Introduction to Economics Part 3 (Final)
The final chapter of the Introduction to Economics series focuses mostly on microeconomics.
Introduction to Economics Part 2:
https://cbarkinozer.medium.com/economics-101-part-2-4ad040241556
“Understanding economics does not teach you a specific job but it helps you to see the bigger picture.” [6]
What is a price ceiling?
Setting a price ceiling for a good or service is a bad idea. Cheap pricing will increase demand, and suppliers will find it unprofitable to sell. As a result, suppliers will generate less supply, resulting in scarcity. [1]
What is a price floor?
A price floor is a law that establishes a minimum price in a certain market. The goal is to keep the price above the equilibrium level.[1]
For example, holding corn prices at 7 dollars instead of 4 dollars allows farmers to produce more corn.[1]
Except for the minimum wage, the vast majority of economists believe price regulations are counterproductive.[1]
What is a deadweight loss?
A deadweight loss is a societal cost caused by market inefficiencies, which arises when supply and demand are not in balance.[2]
What is the subsidy?
A government payment is made to individuals, organizations, or enterprises to cover expenditures associated with advancing a specified common aim.[1]
Markets fail from time to time, and governments must intervene to restore market stability. [1]
What are free riders?
People who receive benefits without paying. People that watch a TV show from a private streaming website, for example, are free riders.[3]
What is a public good?
The public good is defined as anything that is not exclusive or competitive.[3]
What is non-exclusion?
It is not possible to exclude people who do not pay.[3]
For example, whether you pay your taxes or not, you will receive military protection in your country.[3]
What is non-rivalry?
The premise is that one person’s consumption of a good does not devastate it others. For example, you can go to public parks now or tomorrow, share or go alone; it makes little difference.[3]
If a good or service is both non-exclusive and non-rivalry, private enterprises are unlikely to supply it, regardless of how important it is.[3]
Therefore these type of goods and services that are non-exclusive and non-rivalry but has demand such as street lights are supplied by governments.[3]
What is the tragedy of the commons?
The idea is that common commodities, which everyone has access to, are frequently abused and exploited.[3]
What are regulatory policies?
Rules established by government decree.[3]
Everyone benefits from providing basic human needs services. If all schools were private, some people would lack sufficient education, resulting in a decrease in general well-being.[3]
What are market-based policies?
Policies are intended to correct market failings by manipulating markets, prices, and incentives.[3]
How to solve environmental pollution with the economy?
Human living produces pollution in the environment. We may reduce it by imposing taxes and regulations on the supply chain, or we can reduce it by developing alternative solutions.[4]
What is a negative externality?
When the full cost of a product does not match the costs paid by manufacturers or customers.[4]
What is a permit market?
Limiting how much a company can pollute and allowing those companies to buy and sell pollution permits.[4]
What is a positive externality?
A benefit obtained by a third party as a result of a commercial transaction.[5]
Does a college degree worth it?
According to studies, college graduates earn more and have a lower unemployment rate.[5]
There are two hypotheses as to why college graduates make more money. According to the “human capital” notion, attending college provides you with abilities that will land you a higher-paying job. The other hypothesis is called “Signalling,” and it states that while some students have demonstrated that they are smart and hardworking, a degree proves that they are and gives them an advantage over other job hopefuls.[5]
What does an opportunity cost?
Let’s say, a lawyer quits his job to launch a pizza restaurant and earns $30,000 per month. The opportunity cost is $70,000 because he could work as a lawyer and earn $100,000 per month even though he does not want to.[6]
What is accounting profit?
Revenue minus just explicit costs(traditional costs of running a business).[6]
What is economic profit?
Revenue minus explicit costs and implicit costs(indirect opportunity costs).[6]
What is normal profit?
The bare minimum of economic profit is required for a corporation to stay in business.[6]
What is a variable cost?
Costs vary according to a company’s output volume. The cost of ingredients in pizza shops that sell more pizza is higher.[6]
What is a fixed cost?
Basic business operating expenses that cannot be avoided.[6]
Total cost = variable cost + fixed costWhat is the average cost?
The total cost is calculated by dividing the entire cost by the number of outputs.[6]
Larger corporations have a cost advantage over smaller corporations because they can purchase more expensive equipment.[6]
What are economies of scale?
Companies that produce more can use mass production techniques to spread their fixed costs across a larger number of units.[6]
What is marginal revenue?
The additional revenue generated by the sale of another unit.[6]
What is marginal cost?
The increased cost of manufacturing a second unit.[6]
Assume one worker creates five units each hour. Because of job specialization, two workers may manufacture ten units each hour. However, this unit rise will be gradual, and having more than 5 workers will not considerably raise the produced unit amount beyond the worker’s salary.[6]
What is a sunk cost?
An expense that has already been paid but cannot be recovered.[6]
What is a pure monopoly?
A market dominated by a single supplier offering a product or service with no close substitutes.[7]
What is an oligopoly?
When a few companies control a huge portion of the market.[7]
What is horizontal integration?
Purchasing companies that make comparable products. Companies attempting to horizontally integrate may be subject to antitrust regulations.[7]
What is vertical integration?
When a corporation owns or controls its entire supply chain. Vertical integration is not covered by antitrust laws or legal precedents.[7]
What are anti-trust laws?
Antitrust laws were enacted to keep corporations from becoming greedy and abusing their position. Without these rules, many lawmakers fear that large corporations will swallow up smaller ones. As a result, consumers will have less competition and fewer options, perhaps resulting to higher costs, worse quality, and less innovation, among other things.[8]
Antitrust rules can also restrict businesses from entering into anticompetitive agreements with their suppliers. These regulations prohibit Microsoft from requiring PC manufacturers to install Microsoft or ToysRus from requiring toy producers not to sell toys to other toy firms.[7]
What are natural monopolies?
When having one huge producer rather than multiple smaller competitive enterprises is more cost-effective.[7]
What is deregulation?
The process of eliminating or reducing government regulation.[7]
What is price discrimination?
The practice of charging various prices for the same goods to different customers. For example, airlines charge varying costs for the same ticket depending on the time of day.[7]
When corporations have a high share of market power, price discrimination works best.[7]
What is monopolistic competition?
A market with a large number of producers and low barriers; their products are similar but not identical.[8]
What is an oligopoly?
A market with a high barrier to entry and dominated by a few large corporations.[8]
What is collusion?
A covert agreement or collaboration, often for an illegal or deceptive reason.[8]
What is a cartel?
A group of manufacturers or suppliers who band together to keep prices high and competition at a minimum.[8]
What is price leadership?
When one company alters its prices, its competitors must determine whether or not to follow suit.[8]
What is the payoff matrix?
A payout matrix is a table that contains the alternatives offered to game players. It depicts all of the probable outcomes associated with strategic decision-making. The table rows reflect one player’s options, and the table columns indicate the other player’s possibilities.[10]
How do people behave?
People are generally reasonable; when prices decrease, they purchase more; when prices rise, they purchase less. Classical economics can explain this rational conduct, yet humans also behave irrationally. Human behavior remains complex and must be properly comprehended. Furthermore, the price of a thing gives an illusion of better, therefore selling overpriced goods generates a luxury illusion and may find demand.[12]
Popular psychological pricing techniques include selling goods for $399 instead of $400 or charging $1 each day instead of 365 dollars per year.[12]
What is nudge theory?
Nudge theory contends that nudges encourage people to behave in a certain way without truly affecting their decisions.[12]
What is loss aversion?
The assumption is that people are desperate not to lose.[12]
Why do some jobs earn a lot of money?
For example, Ronaldo earns $20 million each year (2015). Is his performance worth $20 million? It all comes down to supply and demand. There is a scarcity of world-class football players, yet there is a huge demand for football fans. Having a superstar on your side also boosts ticket sales, product sales, and so on, resulting in a profit worth handing Ronaldo $20 million, according to the football club, and a contract with him.[13]
What is monopsony?
When only one company is hiring and employees are relatively immobile.[13]
What is a union?
An organization that promotes the common good of its employees.[13]
What is minimum wage?
A price floor that bans firms from paying employees less than a certain level.[13]
Is minimum wage good or not for the economy?
Economists who oppose the minimum wage argue that it discourages firms from recruiting unskilled workers and instead encourages them to hire only skilled people. As a result, it has no effect on poverty because it prevents unskilled people from being hired.[13]
According to economists who favor the minimum wage, real-world labor markets aren’t as competitive or transparent as classical economists indicate. They believe that companies have the upper hand in pay negotiations and that individual workers have little bargaining power.[13]
Most countries have minimum wage regulations, which are largely accepted, but the wage amount has not been determined.[13]
What is free healthcare?
When a patient’s arm is broken or they are suffering a heart attack, they may not be able to freely choose a doctor, thus things function differently. Private insurance firms pay for healthcare. There is no free healthcare; only those paid for by taxes exist.[14]
What is Medicare?
The taxpayer-funded insurer that pays for elder provider care.[14]
What is Medicaid?
The taxpayer-funded insurer pays for low-income households’ provider care.[14]
What is deductible?
A type of cost-sharing in which the patient must pay a set amount before the insurance kicks in.[14]
Medical care makes dying expensive. Dementia and Alzheimer’s disease mortality have increased over time, and these diseases induce a delayed death with a lot of care for the patient, resulting in higher spending. Also, death procedures might be expensive. [15]
What are taxes for?
Taxation dates back to the dawn of civilization. Taxes not only provide financial support to governments for public goods and services, but they are also used to discourage certain behaviors, such as purchasing costly, unhealthy, and thus environmentally harmful goods and services. The carbon tax, for example, is a levy on greenhouse gas emissions caused by the combustion of fossil fuels. [16]
What are indirect taxes?
Taxes must be paid by all consumers, regardless of their income level. A pair of socks from the big bazaar, for example, costs the same for the affluent and poor. According to economists, indirect taxes cause market inefficiencies.[16]
What are regressive taxes?
Taxes are collected uniformly, which means that lower-income people pay the majority of the expense.[16]
What are progressive taxes?
The tax system in which individuals pay more taxes as their income increases. Income tax, for example, is a progressive tax; the more you make, the more tax you pay.[16]
What is the underground economy?
The underground economy is a hidden movement of money that is not taxed. Pirating items, selling rare animals, dodging taxes, trafficking drugs, and performing non-licensed work for someone in exchange for money, such as cutting hair or cleaning the house, are some examples. The majority of money in the underground economy is exchanged in cash.[17]
Electricity consumption is a good indicator of economic activity.[17]
Why working on legal jobs off the books is bad?
Workers may not be paid adequately, have adequate breaks, or be safe because these jobs are not regulated. On the other hand, this can create work for persons who do not have access to official employment.[17]
Finally, informal jobs reduce tax contributions, resulting in less public goods or services or higher taxes. As a result, more people abandon their official jobs, creating a vicious cycle.[17]
How does immigration affect the economy?
The vast majority of economists agree that immigration is beneficial to national economies since it boosts GDP and productivity. They believe that immigration raises demand, which raises supply, resulting in more jobs and higher earnings.[18]
“Whether low-skilled or high-skilled immigrants boost national output, enhance specialization, and provide a net economic benefit.”[18]
What is foreign aid?
The transfer of money, goods, or services from one country or international organization to another country or its people.[19]
Is foreign aid useful?
It’s controversial; some economists say yes, while others say no. Countries generally help other countries for political and strategic reasons that benefit them as well.[19]
What is the International Monetary Fund (IMF)?
The International Monetary Fund (IMF) strives for long-term growth and prosperity for all 190 of its member countries.[20]
The IMF’s mission is to promote international monetary cooperation, support trade and economic progress, and reject policies that damage prosperity. To carry out these missions, IMF member nations collaborate with one another and with other international organizations.[20]
What is public charity?
The general public and the government contribute more to a public charity.[19]
What is private charity?
Non-profit organizations are often run by a small number of people and receive the majority of their funding from donations and investment funds.[19]
What is the relation between happiness and the economy?
Unemployed persons have 5%-15% lower life satisfaction than employed people.[21]
People are upset because of credit card bills, long and short work hours, and inflation (particularly unanticipated inflation).[21]
Because focusing solely on economic output or GDP to boost happiness may not be a good measure, developed countries have recently begun to focus directly on citizen satisfaction.[21]
What is the Easterlin paradox?
When a country’s income level rises, the average level of happiness in that country does not always rise, especially in relatively wealthy countries where people’s basic requirements are already met. One theory is that happiness is not tied to income but to status, which is how you are perceived by others.[21]
Furthermore, some study indicates that GPD per capita is a good predictor of happiness, even when other characteristics are considered.[21]
This was the final chapter of the Introduction to Economics series.
Thank you for reading. Please do not forget to clap if you think it was helpful.
References
[1] CrashCourse, (13 Ocak 2016), Price Controls, Subsidies, and the Risks of Good Intentions: Crash Course Economics #20:
[https://www.youtube.com/watch?v=01lKDkYSFDg&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=21]
[2] Alicia Tuovila,(25 May 2022), What Is Deadweight Loss, How It’s Created, Economic Impact:
[https://www.investopedia.com/terms/d/deadweightloss.asp]
[3] CrashCourse, (22 January 2016), Market Failures, Taxes, and Subsidies: Crash Course Economics #21:
[https://www.youtube.com/watch?v=13JOGWzY8kE&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=22]
[4] CrashCourse, (28 January 2016), Environmental Econ: Crash Course Economics #22:
[https://www.youtube.com/watch?v=BlAfFgKQ5r8&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=23]
[5] CrashCourse, (12 February 2016), Economics of Education: Crash Course Economics #23:
[https://www.youtube.com/watch?v=8lPbkHVxenU&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=24]
[6] CrashCourse, (18 February 2016), Revenue, Profits, and Price: Crash Course Economics #24:
[https://www.youtube.com/watch?v=UWImfFax8Ew&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=25]
[7] CrashCourse, (27 February 2016), Monopolies and Anti-Competitive Markets: Crash Course Economics #25:
[https://www.youtube.com/watch?v=Sb_-wfmJnHA&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=26]
[8] Alexandra Twin, (08 June 2022), Antitrust Laws: What they are, how they work, major examples:
[https://www.investopedia.com/terms/a/antitrust.asp]
[9] CrashCourse, (06, March 2016), Game Theory and Oligopoly: Crash Course Economics #26:
[https://www.youtube.com/watch?v=PCcVODWm-oY&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=27]
[10] Travis Hartin, (22 May 2022), Payoff Matrix Economics Theory Calculation Template:
[https://study.com/learn/lesson/payoff-matrix-economics-theory-calculation-template.html]
[11] Götz Freytag, (October 2015), Game theory: payoff matrix with arrows:
[https://tex.stackexchange.com/questions/272513/game-theory-payoff-matrix-with-arrows]
[12] CrashCourse, (12 March 2016), Behavioral Economics: Crash Course Economics #27:
[https://www.youtube.com/watch?v=dqxQ3E1bubI&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=28]
[13] CrashCourse, (27 March 2016), Labor Markets and Minimum Wage: Crash Course Economics #28:
[https://www.youtube.com/watch?v=mWwXmH-n5Bo&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=29]
[14] CrashCourse, (07 March 2016), The Economics of Healthcare: Crash Course Economics #29:
[https://www.youtube.com/watch?v=cbBKoyjFLUY&list=PL1oDmcs0xTD-dJN1PL2N1urX0EKupBJCQ&index=30]
[15] CrashCourse, (16 March 2016), The Economics of Death: Crash Course Economics #30:
[https://www.youtube.com/watch?v=AecowUb79Xk&t=4s]
[16] CrashCourse, (28 March 2016), Taxes: Crash Course Economics #31:
[https://www.youtube.com/watch?v=7Qtr_vA3Prw]
[17] CrashCourse, (8 May 2016), The Underground Economy: Crash Course Economics #32:
[https://www.youtube.com/watch?v=joG6-QZc-fw]
[18] CrashCourse, (19 May 2016), The Economics of Immigration: Crash Course Economics #33:
[https://www.youtube.com/watch?v=4XQXiCLzyAw]
[19] CrashCourse, (28 May 2016), Foreign Aid and Remittance: Crash Course Economics #34:
[https://www.youtube.com/watch?v=tAvA_cOeeOI]
[20] IMF, (2022), IMF at a Glance:
[https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance]
[21] CrashCourse, (9 July 2016), The Economics of Happiness: Crash Course Economics #35:
