Principles of Economics - Econ 1900

Discussion questions: 1. According to Wilkinson, what is a key fact of human history/modernity? A key factor of human history is the great enrichment in which society’s GDP increased greatly just randomly. She argues that it could have been a result of enslavement, colonization, exploitation of natural resources, etc. 2. According to Wilkinson, what does and does not explain it? It explains why people became rich through cooperation and how as well as economic trends, however, it does not explain the debate regarding how beliefs and norms, institutions and incentives, scientific knowledge and technical innovation all fit together. (this is from the economic perspective) ● Geography: ex. Countries that may not have ports, but still thrive ● Exploitation of natural resources ex. Japan ● Genetic luck: not possible since every individual have gifts to contribute ● What explains the great enrichment: The right institutions have political freedom, abide by justice, but still lead to people having freedom, which leads to free institutions which leads to advancements in science and technology which thus results in economic growth ● Great enrichment: shift in social norms which leads to cooperation which leads to the nt: great enrichment ● Liberalism: classical liberalism as it is related to liberty and not as the U.S. political definition 3. What seems to be Read’s key point(s)? Read’s key points include, to allow yourself to be creative, regardless of how small something may seem it could take so much collaboration and small things that actually make it way more significant than before, and in order to produce something we must work together in harmony to achieve that production. 4. What is the puzzle articulated by Roberts? What does Roberts suggest explains the puzzle? Essentially how do company’s (bread companies) ensure they have enough/how do company’s maintain order in their markets? How do we maintain order such as economic, social, and agricultural harmony in society? Roberts suggests individuals providing order through having their own responsibilities, activities, and lives explains the puzzle. 5. What is “spontaneous order” (also known as an “emergent order”)? [See the Sternberg article.] Spontaneous order is basically people acting on their own free will. More generally, spontaneous orders are self-organizing, complex adaptive systems: a spontaneous order exists when a pattern that has not been arranged by any coordinator emerges from the behaviors of multiple, dispersed individual components. Core examples of spontaneous order include language, the common law, and the outcomes of evolution. 6. Why are spontaneous orders often not recognized? [See the Sternberg article.] They are often not recognized because people argue you can not have an order without organization thus it can’t be spontaneous because order implies it is pre-planned and followed. Whereas, spontaneous means out of nowhere, follows no plan, completely free will, which does not align with order. 7. Why is it important to identify spontaneous orders? [See the brief concluding remarks of the Sternberg Article.] It is important to identify spontaneous orders because it is a non coercive act thus it is counterproductive because free will is a necessary and basic right and overall a better way to allow improvements. 8. What is “capitalism”? What is “socialism”? [Try a quick online search.] Capitalism is where a business controls the production, distribution, and exchange of goods and services. Whereas socialism is collective ownership by everyone and is focused more on the needs or people than wants and is controlled only by the government. 1. What seem to you the key points of Landsburg’s chapter 1? ● The focus of economics can be described as “people respond to incentives” ○ Ie. seatbelt and airbag phenomenon ○ Criminal law: to what extent do harsh punishments deter criminal activity? ● Empirical research has flaws ○ Hard to put a numerical value on certain things/statistical techniques can be hard to derive in certain situations ○ Author argues an economist at university of california emphasized that “prejudices that of a researcher can actually affect his results” page 27 2. Why does well-intentioned policy often lead to unintended consequences? [See the Whitman article. ● Because people will only see an incentive in a well-intentioned policy more than the actual intended good it was meant to ensue. Because people will focus more on solving the problem at hand rather than solving the problem and accounting for long term consequences. Thus, the whole cycle doesn’t get any better. You should be able to articulate and explain four reasons.] 3. What seem to you the key points of Landsburg’s chapter 2? ● We assume people are rational but fail to take into account their preferences ● All people are rational but there are instances in which it would be fair to assume something can be rational at all ○ Example of rationality: entering the lottery by buying a $1 lottery ticket in hopes of winning millions of dollars even tho the chances are small ○ Example of irrationality: not buying the lottery ticket that gets you more money for the same ods but buying the one that gets you less money for the same price 1. Policy that is well intended can have consequences Example. Mandating health insurance leads to increased cost Discussion questions 9/7/23 Opportunity Cost 1. What are the five “principles” and the two “super principles” of cost-benefit analysis discussed by Landsburg. (See chapter 10.) 1. A reduction in tax benefit is not a net cost —> an increase in gov revenue is not a benefit and neither is a reduction is revenue is not a cost because it’s just a redistribution of funds 2. A cost is a cost no matter who bears it —> ex. Incarcerated individuals because they have value to society through their skills thus value is lost 3. A good is a good no matter who owns it → theft doesn’t really play into ownership → because you’re taking from one person and giving it to the next —> a redistribution is often a kind of theft however, a theft in economic sense is a loss of value because we don’t have commutative justice which means there is no trust and no good exchange relationships. Opportunity cost perspective(Adam Smith): the thieves gifts haven’t been used to grow the value of the economy but simply redistribute the value of the economy 4. Voluntary consumption is a good thing: if consumers increase consumption, that's a benefit to society → it’s not a bad thing because we assume people are rational. They make decisions based on what they think is best for them. 5. Don’t double count: when we do our cost benefit analysis we have to be careful. It’s rational and made the calculator thus you should not consider it again. Think about the individuals, who have taken costs into account and still decided to proceed. a. The thing you’re thinking about if it’s related to an individual’s choice, they’ve already debated the cost and benefits and if you debate their decision then YOU”VE double counted Super Principle 1: Only individuals matter and all individuals matter equally (Methodological individualism) means the individual is the unit of analysis because it’s individuals who are acting and making decisions. Super Principle 2: All individuals matter 2. What is opportunity cost? What is sunk cost? How do the two differ? [See the Roberts piece and the Galef video.] 6. Opportunity cost in Roberts article: Opportunity cost is what you have to give up to get something a. Ex. going out instead of studying for an exam b. In markets price is opportunity cost 7. Sunk cost is money you’ve already spent; making a choice based on a desire to see your past investment not go to waste so basically it’s money that you’ve the money you’ve already spent that can’t be recovered (with the hope that it was beneficial) 8. They differ because opportunity cost are forward looking and sunk cost is backward and making a decision is about moving forward so when making decisions always take into account opportunity cost and ignore sunk cost 9. Sunk cost fallacy: 3. What is “thinking on the margin?” [See the MRU video.] 1. Thinking on the margin is comparing the benefit of the next decision to its cost. It’s a way of arriving at a optional or best decision. It also encourages you to think about what not to do. Basically its making an economic decision based on weighing opportunity cost and benefit a. when faced with a decision, you should compare the marginal benefit of a possible action to its marginal cost. If the marginal benefit is greater than the marginal cost, do it! b. If you wanna make a decision from an economic perspective weight the costs AND the benefits so if cost exceeds benefit then you don’t do it 2. Marginal means a little bit more or a little bit less 1. ● ● ● Price comes from what’s in demand in the market and cost of a good and service The desire for a profit To reduce the amount of haggling Price Tags are a result of quakers saying it was immoral for different people to pay different prices as well as economic grounds because it’s profit maximizing to have a price tag and sales go quicker if people don’t have to haggle ● The death of the pricetag: the introduction of information technology because we can change price much more easily 2. What is a “demand curve?” Depict a demand curve graphically. A demand curve shows how much of a product consumers want at different prices. Curve is downward sloping because substitutes are available 3. What is a “supply curve?” Depict a supply curve graphically. A supply curve shows how much of a good suppliers are willing and able to supply at different prices —> shows how suppliers respond to a change in price 4. What is equilibrium price? What is equilibrium quantity? Depict equilibrium in a market graphically. Equilibrium price is the price where the quantity demanded is equal to the quantity supplied. And equilibrium quantity is when the supplied quantity equals the quantity demanded so there’s no surplus or shortage. 5. What is the nature of competition in markets? Who competes against whom? Cooperation between buyers and sellers who trade, buyers in competition with other buyers to make a trade with a seller is what the nature of competition in markets are and all sellers are in competition with each other to make a trade with one of the buyers. Buyers compete against other buyers through higher bids and sellers compete with sellers by pricing things lower 6. What happens if price in a market is higher than the equilibrium price? Depict this situation Graphically. That means the quantity supplied is more than the quantity demanded so there is a surplus so there needs to be a sale. 7. What happens if price in a market is lower than the equilibrium price? Depict this situation Graphically. Then there is a shortage because the quantity demanded exceeds the quantity supplied so buyers can’t get as much as the good as they want so they compete with each other and the price rises 8. At equilibrium, who buys? Who sells? At equilibrium buyers with the highest value buy and the sellers with the lowest cost sell 9. Shifters in demand: Income, population, taste, price of related goods, and expectations ● Change of income: as income goes up you demand more of the good = normal goods when income goes up then demand goes up and same goes inversely ○ Inferior goods: instant ramen, it’s very cheap but as you make more money you’re more likely to buy better goods so the demand goes down and to the left as your income increases ○ Changes in pop then potential amount buyers changes too: ○ Tastes: demand for hamburgers goes down if vegan diet gets more popular ○ Related goods = substitute goods, ■ Price of hotdogs goes up so you buy more burgers if they’re cheaper ● Complement goods: goods used together to make the other goods more expensive ○ If an increase in a good in the price one good leads to a decrease in the demand for the other and vise versa ● Expectations of market events ○ Knowing a good is going to go on sale in a few weeks so the demand for it goes down 10. What causes the supply curve to shift? ● Change in cost ○ Taxes, expectations, technological innovations, input prices, entry or exit products, and changes in opportunity costs ● Technological innovation: lowers costs and thus increases the supply so sellers are willing to supply a greater quantity at a given price or a lower price ○ In an increase in supply means for any given quantity the firm is willing to sell lower ● An increase in the pierce of an input decreases supply ○ Example: smaller quantity means at any price the firm is willing to sell a smaller quantity ○ Or for any particular quantity in a reduction of production cost the firm needs a higher cost ● A tax on output is equal to an increase in cost ○ Tax shifts the supply curve up ● Subsidy: government gives some sort of money for every unit ○ Equal to a decrease in the firm's costs so it increases supply 1. What is the elasticity of demand? Elasticity of demand is a measure of how responsive a quantity demanded is to a change in price. 2. What does it mean for a demand curve to be elastic? What does it mean for a demand curve to be inelastic? The more responsive quantity demanded is to a change in price determines how elastic it is. And a demand curve to be inelastic the quantity demanded is unresponsive or less responsive to the price change. For a demand curve to be elastic there needs to be an increase in price that results in a reduction in the quantity demanded by a lot and vice versa. And for a demand curve to be inelastic it means the same increase in price reduces quantity just a little the demand curve is inelastic. 3. What does an elastic demand curve look like? What does an inelastic demand curve look like? The elastic demand curve is more horizontal and the inelastic demand curve is more vertical and has a higher slope. 4. What are the determinants of elasticity of demand? The determinants of elasticity of demand are availability of substitutes, time horizon, category of product, nature of a good, and the size of a purchase( consumers don’t care about the price as long as it’s cheap). Availability of substitutes; the more substitutes the more elastic the curve and if there aren’t substitutes like with gasoline then if price goes up you just have to pay it so it’ll be very inelastic. The time horizon; a longer time horizon means the curve becomes more elastic. Category of product; a board category is gonna be less elastic and a specific one is gonna be more elastic. (nature of a good) = Necessities Vs. Luxuries; luxuries are gonna be more elastic. The purchase size; bigger purchase sizes make the curve more elastic Which is the size of budget that is absorbed. Less elastic: fewer substitutes, short run(less time), necessities, small part of budget, small ticket items like gum More elastic: more substitutes, long run(more time), luxuries, and large part of budget Examples: ● oil and insulin= inelastic since there isn;t a lot of sub ● Brazilian coffee and aspirin = elastic because there are a lot of substitutes • Video: calculating elasticity (and a revenue application) (15:51 minutes) 5. What is the formula for computing elasticity of demand? Formula = ed = % change in quantity demanded / % change in price 6. What does it tell you if elasticity of demand is less than one (in absolute value)? What does it tell you if elasticity of demand is greater than one (in absolute value)? If it’s less than one than we say the demand curve is inelastic, and if it’s greater than one then we say it’s elastic, and if the elastic of demand is equal to 1 then he demand curve is unit elastic Midpoint formula: change in quantity / average quantity times 100 divided by the change in price/average price times 100 7. What is the relation between elasticity of demand and revenue? The price goes up then revenue also goes up with an inelastic curve and revenues falls as price rises with an elastic demand curve A firms revenue are equal to price times quantity R= P*Q 8. What is elasticity of supply? Elasticity of supply measures how responsive the quantity supplied is to a change in price 9. What does it mean for a supply curve to be elastic? What does it mean for a supply curve to be inelastic? For a supply curve to be elastic when an increase in price increases quantity supplied by a lot and vice verse so a decrease in price, decrease the quantity supplied.; basically the supply curve is elastic when it is very responsive to price changes When the same increase in price increases the quantity supplied by just a little then the supply curve is inelastic, so when the quantity supplied doesn’t vary much with price then it’s inelastic 10. What does an elastic supply curve look like? What does an inelastic supply curve look like? The line that’s flatter is elastic and the one that’s more stepper or vertical is inelastic 11. What are the determinants of elasticity of supply? The determinants of elasticity of supply are change in per-unit costs with increased production, time horizon, share of market for inputs, and geographic scope. ● Per-unit costs: how per unit cost increases with increased production ○ If increased production requires much higher costs, then supply curve will be inelastic ○ If production can increase with constant costs then the supply curve will be elastic ● Time horizon: influences elasticity of supply for a good ○ Immediately following a price increase producers can expand production/output only by using their current capacity, making the supply curve inelastic ○ Over time producers can expand their capacity, making it elastic ○ So in the short run the supply curve is more inelastic because it’s harder to expand output at the same cost and over time the supply curve tends to be more elastic because producers can expand their capacity ● The elasticity of supply for a good also depends on whether it is a small or big demanded in its input marks, i.e. the industry’s share of demand for its inputs —> share of the market for inputs so big or small share ○ Supply tends to be more elastic when the industry is a small demander in its input markets because then supply can be expanded without causing a big increase in the demand for the industry’s input ○ Supply tends to be inelastic when the industry is a big demander in its input markets ● The geographic scope: of the market determines the elasticity of a supply for a good ○ The narrower the scope of the market of a good, the more elastic its supply ○ The wider the scope of the market, the less elastic its supply its supply ○ Argument: global supply is more difficult to achieve where if a good needs to supply locally it would be easier ● 12. What is the formula for computing elasticity of supply? Elasticity of supply = % change in the quantity supplied / the % change in the price 13. What does it tell you if the elasticity of supply is less than one? What does it tell you if the elasticity of supply is greater than one? If the elasticity of supply is less than one then the supply curve is inelastic and if it’s less than one the supply curve is said to be elastic, and if it’s equal to one then it’s unit elastic • Reading and a video: Tabbarok, A. Gun buybacks; video on elasticity and slave redemption (4:43 minutes) 14. What seem to you key points of the Tabbarok oped on gun buyback programs? Buybacks make sellers offers more valuable, buybacks increase the supply of a product, and though a good intention idea to prevent crime however poorly executed and a waste of money and time —-> social concern: gun violence 15. Does paying slaveholders to release slaves work? Explain. Include graphical analysis in your response. Paying slaveholders to release slaves' work doesn’t work because it just encourages slave capture to capture more slaves so they can have people buy them back too. New Unit 1. What is consumer surplus? Depict consumer surplus graphically. Consumer surplus is the consumer’s gain from exchange and is the difference between the maximum price a consumer is willing to pay for a given quantity and the market price the consumer has to pay ● Total consumer surplus is the sum of consumer surplus of all buyers ● Graphically is is measured by the area below the demand curve and above the price ● 2. What is producer surplus? Depict producer surplus graphically. Producer surplus is the producers gain from exchange: the difference between the market price and the minimum price in which producers would be willing to sell a given quantity ● Total producer surplus: the sum of the producer surplus of each seller ● Graphically producer surplus producer surplus is measured by the area above the supply curve and below the price ● 3. What are the “gains from trade” in a market. Depict the gains from trade graphically. Gains from trade in a market are the difference between the value that a good creates and its cost is maximized 4. What is true about gains from trade in a free market? Gains from trade in a free market there are no unexploited gains from trade and no wasteful trades. —> the market allocation is efficient and doesn’t waste anything. You can waste when cost exceeds benefits or maximizes social surplus Reading and questions • Landsburg, S. The Armchair Economist, Chapter 8 - Why Prices Are Good: Smith versus Darwin. 5. According to Landsburg, are the concepts of the “invisible hand” and “survival of the fittest” equivalent? What does the argument seem to be? According to Landsburg the concepts of invisible hand and survival of the fittest are not equivalent. His argument is that evolutionary theory does not promise to deliver the efficacy of the competitive marketplace → there is no waste in a well functioning market! 6. What three things lead (often, though not always) to efficient outcomes? What markets have, Individual rationality, coupled with competition, and prices leads to efficient outcomes 7. What is the First Fundamental Theorem of Welfare Economics? The first fundamental theorem of welfare economics is that competitive markets allocate resources efficiently. 8. In principle, it’s easy to centrally plan an efficient outcome in a market. What is it that you must do? To centrally plan an efficient outcome in a market competitive markets and market prices must exist. Because it prevents waste in markets, a non wasteful market is a well functioning market. Efficient allocation: does not hurt anyone. If you don’t have a market you have to allocate consumption to cs and allocate production to low cost producers so ps and don’t allocate beyond Q*. It isn’t easy to centrally plan an efficient outcome in a market because of the knowledge problem because no one knows the demand and supply curve, we estimate it from data and even if you estimated it the world is constantly changing. In practice, it’s nearly impossible to centrally plan an efficient outcome in a market. Why? 9. “The world abounds with inefficiency.” What is often the cause? If we seek the source of efficiency, we should look for the markets that are missing, not for the market that exists. We should also look for goods that are not priced, which often means that we should look for goods that are not owned. —--> missing markets. Source of inefficiency is the consequence of too little market capitalism. Inefficient market is due to —> Commutative justice has been violated or a market is missing 10. African elephants are headed to extinction, but cows are not. Why is this a puzzle? What explains the puzzle? Landsburg said cows are owned and elephants are not so owners keep them alive because they have an incentive to keep them alive whereas no one has an incentive to keep elephants alive because they are wanted for their ivory. —> cows create more profit for the owner and demand for beef is much higher than elephant ivory Do not production efficient allocation - inefficient market Landburg explanation of this = the reason markets sometimes fail is because there are missing markets ● Under certain conditions the market allocation is efficient ○ Markets can and do sometimes fail ○ Invisible hand = knowledge problem because we don't discuss what’s occurring in the economy = emergent order ● Markets are a process that align in self interest and social interest of efficiency ● Invisible hand: about the possibilities of cooperation without coercion - basically i-pencil ● Market failure: caused by missing markets ○ Inefficient = wasteful in economics → missed opportunity for people to play a win win game ● 3 sets of conditions in which markets may fail: missing/lack of property rights (ill defined property rights), insufficient competition(someone has market power), asymmetric information ○ Ill defined property rights: ○ If someone doesn’t own something then no one has to pay to use something which makes that something is over consumed and thus gone —> overconsumption (like environment/pollution) this means you get more than the socially optimal amount of pollution due to missing markets ○ Pollution markets = energy firms have to buy permits for firms to emit c02 and so2 and other toxic chemicals/gasses ○ Insufficient competition: you must have competition and prices ■ So as a firm you jack up the price when demand is inelastic ■ No competition means there is nothing to stop firms from raising price even though the quantity demand goes down, revenue goes up ○ Asymmetric information: we are assuming that buyers and sellers have the same information about the good that’s being traded and if they don’t ■ Market is missing so there are no win-won games ■ Example: lemon car ■ example: health insurance company , you charge sick people more instead of healthy people 1. Depict an equilibrium in a market. Suppose a tax is imposed on sellers (thus increasing the cost of production). What happens to equilibrium quantity? What happens to the price paid by the buyer? The seller collects the amount paid by the buyer, but then has to pay taxes to the government. So, what happens to the amount that a seller actually receives from a sale? ● Commodity tax: a tax on goods ○ 3 important factors: who pays the tax does not depend on who writes the check to the government, who does pay the tax does depend on the relative elasticities of demand and supply, commodity taxation raises revenue and creates lost gains from trade (deadweight loss) ○ Equilibrium quantity that is exchanged goes down and addition the price paid buy the buyers goes up ○ The price paid by the buyers goes up and the sellers receive less than before ○ The sellers collect the price paid by the buyers but now give a certain amount after tax so the tax means the buyers pay more than before and the seller's receive less ○ Basically the seller gets less when they pay taxes to the government ○ who pays the tax doesn’t matter, the outcome is the same 2. Same question as above, but this time the tax is on buyers. Depict an equilibrium in a market. Suppose a tax is imposed on buyers. What will happen to equilibrium quantity? What will happen to the price received by the seller? The buyer pays the seller, but then also has to pay taxes to the government. So, what happens to the amount that a buyer actually pays in total (to the seller and to the government) when a purchase is made? ● Suppose a tax is imposed on buyers. What will happen to equilibrium quantity? ○ The equilibrium quantity decreases, the quantity exchanged has declined by the amount of the tax ■ Tax on buyers reduces their willingness to pay so the demand curve shifts down by the amount of the tax ● What will happen to the price received by the seller? ○ The prices received by the seller from the buyer is the same as when the tax is on the suppliers so the the buyer pays more than before ● 3. Your analysis above reveals that the burden of a tax is always shared. Notice that in both cases (a tax on sellers and a tax on buyers), sellers end up “receiving” less for a sale than they did before the tax, and buyers end up “paying” more for a purchase than they did before the tax. You should be able to identify the share of the tax paid by the seller and the buyer on your graph. Now, suppose that demand is inelastic and a tax is imposed. You should be able to see that buyers pay a bigger share of the tax than sellers. If instead, supply is inelastic and a tax is imposed, you should be able to see that sellers pay a bigger share of the tax than buyers. ● The MORE elastic side of the market will pay a smaller share of a tax (smaller burden) ● The LESS elastic (more inelastic) side of the market will pay a greater share of a tax (greater burden) 4. When a tax is imposed, the gains from trade decline. That decline is called “deadweight loss.” Can you identify the deadweight loss on your graph? ● Deadweight loss is lost gains from trade or the value of the trades not made because of the tax ○ Deadweight loss are larger the more elastic the demand curve, holding revenues constant ○ Inelastic demand on tax is better than tax on elastic because there is less deadweight loss for the same revenue ● ● 5. Depict a market with relatively elastic demand and supply, impose a tax and identify the deadweight loss. Next, depict a market with some inelasticity - on either the demandor supply-side. Impose a tax (comparable in size to the one in your previous graph) and identify the deadweight loss. You should see that the deadweight loss of the tax is larger in your first graph than in your second. ● Better to tax inelastic demand than elastic because deadweight loss is smaller ● When there was no tax the price has gone up a lot to the buyer and the price to the sellers has gone down by just a little ● When supply is more elastic than demand buyers pay the greater share of the tax, that is the price to buyers goes more than the pierce to the sellers goes down 6. A subsidy is the opposite of a tax. Repeat the analysis in the questions above for the case of a subsidy instead of a tax. ● A subsidy is a negative tax where the government gives money to consumers (or producers) ○ Who gets the subsidy does not depend on who receives the check from the government, who benefits from the subsidy does depend on the relative elastic of demand and supply, and subsidies must be paid for by taxpayers so there is a cost to a subsidy and they create inefficient increase in trade (deadweight loss) ○ When demand is more elastic than supply, supplies bear more of the burden on tax and receive more of the benefit of a subsidy ○ ○ Supply = inelastic = Price to suppliers rises much more than the pierce falls relative to the market price ○ When demand is elastic, they can escape tax but the demands from other sides of economy will get that subsidy ○ No elasticity = no entry = and that’s when you gain the benefits of a subsidy 7. If taxes and subsidies are inefficient, why do you suppose we have them? Remarks...Much of the rhetoric and public discourse surrounding taxes is generated by politics. That rhetoric and discourse often invokes a supposed economic perspective. However, the claims do not always reflect evidence or an actual economic perspective - and are sometimes more about politics than economics. The Minarik article below outlines the basic objectives of tax policy from an economic perspective. The Horwitz article is related to some of the disconnect between political discourse and economic understanding. The Acemoglu commentary covers a topic that may become increasingly salient as AI advances - taxation of labor and capital. ● We have taxes and subsidies even though they’re inefficient because there are benefits to it and they can incentive people to do or not do certain things in society, and overall we hope the benefits are worth the cost of the DWL in markets ○ Example: tax revenue that could be used to pay off student loans ○ Example: we’re subsidizing higher education in hopes of bettering the skills, informed, and thoughtful in regards to the workforce ○ Example: taxing alcohol and cigarettes —> in hopes of decreasing consumption ○ Example: subsidize higher education: peel grants because there are benefits with subsidizing education Article: Minarik, J. Taxation. From The Concise Encyclopedia of Economics. [Note: Only the first section,“Objectives,” is required. The remainder is optional.] 8. Indicate and briefly explain the four primary objectives of tax policy. The four primary objectives of tax policy are simplicity, efficiency, fairness, and revenue sufficiency. Simplicity means that compliance by the taxpayer and enforcement by the revenue authorities should be as easy as possible. Efficiency means that taxation interferes as little as possible in the choices people make in the private marketplace. → tax shouldn’t discourage investments, even though tax influences buyer behavior/ this is just DWL). And fairness requires that equally situated taxpayers pay equal taxes (“horizontal equity”) and that better-off taxpayers pay more tax (“vertical equity”)---> taxes should be taxed equally. Revenue sufficiency means revenue earned should be enough to cover the costs of providing a service or good. —> spending exceeds revenue so in principle pay your bills however if tax rev is less than tax it leads to debt so the government borrows money by issuing bonds (money you get but you have to pay interest) —> we are not revenue sufficient because we have so much debt Vertical equity: higher income means you get a higher tax rate Horizontal equity: everyone pay the same amount in taxes Free market allocation to real estate to research and development is equal so tax policy should very little change investment Work is preferred to leisure, investment is preferred to consumption because people prefer to save 9. There is “a major philosophical issue among economists” about tax policy. What is it? What are the “two important points” of disagreement? A major philosophical issue among economists is whether tax policy should purposefully deviate from efficiency in order to encourage taxpayers to pursue positive economic objectives (such as SAVING) or to avoid harmful economic activities (such as smoking). The two important points of disagreement are how well policymakers can presume to know which objectives we should pursue (e.g., is discouraging smoking an infringement on personal freedom?), and the extent of our ability to influence taxpayer choices without unwanted side effects (e.g., will tax breaks for saving merely reward those with the most discretionary income for actually saving little more than they would without a tax break?). —>(1) the knowledge problem and unintended consequences, do you have enough information to act well in a market and (2) and presumption that people are rational, why do we think policy makers know better than the people paying that tax? 10. What is a “progressive” tax system? (A “regressive” tax system is the opposite.) A progressive tax system is a tax system where higher-income taxpayers pay not only more, but also proportionately more. →a tax rate that increases as taxable income increases 3 types of federal funding ● Discretionary: Federal funding that is discretionary (year to year choices made in budget) ● Net interest (interest we’re obligated to pay on debt), and ● Mandatory spending, most of the federal government spending is here (spending we HAVE to pay) most is security, medicare, medicaid, income security programs, student loan programs, and other FICA tax: divided by the employees and the company, it’s 15% total and each pays 7.5% however the worker pays more if the employment supply is inelastic in respect the the demand ● individual tax is the largest place tax revenue comes from Article: Horwitz, S. 2016. There Is No Such Thing as Trickle-Down Economics. Column at the Foundation for Economic Education. 11. What seems to be Horwitz’ main claim(s)? What argument(s) is offered in support of the claim(s)? Horwitz’s main claims are that the trickle down system doesn’t really exist, the only part that does is that we are now able to combine our labor with more and better capital which has driven up our wages and driven down the cost of goods and services. Another argument is that merely possessing capital does not ensure a flow of income. —-> owning capital isn’t the point it’s what you do with that capital (claims from in class): trickle down economics: people argue for less tax cuts and more government spending, and he considered it a silly theory because, the key of wealth is the expansion of If you wanna help poor people, economics would say do it in the most direct way possible because there are knowledge problems whereas trickle down says make rich people pay less taxes in hopes that helps poor people (this doesn’t make any sense in a economic perspective) Opportunity is created when everyone contributes there own values based on their income Grain of truth = capital is important to raise wages, however, all individuals still matter equally because they all have agency and creativity His argument for tax: give tax breaks to everybody, this idea correlates to revenue sufficiency Article: Acemoglu, D. 2021. Give Workers a Fighting Chance. Commentary at Project Syndicate. 12. What seems to be Acemoglu’s main claims(s)? For what is he advocating? Acemoglu’s main claims are that there is a disparity between capital and labor tax . He is advocating for better tax policies like policies that tax the capital → he wants to even the tax disparity so substitute capital for labor. However the challenge of directing how AI gets used may be the knowledge problem, how do you know how best to control the knowledge problem? 1. What is a price ceiling? What is a price floor? A price ceiling refers to the maximum price allowed by law so buyers are unable to single increased demand by bidding pieces up and suppliers in turn have incentive to increase the quantity supplied because they can’t raise the price which results in a shortage. A price floor is refers to the minimum price allowed by law 2. Effects of price ceilings: (5) shortages, reductions in product quality, wasteful lines and other search costs, deadweight loss, and allocation of resources a. A price ceiling causes a shortage. Depict this graphically. Below the equilibrium QD exceeds QS at the controlled price so sellers have more customers than goods b. What is the impact of a price ceiling on quality? Explain. The impact of a price ceiling on quality is that sellers can cut quality and or reduce service. Sellers can cut quality, cut costs and still sell everything they sell at a controlled price. The impact is disgruntled buyers, they expect the quality they are used to and then are given a quality that is less than what they expected. Also sellers can reduce service Since there is a shortage there are a lot of buyers so you can still sell your product but since you can’t increase price you wanna decrease costs and to do that you’d decrease the quality of your products. With price controls you can’t raise the price of a product to end a shortage. c. Price ceilings cause lines and search costs. Explain why and articulate why these effects are costly. Price ceilings cause lines and search costs because they increase buyers willingness to pay and the line and thus cause different forms of competition, instead of bidding up the money price they bid up the time price and thus long and wasteful lines are causes. These effects are costly because the buyers end up spending money costs on top of time costs of waiting. Paying in time is much more wasteful than paying in price because bidding in terms of the money goes to the station owner so the purchasing power is transferred from the consumer to the producer. However when buyers are big in terms of time so they wait in line, that waiting in line is just lots instead of being transferred. Paying in money = purchasing power is transferred however when you bid in terms of time the value of that time is simply lost and benefits no one. d. Price ceilings cause deadweight loss. Depict this graphically. Dwl is caused by fewer trades as a result of the price ceiling because it prevents more sales e. Price ceilings cause a “misallocation of resources.” What does this mean? Price ceilings cause a “misallocation of resources” means that there are distorted price signals so Price ceilings prevent the highest valued uses from out bidding the lower value uses as a result some of a resource will flow to lower value uses. Basically a resource is being used more in low value uses at the same time as where there wasn’t enough of that resource for high value uses. Price ceilings shortage effects = more discrimination because sellers can pick which people they want to do business with so we expect less discrimination is a free market because if there is discrimination you make less money, however with a shortage you have more buyers so it doesn’t have an effect if you do. Price gouging laws: Sellers markup the price so the law says there is a limit on the amount you can increase price, also, different jurisdictions have different laws. —> thus a price ceiling is created 3. Effects of price floors: a. A price floor causes a surplus. Depict this graphically. Example of price floor = minimum wage - low skilled workers and least trained/educated individuals Price floors are less common than ceilings because of political reasons—> more buyers than seller of goods so when you hold price below market price you will benefit more people than when you hold it above market price which harms buyers b. What is the impact of a price floor on quality? Explain. Business is complete with quality instead of price for more buyers. Since they can’t compete by lowering prices, they increase quality. So if you can afford it then you’d get a better quality of goods. However, because there was so much competition with quality it was raising the costs to the sellers. Also, profits meant unions were getting involved so they demanded higher wages. Buyers can provide quality even if the value of the quality was lower to the customers than the cost. c. Price floors cause deadweight loss. Depict this graphically. d. Price floors cause a misallocation of resources. What does this mean? 4. Why do governments sometimes set maximum or minimum prices? I.e., what’s the intent? To help the poor. And to help sellers. To make them more affordable or accessible, because of policy They don’t necessarily help the poor —> ex. Rent control, Minimum Wages —-> help workers keep their jobs at higher wage, however, housing vouchers and wage subsidies help poor people. Economically we should help Labeling theory: minimum wage: minimum wage increase does not help everyone, it might actually harm people and help others Minimum Wage...Article: Jacob Vigdor’s testimony before the budget committee of the US Senate Context: he is neither nor or against minimum wage but seattle increased minimum wage Minimum wage = price floor example so it means that it’s too low for sellers to make a living Price floor helps sellers and price ceilings help buyers 5. In principle, how might a business that pays low wages respond to a minimum wage increase? In practice, how did Seattle businesses that pay low wages respond to minimum wage increases? In principle, a business that pays low wages might respond to a minimum wage increase by decreasing employment because your QD for workers decreased, accepting lower profits (true for companies that are pretty profitable), some companies shut down, they can raise prices. Seattle businesses responded to the wage increase by adapting to the change itself, like by economizing on labor, raising prices (which was only really seen in the restaurant industry) like sending employees home if they got their work done early, or if business was slow. Schedule them for fewer shifts. Tell them you’ll call them if you need them on a given day. raising prices, economizing on labor) There were decreases in restaurants because they’re very labor intensive. And gave less jobs to teenagers and more to adults who needed the job to survive. Also, they substituted away from the use of labor—> ex. At burger joints you order your food at the cashier but you pick up your food instead of getting it brought to you. Also, impending machines like self checkout. ● A low minimum wage gives the advantage to the young worker; a high minimum wage gives the advantage to the older worker. 6. In principle, how might low wage workers be affected by minimum wage increases? In practice, how were low wage workers in Seattle affected by minimum wage increases? In practice = A low minimum wage gives the advantage to the young worker; a high minimum wage gives the advantage to the older worker. The people who had an increase in income because of the minimum wage increase were more experienced workers, which tended to be adults instead of teenagers. It did not seem to damage the people it intended to help however there are fewer teenagers that can get minimum wage jobs so it becomes first come first serve to find a minimum wage job. You get a minimum wage job because you don’t utilize the opportunities for skills In principle = Some workers who are still workers will own more than before and hours can drop so even though you make more, you have fewer workers so in net you might not make more. For others there’s no change or others can be made worse off. Rent Control...Article: Noah Smith, “Too Much Rent Control Is Asking for Trouble” 7. What is “rent control”? When there are rent control laws, what effects might you expect in the market for housing? Rent control is where the state government bans landlords from increasing rent = price ceiling on housing. There might be a shortage, the quality of housing decreases, wasteful lines and search costs, discrimination, deadweight loss, misallocation of resources(a single person living in a 3 bedroom apartment and a 5 person family living in a single bedroom apartment) 8. What is the key alternative to rent control? What often limits the use of this alternative? The key alternatives to rent control are changing zoning (where lots are chosen as zoned for single family housing to prevent big businesses making condos and stuff/this basically limits what you can do with land, so you can't open a business on a corner, however, it does limit what you can do with housing) and land value tax (just tax land) a land tax is efficient because it’s fixed so it means if you impose a tax on land nothing happens to land that’s trading (only is supply of land is vertical) also the tax is shared and because it’s more inelastic the owners of the land pay the tax (buyer) and it discourages people from buying land in the middle of nowhere. However the limits of using this alternative are that 9. According to Smith, “Will the rent-control revolution work as intended?” According to Smith, be cautious because if you go too far then there are a lot of unintended consequences and make sure when you have your rent control it decreases the quantity supplied. So a little rent control is fine but if there’s a lot then there’s too many consequences so cost exceeds benefit 1. What is GDP? Is the market value of all final goods and services produced within a country in a year 2. What is a key limit of GDP as a measure of production? A key limit of GDP as a measure of production is that goods that aren’t bought and sold in a market aren’t counted in GDP because without market prices it becomes too difficult to determine how much a good is worth. ● Capital goods: goods that are used to make other goods but are still considered finished goods —> example a tractor ● GDP only counts production so if an old house is sold this year that doesn’t add to GDP since the house wasn’t produced this year, only the sale of new houses add to GDP ● GDP only counts goods and services produced within that country so if you buy an imported good it adds to the country it is imported from. Imported wine from France bought in the US contributed to France's GDP but a computer made in the U.S. and exported to France adds to the U.S. GDP ● We use market prices so GDP calculation is easier to calculate ● Intermediate goods are not counted in GDP, only final/immediate good ● Intermediate good = good used to produce another good. ● We don;t count intermediate because that’s double counting, intermediate is a cost that goes into the cost of the overall final good. ● The key limits of GDP (this was said in class): we don’t know the market value of many things that get produced, doesn’t capture leisure, and underground economy like illegal activities, and people don’t report some of their economic activity. ○ Ex.: non priced production a good that's not bought and sold in a market, it doesn't get counted in GDP ○ Another example of NPP: 3. What is nominal GDP and what is real GDP? Why do we need a measure of real GDP? (Why isn’t nominal GDP sufficient?) ● Nominal GDP is where the gdp number goes up but the economy isn’t actually producing more goods and services, it’s just inflation —> adds all goods and services in an economy using current prices = doesn’t account for inflation —> shows if goods and servcies get more expensive but remain at the same amount. Q stays the same. ● Nominal: current prices and current quantities ● Real GDP: constant prices and current quantities ● Real GDP adds all the goods and services produced in an economy using the same set of prices over time —-> controls for inflation —> shows if we’re producing more goods and services at the same price ○ RGDP tells us if the price of goods and services hadn’t changed how much GDP would have increased or decreased —> RGDP is more cared about ● We need a measure of real GDP is a good measure of the standard or living!!! as a way of measuring the health of our economy it does this by accounting for inflation when adding together goods and services—---> and mentions standard living per capital we need to control changes in prices and we can measure the standard of living and figure out the population ● Gdp declines during recessions —> and are accompanied by unemployment ● Nominal GDP isn’t sufficient because it doesn’t account for inflation Gdp increases from prices (GDP number goes up = inflation) = nominal and the other way to increase gdp is by producing more valuable goods and services like making more or those services or making them better =real gdp 4. Why do we care about GDP? We care about GDP because it measures standard living, income, how well people are doing according to welfare. We care about if goods have gotten more expensive. 5. What is the broken window fallacy? From an economic perspective, why is it a fallacy? The broken window fallacy is the belief that there is more economic prosperity when there is a natural disaster, terrorist attack—> by creating more jobs. From an economic perspective it is a fallacy because production creates prosperity, not destruction. Doesn’t take into account opportunity cost??? 6. What is nominal GDP for the US? What is nominal GDP per capita for the US? What is the average growth rate of real GDP per capita for the US? [We’ll do this question together in class. If you’d like to make progress on your own, search on “FRED nominal GDP” and “FRED real GDP per capita growth” to find the data in the FRED database at the St. Louis Fed.] Nominal GDP for the U.S. is 25 trillion dollars. Nominal GDP per capita for the U.S. is $82,000. The average growth rate for real GDP per capita for the US is 2.0% 7. Why are some countries rich and others poor? (In the course of your answer, you should take note of a few terms and their associated definitions - physical capital, human capital, and technology, and institutions.) Some countries are rich because they have a lot of factors of production and good institutions. Workers are very productive —> they become more productive because they work with more and better factors of production. Rich countries have a lot of physical capital and human capital, which is organized using the best technological knowledge. Physical capital: tools like shovers, cell phones, buildings — tools that are produced that we use to produce other things like equipment Human capital: Tools in the mind from education, experience, training Technological knowledge: knowledge about how the world works like understanding genetics, chemistry, soil composition Organization: physical, human capital and technological knowledge need to be organized. Rich countries have more factors of production because of incentives because people will work more if they’re paid Economic freedom is also another reason why countries are rich Some countries have better incentives because they have institutions. ● Institutions like having an honest government, dependable legal system, political stability, and competitive and open markets, property rights ● Honest government: doesn't take bribes/no corruption ● Dependable legal system: enforces contracts —> validates and protects legal rights and this encourages people to do business ● protects property rights —> protects your investment —> ● Political stability: property rights are secure, no coups ● Competitive and open markets: prevents monopolies which causes inefficiency however, competitive and free markets gives opportunities to do business so it’s efficient Why are some countries rich according to class discussion: Rich countries are more productive because they have (1) more of the factors of production like physical/human capital, and technological knowledge. And (2) they use those factors/tools efficiently, and some factors have more factors and use them efficiently because they have institutions that provide the incentives for people to accumulate these factors and use them well Rich countries are more productive because they have more factors of production and use them efficiently, and rich countries have institutions that incentivize people to accumulate the factors of production and use them well because institutions are the rules of the game Start of new unit 1. What does it mean to be unemployed? How is the unemployment rate computed? To be unemployed a person must be out of a job, but must be actively looking for work. The unemployment rate is computed by unemployed/Labor force * 100 the number of people who are unemployed divided by the number of people in the civilian labor force (LF = Employed + Unemployed). A person is unemployed only if they are an adult, non institutionalized civilian, without a job, and actively looking for work. ● The employed and unemployed are in the labor force, however, kids, retired, and institutionalized civilians are not in the labor force ● Unemployment rate increases during recessions ● Unemployment rate is never zero, even in a boom because people are always working 2. Why do you suppose we care about the unemployment rate? [Make your best guess based on what you know about an economic perspective.] I think we care about the unemployment rate because it can show how well our economy is functioning (low unemployment is good whereas high unemployment is bad), and it can impact policy making decisions like the federal reserve can utilize the unemployment rate to stimulate fiscal policies, it can be used in elections or politics like a candidate can utilize it by criticizing it or attempting to form policies that would decrease unemployment. 3. Where does the data used to compute the unemployment rate come from? [Conduct a quick online search and see what you find.] Data used to compute the unemployment rate comes from a monthly nationwide household survey of about 60,000 households conducted by the Census Bureau —> current population survey → this is the survey of households —> this correlates to the unemployment rate and there’s also the payroll survey Households are turned over in this survey, you’re in the survey for four months and then out for 8 months. We can’t just count the number of people using unemployment benefits because there might be people looking for a job who quit their previous job and there are some people who are not eligible for that type of insurance so unemployment is severely undercounted 4. Is unemployment undercounted? The unemployment rate is undercounted because it does not include discouraged work. Also, it is not undercounted because the unemployment rate is a good indicator of the state of the labor market. However, looking at the wage growth and labor force participation rate to define unemployment is also a good way to measure the state of the labor market. The Bureau of statistics has 6 forms of unemployment. U1,u2,u3,u4,u5,u6. unemployed/employed+unemployed = unemployment rate—> increase in unemployment might be good news because it could say people are confident that they will find a job and thus look for a job but it can also reflect the opposite ● Discouraged workers: people who want a job, but although they haven’t looked for work in the passed four weeks they have looked in the passed year —-> this is the U4 unemployment work → this increases the unemployment rate slightly ● Most of the other forms of unemployment track each other ● U4,u5,u6 gives higher unemployment rate ● If a person stops looking for work then they are no longer unemployed so they are not in the labor force Unpaid interns are not in the LF The gov knows if people are looking for work through surveys 5. What are the three types of unemployment and their causes? The three types of unemployment are frictional, structural, and cyclical unemployment ● Frictional unemployment: is short term unemployment caused by the ordinary difficulties of matching employee to employer ○ Examples: when a student graduates college and start to look for work they are officially unemployed and after a few weeks of interviews/applications they might be offered a job but the job offer is not what they want so they keep looking and then a few weeks later find a job and therefore exit unemployment and enter employment —. This is an example of a good thing—> this is also a realistic example ○ This type of unemployment is ever present because the U.S. economy is very dynamic ○ So short-term frictional unemployment is inherent to a growing and changing economy ● Structural unemployment: is persistent and long term unemployment → a regular feature of the economy ○ When the unemployed have been unemployed for a long time and this has been true for many years ○ Causes of structural unemployment: large quick hitting, and relatively permanent shocks that change the number, location, and types of jobs like the (EXAMPLES) 1970s oil shocks, the opening of trade with China, or the rapid rise of the internet —> labor market restriction and regulations are also a cause of structural unemployment because the market can’t adjust then people cannot enter into the labor market —> at will unemployment alleviates this type of unemployment, also minimum wage changes can contribute to structural unemployment and unemployment benefits ○ Structural unemployment is worse in Europe because European labor regulations have increased structural unemployment in part by making it more difficult to respond to shocks and it’s more difficult to get a job because most countries must have just cause for firing someone which is a lengthy and tedious process, and unemployment benefits in Europe are better, they pay upwards of 60% of what you previously earned whereas the U.S. only pays 30% so workers in the U.S. are more eager to find work, also restrictive labor laws like setting an age limit for firing employees, also minimum wage laws contribute to structural unemployment, unions can also contribute to structural unemployment ○ Most basic employment law in U.S. is the At-Will Doctrine: an employee can quit or an employer can fire at any time for any reason however it does not support firing due to discrimination or contracts can counter the at will doctrine ○ Labor law creates two types of groups: The insiders, who for the most part enjoy the protection of long term stable employment, and The outsiders, who are frozen out of the regular labor market and end up having high unemployment rates and only intermittent and temporary employment ● Cyclical Unemployment: unemployment correlated with the ups and downs of the business cycle ○ Unemployment increases during a recessions, when the economy is shrinking or growing very slowly —> low growth is accompanied by low employment ○ Slow growths - layoffs which generates unemployment ○ Higher unemployment means that fewer workers are producing goods and services so when workers sit ideal then capital is sitting ideal ○ Unemployment spikes quickly when growth declines, but returns to more normal levels very slowly ○ Sticky wages reduce the incentives to hire more workers and therefore slow the adjustment process ○ Wages are sticky because human beings get very upset when their wages fall—>this causes cyclical unemployment to persist ○ Natural rate of unemployment: the rate of unemployment that would occur if there were no cyclical unemployment —> so basically the rate of frictional PLUS structural unemployment. We care about this rate because economists think under some conditions the government can reduce cyclical unemployment through fiscal and monetary policies like increasing money supply —> when unemployment rate is close to the natural rate it suggest that the scope for monetary and fiscal policy is diminished ○ Natural rate is estimated ○ To combate cyclical unemployment the government utilizes monetary and fiscal policy to smooth the business cycle 6. What is a recession? [Conduct a quick online search and see what you find.] A recession is a decrease in economic activity that has occurred for a long period of time and can involve a decrease in GDP, but not always, and it can be correlated with an increase in unemployment. —-> A recession is a period between a peak and it’d subsequent trough and involves a significant decline in economic activity and lasts more than a few months, they ;looked at the depth of decline in economic activity, the diffusion of the decline(was it concentrated in one sector), and they look at the duration or it. (usually two months), they also don’t look at just gdp(which is measured quarterly), they instead look at monthly real personal income, real payroll employment, personal consumption, wholesale, resale sales Quarterly important = GDP and GDI gross domestic income 7. For the US, what’s the most recent unemployment rate? For the US, what’s the average unemployment rate over the post-WWII era? [We’ll work on this together in class. You can likely make good progress on your own using the FRED database.] The most recent unemployment rate for the U.S. is 3.9%. The average unemployment rate over the post WWII era is around 5.7% 8. What is the “lump of labor” fallacy? What are examples of the fallacy? The lump of labor fallacy is the assumption that there is a fixed amount of work to be done. This means new jobs aren’t being created, jobs are just being redistributed. Examples of the fallacy are immigration and introduction of new technology. —> immigrants take jobs, leaving less for others and automation results in machines taking over jobs of employees in factors and even other industries. International trade is another example of a fallacy because migrants can come here and produce things and it’s also true we can purchase things from other countries, however people think that means we don’t need to produce those things here so then people doing those jobs here don’t need to have a job. 9. An economic perspective refutes the lump of labor fallacy by emphasizing that job losses in one industry can support growth in other industries and that the economy is not fixed. The first one proves that automation can be a substitute for labor, but also a complement because for instance machinery in agriculture created more factory jobs therefore output rises which can increase the demand for labor. Also, the economy is very dynamic and can change over time, making new industries for individuals, so it can displace workers, but also make jobs in other sectors. 10. What are Strain’s responses to these three questions: Will AI reduce employment by eliminating the need for most human workers? Will AI undermine democracy? Does AI pose an existential threat? Strain’s responses to these three questions: Will AI reduce employment by eliminating the need for most human workers? —> Though it does pose a threat to eliminating the need for more human workers, it also provides jobs needed that are strongly correlated with AI. like data analysis ——>it creates and destroys jobs Will AI undermine democracy?—> no it’ll strengthen by providing credible sources, tutoring services to provide an enriching environment for students, but of course it can still cause political turmoil until AI is better regulated Does AI pose an existential threat? No, the opposite is true AI os actually helping the world to survive by tracking drug development, future pandemics, and could be used to track and predict potential natural disasters, therefore proving to be not a threat to people. 11. What are Strain’s bottom-line policy recommendations? What are Strain’s bottom-line conclusions about the impact of AI on human welfare? Strain’s bottom line policy recommendations are that policymakers should not be complacent in AI, more should be done for employees affect A-related interruptionion 1. What is inflation? What is the inflation rate and how is it computed? Inflation is when the average price is going up. And the inflation rate is measured by using a price index. And is computed as the percent change in the index over a period of time like a year. 2. Where do the data used to compute the CPI (and thus the inflation rate) come from? [Conduct a quick online search and see what you find.] The Bureau of Labor Statistics has a consumer expenditure survey, and 3. For the US, what’s the most recent inflation rate? For the US, what’s the average inflation rate over the post-WWII era? [We’ll work on this together in class. You can likely make good progress on your own using the FRED database.] The most recent inflation rate for the U.S. is 3.2%. The average inflation rate over the post WW-II era is 3.5% 4. According to the Quantity Theory of Money, what causes inflation? Is evidence consistent with the theory? [See the video on the “quantity theory of money” and on “causes of inflation.”] Inflation is causes by increases in the money supply. So when more money chases the same amount of goods and services prices must rise. Evidence is consistent with the theory because we know as growth rate increases so does the inflation rate. Growth rate of money supply is = to growth rate of prices. 1. In the long run Money is neutral —> doubling of the money supply in the long run leads to a doubling of prices 2. Inflation Is always and everywhere a monetary phenomenon 3. Central banks have significant control over a nation’s money supply and inflation rate; V: velocity of money→ how much a dollar is used to purchase finished goods and services in a year y= real GDP QToM= Mv=Py —> money supply equation Covid era: dog eat dog world ● Considered doing consulting and then became a business analyst for an IT company and now she does project/Data management at MAYO ● Why you picked your major: because I had the exposure to the different cultures and because she grew up sheltered she really values the culyre—> make sure it’s very passionate ● Absolutely terrifying—> so much uncertainty, classes don't prepare you for the real wold, you get prepared is through getting internships so like get some real world experience 11 ● Kennedy capital management —> investment firm → equity research intern (finance) better analytically —> a lot of responsibility Wilson Lin, e=he went to SLU, he interned with Alexandria, Sara Rutherford → IB and Econ Pre-Law and is abroad right now in Paris and in law school at SLU 1. Any reactions to the reading? (Anything you recognize from class? Anything new? Anything you find particularly compelling? Anything about which you think people might be skeptical? Any way you might push back on the ideas?) I recognized that 2. Thinking more generally about our work together, what did you learn this semester? ● Community justice —> without it we wouldn’t have a stable economy ● Economy is cooperation between people ● We all contribute to the economy ○ We all have important and necessary skills to better the economy