Class#37 11/30/11

Rizzo started class by writing 4 things on the boards. The first thing was The Economics of Price Controls: price ceiling à rent controls

The second thing was a supply and demand curve for the rental apartments market along with a price ceiling at $800 but the equilibrium price is $1000. Market equilibrium P*=$1,000; Q*=12,000

Controlled equilibrium; P=$800 QD=14,000; Qs=10,000 Notice that more quantity is wanted than supplied. This equilibrium is not market clearing.

PRICE CEILING IS BINDINNG BECAUSE IT FORCES THE SHORTAGE. BINDING WHEN THE CEILING IS BELOW THE EQUILLIBRIUM PRICE. NON BINDING IF ABOVE THE PRICE

A price ceiling is the quickest way to destroy a city.

Rent- something that acrews to you with out producing more. This means that you get more money without doing anything extra.

A lot of things that we do in a day comes from rent.

Supply of housing is very elastic.

Landlords supply 10,000 but 14,000 are wanted. Price ceiling causes the shortage here. The price ceiling is binding when there are shortages IF the ceiling is higher than the equilibrium price, then it is ok. This doesn’t cause a shortage. Sellers have their goals satisfied with a ceiling but buyers don’t in price ceilings.

Something has to make QD’=QS’=10,000

The gas shortages in the 1970’s caused huge lines for gas because there was inflation, but a price ceiling on gas so it was considered very cheap. It made the cost of obtaining gas higher than the low sticker price.

Price ceilings make the quality of apartments decrease because if you don’t like something, someone else will deal with it. If there’s roaches, then the apartment administrators can’t afford to fix the problem if the price ceiling is only at $800.

THE CONSEQUENCES OF RENT CONTROLS

1.     Reduced availability- harder to get the apartment.

2.     Low quality

3.     Other $ will be paid. Black markets emerge because people are willing to pay more than $800 for the apartment.

4.     Misalocations- people that value things the most aren’t going to always get them, even if they are willing to pay more for it.

5.     Impacts other markets. Raises the price in other markets. Ex. Increases the demand in locations outside of NYC so suburbs raise their price to the ceiling since more people are willing to pay that higher price.

6.     Fairness- makes it harder for the poor to get things.

7.     Discrimination and other costs result.- It’s less costly to discriminate because there is a bigger market of people to choose from. Market clearing means that no one else is available. There isn’t someone right there to fill it out. More costly to turn people down. By not renting to people, they still do social good because still renting it to someone else. Consumers can discriminate against supplier but suppliers can’t discriminate against consumers. This is an interesting point.

8.     Monitoring/enforcing police. Police have to regulate and monitor to make sure that the law isn’t broken.  3 costs come from this.   

1.     Long run supply curve shifts in and becomes flatter. It is costly to keep going to court and hiring lawyers for both state and supplier.

2.     The monitoring itself is destructive. People monitoring aren’t producing goods and services people want. Broken window. Rather have people build a park than check leaky pipes. Goal should always be no regulation. If it works, don’t regulate it. Buying locks shouldn’t go to GDP because it is wasteful. We shouldn’t have to worry about being safe in a perfect market.

3.     Costly because police could build a bridge or do something that is more productive. We have to raise taxes if we want to build a bridge with regulation because more costs are needed to pay for bridge and police salaries. We shouldn’t say FU to the poor. Destroying the housing stock would help the poor the most.

HW# 13 Eco 108

A.
It was very cool to see the price system working to allocate goods to those that are the most willing to pay in the golf article. By scalping the tickets off, only those willing to pay the $850 fee will be able to tee off at this special course. I was shocked that what this company was doing wasn't illegal since they were using false names and identities to book the tee times. I also wonder why the course is aloud to suspend people that they catch booking through Phil for a year. It is a very complicated process to get tickets which is why the prices might be so high. They did say one thing bad in terms of economics when they said, ays Catalano, "It's not the greatest system in the world, but it's an equilibrium. If you really want to play that badly, you can sleep out." This is bad because while you are sleeping out, you are not producing anything. You could be making money to buy an expensive ticket rather than wasting your time a line. It was also interesting to see the sketchiness of the company that was running the operation. I wonder if they were so secretive to avoid being interviewed by papers or magazines interested in their business. I think it is good that this company realized the success that could come with their business and capitalized

B. 

1. If another company opened up doing the exact same thing that NY Golf Shuttle did, would it help get more people into the golf course?

2. How would the price of NY Golf Shuttle be affected if the price to tee off at the course increased?

C. 

In this article, there is a company that helps ensure that you get a tee time at one of the most prestigious golf courses in the country. They also take you to the course that day in a limo. The price of this is very expensive but is highly demanded because of the difficulty to get a reservation at the course. Spots are sold out within 3 minutes of opening everyday. Many people including the gold course look down on this business, but their actions are completely legal so nothing can be done about it. 

The golf course has changed several policies in an attempt to lessen the influence that NY Golf Shuttles has on people getting tee times. These have not worked. This is a great example of the price system and how it works. There are limited of tee spots available, so the company allocates them by offering ridiculous prices, and only those that really want to golf at the course get the chance too. people do not  buy the tee time if they do not find it worth the money. Less buyers will enter this market the higher the prices are. Those that do not want to pay the steep price wait a long time to get on the list. 

There are simply too many people in the market for this golf course. They have twice as many members as golf spots open a year. The price system is the best way to distribute the goods of playing on the course because those that really want to golf can now jump the line and do it by paying more. 

EWOT#13

This weeks EWOT is about my grandfather's lighting corporation. As of recent he has been extremely busy with getting orders produced. He has been so busy that more orders are coming in than he can supply. Meaning that the demand is greater than the supply. Rather than hoping that he can get the orders complete in a timely fashion that doesn't upset customers, he should raise the price of his pig lamp so that less lamps are ordered, but he can produce enough to fill the orders on time. This will keep his profits high while making his business easier to run.

Class#36 11/28/11

Rizzo started class by putting up a graph of a supply and demand curve overlapping with points along the curve. This graph represented the properties of a market equilibrium. The supply line represents the marginal costs of making a guitar. The demand line is the marginal value that each person places on a guitar.

A chart to represent the points on the graph is

Price	Quantity  Demanded	Quantity Supplied
$30	1 D1	5 S5
$25	2 D2	4 S4
$20	3=equilibrium D3	3=equilibrium S3
$15	4 D4	2 S2
$10	5 D5	1 S1

When the price is $20, only people that value the goods the most will buy it. Only the people that produce goods for a low cost do it.

S4 shows other profit opportunities. The total value of resources a person loses when person 4 makes a guitar. If you get Q right and supplier wrong, then money is left on the table. D2 gets $25 of pleasure from guitar. D4 gets $15 of pleasure.

The price system is important because prices economize on the knowledge of what is important.

The price of titanium can tell us what is going on in the market with titanium

In markets we get trial and error. In politics we don’t

THE THREE THINGS THAT A CENTRAL PLANNER HAS TO FIGURE OUT IS HOW MANY, WHO GETS THEM, AND WHO MAKES THEM.

If S2 and D2 trade, then $10 of wealth is created. Since D2 values the guitar at $25 and he buys it for $15.

The point of a market is to not produce too much. If S5 trades with D5, then there is a waste of $20. S5 produced too much at that price.

Kennedy didn’t allow US steel to raise prices when they needed to. This resulted in Us steel laying workers off.  Something interesting that Rizzo said today was, that $2.5 trillion was given from charities to poor African countries. There has been no correlation between aid and growth in these countries. Bill Easterly draws distinction between planners and searchers. If they assign quantitative plans to produce, then there is no incentive to produce. In markets there is a financial incentive to meet needs of appliance. Aid projects are run through the governments that are so corrupt, that there is a huge knowledge problem where planning can’t solve. Searcher can do this better. We give Africa Malaria  nets to prevent the spread of the disease, but people use them as fishing nets instead because they need to eat.

The best way to figure out if things works is to experiment and look at the results. Government needs to do more of this. 

Class# 35 11/23/11

Rizzo started class by putting 5 different things on the board. The first one was “HOW MARKETS USE KNOWLEDGE” In the titanium market, he wrote down that

Initial EQ => P*=$20…….Q* 10 billion pounds of titanium bought. (the amount sold last year in the world) The second thing he put up was a graph of 2 demand curves and 1 supply curve. The one demand curve were for previous buyers of titanium. The other was the demand for a new consumer who requests 6 billion pounds of titanium to buy at the price of $20 per pound which is how much titanium cost per pound before the new consumer came into the market. Since there is a shortage of titanium with this order, the producer has to increase its price for titanium so that less titanium is bought.

You can assume what happens with the demand and supply of a product as you move away from the equilibrium point. Elasticity determines if products or gods change. When prices rise, there is an incentive for the producer to dig up more titanium in the ground. The marginal cost of digging up the next ton of titanium is compared to the marginal benefit of how much profit you will receive from that ton determines if this will happen. People use less of a product as the price increases. It depends how much less though that lets producers know how much they can raise the price and make the profits that they want.

3 questions to ask about this graph to consumers and producers are.

1.     Please dig up more to producers.

2.     Please use less to consumers.

3.     Ask the person requesting 6 billion tons of titanium to request less.

A possible test question that Rizzo told us about is that a Czar tries to solve problems. What does he need to know to solve these problems. The answer are things he couldn’t know in 1 million lifetimes!!! This relates to I pencil in that there are too many questions to answer for every user and producer of titanium around the world. AS soon as you find something out, another thing changes. Huge knowledge problem with this.

Rizzo didn’t know if he’d like his job until he tried it. He tried other jobs and taught at other schools to determine if this job was a good fit for him.

If there is a lot of titanium in the ground, companies are less incentivised to know how much it costs to get that next ton of titanium out of the ground. Raising the price of titanium gives them an incentive to know.

People can’t know everything. The great dig in Massachusetts was estimated to cost $4 billion. It ended up costing $14.7 billion. This is because things happen that you can’t predict. (ex. Huge rock being in the way, or flooding while doing construction). The knowledge for the possibility of these things happening is out there.

Medicare sets the prices for medicine.

When you add people to the market, its shifts the demand curve due to more demand. It makes prices rise. This causes existing users to cut back on consumption.

For the next graph the elasticity is greater for the increase in price to the amount of titanium sold. This allows the new consumer to get more of titanium because the former consumer consume less now since they are responsive to price change.  In this graph there is a better chance of getting what you want. The more elastic a product is to price increase. Price doesn’t have to go up as much to make you change which is why the price only goes up by $2 rather than $5.

People want a good deal. Price tells us that it’s easy for some one to do adjusting.

The third graph shows that that the supply curve is more elastic than before. Previous consumer don’t decrease that much when price increases a little, they end up getting titanium from elsewhere like Mexico. New consumers wanted 6 tons, they get 5 from this.

A chart to represent what happens on these graphs is

New EQ	Scenario #1	Scenario #2	Scenario #3
Orignal price =$20	P= $25	P= $22	P =$22
	Q= 10 à 12	Q= 11	Q=14

Existing users	Initial=10	Change of Q by 2 unit
Graph 1	End= 8
Graph 2	Initial=10	Change of Q by 4 unit
	End=6
Graph 3	Initial=10	Change of Q by 1 unit
	End=9
Suppliers	Initial=10	Change of Q by 2 unit
Graph 1	Final=12
Graph 2	Initial- 10	Change of Q by 1 unit
	Final=11
Graph 3	Initial=10	Change of Q by 4 unit
	Final=14
New Users	Want 6	Change of Q by 2 unit
Graph 1	Get 4
Graph 2 Graph 3	Want 6 Get 5 Want 6 Get 5	Change of Q by 1 unit Change of Q by 1 unit

Rizzo also let us know that centralized knowledge is impossible.

Decentralized knowledge can work well In a market economy.