, capital, natural resources, and intermediate goods 2. transforming and combining these inputs into goods and...

Zero Profit

Marginal Revenue Positive Why

As we saw in Chapter 7, it is important to distinguish between accounting profit and economic profit Accounting profit is measured by the difference, between the firm's revenues and costs, including actual outlays and depreciation expenses. Economic profit takes account of opportunity costs. One such opportunity cost is the return that the owners of the firm could make if their capital were used elsewhere. Suppose, for example, that the firm uses labor and capital inputs its capital equipment...

How to Create an Efficient Business Plan

Writing a business plan is a daunting task, but one that is essential. A well-written business plan can mean the difference between success and failure, according to Rohit Arora, a contributing writer for Fox Small Business Center. A business plan can provide you with blueprints to help you navigate through the business world while helping potential investors and lenders to understand your business approach and your plan for success. Your business plan, like your business, is forever evolving.

Questions for Review Jol

Economies of scale exist when long-run average total cost falls as the quantity of output increases, which occurs because of specialization among workers. Diseconomies of scale exist when long-run average total cost rises as the quantity of output increases, which occurs because of coordination problems inherent in a large organization. 2. Figure 4 shows a production function that exhibits diminishing marginal product of labor. Figure 5 shows the associated total-cost curve. The production...

Cost Drivers

Cost and consumer benefit drives value-creation. Understanding how a firm creates value and why it creates more or less value than its competitors often requires a diagnosis of cost and benefit drivers. We discuss cost drivers first. Cost drivers explain why costs vary across firms. We discuss cost drivers in terms of average costs, rather than total costs, because a larger firm's total costs would be higher than a smaller firm's simply because it is larger.59 We S9One way to control for the...

The Importance of Financial Intermediaries to Securities Markets An International Comparison

Patterns of financing corporations differ across countries, but one key fact emerges. Studies of the major developed countries, including the United States, Canada, Great Britain, Japan, Italy, Germany, and France, show that when businesses go looking for funds to finance their activities, they usually obtain them indirectly through financial intermediaries and not directly from securities markets. Even in the United States and Canada, which have the most developed securities markets in the...

The Unit Root Test

A test of stationarity (or nonstationarity) that has become widely popular over the past several years is the unit root test. We will first explain it, then illustrate it and then consider some limitations of this test. The starting point is the unit root (stochastic) process that we discussed in Section 21.4. We start with Yt pYt 1 + ut 1 < p < 1 (21.4.1) where ut is a white noise error term. We know that if p 1, that is, in the case of the unit root, (21.4.1) becomes a random walk model...

Problems And Applicatio Bdp

Suppose that this year's money supply is 500 billion, nominal GDP is 10 trillion, and real GDP is S5 trillion. a. What is the price level What is the velocity of money b. Suppose that velocity is constant and the economy's output of gixxds and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant C. What money supply should the Fed set next year if it wants to keep the price level stable d. What money...

Changes In Technology

Tecnology Change Supply Curve

Perfect competition, while it does wonders for society as a whole, is hard on the individual firm. We have seen that economic profit when it occurs exists only fleetingly before being eliminated by the entry of other firms. Similarly, economic loss is eliminated by exit a rather clinical term for thousands of painful business failures each year. But these features of competition make it a powerful engine for satisfying our material desires. In this section, we look at another way in which...

Provision Of Public Goods

Private Good Horizontal Summation

To derive the conditions in which efficient provision of a public good is obtained, let us review private good production. Assume a society in which there are two individuals, Hanzel and Gretal. There are two private goods, gingerbread cookies and bread crumbs. In Figure 6.1a, the quantity of cookies (c) is measured on the horizontal axis, and the price per cookie (Pc) on the vertical axis. Hanzel's demand curve for cookies is denoted as DHc . The demand curve indicates the quantity of cookies...

Household behaviour intertemporal choices

Utility Household Curve

Households have to decide not only how to allocate time between work and leisure, and split income between consumption and saving today or this year . They also have to make a plan for these same decisions tomorrow or next year . Of course, today's decisions cannot be made independently of tomorrow's. This is most obvious in the case of consumption if I consume less and save more today, I will be able to consume more tomorrow. But it also applies to leisure time by working more today I may be...

Perfect Substitutes and Perfect Complements

The shapes of indifference curves can imply different degrees of willingness to substitute one good for another. To see this, look at the two polar cases illustrated in Figure 3.6. Figure 3.6a shows Philip's preferences for apple juice and orange juice. These two goods are perfect substitutes for Philip, since he is entirely indifferent between having a glass of one or the other. In this case, the marginal rate of substitution of apple juice for orange juice is 1 Philip is always willing to...

Buying And Selling

Offer Curve Microecons

In the simple model of the consumer that we considered in the preceding chapters, the income of the consumer was given. In reality people earn their income by selling things that they own items that they have produced, assets that they have accumulated, or, most commonly, their own labor. In this chapter we will examine how the earlier model must be modified so as to describe this kind of behavior. As before, we will limit ourselves to the two-good model. We now suppose that the consumer starts...

Questions for Review Jsj

What does transitivity of preferences mean 2. Suppose that a set of indifference curves was not negatively sloped. What could you say about the desirability of the two goods 3. Explain why two indifference curves cannot intersect. 4. Draw a set of indifference curves for which the marginal rate of substitution is constant. Draw two budget lines with different slopes show what the satisfaction-maximizing choice will be in each case. What conclusions can you draw 5. Explain why a person's...

Most Expensive Yacht in the World 2010

Over the years there have been many who search for the most expensive mega yacht in the world. If you are 1 of them then I have good news you can stop searching. The most expensive yacht in the world is called A Forget about the silly and luxurious names that all the vessels that have ever been considered as the most expensive yachts in the world have had. The newest most expensive yacht in the world is simply called A. Yes, it is A just the letter A.

The Economics of Taxation

Ability Pay Principle

Taxes are the single most important way of raising revenue for the government. Graphic Organizer As you read the section, complete a graphic organizer similar to the one below by listing the criteria for taxes to be effective. Then, define each of the criteria in your own words. sin tax, incidence of a tax, tax loophole, individual income tax, sales tax, benefit principle of taxation, ability-to-pay principle of taxation, proportional tax, average tax rate, progressive tax, marginal tax rate,...

Countercyclical Fiscal Policy

In the previous section, you learned that changes in government spending and taxes that occur automatically during expansions and recessions help to stabilize the economy. This immediately raises a question Can the government purposely change its spending or tax policy to make the economy even more stable For example, suppose the AD curve shifts leftward, and the economy enters a recession. Perhaps the government could increase its purchases of goods and services, or cut income tax rates,...

Aggregate tabulations and models

Much can be learned simply from cross-tabulating survey data. For the United States, there are two very useful sources. One, covering all trips, is the National Personal Transportation Survey (NPTS), collected at approximately six-year intervals for the single year 2001 it was subsumed into a broader survey called the National Household Travel Survey (NHTS). The other useful source is the journey-to-work portion of the US Census, taken every 10 years. This consists of responses to questions...

The Classical Theory Of Inflation

We begin our study of inflation by developing the quantity theory of money. This theory is often called 'classical because it was developed by some of the earliest economic thinkers. Most economists today rely on this theory to explain the long-run determinants of the price level and the inflatk gt n rate. The Level of Prices and the Value or Money Suppose we observe over some period of time the price of an ice-cream cone rising from a nickel to a dollar. What conclusion should we draw from the...

The price level and inflation

Like the theory of interest, the classical theory of the price level is also a direct application of their theory of value the price level (inverse of the value of money) is determined by the supply and demand for money (currency). As J.S.Mill declares, The introduction of money does not interfere with the operation of any of the Laws of Value. The reasons which make the temporary or market value of things depend on the demand and supply, and their average and permanent values upon their cost...

Supply and Demand in the Market for Money The Liquidity Preference Framework

Fixed Supply Demand Curve

Whereas the loanable funds framework determines the equilibrium interest rate using the supply of and demand for bonds, an alternative model developed by John Maynard Keynes, known as the liquidity preference framework, determines the equilibrium interest rate in terms of the supply of and demand for money. Although the two frameworks look different, the liquidity preference analysis of the market for money is closely related to the loanable funds framework of the bond market.4 The starting...

Factors That Cause the LM Curve to Shift

The LM curve describes the equilibrium points in the market for money the combinations of aggregate output and interest rate for which the quantity of money demanded equals the quantity of money supplied. Whereas five factors can cause the IS curve to shift (changes in autonomous consumer expenditure, planned investment spending unrelated to the interest rate, government spending, taxes, and net exports unrelated to the interest rate), only two factors can cause the LM curve to shift autonomous...

Ketchup Is A Complement For Hot Dogs. If The Price Of Hot Dogs Rises What Happens To The Market For Ketchup For

Explain each of the following statements using supply- a. When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country. b. When the weather turns warm in New England every summer, the prices of hotel rooms in Caribbean resorts plummet. c. When a war breaks out in the Middle East, the price of gasoline rises, while the price of a used Cadillac falls. 2. An increase in the demand for notebooks raises the quantity of notebooks demanded, but not the...

Problems And Applications Lwk

Explain each of the following statements using supply-and-demand diagrams. a. When a cold snap hits Florida, the price of orange juke rises in supermarkets throughout the country. b. When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets. c. When a war breaks out in the Middle East, the price of gasoline rises, and the price of a used Cadillac falls. 2. An increase in the demand for notebooks raises the quantity of notebooks demanded...

Substitutes and Complements

The demand curves that we graphed in Chapter 2 showed the relationship between the price of a good and the quantity demanded, with preferences, income, and the prices of all other goods held constant. For many goods, demand is related to the consumption and to the prices of other goods. Baseball bats and baseballs, hot dogs and mustard, and computer hardware and soft ware are all examples of goods whose consumption is complementary-when the consumption of one increases, the consumption of the...

General Equilibrium Analysis

So far our discussions of market behavior have been largely based on partial equilibrium analysis. When determining the equilibrium prices and quantities in a market, we presumed that the activity in that market had little or no effect on other markets. For example, in Chapters 2 and 9, we presumed that the wheat market was largely independent of the markets for related products, such as corn and soybeans. Often a partial equilibrium analysis of this sort is sufficient to understand market...

Production and Cost TheoryA Mathematical Treatment

This appendix presents a mathematical treatment of the basics of production and cost theory. As in the appendix to Chapter 4, we use the method of Lagrange multipliers to solve the firm's cost-miniinizing problem. The theory of the firm relies on the assumption that firms choose inputs to the production process that minimize the cost of producing output. If there are two inputs, capital K and labor L, the production function F K, L describes . the maximum output that can be produced for every...

The Concave Programming Problem

Concave Proramming

We can write the concave-programming problem in a simple form as max f x ,x-> ) s.t. gU,.x2) > 0, .t ,x-> > 0 (15.1) The name concave programming was used to distinguish this type of problem from that of linear programming, which, as we will see in section 15.2. is a special case of concave programming. The word concave appears because the functions ' and are assumed to be concave. We discuss the reasons for this below. We also assume the functions to be differentiable. Note also the...

Cost Minimization with Varying Output Levels

In the previous section we saw how a cost-minimizing firm selects a combination of inputs to produce a given level of output. Now we extend this analysis to see how the firm's costs depend on its output level. To do this we determine the firm's cost-minimizing input quantities for each output level, and then calculate the resulting cost. The cost-minimization exercise yields a result such as that shown in Figure 7.5. Each of the points A, B, C, D, and E represents a tangency between an isocost...

Cost Minimization Hle

Cost Minimizing Solution Curves

Suppose that we have two factors of production that have prices w and w2 5 and that we want to figure out the cheapest way to produce a given level of output, y. If we let x and x2 measure the amounts used of the two factors and let f x 1,2 2 t gt e the production function for the firm, we can write this problem as The same warnings apply as in the preceding chapter concerning this sort of analysis make sure that you have included all costs of production in the calculation of costs, and make...

Determining the optimal combination of inputs

The isoquants that were considered in the previous analysis all assume that the firm is producing with technical efficiency, which, as we have seen, means that the outputs involved are assumed to be the maximum that could be produced from the combinations of inputs employed. However, for each isoquant there is only one combination of inputs that is economically efficient, meaning minimizing cost, given a set of input prices. The determination of this input combination requires information...

Shomu Banerjee Intermediate Microeconomics

The success of the first six editions of Intermediate Microeconomics has pleased me very much. It has confirmed my belief that the market would welcome an analytic approach to microeconomics at the undergraduate level. My aim in writing the first edition was to present a treatment of the methods of microeconomics that would allow students to apply these tools on their own and not just passively absorb the predigested cases described in the text. I have found that the best way to do this is to...

Hayden Economics Book

That is, the cost per unit of output will be constant no matter what level of output the firm wants to produce. If the technology exhibits increasing returns to scale, then the costs will increase less than linearly with respect to output, so the average costs will be declining in output as output increases, the average costs of production will tend to fall. Similarly, if the technology exhibits decreasing returns to scale, then average costs will rise as output increases. As we saw earlier, a...

Factors that disequilibrate the market

Kirzner's emphasis on the equilibrating function of entrepreneurship naturally focuses attention on factors that disequilibrate the market. The very notion of equilibrium suggests an economy that will continue on its present path undisturbed until it is shocked out of equilibrium. Then the equilibrating forces of the market take over to put the economy back on its equilibrium path. A number of factors could disequilibrate the market. For example, preferences could change, requiring resources to...

Schumpeterian and Kirznerian entrepreneurship

While in one sense the entrepreneurial activities described by Schumpeter and Kirzner are the same - especially when viewed from the vantage point of the entrepreneur - in a larger sense they are different. In both cases entrepreneurs are searching for ways to employ the resources under their control in a more profitable manner, and entrepreneurship means noticing, acting upon, and seizing these opportunities.10 But in Schumpeter's framework, one can picture an economy in Hayekian equilibrium,...

The causal link between personal agency beliefs and entrepreneurial alertness

How Entrepreneurs Alertness Outcome

We are now in a position to pull together the various threads that have been spun in this chapter. The basic point is that the nature of people's personal agency beliefs (i.e. their LOC and self-efficacy beliefs) is a major factor determining their level of entrepreneurial alertness the more strongly individuals believe that economic outcomes depend largely upon their own actions in a particular domain (rather than on outside factors, such as luck and powerful others), and the more strongly...

Entrepreneurial Opportunities Conclusion

Kirzner's theory of entrepreneurship focuses on the way in which entrepreneurial discovery reallocates resources, and on the role of entrepreneurship on equilibrating markets. Kirzner has little to say about where those entrepreneurial opportunities come from that allow entrepreneurial activity to take place. Because Kirzner does not discuss it, one could envision there being a fixed stock of entrepreneurial opportunities, and as entrepreneurs discover and take advantage of them, the...

Entrepreneurship as arbitrage

The surest way for an entrepreneur to make profits is through arbitrage. If an entrepreneur notices that a seller is willing to sell a good for less than a buyer is willing to pay for it, the entrepreneur can buy it from the seller, and sell it to the buyer, reaping a profit and making both the buyer and seller better off as a result. Such arbitrage profits are easy to notice, tend to be small, and tend to be rapidly competed away. Nevertheless, especially in financial markets, arbitrageurs are...