Results 1 to 22 of 22

Thread: Introducing myself in MICRO economics

  1. #1

    Default Introducing myself in MICRO economics

    Its just an easy assignment for class its through the forums for my class. I dont want to mention Ron Paul, maybe incorporate the FED? Just a few sentences...Hello my name is _____ blah blah blah

    Someone wrote about health care, another on supply and demand, and one said an important issue if so individuals to be able to provide for their households.

    Help me sound smart guys

    Say a few words about who you are and what you think is the most important issue in microeconomics today (and how it affects you) and respond to at least one other student!
    Microeconomic Issues: Supply and Demand, taxation, consumer choice, monopoly, concentration (for instance in the banking industry), role of government (everywhere from consumer finance to environmental regulation), international trade.
    Last edited by randpaul2016; 01-08-2013 at 06:55 PM.



  2. Remove this section of ads by registering.
  3. #2

    Default

    Quote Originally Posted by randpaul2016 View Post
    Its just an easy assignment for class its through the forums for my class. I dont want to mention Ron Paul, maybe incorporate the FED? Just a few sentences...Hello my name is _____ blah blah blah

    Someone wrote about health care, another on supply and demand, and one said an important issue if so individuals to be able to provide for their households.

    Help me sound smart guys

    Say a few words about who you are and what you think is the most important issue in microeconomics today (and how it affects you) and respond to at least one other student!
    Microeconomic Issues: Supply and Demand, taxation, consumer choice, monopoly, concentration (for instance in the banking industry), role of government (everywhere from consumer finance to environmental regulation), international trade.
    The Fed is really more a macroeconomic topic (I mean you could talk about it's microfoundations but I guess that's a little bit too deep).

    The most important foundation of microeconomics is how the rational self-interest of all actors in an economy, through the channels of supply and demand, generate an equilibrium, a market clearing price with a market clearing quantity. You won't be able to improve on that by using force. You could explain why price controls are a bad thing, because setting the price lower than the equilibrium will discourage suppliers to sell that good, while giving costumers an additional incentive to buy - thus creating a shortage. If you want to shock your teacher praise "price gouging", like Ron Paul (http://www.youtube.com/watch?feature...6pLMmrs#t=107s, http://www.examiner.com/article/ron-...-gas-shortages)

    They probably want you to talk about how in a free market monopolies and oligopolies are going to cause inefficiencies. That's obviously nonsense and in practice almost all monopolies are creatures of government.

    In environmental issues they probably want you to explain negative externalities. For instance a paper manufacturer who pollutes a river and downstream is a fisherman. So he is imposing a cost the fisherman but doesn't have to pay for it himself and has thus no incentive not to pollute. According to what I suspect your teacher to believe that should be resolved by governmental regulation. Be sure to mention that the best solution for those cases would be to asign property rights of the river. If the paper manufacturer owns the right to pollute the fisherman has to offer him money to stop polluting until he can make a living fishing again. If the fisherman owns the river, he can make the polluter stop unless he is willing to pay compensation per unit of pollutant. In the end they once again reach a "socially optimal" level of pollution. (That's "Coase theorem" if you want to sound smart.)

    In regards to international trade you should mention how every two countries always benefit from free trade with eachother by increasing specialization, because every country has its own "comperative advantage" (http://en.wikipedia.org/wiki/Comparative_advantage).

  4. #3

    Default

    This would probably get a better response in the economics section.
    "We do have some differences and our approaches will be different, but that makes him his own person. I mean why should he [Rand] be a clone and do everything and think just exactly as I have. I think it's an opportunity to be independent minded. We are about 99% [the same on issues]." Ron Paul

  5. #4

    Default

    Quote Originally Posted by Danan View Post
    In regards to international trade you should mention how every two countries always benefit from free trade with eachother by increasing specialization, because every country has its own "comperative advantage" (http://en.wikipedia.org/wiki/Comparative_advantage).
    whoa say this again because he says benefits>(or equal)costs=yes. and in international trade I think he said 1 always loses.

  6. #5

    Default

    As far as an issue that we face today that should be addressed, is having universal coverage health insurance for individuals in our society. This has been one of the key issues surrouding healthcare reform in the United States.

    oh man should I respond to this girl that posted this?

  7. #6

    Default

    Quote Originally Posted by randpaul2016 View Post
    whoa say this again because he says benefits>(or equal)costs=yes. and in international trade I think he said 1 always loses.

    You must have misunderstood your professor. International trade is always good - if one side was losing they wouldn't trade. It increases wealth because both sides value eachother's goods more than their own.

    If I give you $5 for a sandwich, I am better off because I value the sandwich more than $5, and you as the sandwich shop is better off because you value $5 more than your sandwich. The same is true for all voluntary trade, regardless of whether or not it is international trade.

    In terms of international trade, there will be winners and losers within each country. For example, if until today the US never allowed any imports of foreign cards, then suddenly allowed imports of foreign cars, America as a whole will become MUCH better off, but many people in the auto industry would lose their jobs because we had an artificially too large of an auto industry to begin with (too much ineffiency).

    I could type about this topic for a few hours, and we have had countless threads on these forums on this topic with myself and some other people who have educated themselves on this topic, vs some members on these forums who have not educated themselves on free trade and think tariffs and government restrictions allow for more prosperity - despite what all of the evidence and logic suggest. But in order for there to be above average IQ people in this world, there have to be below average IQ people in this world....and there is no IQ test in order to register on these forums. I digress...
    The Heart of Conservatism is Libertarianism - Ronald Reagan

  8. #7

    Default

    Quote Originally Posted by randpaul2016 View Post
    whoa say this again because he says benefits>(or equal)costs=yes. and in international trade I think he said 1 always loses.
    Say people in the United States are able to create 10 computers per hour and 20 pounds of food per hour. People in Malaysia can produce 2 computers per hour and 10 pounds of food per hour. Let's further assume that there are 1,000 maximum work hours in the US and 100 in Malaysia.

    So on the first glance, it seems like Malaysia wouldn't benefit at all, having no advantage in either industry, right? Well, wrong! They may not have a absolute advantage, but they do have a comparative advantage. That is the productivity-ratio between two industries within the same country. To produce 10 pounds of food Malaysia has to give up two computers, while the US would have to give up 5 computers for the same amount of food. This also tells us the local prices without free trade. In the US one computer costs two pounds of food, while in Malaysia one computer costs five pounds of food.

    Let's say Malaysia used its 100 hours to produce 100 computers (2*50) and 500 pounds of food (10*50), while the US produced 5,000 computers (10*500) and 10,000 pounds of food (20*500) before free trade was able. Now policy changes, goods can freely be traded between the US and Malaysia. How are Malaysians going to react to this? Well, they know that if they produce food, they get 10 pounds per hour which they can trade locally against 2 computers and vice versa. However if they produce food and sell it to Americans they can get 5 computers for 10 pounds of food. That tells us that the best strategy for Malaysians is to only produce food and export everything they don't personally need to Americans. Lets say they continue to keep 500 pounds of food for themselves but now instead of producing 100 computers, they produce an additional 500 pounds of food and sell it to America for a total of 250 computers.

    If the US wants to keep the same number of computers to themselves they would have to take 25 hours out of food production to offset the 250 (25*10) exported computers. That would cost the US exactly 500 pounds of food (25*20). So in this scenario they wouldn't gain or lose from free trade (which is not representative for all cases).

    How did total output change? Before we had 5,100 total computers (5,000+100) and 10,500 pounds of food (10,000+500). Now total output is 5,250 computers (5,000+250) and the same amount of food, 10,500 (9,500+1,000).

    So free trade increased total output, although worktime or production methods didn't change at all. And this is always the case.

  9. #8

    Default

    Quote Originally Posted by Danan View Post
    The Fed is really more a macroeconomic topic (I mean you could talk about it's microfoundations but I guess that's a little bit too deep).

    The most important foundation of microeconomics is how the rational self-interest of all actors in an economy, through the channels of supply and demand, generate an equilibrium, a market clearing price with a market clearing quantity. You won't be able to improve on that by using force. You could explain why price controls are a bad thing, because setting the price lower than the equilibrium will discourage suppliers to sell that good, while giving costumers an additional incentive to buy - thus creating a shortage. If you want to shock your teacher praise "price gouging", like Ron Paul (http://www.youtube.com/watch?feature...6pLMmrs#t=107s, http://www.examiner.com/article/ron-...-gas-shortages)

    They probably want you to talk about how in a free market monopolies and oligopolies are going to cause inefficiencies. That's obviously nonsense and in practice almost all monopolies are creatures of government.

    In environmental issues they probably want you to explain negative externalities. For instance a paper manufacturer who pollutes a river and downstream is a fisherman. So he is imposing a cost the fisherman but doesn't have to pay for it himself and has thus no incentive not to pollute. According to what I suspect your teacher to believe that should be resolved by governmental regulation. Be sure to mention that the best solution for those cases would be to asign property rights of the river. If the paper manufacturer owns the right to pollute the fisherman has to offer him money to stop polluting until he can make a living fishing again. If the fisherman owns the river, he can make the polluter stop unless he is willing to pay compensation per unit of pollutant. In the end they once again reach a "socially optimal" level of pollution. (That's "Coase theorem" if you want to sound smart.)

    In regards to international trade you should mention how every two countries always benefit from free trade with eachother by increasing specialization, because every country has its own "comperative advantage" (http://en.wikipedia.org/wiki/Comparative_advantage).
    This is a great post -- Danan kept it to topics you'll discuss in microeconomics.

  10. #9

    Default

    randpaul 2016 around wheres do you go to school?
    E che sospiri la libertÓ!

  11. #10

    Default

    Quote Originally Posted by Danan View Post
    In regards to international trade you should mention how every two countries always benefit from free trade with eachother by increasing specialization, because every country has its own "comperative advantage" .
    This is not necessarily true. Take two islands. Island A is grossly over-populated and resources are scarce, while labor plentiful. Island B has a stable amount of resources and a sable population.

    If trade opens up, then island B will "import" the over-population issues from island A. Yes, labor will become cheaper, but for those that don't own productive resources, the increase resource cost will more than overshadow the cheaper cost of labor.

    Another example...imagine if you had two grazing pens of deer...one was over-crowded and one was roomy. If you merged the pens, this would help the overcrowded pen, but would hurt the less crowded one.

    As for the initial questions being more macro then micro oriented, I totally agree.

    As for suggestions for the OP, game theory is a real micro topic and a lot of fun. My choice would be to talk about how in many game theory scenarios, the individuals will not interact which other, but create a group dynamic and relate with that. Basically how collusion/democracy can solve games theory or at least apply stability in which non is assumed possible.

    The flaws in supply and demand are fun. Supply and demand assumes infinite supply...yet things like land can not be increased so totally destroy supply and demand. Market externalities, imperfect information, privileges (patents/occupational licensing) also create zero-sum scenarios that contradict supply and demand. Negative externalities are fun too.

    Economies of scale is a fascinating subject IMO that if fully explored and explained could win the Nobel Prize in Economics IMO. This is because the increment of association can only be split upon zero-sum mechanics, so in such cases supply and demand doesn't work as it should. Obtaining the share of the increment of association falls to bargaining (micro-economics never talks about bargaining but it should). The key with bargaining is your ability to threaten to withdraw yourself your group from the larger group (strikes, firing workers, cutting off a supplier/customer). It can be a big game of chicken really...and unions/mergers help increase your bargaining power.

    If you really want to be cheeky, talk about the inherent contradiction of supply and demand. Equilibrium price is determine by trade, yet trade needs price to determine the equilibrium. Micro is mostly about supply and demand, so even though the contradiction is true and S&P is flawed...this might get you intro trouble. I can go into more detail if you are interested.

    FRB might be applicable in your example and it would be always fun to teach a economics teacher of how this really works.

    Taking indirect jabs at Keynesian without naming it would be a suggestion. Talk about a government program to make mud pies to create jobs and explain how stupid that would be. Or explain how smashing windows creates a lot of jobs (window repairmen, people who receive money from the repairmen, etc...). Then talk about how we need to destroy things and how hurricanes are so wonderful. Then end this by saying this is how our politicians and media think and it is all wrong.

    Lastly, a subject about what determines job placement in careers that are consistently overpaid (like government jobs). If effort/skill isn't determining compensation and hiring...what is? (most likely politics and pseudo-structures/rules created to benefit one class of job seekers over another)

    Hope you have fun with the course Micro can be a great subject, but unfortunately most teachers aren't that great and just make you do non-stop supply&demand graphs and "math problems". This is not real micro-economics. Concepts are more important than calculating supply and demand equations that have no baring on reality and nobody does in real life.
    Last edited by rpwi; 01-11-2013 at 10:17 AM.

  12. #11

    Default

    I'd write on the topic of the Prisoner's dilemma, because I find it fascinating, but that's just me.

  13. #12

    Default

    Quote Originally Posted by rpwi View Post
    This is not necessarily true. Take two islands. Island A is grossly over-populated and resources are scarce, while labor plentiful. Island B has a stable amount of resources and a sable population.

    If trade opens up, then island B will "import" the over-population issues from island A. Yes, labor will become cheaper, but for those that don't own productive resources, the increase resource cost will more than overshadow the cheaper cost of labor.

    Another example...imagine if you had two grazing pens of deer...one was over-crowded and one was roomy. If you merged the pens, this would help the overcrowded pen, but would hurt the less crowded one.
    First of all, you assume free movement of labor, I didn't talk about that (although I'm in favour of that too). Even if it were allowed, in reallity people don't move from one country to another very easily.

    Anyway, labor-intensive products are going to be relatively cheaper on Island A, thus again comperative advantage. I'm obviously only using a relatively simple Riccardo-model, but the same is true for Heckscher-Ohlin-models, for example, where greater specialization changes the angle of the Iso-value-curve and each society can reacher a greater level of satisfaction by producing more of the product where it has a comperative advantage. As a whole free trade does always increase total output. And since the individual winners could compensate the losers, a non-efficient state can never be preferable over an efficient state.

    As for suggestions for the OP, game theory is a real micro topic and a lot of fun. My choice would be to talk about how in many game theory scenarios, the individuals will not interact which other, but create a group dynamic and relate with that. Basically how collusion/democracy can solve games theory or at least apply stability in which non is assumed possible.

    The flaws in supply and demand are fun. Supply and demand assumes infinite supply...yet things like land can not be increased so totally destroy supply and demand. Market externalities, imperfect information, privileges (patents/occupational licensing) also create zero-sum scenarios that contradict supply and demand. Negative externalities are fun too.
    Externalities and game theory are great subjects, however they are usually used to screw the free market. There is nothing that gets you quicker in an economic journal than finding yet a new "market failure". Most alleged market failures are not really market failures and can be solved via property rights (Coase theorem). Also, most people forget that governments and democracy are just as vulnerable to inefficiency (see the late James Buchanan's great work).

    Economies of scale is a fascinating subject IMO that if fully explored and explained could win the Nobel Prize in Economics IMO. This is because the increment of association can only be split upon zero-sum mechanics, so in such cases supply and demand doesn't work as it should. Obtaining the share of the increment of association falls to bargaining (micro-economics never talks about bargaining but it should). The key with bargaining is your ability to threaten to withdraw yourself your group from the larger group (strikes, firing workers, cutting off a supplier/customer). It can be a big game of chicken really...and unions/mergers help increase your bargaining power.
    There are no economies of scale in reality. That might sound stunning, because we often hear about them, but it's true. What we call economies of scale are really changing production techniques that become available at a certain output size. However one and the same production function is always homogeneous of degree one. It's amazing how many great economists don't grasp that fact, but it becomes quite obvious when you look at alternative production theories. (mostly quite techniqual with input-output matrices)

    If you really want to be cheeky, talk about the inherent contradiction of supply and demand. Equilibrium price is determine by trade, yet trade needs price to determine the equilibrium. Micro is mostly about supply and demand, so even though the contradiction is true and S&P is flawed...this might get you intro trouble. I can go into more detail if you are interested.
    S&D represent willingness and ability to sell/buy at prices x. There is nothing contradictory about it. We only observe equilibrium prices in reality, so all S&D functions are nothing but guesses and estimates, that's true. Their slope represent how elastic consumers and producers are reacting to price changes. And that's certainly true in reality. Producers think about price elasticity of their costumers all the time and are usually quite good at estimating them.
    Last edited by Danan; 01-11-2013 at 11:21 AM.

  14. #13
    Banned
    Join Date
    Apr 2012
    Location
    New York
    Posts
    1,896

    Default

    you must spread reputation around before giving it to Danan again.

  15. #14

    Default

    Quote Originally Posted by Danan View Post
    First of all, you assume free movement of labor, I didn't talk about that (although I'm in favour of that too). Even if it were allowed, in reallity people don't move from one country to another very easily.
    I did not assume that. What I referenced was free trade. When you can commoditize land/resources/labor...then you do not need immigration to feel the pinch of an overpopulated neighbor. Once you start trading with the overpopulated neighbor, the price of land/capital will you go up and you'll most likely suffer...while the sellers of land/capital will benefit greatly.

    Anyway, labor-intensive products are going to be relatively cheaper on Island A, thus again comperative advantage. I'm obviously only using a relatively simple Riccardo-model, but the same is true for Heckscher-Ohlin-models, for example, where greater specialization changes the angle of the Iso-value-curve and each society can reacher a greater level of satisfaction by producing more of the product where it has a comperative advantage. As a whole free trade does always increase total output. And since the individual winners could compensate the losers, a non-efficient state can never be preferable over an efficient state.
    An increase in aggregate economic production is not an end all. In my example, the labor force will clearly be worse off after trade commences with the overpopulated island. Another way of putting this. Say you have two scenarios.

    A: 100 people earn 100k each. Economy = 10,000k
    B: 99 people earn 1k and one guy earns 9902k. Economy = 10,001k

    Which do you prefer? IMO median economic wellbeing is frequently more important than average economic wellbeing.

    Externalities and game theory are great subjects, however they are usually used to screw the free market. There is nothing that gets you quicker in an economic journal than finding yet a new "market failure". Most alleged market failures are not really market failures and can be solved via property rights (Coase theorem). Also, most people forget that governments and democracy are just as vulnerable to inefficiency (see the late James Buchanan's great work).
    That games theory can be abused doesn't mean the study of games theory isn't valid nor interesting. Guns can be abused...should they be outlawed? That is the logic you are using.

    There are no economies of scale in reality.
    If there were no economies of scale there would be no specialization. Because we have specialization, that means we must have economies of scale.

    That might sound stunning, because we often hear about them, but it's true. What we call economies of scale are really changing production techniques that become available at a certain output size.
    Hypothetical. Strand two on an island. By themselves they only catch one fish a week and one coconut. Through specialization/trade/economies of scale they can catch a total of 8 fish a week and 8 coconuts. How do you account for this?

    S&D represent willingness and ability to sell/buy at prices x. There is nothing contradictory about it. We only observe equilibrium prices in reality, so all S&D functions are nothing but guesses and estimates, that's true. Their slope represent how elastic consumers and producers are reacting to price changes. And that's certainly true in reality. Producers think about price elasticity of their costumers all the time and are usually quite good at estimating them.
    Equilibrium theory is absolutely contradictory. Let's go back to coconuts and fish.

    By themselves each person gets 1 coconut, 1 fish a week, for a total of 2 coconuts and 2 fish a week.
    With specialization the aggregate equals 8 coconuts and 8 fish.

    Trade has yielded a benefit of +6 coconuts and +6 fish.

    Supply and demand can NOT determine the ratio by which these will be traded for. Person A could get +5 coconuts and +4 fish...they could get much less. If a person is worried that they aren't getting a fair share (if that is determinable) then they can just threaten to withdraw their labor/contribution and using this as bargaining power they can get a larger share of the "increment of association". Throw in 1,2,4,8,etc...more people and the problem doesn't go away. Nor does it when you introduce money and other items.
    Last edited by rpwi; 01-11-2013 at 02:00 PM.

  16. #15

    Default

    Quote Originally Posted by randpaul2016 View Post
    As far as an issue that we face today that should be addressed, is having universal coverage health insurance for individuals in our society. This has been one of the key issues surrouding healthcare reform in the United States.

    oh man should I respond to this girl that posted this?
    Sure. Just get down to the fundamentals:

    The problem with health care is the high price. (Universal insurance is only an issue because of high prices)
    Prices are a function of supply and demand
    The high cost of health care is due to government regulation on the one hand curtailing supply with a maze of licensing and permitting schemes at every level and on the other hand goosing demand with direct subsidy (medicare etc.) and indirect subsidy (pushing employers to provide health plans that cover everything).

    Reduce supply, prices go up. Goose demand, prices go up. Do BOTH prices go into orbit.
    Helath care is already the most government-intensive business enterprise in the country. That is why it is broken. More government is not the fix.
    The proper concern of society is the preservation of individual freedom; the proper concern of the individual is the harmony of society.

    "Who would be free, themselves must strike the blow." - Byron

    "Who overcomes by force, hath overcome but half his foe." - Milton

  17. #16

    Default

    Quote Originally Posted by rpwi View Post
    A: 100 people earn 100k each. Economy = 10,000k
    B: 99 people earn 1k and one guy earns 9902k. Economy = 10,001k

    Which do you prefer? IMO median economic wellbeing is frequently more important than average economic wellbeing.
    That's quite the imagination you have there. In reality, tariffs cost the economy hundreds of thousands of dollars per every job saved, jobs like in textile industries that hardly pay anything to begin with. Suggesting that tariffs only cause prices to go up by 1/100th of 1 single percent and a gini coefficient of .9999 is just ridiculous. The U.S. has a gini coefficient of about .45, and free trade boosts overall wellbeing by an extremely noticable amount. Don't make me dig through old research and fact finding.


    On top of that, it's immoral to have the government re-distribute this wealth around as you imply you want. Even if the U.S. had a very large gini coefficient, it is brought upon by voluntary means. To have the government steal and give to others is simply immoral, so it's very startling that you claim "median economic wellbeing is more important" than voluntary decisions increasing the wealth in the economy.
    Last edited by Kregisen; 01-13-2013 at 06:29 PM.
    The Heart of Conservatism is Libertarianism - Ronald Reagan

  18. #17

    Default

    Quote Originally Posted by Kregisen View Post
    That's quite the imagination you have there. In reality, tariffs cost the economy hundreds of thousands of dollars per every job saved, jobs like in textile industries that hardly pay anything to begin with. Suggesting that tariffs only cause prices to go up by 1/100th of 1 single percent and a gini coefficient of .9999 is just ridiculous. The U.S. has a gini coefficient of about .45, and free trade boosts overall wellbeing by an extremely noticable amount. Don't make me dig through old research and fact finding.


    On top of that, it's immoral to have the government re-distribute this wealth around as you imply you want. Even if the U.S. had a very large gini coefficient, it is brought upon by voluntary means. To have the government steal and give to others is simply immoral, so it's very startling that you claim "median economic wellbeing is more important" than voluntary decisions increasing the wealth in the economy.
    I do not argue that free trade is all bad...just that it is not all good. I don't follow either of the extremes people take on this issue.

    Because bargaining power exists, then there will be issues with free trade.

  19. #18

    Default

    Quote Originally Posted by Kregisen View Post
    If I give you $5 for a sandwich, I am better off because I value the sandwich more than $5, and you as the sandwich shop is better off because you value $5 more than your sandwich. The same is true for all voluntary trade, regardless of whether or not it is international trade.
    Here's my problem with microeconomics classes... professors and instructors ALWAYS use food as the good/service a specific firm produces. Inevitably, I start thinking about the Roast Beef Boursin sandwich at my local sandwich joint and stop paying attention to the S-D curve on the board.

    I had a professor in undergrad that always used a taco stand as his example of a firm. The class was something like 10:00-11:30 every day, so I was always starving the entire time. I ingested so much Mexican food that semester it was ridiculous.

    I know this is completely irrelevant to the discussion, but I just had to point out that I am now craving a sandwich like there is no tomorrow.

  20. #19

    Default

    I've always been a fan of the value of labor arguments especially when it comes to the good that comes from sweatshops and opportunity cost for their workers. And how this leads to us having cheap tv's and ipods here.

  21. #20

    Default

    Quote Originally Posted by rpwi View Post
    Say you have two scenarios.
    A: 100 people earn 100k each. Economy = 10,000k
    B: 99 people earn 1k and one guy earns 9902k. Economy = 10,001k
    Which do you prefer? IMO median economic wellbeing is frequently more important than average economic wellbeing.
    First of all, we can not give a scientific answer in regards to distrubution. No matter how we distribute the same amount of a good among people, no solution is objectively "better" than the other. To do that we would have to use interpersonal "utility-comparison" and until you invent a "util-o-meter" this requires a normative value judgement - which is unscientific.

    What we can say, however, is that the production technique that produces the biggest net-output (under a few conditions that I don't mention here, because otherwise it gets too long...) is always the preferable technique, because the winners can compensate the losers. So in your example the guy earning 9902k could offer compensation of 99k + a few bucks to all 99 other people, leaving everyone better off than before. So even if the initial allocation would be situation A the free market would eventually realize B (with compensation). Thus total output is really a good estimate, when we are talking about economic modeling.

    That games theory can be abused doesn't mean the study of games theory isn't valid nor interesting. Guns can be abused...should they be outlawed? That is the logic you are using.
    Yeah but the well known examples of public goods and negative externalities, the lighthouse and river pollution, require excessive commentary on why they, although some inefficiency might be caused, are still solved in a superior way via free markets and property rights, than via government action. Usually colleges and universties don't explain real life, free market solutions and work-arounds to externalities, non-excludablity, etc. (advertisements on broadcasting, shareholders paying for infrastructure like roads, or the lighthouse, to increase revenue and value of the company, dealing with negative externalities through property rights, and so on). And neither do they like to mention the problems of structural, game-theoretic government inefficiency.

    If there were no economies of scale there would be no specialization. Because we have specialization, that means we must have economies of scale.
    When economists think of economies of scale, they usually mean production functions with a degree of homogeneity > 1. Which means by multiplying all inputs with a factor "t", total output is multiplied by more than t, without changing the production technique. That's why I mentioned that what we usually call economies of scale, is actually the availability of a different production function, that becomes viable at a certain size.

    Hypothetical. Strand two on an island. By themselves they only catch one fish a week and one coconut. Through specialization/trade/economies of scale they can catch a total of 8 fish a week and 8 coconuts. How do you account for this?
    Specialization allowed them to change their production technique from producing fish and coconuts to producing only either or the other and then engaging in trade. If one guy strands on the island and produces 1F,1C, and then another one strands and both were to produce with the initial technique, total output would be 2F,2C (assuming non-scarce primary factors and no externalities). That's what I meant.

    Equilibrium theory is absolutely contradictory. Let's go back to coconuts and fish.
    By themselves each person gets 1 coconut, 1 fish a week, for a total of 2 coconuts and 2 fish a week.
    With specialization the aggregate equals 8 coconuts and 8 fish.
    Trade has yielded a benefit of +6 coconuts and +6 fish.

    Supply and demand can NOT determine the ratio by which these will be traded for. Person A could get +5 coconuts and +4 fish...they could get much less. If a person is worried that they aren't getting a fair share (if that is determinable) then they can just threaten to withdraw their labor/contribution and using this as bargaining power they can get a larger share of the "increment of association". Throw in 1,2,4,8,etc...more people and the problem doesn't go away. Nor does it when you introduce money and other items.
    First of all "fair share" is not determinable, from an economic point of view.

    Your example is obviously difficult to illustrate with the typical framework, because the coconut market is simultaneously the fish market, and because of a few other factors, but I don't see where the big problem is, tbh. Say A produces 8 fish and B produces 8 coconuts. A and B meet and bargain until a price and quantity is reached at which nobody could benefit by additional trade anylonger. S&D functions are obviously theoretical constructs for us to understand the world and to do modeling. They "exist" in the same way mathematical concepts "exist" in reality.

    But we could try to estimate S&D functions on that island by doing a survey. We ask the fisher at what price (in terms of coconuts/fish) he would not be willing to trade a single one of his fish for a coconut. Let's say he states that the highest price at which he would sell a single fish would be half a coconut/fish. The price at which he would sell 4 of his fish would be 1 coconut/fish. The price at which he would sell 6 fish would be 3 coconuts/fish and he would never sell more than that. We could ask every possibly price level or ask a few and approximate the rest of the function.

    Now we do the same for the coconut farmer and the point of intersection of fish supply and demand function is approximately going to be our market clearing price. Like in this example:



    I still don't see what's contradictory about supply and demand from a logical point of view. Believe me, somebody would have found circular reasoning until now. Some economists are the most rigorous logic-nerds I've ever met. You can tackle almost every single axiom of modern day micro-economics by pointing out why they don't hold in reality, but the logic itself is totally sound, once you accept the axioms.
    Last edited by Danan; 01-15-2013 at 12:25 PM.

  22. #21

    Default

    Your example is obviously difficult to illustrate with the typical framework, because the coconut market is simultaneously the fish market, and because of a few other factors
    Why would simultaneous transactions matter? What is an example of a non-simultaneous transaction?

    , but I don't see where the big problem is, tbh. Say A produces 8 fish and B produces 8 coconuts. A and B meet and bargain until a price and quantity is reached at which nobody could benefit by additional trade anylonger. S&D functions are obviously theoretical constructs for us to understand the world and to do modeling. They "exist" in the same way mathematical concepts "exist" in reality.
    It's more than just supply and demand. It's equilibrium pricing that is at stake. Per my theory, a perfect equilibrium price is impossible and to truly understand how pricing really works...you need to understand supply + demand + X factor...bargaining power. The study of bargaining power is the great 'undiscovered country' in economics.

    But we could try to estimate S&D functions on that island by doing a survey. We ask the fisher at what price (in terms of coconuts/fish) he would not be willing to trade a single one of his fish for a coconut. Let's say he states that the highest price at which he would sell a single fish would be half a coconut/fish. The price at which he would sell 4 of his fish would be 1 coconut/fish. The price at which he would sell 6 fish would be 3 coconuts/fish and he would never sell more than that. We could ask every possibly price level or ask a few and approximate the rest of the function.

    Now we do the same for the coconut farmer and the point of intersection of fish supply and demand function is approximately going to be our market clearing price. Like in this example:
    But that's impossible...don't you see? Say, I can only make a blueberry pie with the help with person A. Person A can only make the pie with the help of myself. The Blueberry pie is an exclusive product of our trade (cooperation). Now how should that pie be divided? I can say to person A...you either give me 3/4ths of the pie...or I won't help you bake it. I could demand 7/8ths of the pie...little difference. If he refuses he gets no pie. He can pull the same game with me and say that his contribution was needed to produce the bakery, so he should be entitled to a majority. Where we split the pie is quite subjective erratic and would depend on bargaining power (or the ability to threaten withdrawal from trade).

    So if I'm trading my garden blueberries for my neighbors flour...how do we plot our nice micro-economics S&D curve? How you can objectively state I'll trade %35.87 of my pie for flour? And not say 87.23%?

    Trade means 1 + 1 = 3. If 1 + 1 = 2...we would not trade...because self-sufficiency would do the job. The question then is if 1 + 1 =3...then how is 3-2 subdivided?

    I still don't see what's contradictory about supply and demand from a logical point of view.
    It's self defining...circular definitions are illogical. You need marginal utility to determine price...yet price is need to determine marginal utility.

    Believe me, somebody would have found circular reasoning until now. Some economists are the most rigorous logic-nerds I've ever met. You can tackle almost every single axiom of modern day micro-economics by pointing out why they don't hold in reality, but the logic itself is totally sound, once you accept the axioms.
    Many HAVE pointed out the problems with equilibrium theory. But they are ignored because the status quo is so entrenched. Being the status quo doesn't make them right.

    Supply and Demand assumes the dimension of time where in reality time is an illusion with price theory. Price theory is merely the ratio by which trade takes place. There is no cause and effect with price theory as there can be no first cause because what would cause cause?

  23. #22

    Default

    Quote Originally Posted by randpaul2016 View Post
    whoa say this again because he says benefits>(or equal)costs=yes. and in international trade I think he said 1 always loses.
    Trade always benefits each party and is covered in the first week or so of an international economics course.
    Last edited by anaconda; 01-15-2013 at 06:25 PM.





« Previous Thread | Next Thread »


Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •