Chapter 18

Chapter 18 discusses the factors of production. The three most important factors of production are labor, land, and capital. The economy’s income is distributed in the markets for the factors of production. Competitive, profit- maximizing firms hire each factor up to the point at which the value of the marginal product of the factor equals its price. Because factors of production are used together, the marginal product of any one factor depends on the quantities of all factors that are available. As a result, a change in the supply of one factor alters the equilibrium earnings of all the factors. Each factor of production has its own components. For example, the supply of labor arises from individuals’ tradeoff between work and leisure. An upward-sloping labor supply curve means that people respond to an increase in the wage by enjoying less leisure and working more hours. One of the ideas you get out of this chapter is that in order to maximize profit, firms hire workers up to the point where the value of the marginal product of labor equals the wage. This idea is similar to what we have just learned when trying to maximize profit, but instead of how much of a good to produce it is how many workers to hire, thus a factor of production.

            Chapter 18 begins to expand on the idea of markets by further discussing what goes into a creating a market. It is very interesting to see what it takes for a market to function and makes learning about market function a lot more realistic.

Chapter 17

Chapter 17 discusses oligopolies, their characteristics and how they compare to other types of markets. An oligopoly is a market with only a few sellers, each offering a product similar or identical to the others. One example is the market for tennis balls and the world market for crude oil because only a few countries in the Middle East control much of the world’s oil reserves. Oligopolists maximize their total profits by forming a cartel and acting like a monopolist. Yet, if oligopolists make decisions about production levels individually, the result is a greater quantity and a lower price than under the monopoly outcome. The concepts of game theory apply to oligopolies, such as the concept that explains why oligopoly cartels do not work: the prisoner’s dilemma. The prisoners’ dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest. Since oligopolies try to behave as monopolies by forming trusts and since they try to operate at a level that is not socially efficient, policymakers use the antitrust laws to prevent oligopolies from engaging in behavior that reduces competition.

            Reading about oligopolies after monopolistic competition was very helpful for understanding the characteristics of oligopolies because monopolistic competition is easier to understand and has the same concepts. Reading about antitrust laws in US history classes did not teach me about the characteristics of the markets and what type of market antitrust laws are used. It is very interesting to learn about this topic from a different perspective.

Chapter 16

Chapter 16 discusses the characteristics of monopolistic competition. Monopolistic competitors are created as firms sell similar but not identical products. Examples of this are the markets for movies and computer games. In a monopolistically competitive market, each firm has a monopoly over the product that it sells, but this does not affect the consumer that much because all the products are similar. In the long run, monopolistic competitors will see their profits fall to 0 economic profits through the process of exit and entry. Like a monopoly, the profit-maximizing quantity is where MR and MC intersect, and the profit-maximizing price is found using the demand curve. Like a competitive firm, the long-run equilibrium is where price equals ATC, so the market will have zero economic profit. We learn in this chapter that what defines a market is the number of sellers or firms. The other characteristic that can define a market is the product. If the products are similar but not identical, then the market is monopolistically competitive. If the many firms sell identical products, then the market is perfectly competitive.

Chapter 16 seems to be discussing a more realistic version of a market than previously discussed. Before chapter 16, the markets that have been described are not very realistic because they do not apply all the time to markets in reality. Finally seeing a more realistic economic view of a market is very interesting because I realize how different I have thought about markets until now and how the things we discuss in class apply in reality.

Chapter 15

Chapter 15 discusses the aspects of monopolies. Monopolies have only been discussed briefly in previous chapters but this chapter discusses monopolies with a lot more detail about how they are formed, how they make profit, and the difference between a competitive market and the market of a monopoly. A monopoly is a firm that is the sole seller of a product without close substitutes and usually is the sole owner of a key resource. Being the sole seller in a market allows a firm to supply the market at a lower cost than other firms would be able to do. Chapter 15 compares characteristics of a competitive market to the market of a monopoly, like the maximizing of profits and government regulation.

            I have wondered about the characteristics of monopolies since they were mentioned very briefly in the textbook before chapter 15. Finally reading about monopolies has been very interesting. I assumed that monopolies were always a bad thing because I thought that, since they control the entire market, they would be able to place as high of a price as they would like on their product. But after reading Chapter 15, I have realized that this is not necessarily true. I have learned that since the market of a monopoly still has a demand curve, a firm cannot charge any price that they want because they need to obey the demand curve or else nobody would buy their product. 

Chapter 11

Chapter 11 covers public goods and common resources. According to the chapter, there are four different types of goods. There are private goods, public goods, natural monopolies and common resources. What determines the category in which a good is placed is the goods excludability and rival in consumption. If a good is excludable, then people can be prevented from using the specific good. If a good is rival in consumption, then that means that one person uses the good and impedes the ability of another person to use the good. Reading this chapter made me realize that the world is full of goods that are taken for granted and rarely thought of as a good at all, unless you are an economist. For example, it never occurred to me to think of a road or national defense as a good.

 It is interesting to look at things from an economic perspective. Looking at the world through the lens of economics allows a person to see how the structure of society works in a whole new way. An economic point of view helps one to really see cause and effect in society. You can see how something as simple as traffic can change a good from being a common resource to a public good or a private good to a natural monopoly or vice versa. Evidently,  naturally occurring phenomena can easily effect a good, which would go unnoticed unless looking at the situation with an economic point of view.

Article Review 1

The Epsilon Theory article "Crisis Actors and a Reichstag Fire" is, at best, interesting. To be fair, most of the references the author made, I did not understand. I am assuming that they were references to politics, an area that I am definitely not an expert in. But I did understand most of what the author was basically ranting about in the text. The author was discussing a conspiracy theory that the government makes the media say specific things to "brainwash" the public into thinking some events are way worse than they really are, in order to make people feel that the government is the only entity that can protect them. The author calls reporters and other people who spread the "brainwashing" crisis actors. The basis of this conspiracy theory is that people are very gullible and that using the media to spread certain ideas to make the general public invest more in the government for safety (more like just the sense of safety), while the need for safety is exaggerated. 

Conspiracy theories are very interesting but lack sufficient evidence and logic. The author says that other similar conspiracy theories are looking at "crisis actors" all wrong because the other theories say that they are paid actors that are placed at catastrophic events to make them seem even worse. The author then continues on to say that "crisis actors" are the reporters of the media. This makes more sense to me because the reporters are the ones the people trust more.

Chapter 4

In chapter four, we discuss two major forces in economics, supply and demand. Supply and demand are key aspects of markets and are affected by multiple outside factors, such as income, price, tastes, expectations and number of buyers. It is very interesting to read about how taste and expectations affect the major components of an economy even though those factors seem to be more psychological and seem to affect society more than the economy. This was very enlightening because it showed me that some aspects of our world and cultures are connected or intertwined, even when it might not seem like it.

Another interesting idea discussed in chapter four is how supply and demand can be manipulated by marketing and government policy. For example, to reduce the demand for cigarettes, government policy increases the price and does not allow advertising. These policies change people's tastes and expectations, adding on to the affect increasing prices has on demand.