Econ test 6-10

Costs of producing stuff by hand

not a good idea becuase of scarcity (your time, energy, etc is limited)

Benefits of specialization and trade

your develop expertise and when everyone develops expertise, production, efficiency, and variety increases and we get more clothes, food medecine, etc. SO people are better off.

comparative advantage

an individual or groups ability to produce something at a lower opportunity cost compared to a competitor

absolute advantage

an individual or groups ability to produce more of something compared to a competitor

PRACTICE PROBLEMS/CALCULATIONS OF ABSOLUTE VS COMPARATIVE ADVANTAGE

win-win

each trading partner gains utility

zero-sum

one trading partner gains utility and one loses utility

trade deficit vs surplus

“Chimerica”/loans/interest/debt

“Chimerica” is China and America and we have kinda become one because China lends money to the US so we can buy their products (one is the lender + manufacturer an the other is the borrower + customer)

what would happen if other countries and their investors lenders stopped lending to us?

deacrease spending to save money, raise taxes, find another lender (but would need to raise interest rates)

what is free trade?

trade without barriers and helps buyers and sellers get the max revenue from the deal (no tariffs, no subsidies, no quotas, no licenses, no anti-dumping laws)

who like free trade?

american customers (can buy cheaper cars from Asia since producs are cheaper)

who doesn’t like free trade?

american workers and companies who make cars becuase they can lost their jobs and American companies can lose money since buying from otehr markets

when is trade bad?

slave, sex, drug

trade barriers

• Tariffs

• Subsidies

• Quotas

• Licenses

• Anti-dumping laws

tariff trade barrier

taxes on imported good or service (ie from another country)

subsidies trade barrier

payments given in order to produce something expensive

quotas

limits on the number of something that comes from another country

licenses

official permission to do/sell smth

anti-dumping laws

laws that prevent dumping…selling a product for less in another country in order to get new customers

why do politicians block free trade?

protect manufacteres and businesses in your country (protectionsism)

• enviornemnt

• pro-american businesses

• protect. american jobs

Most-favored nation (MFN) status

country x (the exporter) faces the lowest level of tariffs from the country y (the importer)

ex. Canada might face a 10% tariff to import Aluminum to the US, while Russia faces a 300% tariff rate

Minimum Wage (Price Floor)

can be good or bad: could cause companies to fire people so it decreases jobs and could increase high school dropout but if you have a secure job it is good

earned income tax

• provides tax restrictions to low to moderate income families

• if you earn less than/or have more children you could pay less taxes

economists feel about minimum wage

How Do Economists Feel About the Minimum Wage?

• WAGES ALREADY BELOW WHAT THEY SHOULD BE SO RASINING THE MINIMUM WAGE DIDN’T REALLY CHANEG ANYTHING

• Traditional view: Raising the minimum wage leads to job losses because workers become more expensive to hire, causing businesses to hire fewer employees.

• Economists disagree on how high the minimum wage can increase before negatively affecting workers.

• The federal minimum wage has not kept up with inflation.

• Different minimum wage levels across states have allowed economists to study the effects of raising wages.

• Monopsony power: Some fast-food employers have power over wages, meaning workers may already be paid below the competitive market rate.

  • In these situations, raising wages does not necessarily lead to job losses.

• Overall: Research has produced mixed results, and raising the minimum wage does not always cause job losses.

• The effects depend on many factors, and studies have sometimes reached contradictory conclusions.

rent cotnrol good/bad

price ceiling, benefits the tenants but costs the lanlords (incetivices tenant stability but not improvemtns to growth in infastructure) MAINLY FOR THE OLD PEOPLE DOWNSIZING

what was NAFTA

an agreement in force from 1994 to 2020 implemented to promote trade between the US, Canada, and Mexico

Who supported NAFTA?

At the time of its initial passage in Congress in 1993, Republicans supported NAFTA more than Democrats did.

what was the purpose of NAFTA?

• intergration between devloped economies of Canada and US and mexico developing economy

• bring economic growth to mexico and curb illigal immigration

How did NAFTA effect the US?

(B- grade), benefit consumers overall, job losses in key sectors (jobs to Mexico since cheaper), trade deficit

How did NAFTA effect the Mexico?

(A- grade) benfit for trade on consumers, debt and inflation go down, beneift in auto industry and jobs, mexican farmers struggled to compete with American farmers

How did NAFTA effect the Canada?

(C+ grade) consumers benfitted most, more agricultural and energy trade between US and Canada, productivity relative to US went down which gave US more bargaining power

What is a market?

• a group of buyers and sullers of a particular product or service

• a place where buyers and sellers maximize their utility by trading…ie buying and selling goods

ways to organize trade

gender, tradition, central planning, autarky

problem with organziign trade through gender

sexist; doesnt account for ability or interst and assess comarative advantage

problem with organziign trade through tradition

• doesnt account for interst

• used to justy systems of oppression

problem with organziign trade through centrally planned economies

people told what to do: no incentive

was inefficient: oppression and starvation

lack of consumer goods

problem with organziign trade through autarky

country economically self-sufficient (no trade or outside help), time and resources are limted tho

invisible hand

leave people alone to buy and trade on their own; people will buy lowest price, supply and demand

invisible hand costs

pollution/overproduction, allows large corporatuons to defeat small busnisses, people can be irrational, deosn’t account for depresions

Law of supply

as prices rise, companies will supply more. As prcies fall, companies will supply less

law of demand

as prices rise, quantity demanded falls. As prices fall, quantity of demand rises

market equalibrium

when supply is equal to demand

surplus

when supply is greater than demand

shortage

when demand is greater than supply

Marketing and appeal of TikTok

• shows up on feed

• feels like a community

• sales funnel (becomes a disk from tick tock cuz it draws ppl in

• more like discovery than advertising (people feel smart since they found it)

labubu stuff

Labubu became extremely popular due to social media, celebrity attention, and limited availability, causing demand to rise dramatically.

Because supply was limited while demand was high, prices increased and products frequently sold out.

Pop Mart eventually increased production, making Labubus easier to find. At the same time, consumer interest began to fade.

As supply increased and demand decreased, prices fell and the hype died down.

Main lesson: Trends can create huge profits, but businesses must understand supply and demand and recognize that popularity may not last forever.

ALSO NEW FOR CHINA TO HAVE A LUXERY BRAND

complementary goods

goods that are typically consumed together (changes in prices or availibility would directly affect both of them), ex. peanut butter and jelly

competitive goods

goods that you generally choose ONE of to consumer not the other. Changes in prices or avilibility would inversely affect both of them. ex coffee or tea

Wealth effect

A behavioral economic theory suggesting that people spend more as the value of their assets rise. The idea is that consumers feel more financially secure and confident in their wealth when their homes or investment portfolios increase in value. They feel richer, even if their income and fixed costs are the same as before

How ot think about supply

at a certain price, busnisses are willing to sell a greater (or smaller) quanitity of a product than before

how to think about demand

at a certain quanitity people are willing to pay a higher (or lower) price

what is elasticity

the degree to which demand or supply changes in reaction to a change in price

The nature of goods (elasticity)

1. ex the demand for a necessity tends to be inelastic (like medecine for old ppl)

2. ex the demand for a luxury tends to be elastic (like a lot of money for socks)

The availitbility of subsitutes (elasticity)

1. few to no subsitutes? inelastic (like a thirsty man in the desert)

2. many subsitutes? elastic (you have your choice)

related goods (elasticity)

1. ex you are thinking about buying a car SUV or hybrid? the price of gas, a related good, affects the elasticity of your demand. If gas is expensive, demand is more elastic.

The consumer wealth

1. pooer people tend to have more elastic demand

2. richer people tend to have demadn thats more inelastic

What is the "War on Drugs"?

• A government campaign, beginning under President Nixon in 1971, to reduce illegal drug use and distribution.

• Focused on making drugs harder to obtain through arrests, stricter laws, and increased law enforcement.

• Goal: reduce the supply and use of illegal drugs.

Supply-side conflict

• The War on Drugs mainly targets the SUPPLY of illegal drugs rather than the demand.

• The government tries to reduce supply by arresting dealers, seizing drugs, and disrupting production and distribution.

• The idea is that less supply will make drugs harder to find and more expensive.

• However, new suppliers can replace those arrested, making it difficult to eliminate the market.

Elasticity of illegal drugs

• decrease the amount they want when prices increase.

• This is partly because some drugs are addictive, making consumers less responsive to price changes.

• When the government reduces supply, prices can rise, but demand may not decrease very much.

• Economic takeaway: Reducing supply does not necessarily eliminate demand (MAKES DEALERS MORE MONEY)

costs of drug prohibition

• people will make the drugs more potent so they are smaller and easier to transport

• no name brands so no suing if there is a bad batch

• more violence for everuone since stuff cant be settled in court

• increased taxes to pay for it which restricts ppl liberties

• seraches of peoples homes can end up with people killed

Pros of Government intervention (versus free market)

security, justice, education, roads and bridges, welfare

cons of Government intervention (versus free market)

doesn’t really serve individuals

Negative externaities

A side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved in the deal or transaction.

Example: You buy a car. Benefits you and the dealership that sold it to you. But the emissions from the car affect your neighbors, family, with asthma.

• Externality = pollution

• Selling whiskey to someone at night → drunk driving/domestic abuse.

Free Rider Problems

Public, non-excludable, shared resources. People who use privately owned goods and services without paying for them.

Example: You go to Boston Common to see fireworks.

- You are a free rider = you didn't pay for the fireworks, but no one can stop you from watching them.

Tradgedy of Commons

Goods and services that no one person owns, but are open to everyone. Unfortunately, they are often overused or depleted over time.

Examples:

• We share the air we breathe, but gas companies are responsible for a lot of the CO2.

• Fish: Too many fish are caught, causing fish populations to decrease.

cap/trade scheme

Paris Agreement

- Many countries agreed to the Paris Agreement in order to reduce harmful greenhouse gases that cause global warming.

b. How does the agreement work?

• Each country agreed to let its national government set pollution limits.

• Example: Factory A can produce up to 100 lbs of pollution per year.

• If the factory exceeds that limit, it has to pay a fee/tax/fine.

• Alternatively, it can use a pollution credit that it was given OR buy one from someone else.

• In other words, there is a limit or cap on pollution, and companies can trade (buy/sell) pollution credits.

• This is called a cap-and-trade scheme.

c. What is the incentive for companies/factories?

• Providing choice.

• Companies can decide how to reduce pollution or purchase credits, rather than having the government simply ordering them to do something.