Sorting and labeling:
From a social point of view, what matters most are the benefits of sorting and labeling given things, activities, and people in society as a whole.
There can be a substantial difference in value between a sorted and an unsorted collection containing the same quantities of identical items. Among the costs of sorting and labeling is a loss of diversity.
Label can reduce uncertainty, for example, a well-known restaurant.
Most objections to sorting and labeling in general---and particularly to the sorting and labeling of people--are based on ignoring the costs of knowledge, or ignoring differences in the cost of knowledge between one decision-making process and another.
Time:
Time is never free. Its value is whatever alternative opportunities must be foregone in order to use it for a particular purpose.
Every item has both a money price and a time price, and it is the combination of the two that is its full cost.
Different people have different value of time.
Example: Job training may not be effective.
Job training programs require present efforts to increase prospective employment and earnings sometime in the future may prove relatively ineffective with age, ethnic, or socioeconomic groups with short time horizons. The attempt to use such future-oriented programs as means of luring present-oriented youngsters away from crime runs up against the fact that "most crimes are committed opportunistically by youths who want small amounts of money right away."
2/19/2012
Economic Trade-offs
An economic system is a system for the production and distribution of goods and services. But what is crucial for understanding the way it functions is that it is a system for rationing goods and services that are inadequate to supply all that people want. Economic institutions exist to introduce elements of rationality or efficiency into the use of inputs and outputs. An economic system must determine how much of each resource shall go to each of its various uses, under the inherent constraint that all of the desires for all of the users cannot possibly be satisfied simultaneously.
Because economic systems are essentially systems of rationing, any successfully functioning economic system would have "unmet needs" everywhere. A nation is wealthier, its standard of living is higher, when it has more of real things, not when bigger numbers are printed on its currency. Man neither creates nor destroys matter, but only transforms it--and the knowledge of how to make these transformations is a key economic factor. In an economy, it is not the superficial possession of knowledge in the abstract that counts, but the effective application of it. We are all in the business of selling and buying knowledge form one another, because we are each so profoundly ignorant of what it takes to complete the whole process of which we are a part.
The notion of marginal rate of substitution (MRS) means that there is no categorical preferences. People's values are subjective, changing according to the time, their current situation, etc.
The cost of any good is the cost of its ingredients, and their cost, in turn, is whatever alternative good had to be foregone in order to use then where they are used. The notion of opportunity cost. Denunciations of "inefficiency" and "waste" are often nothing more than statements of a different set of preferences. Schemes to turn particular decisions or processes over to "experts" who will promote scientifically neutral "efficiency" are often simply ways of allowing one group of people to impose their subjective preferences on others.
The assumption that larger numbers of people meant additional outputs without an offsetting loss us only approximately true for small numbers of people. Crowding, distraction, and monitoring costs offset the gains made possible by cooperative organizational work. The law of diminishing returns.
Other things being equal, the present is always preferred to the future, if only because life itself is uncertain and the future may never come.
The process of transforming current assets into future assets is known as investment and disinvestment is the opposite.
Speculators reduce the risk.
The same things have different values to different people at a given time. Middlemen reallocated the resources, giving them to who value them most.
Although we cannot reduce all the different sets of individual preferences to one set, we can conceive of an optimal performance by an economy as representing the satisfaction of the diverse sets of preferences to such an extent that no one could be made any better off (by his own standards) without making someone else worse off (by his own different standards). This is called "Pareto optimality".
Government edicts without a threat of violence are mere suggestions, and suggestions have a notorious record of ineffecitiveness in the economy.
The knowledge of market is transmitted through prices. Price changes convey the changing relative scarcities of different resources.
Perhaps the most widespread misunderstanding of economics is that it applies solely to financial transactions. Frequently this leads to the statements that there are noneconomic values. IN fact, there is only economic values because economics is not a value itself but rather a method of trading off one value against another.
Things cost because other things could have been produced with the same time, effort and energy.
Because economic systems are essentially systems of rationing, any successfully functioning economic system would have "unmet needs" everywhere. A nation is wealthier, its standard of living is higher, when it has more of real things, not when bigger numbers are printed on its currency. Man neither creates nor destroys matter, but only transforms it--and the knowledge of how to make these transformations is a key economic factor. In an economy, it is not the superficial possession of knowledge in the abstract that counts, but the effective application of it. We are all in the business of selling and buying knowledge form one another, because we are each so profoundly ignorant of what it takes to complete the whole process of which we are a part.
The notion of marginal rate of substitution (MRS) means that there is no categorical preferences. People's values are subjective, changing according to the time, their current situation, etc.
The cost of any good is the cost of its ingredients, and their cost, in turn, is whatever alternative good had to be foregone in order to use then where they are used. The notion of opportunity cost. Denunciations of "inefficiency" and "waste" are often nothing more than statements of a different set of preferences. Schemes to turn particular decisions or processes over to "experts" who will promote scientifically neutral "efficiency" are often simply ways of allowing one group of people to impose their subjective preferences on others.
The assumption that larger numbers of people meant additional outputs without an offsetting loss us only approximately true for small numbers of people. Crowding, distraction, and monitoring costs offset the gains made possible by cooperative organizational work. The law of diminishing returns.
Other things being equal, the present is always preferred to the future, if only because life itself is uncertain and the future may never come.
The process of transforming current assets into future assets is known as investment and disinvestment is the opposite.
Speculators reduce the risk.
The same things have different values to different people at a given time. Middlemen reallocated the resources, giving them to who value them most.
Although we cannot reduce all the different sets of individual preferences to one set, we can conceive of an optimal performance by an economy as representing the satisfaction of the diverse sets of preferences to such an extent that no one could be made any better off (by his own standards) without making someone else worse off (by his own different standards). This is called "Pareto optimality".
Government edicts without a threat of violence are mere suggestions, and suggestions have a notorious record of ineffecitiveness in the economy.
The knowledge of market is transmitted through prices. Price changes convey the changing relative scarcities of different resources.
Perhaps the most widespread misunderstanding of economics is that it applies solely to financial transactions. Frequently this leads to the statements that there are noneconomic values. IN fact, there is only economic values because economics is not a value itself but rather a method of trading off one value against another.
Things cost because other things could have been produced with the same time, effort and energy.
2/16/2012
Buying local
Entreaties by advocates of the buy local movement (“localists”) contain three major themes which leverage these feelings. First, buying local “keeps money in the community.” You might spend a little more, or have a smaller selection, but the money you spend is less likely to “escape” to some faceless out of state corporate headquarters. Second, buying local is environmentally responsible. Shipping products around the globe uses up “too much energy,” produces carbon dioxide emissions and generates wasteful packaging. Third, local products are safer products. How can we be sure that asparagus from 3,000 miles away is non-toxic, or that toys produced in China are not lethal?
It is not clear what the notion of a local product is, however. Think about where the raw materials come from, where do the performers and workers get trained, etc. Self-support is the road to serfdom. Buying local doesn't make sense because there is no clear notion what local products is.The bigger point is that asking all of the residents of your community to buy local is asking you and your neighbors to make everything by and for yourselves. You will have to make your own lawn-mowers, newspapers, milk, machines, textbooks, etc. and sell them only in your community.
The purpose of the division of labor is to make a smaller quantity of labor produce a greater quantity of output. Since more is able to be produced, each individual can now exchange the fruits of her labor for more of the other goods and services that she desires. Wealth expands rapidly as this specialization and division of labor deepens.The only way to deliver more leisure and work flexibility is to find a way to provide the goods and services we desire in less time.
Small scale production is more costly because it forgoes the gains to be had from producing for large markets. Many products cannot be profitably produced without the possibility of sales to millions of consumers.Fuel and transportation costs make up a miniscule portion of non-local product costs, particularly for food. Many places in the country can grow wheat. But by not doing so in the place where it is economically efficient would dramatically increase the amount of land under tillage and consume far more resources to produce the same amount of wheat as before. The environmental concerns of localists also overlook the fact that eating local can consume fuels too.
In a market economy, competition is the ultimate protector of workers and consumers. Just as wages are bid up by entrepreneurs competing for talent, product prices are bid down, and quality up, by firms competing for business. To buy local requires a substantial reduction in the number of businesses competing for your labor services as well as for your purchasing dollars – it reduces competition. Company stores and company towns do not evoke pleasant images for most people. Eschewing distant products because of informational concerns is little different than forgoing the use of calculators and cars because you do not understand how to build them.
It is not clear what the notion of a local product is, however. Think about where the raw materials come from, where do the performers and workers get trained, etc. Self-support is the road to serfdom. Buying local doesn't make sense because there is no clear notion what local products is.The bigger point is that asking all of the residents of your community to buy local is asking you and your neighbors to make everything by and for yourselves. You will have to make your own lawn-mowers, newspapers, milk, machines, textbooks, etc. and sell them only in your community.
The purpose of the division of labor is to make a smaller quantity of labor produce a greater quantity of output. Since more is able to be produced, each individual can now exchange the fruits of her labor for more of the other goods and services that she desires. Wealth expands rapidly as this specialization and division of labor deepens.The only way to deliver more leisure and work flexibility is to find a way to provide the goods and services we desire in less time.
Small scale production is more costly because it forgoes the gains to be had from producing for large markets. Many products cannot be profitably produced without the possibility of sales to millions of consumers.Fuel and transportation costs make up a miniscule portion of non-local product costs, particularly for food. Many places in the country can grow wheat. But by not doing so in the place where it is economically efficient would dramatically increase the amount of land under tillage and consume far more resources to produce the same amount of wheat as before. The environmental concerns of localists also overlook the fact that eating local can consume fuels too.
In a market economy, competition is the ultimate protector of workers and consumers. Just as wages are bid up by entrepreneurs competing for talent, product prices are bid down, and quality up, by firms competing for business. To buy local requires a substantial reduction in the number of businesses competing for your labor services as well as for your purchasing dollars – it reduces competition. Company stores and company towns do not evoke pleasant images for most people. Eschewing distant products because of informational concerns is little different than forgoing the use of calculators and cars because you do not understand how to build them.
EITC
EITC, the Earned Income Tax Credit, sometimes called EIC is a tax credit to help you keep more of what you earned.
The United States federal earned income tax credit or earned income credit (EITC or EIC) is arefundable tax credit primarily for individuals and families who have low to moderate earned income. Greater tax credit is given to those who also have qualifying children. When the tax credit exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. This tax credit is provided, in part, to offset the burden of social security taxes and to provide an incentive to work.
The United States federal earned income tax credit or earned income credit (EITC or EIC) is arefundable tax credit primarily for individuals and families who have low to moderate earned income. Greater tax credit is given to those who also have qualifying children. When the tax credit exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. This tax credit is provided, in part, to offset the burden of social security taxes and to provide an incentive to work.
minimum wage
Over half the minimum wage earners are under the age of 25. What these young workers need to prosper is nothing more than a little age and experience. In fact, virtually no workers earn the minimum wage for more than one year – because experience and training increase their productivity. Furthermore, over 90 percent of working teenagers earn more than the minimum wage. Either teenagers are exceptionally savvy in the bargaining they do with the capitalistic fat-cats that are trying to keep the little-man down, or wages are a function of productivity. You decide which is more plausible.
To think that employers would not respond on other margins to mandated increases in their costs is the same as asking drivers to drive more when gas prices rise.
Mandated wage laws lead to an increasingly paternalistic economy that stifles creativity and business creation.
Sanctimonious strutting by people supporting excessive government controls over the economy and of people’s private lives does nothing to address the important question of what causes prosperity. Forcing entrepreneurs to increase their costs will not do this. Only by advocating policies that increase the ability of the poor to produce more goods and services can their lot be improved.
To think that employers would not respond on other margins to mandated increases in their costs is the same as asking drivers to drive more when gas prices rise.
Mandated wage laws lead to an increasingly paternalistic economy that stifles creativity and business creation.
Sanctimonious strutting by people supporting excessive government controls over the economy and of people’s private lives does nothing to address the important question of what causes prosperity. Forcing entrepreneurs to increase their costs will not do this. Only by advocating policies that increase the ability of the poor to produce more goods and services can their lot be improved.
2/12/2012
Extreme activities
The extensive literature on the economics of crime offers some reason to
believe that poverty and lack of education are connected to illegal activity, especially property crimes. However, although terrorism seems akin to crime, this
literature does not necessarily predict a similar connection between poverty or lack
of education and terrorism.
As emphasized by Becker (1968), individuals should allocate their time between working in the legal job market or working in criminal activities in such a way that maximizes their utility.After accounting for the risk of being caught and penalized, the size of the penalty, and any stigma or moral distress associated with involvement in crime, those who receive higher income from criminal activities would choose involvement in crime. In this model, crime increases as one’s market wage falls relative to the rewards associated with crime, and decreases if the risk of being apprehended after committing a crime or the penalty for being convicted of a crime rises.
Available evidence suggests that individuals are more likely to commit property crimes if they have lower wages or less education.The occurrence of violent crimes, including murders,however, is typically found to be unrelated to economic opportunities.
Terrorism may in some cases offer greater benefits for those with more education. Furthermore,terrorist organizations may prefer to select those who have better education.Apparently, the groups generally reject for suicide bombing missions “those who are under eighteen, who are the sole wage earners in their families, or who are married and have family responsibilities."A high level of educational attainment is probably a signal of one’s commitment to a cause and determination, as well as of one’s ability to prepare for an assignment and carry it off. The demand side of the terrorism phenomenon is often neglected.Suicide bombers are clearly not motivated by the prospect of their own
individual economic gain, although the promise of larger payments to their families may increase the willingness of some to participate in suicide bombing missions.We suspect their primary motivation results from their passionate support for their movement. Eradication of poverty and universal secondary education are unlikely to change these feelings. Indeed, those who are well-off and well-educated may even perceive such feelings more acutely.
Hate crimes are commonly defined as crimes against members of religious, racial or ethnic groups because of their group membership, rather than their characteristics or actions as individuals.
The evidence of a connection between economic conditions and hate crimes
is highly elusive.n. The existence of hate groups was unrelated to the unemployment rate, divorce rate, percentage black or gap in per capita income between
whites and blacks in the county. The share of the adult population with a high
school diploma or higher had a statistically significant, positive association with the probability that a hate group was located in the area.Rather than economic conditions as a cause of hate crimes, this literature points to a breakdown in law enforcement and official sanctioning or encouragement of civil disobedience as potential causes of the occurrence of hate crimes.
Terrorism resembles a violent form of political engagement. More educated people from privileged backgrounds are more likely to participate in politics, probably in part because political involvement requires some minimum level of interest, expertise, commitment to issues and effort, all of which are more likely if people have enough education and income to concern themselves with more than minimum economic subsistence.finding that terrorists are more likely to spring from countries that lack civil rights, if it holds up, is further support for the view that terrorism is a political, not economic, phenomenon. On the demand side, terrorist organizations may prefer educated, committed individuals. In addition, well-educated, middle- or upper-class individuals are better suited to carry out acts of international terrorism than are impoverished illiterates because the terrorists must fit into a foreign environment to be successful.
believe that poverty and lack of education are connected to illegal activity, especially property crimes. However, although terrorism seems akin to crime, this
literature does not necessarily predict a similar connection between poverty or lack
of education and terrorism.
As emphasized by Becker (1968), individuals should allocate their time between working in the legal job market or working in criminal activities in such a way that maximizes their utility.After accounting for the risk of being caught and penalized, the size of the penalty, and any stigma or moral distress associated with involvement in crime, those who receive higher income from criminal activities would choose involvement in crime. In this model, crime increases as one’s market wage falls relative to the rewards associated with crime, and decreases if the risk of being apprehended after committing a crime or the penalty for being convicted of a crime rises.
Available evidence suggests that individuals are more likely to commit property crimes if they have lower wages or less education.The occurrence of violent crimes, including murders,however, is typically found to be unrelated to economic opportunities.
Terrorism may in some cases offer greater benefits for those with more education. Furthermore,terrorist organizations may prefer to select those who have better education.Apparently, the groups generally reject for suicide bombing missions “those who are under eighteen, who are the sole wage earners in their families, or who are married and have family responsibilities."A high level of educational attainment is probably a signal of one’s commitment to a cause and determination, as well as of one’s ability to prepare for an assignment and carry it off. The demand side of the terrorism phenomenon is often neglected.Suicide bombers are clearly not motivated by the prospect of their own
individual economic gain, although the promise of larger payments to their families may increase the willingness of some to participate in suicide bombing missions.We suspect their primary motivation results from their passionate support for their movement. Eradication of poverty and universal secondary education are unlikely to change these feelings. Indeed, those who are well-off and well-educated may even perceive such feelings more acutely.
Hate crimes are commonly defined as crimes against members of religious, racial or ethnic groups because of their group membership, rather than their characteristics or actions as individuals.
The evidence of a connection between economic conditions and hate crimes
is highly elusive.n. The existence of hate groups was unrelated to the unemployment rate, divorce rate, percentage black or gap in per capita income between
whites and blacks in the county. The share of the adult population with a high
school diploma or higher had a statistically significant, positive association with the probability that a hate group was located in the area.Rather than economic conditions as a cause of hate crimes, this literature points to a breakdown in law enforcement and official sanctioning or encouragement of civil disobedience as potential causes of the occurrence of hate crimes.
Terrorism resembles a violent form of political engagement. More educated people from privileged backgrounds are more likely to participate in politics, probably in part because political involvement requires some minimum level of interest, expertise, commitment to issues and effort, all of which are more likely if people have enough education and income to concern themselves with more than minimum economic subsistence.finding that terrorists are more likely to spring from countries that lack civil rights, if it holds up, is further support for the view that terrorism is a political, not economic, phenomenon. On the demand side, terrorist organizations may prefer educated, committed individuals. In addition, well-educated, middle- or upper-class individuals are better suited to carry out acts of international terrorism than are impoverished illiterates because the terrorists must fit into a foreign environment to be successful.
2/09/2012
2/8/2012 Micro
Marginal value: it is what one more unit of a good is worth to you in terms of other goods.
Marginal value= Marginal Utility/Marginal Utility of an additional dollar of income
Suppose that the marginal value of the fifth egg (per week) is $0.50 (per week). This does not mean that there is a particular egg that is worth $0.50; it means that the difference between having 5 eggs per week and having 4 is worth $0.50/week.
The error of confusing absolute advantage ("I can do everything better than you can") with comparative advantage typically appears as the claim that because some other country has lower wages, higher productivity, lower taxes, or some other advantage, it can undersell our domestic manufacturers on everything, putting our producers and workers out of work. This is used as an argument for protective tariffs--taxes on imports designed to keep them from competing with domestically produced goods.
thinking in terms of money obscures what is really happening. Trade is ultimately goods for goods--although that may be less obvious when several countries are involved,Tariffs are indeed a way of protecting American workers--from other American workers.
There seems to be a widespread belief that if someone sells something to you for more than he could have--if, for example, he could make a profit selling it to you for $5 but charges $6--he is somehow mistreating you, "ripping you off" in current jargon. This is an oddly one-sided way of looking at such a situation.If you pay $6 for the good, it is presumably worth at least $6 to you.
Some of you may respond that taking steak from a rich man who is willing to pay $4 for it and giving it to a poor man who is willing to pay only $3 is really an improvement, since something worth $3 to the poor man is more important than something worth $4 to the rich man. That is one of the objections to the Marshall criterion discussed in Chapter 15. What it is really saying is that we should maximize total utility rather than total value. But utility cannot be observed and value can.
Marginal value= Marginal Utility/Marginal Utility of an additional dollar of income
Suppose that the marginal value of the fifth egg (per week) is $0.50 (per week). This does not mean that there is a particular egg that is worth $0.50; it means that the difference between having 5 eggs per week and having 4 is worth $0.50/week.
The error of confusing absolute advantage ("I can do everything better than you can") with comparative advantage typically appears as the claim that because some other country has lower wages, higher productivity, lower taxes, or some other advantage, it can undersell our domestic manufacturers on everything, putting our producers and workers out of work. This is used as an argument for protective tariffs--taxes on imports designed to keep them from competing with domestically produced goods.
thinking in terms of money obscures what is really happening. Trade is ultimately goods for goods--although that may be less obvious when several countries are involved,Tariffs are indeed a way of protecting American workers--from other American workers.
There seems to be a widespread belief that if someone sells something to you for more than he could have--if, for example, he could make a profit selling it to you for $5 but charges $6--he is somehow mistreating you, "ripping you off" in current jargon. This is an oddly one-sided way of looking at such a situation.If you pay $6 for the good, it is presumably worth at least $6 to you.
In a bilateral monopoly there is both a monopoly (a single seller) and monopsony (a single buyer) in the same market.
In such, market price and output will be determined by forces like bargaining power of both buyer and seller. A bilateral monopoly model is often used in situations where the switching costs of both sides are prohibitively high.
Bilateral monopoly situations are commonly analyzed using the theory of Nash bargaining games.
An example of a bilateral monopoly would be when a labor union (a monopolist in the supply of labor) faces a single large employer in a factory town (a monopsonist).
Why trade deficit is not a problem?
Think about the capital inflow.
If America is a promising country, other countries' investors will be interested to invest in America, and thus they will have a demand for dollar. IN trade activities, when a country imports goods from another one, it will convert its domestic money into that country's and when exports, the situation is the opposite. In other words, for America, import means supply of dollars and exports means demand of dollars. So imports equals the sum of exports and foreign investment. When imports is larger than exports, trade deficit occurs. But is the problem of rate exchange rather than cost.
An efficient outcome is, by definition, one that cannot be improved by a bureaucrat-god. Some of you may respond that taking steak from a rich man who is willing to pay $4 for it and giving it to a poor man who is willing to pay only $3 is really an improvement, since something worth $3 to the poor man is more important than something worth $4 to the rich man. That is one of the objections to the Marshall criterion discussed in Chapter 15. What it is really saying is that we should maximize total utility rather than total value. But utility cannot be observed and value can.
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