ECON 463 Chapter Notes - Chapter 1-3: Hurricane Matthew, Price Gouging, Order Of Newfoundland And Labrador

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15 Jun 2018

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Josh, I think the key here is that fundamentally you believe good and evil are

discrete and not continuous.

And, I understand the Austrian foundation of your statement that it is evil for

one person to force another to do anything, with rare exceptions.

I also understand your statement that free market economists are good and

central planning economists as bad.

These views that you hold make sense from your perspective. I understand the

logical and factual basis for this view.

But, I disagree with this view. (I want to talk about Central Planning but first

have you read Hayek http://object.cato.org/site... I base my view of Central

planning this work. Can we use this work as the basis for our discussion on

central planning?)

However, to what I think is our basic disagreement. I disagree that good and

evil are discrete. The use of the Atomic Bomb in WWII is an example of good and

evil not being discrete. Droping the bomb saved lives. Raising prices in times

of scarcity (price gouging) is an example of good and evil not being discrete.

People should be free to charge whatever they want but profiteering on someone

else's misfortune seems evil. Stealing to feed your family is an example of good

and evil not being discrete. Stealing is evil, but saving your family is good.

Preventing Gay people from fully participating in any economic transactions like

marriage and housing is an example where good and evil are not discrete. To some

Gay is evil, period and it is evil to allow gay people to participate as

economic equals with others.

Josh, you said, "I believe everything in the world is 100% mathematical and

deterministic with the exception of this one thing, human "choice" (and God's

choices, for that matter, but let's not go there for the time being)." Let's

take Hurricane Matthew now battering the coast. The reason they cannot predict

the path of the Hurricane exactly has nothing to do with human choice.

Theoretically one could know all the inputs to accurately predict the path of

the Hurricane. But, since some of the inputs are analog and small variations can

have huge impacts it is impossible to make 100% actually "deterministic"

predictions. The point is that there are so many drivers of the hurricane that

one can not predict the path with 100% accuracy as one extends the prediction.

In other words using math and deterministic algorithms one can predict the path

of the hurricane with 100% accuracy only 1 hour ahead, predicting 1 day never

100% accurate and predicting 2 days out even less accurate.

There is an old Science Fiction Book by Issac Asimov called The Foundation. In

it, Asimov describes a world where they mathematically and deterministically

predicted the future forever. In the book it was called "Psychohistory."

Finally, since we are talking about economics and not physics, and as you said,

economics deals with human choice, than are we agreed that while there are

mathematical and deterministic algorithms that can describe some economic

transactions, the fundamental drivers of economic drivers like Central Planning

and free markets are all shades of gray and not black and white. In that no

market is totally free and at some levels central planning is optimum.

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Josh, i think the key here is that fundamentally you believe good and evil are discrete and not continuous. And, i understand the austrian foundation of your statement that it is evil for one person to force another to do anything, with rare exceptions. I also understand your statement that free market economists are good and central planning economists as bad. These views that you hold make sense from your perspective. I understand the logical and factual basis for this view. But, i disagree with this view. (i want to talk about central planning but first have you read hayek http://object. cato. org/site I base my view of central planning this work. Can we use this work as the basis for our discussion on central planning?) However, to what i think is our basic disagreement. I disagree that good and evil are discrete. The use of the atomic bomb in wwii is an example of good and evil not being discrete.

Related Questions

One of the major problems with the economy is too many economists! Or perhaps too many politicians who think they understand economics. When politicians seek to improve the conditions in the economy they come up with what at first blush appears to be a great idea. Look at all the people who will be helped! It is not seen that is the problem it is unseen. Adam Smith's invisible hand. It is called The Law of Unintended Consequences. A politician sets out, for the best of reasons, to help a group---the homeless as an example---but in the process, far more people are harmed than helped. The results really don't matter you see because they tried but it simply didn't work. It was the politician's fault! After all, they tried to do something and that's what counts, not the results. The results do not matter.

One example was the Urban Renewal Program in the 1970s. In the processes of cleaning up and renewing city centers, SROs (Single room occupancies) were destroyed. These were cheap rooms that could be rented at a minimal price. It allowed very low-income people to have a room and shelter from the elements. But where were these people to go after urban renewal? This was one of the main causes of what has become a homeless problem.

Another example of this is my experience while living in Arkansas and teaching at Arkansas State. Interest rates were rising rapidly making it difficult for low-income families to obtain mortgages and other consumer loans. This was a time when if you had a mortgage at 14% you had a good one. Then Gov. Clinton, again for the best of reasons, asked the legislature to cap the interest rates at 10 percent. This is called Usury Law. The term Usury goes back at least as far as Thomas Aquinas and his book, The Summa Theologica which dates back to about 1244 AD. It was believed that charging interest on a loan was unchristian and downright evil. It was on this theory that Gov. Clinton based his thinking.

Once again the unseen took hold. All money flowed out of Arkansas into the neighboring states where it could earn a higher return. This is a natural consequence of a price ceiling, which this is. This is the maximum price that can be charged for a good or service. In economics and finance, there is a concept known as the Purchasing Power Parity Theory. Money (resources) flow to the market where it gets the greatest return. In finance, it is also known as arbitrage which is also the basis for most of the world trade. Investment flows to the areas with the highest return. In any event, the Usury Law was a disaster! No one could get a loan in the state as the money flowed to the neighboring states where it could earn a higher return. The Gov. called a special session of the legislature and the law was repealed.

This is also one of the differences between Keynesian and Austrian economists---of which I count myself. If we take a Keynesian and an Austrian economist to the shore of a small lake and give each of them a large rock to throw in the water, The Keynesian will throw the rock, watch them splash, and maybe see the wake the rock created. The Austrian will throw the rock, see the splash, watch the wake spread out from the point of impact. He will also see the boat moored on the opposite shore with a hole in the hull at the waterline. He will see the water lap in and the boat sink. The Keynesian never even knew the boat was there. When something is proposed, Austrian economists carry the effects out to their logical conclusion. Keynesian's, to the primary and perhaps secondary results but rarely to the tertiary. Again what happens as a result of their actions is no concern of theirs because it was the attempt that mattered.

One embedded question.

What is the benefit of carrying an idea to its logical conclusion? Or is there any benefit?

whiterabbit790

Need help revising, and recommendation for a conclusion.

Throughout this paper is my understanding of what I have learned in class chapters 1-4, expressing my understanding and opinions. Economics is the study of how we deal with scarce resources. Microeconomics specially deals with business in the home country exclusively. This type of economics affects small businesses in the home country only. On the other hand, macroeconomics concerns our national welfare concerning trade and international business.

I believe that many things affect our economy on a microeconomics level. Things such as our understanding of our country in reflection to the world are very important. That is why we study ourselves before we study the macroeconomic principle of the world. Understanding ourselves is what microeconomics teaches us. Working from the inside out. The world is a place where there are differences in our wants and what we get. That is what makes items scarce. That is what positive economics is. Positive economics deals with what is and what we have. The other type of economics is called normative statements. This deals with what we should receive instead of what is and deserved to some extent. It's our scarce resources that determine our allocation of resources and how we use our resources and time. This is where opportunity costs come in, giving up something to do something. A successful business or country never ignores opportunity costs. We must ensure that we have a comparative advantage instead of the absolute advantage. Our resources must be used to achieve maximum output. Comparative is met when we have fewer opportunity costs to make some certain products than the other person or entity.

My initial understanding was scarcity was oil potentially running out, but we have so much of it that you can always find more with techniques such as fracking. Now it's obvious to me, one of our most scarce resources is time. You cannot avoid the 8,760 hours in a year. I understand that people have unlimited wants but limited resources. Everything has a cost and we must make a choice as we don't have unlimited farms, factories workers, etc. scarcity forces choices and this ties in with opportunity cost, for every gun made, a theft from the hungry is made. The opportunity cost not being used to feed the poor, but to make guns. And I find it easy to understand no one can have everything choices must be made on benefits. If I'm going to school, imp giving up making cash, as I'm giving up money for an education, I value education more. Scarcity is also related to the invisible hand. As it's an achievement that leads free markets and capitalism through competition for scarce resources.

My understanding of the invisible hand is a person neither intends to promote public interest and does not know how much he is promoting it. Only intending on his own gain. Without being his intention a person can be lead by the invisible hand to do good for society by pursuing one's own self-interest. Going into equity and efficiency the invisible hand does ensure both equity and efficiency. People work in their selfish ways to maximize profit while also contributing to the economy as a whole. It can also be argued that as the invisible hand wants to ensure efficiency, it cannot guarantee efficiency, because it can fail to produce an efficient allocation of resources, which in turn lead to a market failure. It can also be argued that it can't guarantee equity because not everyone gets a fair price. The way I like to remember efficiency is with a real-life example, like a reduction in the number of workers needed to produce a particular good for a particular amount. Equity refers to the ownership interest in an asset, for example, if a person owns a house with a market value of $800,000 and owes $100,000 on the mortgage leaving a $700,000 equity in the home.

It can be predicted that if the price of beef increases - ceteris paribus-the quantity of beef demanded by buys will decrease. In other words, if the price of beef increases, then the quantity of beef increases, then the quantity of beef demanded will decrease because all things have to be equal. In-class lecture thought me all other things remaining the same. Economists use ceteris paribus to determine the effect of a factor when all other factors have been held the same and helps simplify the study and get a more refined data set.

Economists deal with many issues that pertain to assuring that both a countries domestic output is efficient and that there is an effective trade balance. This means that there are a balance and limit on the amount of imports. Also, this means home production must be able to meet export demands. There are many factors that affect the production of goods and their effect on shifting the production possibilities frontier. This involves evaluating every detail including knowing the products and any close substitutes and compliments. It also involves knowing how an action or other external force will affect demand. This is called price elasticity; Substitutes are products that can replace any given product or service. An example of this would be Coke and Pepsi. The presence of substitutes affects price elasticity because if there are other options, then any change to the price or quality of the product will cause a shift of the demand curve. O course, price is a huge reason why the demand for a product decreases or increases yet it doesn't shift the curve because of the price only. This price change will cause a domino effect that will end with the shifting of the demand curve because it will cause an increase or decrease in demand of the substitute good if the price change is either lower or higher respectively. This price change serves as a catalyst that will change people's desire to spend more money on a more expensive product and that will instead choose to buy the substitute good for cheaper or buy more of the desired product. The change in the price of actual products will not shift the demand curve yet the change of the price of substitutes will because it serves to change people's purchasing behavior. On the other hand, compliments serve to boost demand when there is a decrease in price. The use of complementary goods is dependent upon another product. An example of this would be hot dogs and buns. If the price of hotdogs decreases then, conversely, the demand for hot dog buns will increase because of this change in price. In this scenario, the decrease in price will cause a positive shift in the demand curve because of people's desire and willingness to buy more buns. This is an example of a demand shifter. There are a few other demand shifters. The shifters of the demand curve are changes in expectations, disposable income, price of substitute goods and complements, tastes and preferences, and population size and composition. Changes in income affect the demand curve because if income is lower then people tend to save any extra income instead of wasting it. Disposable income is minimized and spending is lower. This also causes people to see a perceived value of things and distinguishing between what is necessary and what is a relative luxury. The lower the income, the higher the saving and avoidance to spend. An example of this would be if someone needs to buy some medication and it is relatively expensive, that doesn't mean that someone won't buy the medication just because it is expensive. It is necessary. Other factors that contribute to spending and demand are having a price ceiling and price floor. Having a price ceiling is a limit on the price of the product this is a government-imposed idea that is meant to protect consumers from unfair pricing and other conditions that may be malicious or obscure. This affects demand because if there is a price ceiling there is a limit on profit on a unit-to-unit basis. The other factor is the price floor. This price floor was created to encourage competition and affect consumers' willingness to pay because sometimes this new price may be higher than the original price. This causes a negative impact on a product that has a less than wanted perceived value. Many factors contribute to economic prosperity and certainly do help assure that information is analyzed and implemented into an economic and business plan.

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View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Provide a rationale on whether or not a firm has to possess market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think itâs not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. Heâs helped business leaders rapidly increase performance, productivity and profits, and heâs also author of the book, âKiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.â Bob, welcome.

Mr. BOB PROSEN: Thank you.

RAMBERG: So, if youâre going to raise prices on your customers, one of the things you say is donât surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Letâs let them know in advance that prices will increase. But, itâs important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, theyâll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, youâre going to get more for your money?

Mr. PROSEN: No, definitely itâs not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customerâs customer. So that when we provide our services to them, theyâre customized for our customers. They see more value, we understand their business, and therefore theyâll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If weâll deal with that, capture that, and inside of âKiss Theory Goodbyeâ I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way theyâre supposed to; and our cost structure goes down therefore maybe we donât have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh thisâ¦

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When Iâm finished, I send them a note. Itâs a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, thatâs a great question. It depends on what industry youâre in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure youâre efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much theyâre charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what theyâre charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know whatâs going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.

ECON 463 Chapter Notes - Chapter 1-3: Hurricane Matthew, Price Gouging, Order Of Newfoundland And Labrador

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