HW# 12 Econ 108

A.

For this week’s reading assignment I read the article on Regulation by Michael Giberson. Things that I found interesting in this article were how uneducated people are on how the economy works. The article said that there were 4,000 complaints for gas companies increasing the price of gas by $1 in Tennessee right before a natural disaster happened. This should happen based on how rationing with prices works. As the Demand goes up for a product and it becomes scarce, the price has to go up to ensure that the product does not run out. The price system helps to get this product to the people who need it the most because they are the most willing to pay that much for it. I didn’t understand why some states are putting “price gouging” laws into effect solely because other states have done it. These congressmen should lead based on their own beliefs, not others. This is why they are elected into office because the people that vote them in like THEIR policies. Not someone else’s.  I supported the arguments that the con price gouging laws were making.

 Another thing that I disagree with is that the pro price gouging laws were saying that these companies that drastically increase their prices do it out of greed. We learned in class that greed is destructive to a company and acting in ones self-interest is constructive for a company. People still bought the product and it did not hurt the companies profits or sales so I would disagree that they increased prices out of greed. They did it because they knew that the company would benefit in the long run from the price increase so they acted in their own self-interest.

These laws only hurt consumers, because if the cost of gas goes up and gas companies cant raise prices to the amount that would make them produce the profits that they want, then they may shut down their business until the cost of oil is at the price that they want. This will hurt consumers because oil will now be more scarce since not many companies will sell it unless they can increase the price that they charge for it to make selling it still profitable.

B.

1. Besides eliminating the price gouging law, how can the law be changed so that it does not hurt consumers?

2. If everyone in a disaster stricken area are in extreme need of oil or else they will die, what can companies do to ensure that all of these people receive enough oil to help them survive?

C.

This article talks about the effect that price gouging laws play on companies and how it affects consumers. The price gouging laws have three factors. They are a price deemed unfairly high, an emergency or difficult situation and a product or service useful in responding to an emergency. The argument for these laws is that price gouging is morally wrong. Many people including me oppose these laws saying that these increases in prices are how goods and services get allocated in a free society.

The article also talks about how without the profits that companies are seeking by raising the prices to compensate for increased costs during a disaster, some are closing down until they can get their products at lower costs so that they can abide by the price gouging laws and keep their prices low.  The article combats the argument that the poor can’t buy products at higher prices during disasters when it is needed by saying, “Addressing the particular hardships faced by the poor during emergencies, Zwolinski said, is a task better left to government agencies or charities.” The laws do nothing but keep goods from going where they are needed most. They people who need a product the most are willing to pay the most for it. If someone doesn’t need the product, then they are less likely to get it or get an abundance of it if the price is high. If someone is very needy for a product, then they will do everything they can to get it as long as they have enough money to pay for it.  A great quote about peoples needs and their willingness to buy is, “Yes, consumers in disaster-struck areas would rather not pay four times the usual price for ice or 30 percent more for gasoline, but they generally would be better off having the opportunity to do so rather than having no opportunity to buy ice or gas at all.”

The price gouging laws are becoming stricter and more popular as more states implement them. The article talks about how these laws are easier for corporations to work around than mom and pop shops who can’t adapt to new laws and changes as well due to less spending power and being confined to the area that they are in rather than being all over the country like many corporations are. Trying to regulate prices ends up making fewer resources get to the areas that they are needed the most due to more regulations and costs. This hurts the consumers more than it does the producer. These price gouging laws end up doing the opposite of what they are intended to do and hurt the people that it was supposed to protect. The market should determine what the prices are. This is when a market is at its best. When the government steps in and tries to regulate is when the market starts to have problems, which is what we learned in economics class this year.

EWOT #12

My EWOT for this week has to deal with preferences, scarcity and surplus. I mentioned this topic in my blog post from class on 11/21/11 but it was not something that Rizzo mentioned in class. We learned today that scarcity does not always mean that there is a shortage of products. When talking to Rizzo after class, i was asking him about the difference between scarcity and shortages. From this he gave me a great example of Mike Tyson's house in Ohio. The house is worth $3 million dollars and has some extra value since it formerly belonged to heavy weight champion Mike Tyson. There is only 1 house of it's kind so it is very scarce. No one wants to buy the house that has been on the market since the late 90's. 1 of the reasons why no one wants this house is that it is customized to Tysons likings with tiger print carpets and a sundae bar by the indoor pool. This has to do with peoples preferences. Mike Tyson is one of few people in the US that wants Tiger print carpets and a sundae bar in his house, not to mention that the house is in the middle of no where. Since Tyson's preferences don't match up with anyone else's, the house is still vacant over 10 years later. Though Tyson's house is scarce since there is only one of them, there is a surplus of it because there is more of its kind than people want. I thought that this was a very interesting point.

Class# 34 11/21/11

Rizzo started class today by putting up a bunch of graphs. In the first graph was the Supply and demand curve for the market for acoustics along with the equilibrium point of the graph (where the supply curve and demand curve meet). The equilibrium price is the price when the plan of buyers and sellers coordinate. We learned that Q demand will fall when the price goes up from. When this happens buyers plans are satisfied because there are enough guitars in supply to give everyone that wants a guitar one at that price. Sellers are satisfied because they are selling the guitar for a high profit price. Satisfied means that at a particular price you don’t change your behavior. When Qs > Qd, the extra supply is how big ones surplus is.

Two questions that everyone has to ask when economic change happens are “how does each half of the market respond, and whose plans are satisfied.” Both of these you have to relate to both buyers and sellers.

The definition of a surplus is “at a PARTICULAR PRICE when the Qs exceeds Qd.” When sellers plans are satisfied, they try to do something about it.

 A demand curve tells you peoples marginal values. When guitars are expensive, less people buy them. When they’re cheap, more people buy them. When the marginal opportunity cost is high, it costs more to make a guitar. We ration goods by price.

Sellers will cut prices to get more buyers. When you cut prices, Qs comes back down and people buy more so Qd increase. At best price with most buyers is when equilibrium happens. If the price falls too much, then shortages happen because more people want guitars than can produce it because if they produce too many, then they will start losing money. The sellers plans are satisfied, not the buyers because more are wanted than produced. When Qd>Qs, there is a shortage.

The definition of a shortage is “at a PARTICULAR PRICE” when Qd exceeds Qs is a shortage. Sellers have to reveal to buyers that they are willing to pay more to get more Qs. More people bring guitars to the market from this. Increase in price.  

Competitive pressure on both sides of equilibrium point to get to equilibrium point. Sellers compete with one another and buyers compete with one another. High price signifies that good is relatively scarce. When prices increase, then shortages are alleviated.

Low price means that the good is relatively unscarce. Equilibrium is defined as the price where neither buyers are sellers have an incentive to alter their behavior.

Two types of equilibrium in a market. 1 is MARKET CLEARING. This is when Qd=Qs. A good market can’t do better on its own. The other is a NON MARKET CLEARING. In this, competitive bidding process stops. This is not good.

Changes in equilibrium happen from a lot of factors. Equilibrium is the (P,Q) relationship. If the price of spruce falls, then the price will be bid down because it costs less to make a product from spruce now. If the price of electric guitars increase, then the Qd increases. The 4 changes that we can see are both Price and Quantity go up, Price goes up and Quantity goes down, Price and Quantity both go down, and Price goes down but Quantity go up.

Shortages doesn’t mean that the product is scarce, just that there’s not enough produced. Scarce mean not a lot of, but can still have a surplus. Ex. Mike Tyson’s house. There is only one of them, but no one wants to buy it so there is a surplus of Mike Tyson’s house. 

HW#11 Econ 108

A.

A.   In the reading assignment this week, we had to look at various images and discuss what they mean in regards to supply and demand. I was surprised at the marketing techniques used for the ad to get its message across. One of the ads makes a figure that is supposed to represent Hitler with the message of not to waste materials. I think that using Hitler in an advertising campaign is a little extreme and would make me mad at the advertiser than make me want to conserve. Another ad uses a similar technique by using Hitler to convey their message. This one had to do with saving fuel by carpooling. The third one used the technique of scaring the people into thinking that if they don’t sacrifice, then they will live in slavery. The last one has to do with loyalty and not stealing or doing anything illegal to get goods. These ads were clearly made in WW2 to try and get people to conserve since there was such a scarcity of products since a lot of material and foods had to be sent over sees to feed and aid the troops fighting the war. These ads change peoples incentives. Like the one saying if you ride with alone you ride with Hitler. People don’t want to be known as the person that rides with Hitler, so they start car puling to keep their good reputation. It’s funny how ads change through time. Ads like this would never be seen today because they would be highly criticized if they did.

B.

1. How would these ads change the supply and demand curve from before these ads and WW2 happened?

2. Once the war ended, what would the supply and demand curve look like?

C.

The first image is one that has a bunch of materials put together to look like Hitler, and says “Waste Helps The Enemy” “Conserve Material” This ad regarding supply and demand would cause the supply and demand curve to stay the same but would increase the Quantity supplied and the Quantity Demanded. This is because the amount supplied would be the same because manufacturers at this time were producing as much as they could to help the troops and there were shortages going on at the time because manufacturers couldn’t keep up with the amount of required goods at the time. They Demand curve would stay the same because people still wanted the materials, but didn’t get them because then it would be like they were taking away their chances of winning the war so only the Quantity demanded would decrease.

In the second image saying “When You Ride Alone You Ride With Hitler. Join a Car-Sharing Club TODAY!” is very similar to ad 1. You would increase Quantity Supplied and decrease Quantity Demanded, but you wouldn’t change the supply and demand curves. This is because there isn’t really any substitute for gasoline to get places. Especially during the 1940’s before electric and hybrid cars were on the market.

In the third ad, it says, “The world cannot exist half slave and half free. Sacrifice for freedom!” is the same as the first two ads. If people are sacrificing in regards to every product, then there are no substitutes available because any possible substitute for any given thing has to be sacrificed as well. So once again, quantity supplied will go up, and quantity demanded will go down.

The fourth ad says “Make this pledge: I pay no more than top legal prices. I accept no rationed goods without giving up ration stamps.” This would do the same thing as the rest of the ads. Since there is no replacement for goods, only quantity demand and quantity supplied will change. The amount supplied stays the same, but the goods go over seas to people fighting the war rather than stay in the US. People still demand the same amount that they did before WW2, but they can’t buy it because there is not enough available for everyone.

All of these ads have the same effect on the supply and demand curve. The only difference is that they are giving the same message through different techniques in advertising. 

11/18/11

Rizzo started class by saying to us again that there is not enough stuff available for everyone. The way we choose to ration goods determines the way we compete over them. The way we ration goods has long-term implications. Much of economic activity happens over time. When consumers can’t convey values to producers, producers don’t know when to deliver more. The price system allows this. Medicare doesn’t pay for long-term treatments. Medicade covers long-term care. Rizzo’s grandmother had $200,000 and gave it away so that she could qualify for Medicade. It is very hard to allocate financial aid on need base. Doing this is unavoidable though.

When we ration not by lottery, advantages allow people to decide for themselves how or if they are going to get the good. Others forms of rationing take away this freedom. Rizzo told a great story about the swine vaccine and they tried to allocate it based on need. Because of this, people lied and said they needed it when they didn’t. This left some people who did need it without the vaccine.

The beauty of markets is that there is no honor system. We don’t need the vaccine police. Price determines who gets it. NY city has a lot of water shortages in the summer and places restriction on water use in a drought. Shortages will get worse from this. Nothing is a powerful enough incentive besides price. Price should fluctuate on scarcity of water. Prices force uses of water and will make us use less water. No one has to determine the best way to use water under the price system. We are free to use water how you want. It forces us to consider other value that people place on water. Price mechanism shows who needs water more. We have an incentive to use less water. Price system shows that low demand where you live and high demand somewhere else. This will send the product to the area of high demand. Under the price system, it incentives people to get more and better technology for lower prices. It’s harder for the poor to get anything. When you can’t sell something, marginal value of kidney goes through the roof. Causes price of kidney in the black market to be very high.

Problems in health care. In respect to basic needs, developed countries have safety nets to make sure ones not well off have care. More or better determined by income. Britain tries to allocate- inequality of access to come is worse today than when the allocation started before WW2. Some questions to think about are,

1.   Is it possible to make access to health care every person.

2.   If possible could we make access independent from income desirable.

3.   If its neither possible nor desirable, why do many people talk about it?

Depending on where you live, get better care. We can’t create equality of skill of doctor. Higher incomed people can get to better doctors and spot where openings are. The wealthy can get to the head of the line easier if rich. There is a major racial gap now with organ transplants of kidneys. Racial and ethnic minorities, as well as poor people are less likely to get kidney transplant. There is a system set up to prevent this but it still happens. People have an easier way to get things when they are rich.

Rizzo lives closer to bad schools but sends his kids further away to the best school. Bad schools in bad areas are where the poor live. There is never equal access to things. If we did make access equal, would we make choices by flipping a coin? This doesn’t happen. Doctors make similar decisions all around the world based on what they think, not equality. 

EWOT #11

My EWOT for this week is from something that happened to me personally. I just transferred to Rochester this year from Purdue University. I was on the baseball team at Purdue as I am here. Rochester and Purdue are very different in terms of athletics. Purdue is a division 1 school with multi million dollar athletic facilities where athletics are a big part of the schools student life. Here at Rochester we are division 3, have a little above high school complexes, and are not valued by most of the student body here. When ever some one asks where I transferred from who knows I play baseball and I tell them Purdue, they give me a blank stare and ask me what I was thinking for leaving such an "amazing" athletics program. My reason for why is simple. At Purdue I was not getting a lot of playing time. Here at Rochester I have a great opportunity to get a lot of playing time. Also I am doing pre-med and Rochester has a better pre-med program than Purdue. My reasoning comes down to values. I value getting playing time and my education more than having the perks of playing baseball at Purdue. I'd rather play baseball and give my self a better chance to get into medical school than get little playing time, give myself a lesser shot at getting into medical school but get a ton of free things. My EWOT this week relates to values.

Class #32 11/16/11

Rizzo started class by saying that the reason why people have to ration things is that there isn’t enough for everyone. There may only be 3 fish that 5 people want so how do we ration this.

Sample Rationing Criteria

1.need

2. Queue

3. Lottery

4. Equal Shares

5. Might makes right

6. Merit-beauty? Smarts?

Evaluation of Rationing Mechanisms

1.   Where does competition come from

2.   What is the nature of competition. (can be constructive or destructive)

    3.What are incentives for producers to make/deliver more?

    4.Other considerations

What other customers are willing to pay for your product is also an opportunity cost.

In Rizzo’s Masters story, the hotel increased its price by $200 for this event knowing that hotel rooms were scarce at this time so people would be willing to pay for it. The price that a business can charge you is the price everyone’s willing pay. It shows value that others put on that hotel room.

Rizzo economized because of this to share other rooms with strangers and got 1 room for him a friend a his brother to share rather than 3 rooms where each person got their own room.

Without increasing the price this much for the 1 week masters event, the hotel would have to make the normal price $100 instead of $79 because they know that they’ll make enough extra during the masters that they can offer prices the rest of the year.

The price system is a rule we follow to allow 5 fish to get to 12 people. More people need health care than can actually pay. This is how they ration. There is not enough health care for everyone.

Some questions to think about on rationing for need where the person who needs it the most gets it first is who is needy? What does needy mean? There is no universal criteria for need. We can’t know how many people need. How do people compete in this world. Determining need is very costly. No way to ensure that people who need something will get it.

Queing- first come first serve. We see lines for goods. When prices are cheap, long lines can push us away from standing. People show willingness to pay by standing in line.

When we ration by a lottery, black markets develop from this.

If we ration by equal shares it is communism. Reduces value for everyone.

Might makes right- fight for fish. It is costly for everyone and planning is difficult. We can’t plan with this.

Merit- Not possible to decide it outside of small circles. Merit says nothing about value of achievement. Can’t reward all merit justly. Merit means nothing. Societies who act for merit are opposite of free society. Act on duty rather than success.

Competition doesn’t come from rationing mechanism but from scarcity. We compete because things are scarce and we want them. It matters if competition is destructive or constructive. Price system is constructive. Need, queue, lottery, equal shares, might, merit are destructive. Destructive competition wastes time that someone could be producing something non productive. Less for society. Isn’t zero sum but negative sum. At least price system is constructive for people who argue against it. Adds value to society to get something. With a big economy, you can’t do destructive rationing. No incentive to supplier to bring something for chance to use income. Comes from price system. Rationing by need makes people act poorer.