Baylor+C

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Unit 1 Concept

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 * Concept**: comparative advantage, absolute advantage **What's wrong with this picture?** The man and the boy would probably get done more quickly if they switched chores. This isn't because the father can mow the lawn faster, since it's likely that he can mow AND sweep faster (i.e., he has an absolute advantage in both chores). They should switch since the boy likely has a comparative advantage in sweeping the driveway, while the man has one in mowing the lawn. (Note: Click on the picture to download a high resolution version of the image.)

Although, SW, if the the boy invested all his profits into a rideable lawnmower, he would save a lot of "scarce" time and actually achieve an absolute advantage over the man. But since only one mower is need tomow a lawn, not only would the boy's marginal benefit of buying another rideable mower for the man, his pocketbook would take a serious beating. Let's say though, because this is the magical world of economics, that the man sees all the fun the boy is having on the rideable mower and makes him jealous. The man then goes to his local John Deere and purchases the same exact mower because landscaping products are in perfect competition. To show his ability to keep up with the boy's dominant strategy, he mows the lawn at the same time as the boy. Even though the two would save "scarce" time and mow the law much more efficiently, the opportunity cost the man's actions would be a clean driveway. Micro in review, right there. True! That's about five concepts in one. Nice job. 10/10

Unit 2 Concept

This is an example of a negative externality. An externality is the spill-over effect on a third party not directly involved in the market transaction or event. In this case, when the girl explains to the couple of how they can play this fun game (could this actually work???), it has an effect on the company, Thrifty Acres. If the couple were to go to this store and play this game, they would not take into account the consequences for the third party, the store, that is not directly involved in their game. The negative externality of the couple's game is that Thrifty Acres has to put up with the investigation from consumer affairs. If the government were to find out about this unfortunate event, they could consider placing a tax on Sharpie's. The government could put all the revenue received from this tax back into efforts for stopping this childish game. Hmmm, maybe not a direct example of a negative externality. If Thrifty Acres raised their prices to all shoppers to account for these actions, that is probably a better extension of this. Don't know if it would work. 9/10 -SW

Unit 3 Concept This is an example of unemployment, if you convert it over into econeeze. The pudgy person seems to be in between things (jobs, hence, unemployed), and is deciding whether or not to take a shower or not to (take the job opportunity or not to). In that sense, it is frictional unemployment. It is impossible to get entirely rid of unemployment, because this example of frictional unemployment will always be present, no matter the amount of jobs available; somebody out there will still choose to not take a shower (not take the job opportunity because they feel the wage is not appropriate). One problem arises though. In the cartoon, when the pudgy person says, "I don't smell at all," in econeeze, he is really saying, "these unemployment benefits aren't too bad, and i don't have to find a job right way" (assuming that sense the pudgy person is contemplating whether or not to take a shower, he is actively looking for a job). The unemployment benefits need to be the right amount; enough so people actively looking for a job can still have something to live off of, and not too much that it causes some people to not actively look for jobs. This is the problem in Europe, as is present in the cartoon below.

This is a classic example of the problem introduced above, as well as a wonderful portrayal of the business cycle and how business men are, as ManWeins says, are "greedy bastards." Europe tends to have a problem because their unemployment benefits are too high. When businesses lay people off, the laid off workers have an incentive to not look very hard for a new job because they get great benefits, like eating croissants by the Eiffel Tower.

Frictional Unemployment is not the only kind of unemployment though. There is also structural unemployment, as is described by the picture below.

The stormtrooper is structurally unemployed. His skills on the Death Star were no longer needed, because Luke blew it up. That is why he finds himself bored on a subway. He was "laid off" because his skills were no longer needed, and is reluctant to find another job because no other jobs exist that utilize his skills.

This comic has brought to my attention that the "invisible hand" in the economy is actually Luke Skywalker. May the force be with you. I would just like to say that I found this Stormtrooper pic before Jackson did 10/10 Ok, I get your theory, but I'm not sure I get how it relates to the cartoon. What about the shower is unemployment? This other set is great though. The Stormtrooper poster cracked me up! Nice find.

Unit 3 Concept #2

If you think about it, macroeconomists have to face a similar, grueling situation. They must decide between improving inflation or improving unemployment. Inflation and unemployment have an inverse relationship; when one goes up, the other goes down, typically. This only happens when there is a shift in aggregate demand. On the other hand, when there is a shift in aggregate supply, inflation and unemployment have a direct relationship; when one goes up, the other goes up as well. Economists, especially high ranking political figures (all politicians should be good economists; their job practically depends on it), get really scared when inflation goes up. They will put legislation into action in order to bring it back down (if it doesn't, so will their approval ratings), because it is much easier to manipulate in the short run than it is in the long run. That is because inflation does whatever it wants to in the long run, as is represented in the phillips curve graph. Unemployment is fixed in the long run, but inflation is not; unemployment can fluctuate a little bit, but will always bounce right back to its fixed rate. That is why economists/politicians should worry about inflation more than unemployment; they don't want inflation to get out of hand. It is a tough choice though, inflation or unemployment, violin or curve ball. If elections are in the short-run, I would tell politicians to fix unemployment; if they are in the long-run, go with inflation. Either way, good luck with that good sir. Exactly. Everything is a tradeoff. Unless.....you get SRAS to shift out! 10/10

Unit Four Concept

I thought that this was just a very creative little cartoon. The most important part about it is the level indicator above the elevator. It has been replaced by a government spending indicator, and currently it is pretty high. However, it appears that the government has topped out, not willing to spend any more because the man states, "looks like this is where we get off." To me, it seems like the two citizens are disappointed that the government isn't spending any more, leading me to believe that the economy is in a recession and in need of fixing. To fix the economy, the government, in this case, has elected to spend more. This is an example of expansionary fiscal policy, and is one way to fix an economy; but how effective was it in this case? My guess is that is was working, but was slowing down the more the government spent. However, as indicated by the elevator buttons (up to good, down to bad), the economy could still improve if the government spent more. The costs of that in this case are unknown, so you can only ponder what could have been had the government decided to target a different way of improving the economy: investment. This is more effective in my opinion, because an increase in investment causes both aggregate demand and aggregate supply to shift out, which greatly increases GDP, but, more importantly, keeps prices the same. Question though StanWiens that I might bring up in class: can the government target all parts of CIGNX at the same time to repair the economy, or is that just theoretical? And if they can, do they do it? And if not, why not? It seems to me that the government could fix things pretty quick if they did this, but our discussions in class left me under the impression that the government will only target one part of CIGNX. Hmmm... Great Q Baylor. Yes, they can target all of them at once. For example, govt might enact G for roads while also putting into place a tax cut for households and small businesses. This would accomplish all at once. But, remember that expansionary FP does raise the deficit which is not really kosher these days. So, do we want an expansion or a lower deficit? There are opportunity costs to everything! Good stuff. 10/10

Unit 5 Concept



I thought this cartoon was awesome, perfectly exemplifying how economics works today. It made my socks go up and down more violently than SW's when there were six graphs on the board at one time. !!!!!! This is essentially how banks make money with the government. They borrow money at low interest rates so they won't have to pay back a ton more than they borrowed, and then buy government bonds, charging them a huge interest rate. The money that is made comes from this "interest rate spread." It brings in more money, even though all the money they borrowed from the government they just basically gave right back to them-it's like free money!-as the dumb character in the comic implies. But this is, in my opinion, a key skill to have in being a great economist-deception. These bankers pulled a fast one on the government, but nothing gets by this banker. That is why the government has to hire men like Ben Bernanke who actually know what they're doing to make sure the government isn't getting screwed by greedy bastards like these bankers; economists run the world. I know from experience in the economic summit that confusing or deceiving our opponents was a huge key to our victory; and in the world, very few people are educated about how economics really works, and so you can use that against them to make a profit. Sounds a little cynical (spelling?), but sometimes the truth is hard to handle. As in "ancient history", bankers make money off of the public through savings accounts as well, but by the same principle as they do with the government. This time, it is with loans. People put money into savings accounts and agree that the bank can take a certain percentage of that money out to loan to others (the lower that reserve requirement, the bigger the profit for the bank, as i will get to). The banks gives you a really small interest rate on your money that you put into the account so that you will respond to that incentive to put money there. But then the bank loans the money out, charging people extremely high interest rates on those loans. Now, that interest rate spread is huge, and the money that the banks gets from interest on loans exceeds the interest they have to pay to people with money in their savings account. They are just "banking" on you not pulling all your money out unexpectedly, or the whole process reverses on itself. If there is a massive surge of people pulling all of their money out of their savings accounts, then the banks is essentially screwed. I believe that a possible fix-it though could be to jack up the reserve requirement and increase interest rates. Then, people earn more money on their savings, faster. The downside to that, however, would be far less profit for the banks. The profits for the banks graph would sort of look like the short run phillips curve, that u-shape tilted on its side. This is because an increase of reserve requirement percentage form 1% to 5% is a huge loss, whereas 5% to 10% is not so much. It guess there is just a trade off to everything, right? What solution would be best SW, for banks? What should they do if everyone pulls all of their money out, and would it be more effective than my example? It's interesting. I don't think most people look at their bank accounts as places to "earn" money. In other words, the interest rates on accounts aren't keeping money in those accounts. Banks today have boat loads of money to loan but got so badly burned on bad loans in the early 2000's they aren't sending it out the door yet. Soon, they will get greedy on the i-rate spread and start to loosen up. Now they are just making money exactly like the cartoon above suggests which doesn't help the economy. -SW