pic Economics for all: September 2008

Monday 29 September 2008

Industrial organisation pt2

There are two markets for water which are home and business customers. Should we set the same price for both markets? What is efficient? Common pricing where the price is the same in both markets is worse then price discrimination where different prices are charged. The answer lies in allowing a small amount of price discrimination. It is efficient to charge different prices for different markets because it gets more consumers to participate in lightening their wallets, like student and business travellers on trains where students will pay only a small amount for a ticket compared to business customers while if the price is too high for students then they will not buy a ticket so more revenue is generated because there are more consumers and so firms get more profits. Too much regulation derives monopolies of any incentive to improve the quality of water and the water pumps and so regulation where monopolies profits are zero is bad because there is no incentive to make profits. Regulation has all sorts of problems. Firms do not have incentives to lie because of foresight. Regulators make TV companies provide a certain level of quality of programming. Bunch of equations and graphs in lecture that were not easy to understand and the lecturer got confused and made a mistake in the maths. Price discrimination is enforced by rail cards in the rail industry because young persons rail cards are different to old persons rail cards.
A little bit of price discrimination is a good thing. Monopolists can offer bundling and versioning where by with Microsoft office software packages it is better value for money for consumers to buy a bundle of software instead of buying the software separately.

Saturday 27 September 2008

Labour Economics pt2

Labour economics looks quite interesting because it is relative to most people and looks at important decisions that everyone will have to make in their life at one point, like shall I get a job? How long will I work for? And what wage will I work for? Its good that it can be analysed using regression analysis because I have studied econometrics last year so I have an idea of how it works. I learnt about the differences between positive and normative economics and this I found useful because it helps me organise my economic thoughts better. It was new for me to find out that economics cannot answer the big questions because I thought that economics could answer the big questions, which it can but just not many of them. Its important to use positive economics to analyse the labour market because it helps to make the best policy decisions. There was a funny quote by Ronald Regan, the former US president, which said “I have never heard anybody say that hard work killed a man, but when I think about it, why risk it?” I reckon the author of the textbook used this quote to illuminate the view that not everyone will decide to work and they would prefer to live off unemployment benefits, the state, all their lives, which is easily doable in Germany. The labour supply and demand curves are interesting because they slope up but this does not represent the most common form of employment where people are not paid by the hour because when they reach a limit of hours they only get paid for. I can give example of the types of positive economic questions posed for the labour market:
If unemployment decreases by 2% how much production is changed by?
When wages rises by 2% how many people stop working?
When the hours of work are reduced how much money is saved?

I can give examples of normative economics at work too such as these questions:
Should unemployed people get benefits?
Should we take money from the highest earners and give it to the poorest?
Should men and women be paid the same wages?
Should black and white people be paid the same wages?
Should older people be paid more than younger people?

Thursday 25 September 2008

Household Economics

Inside everyone’s house is an economy because people make decisions about what jobs to do so they are essentially allocating scarce resources namely the time of the people in the house. People in the house respond to incentives because when a parent offers the child money to clean the car they will probably clean the car but only because they were offered money and if they weren’t offered money then they wouldn’t do it.

SE and IE

With the substitution effect an economic agent in the labour market would work more when their wage rate increased because then they get more income but with the income effect the result is in the opposite way because a rise in income would mean that the agent would spend more on leisure, so it could be read that substitution effect is spending more on work and income effect is spending more on leisure if that helps.

Labour Economics

Why do you divide unearned income between price level? I suppose it gives the quantity of goods purchased. Wage divided by price level multiplied by hours worked gives the quantity of goods purchased. If t-l is h then (w/p)t-(w/p)l is h too because the w/p cancels out. Max income is where total time endowment is multiplied by w/p because this is like working 24/7 but this is absolutely ridiculous and no one will work this much and if they did they would soon die from exhaustion. It is one of many ridiculous aspects of economic theory that probably puts some people off economics but is harmless when understood. Minimum income is therefore at the opposite end of the spectrum and is when some spends no time at all on work and is constantly in leisure 24/7.

Tuesday 23 September 2008

in the deep

In the deep is an excellent movie but the main character is seriously irrational because he gives all of his savings ($24000) to a charity (Oxfam) and burns the rest of his savings which is a complete waste of such a scarce and valuable resource.

Adam Smith

Another fact: Adam Smith was an absent minded man because he once tried to make a cup of tea using toast and butter also he was known to ramble to himself about economics on street corners.

university costs

Is university good value for money because I pay £3145 a year and only have 9 hours per week for lectures and seminars? The summer break is also very long. Some courses have 25 hours per week and for the same price. There is a large opportunity cost for going to university because students have to give up their time which could be used to make money from having a job. But statistics show that on average graduates make a lot more money over their lives than people without degrees.

Monday 22 September 2008

textbook industrial organisation

Monopolies have complete control over the setting of prices because they are the only firm who is selling.
An example of a perfectly competitive market is the agriculture market and the stock market.
Oligopoly example are steel, beer and soft drinks.
Monopolistic competition has a large number of buyers and sellers, easy entry and differentiated products examples are restaurants, furniture. Is this why we get a lot of restaurants that sell tasteless food in the uk? but then there are lots of nice restaurants.

Industrial organisation

Its important that there are no entry barriers because then prices can be driven down by active competition. When firms fight for survival costs are lowered because firms use new and more efficient technologies. North America's economy grew more quickly than South America's economy because North America used a decentralised market economy and the South used a centralised market economy. Firms have incentives to prevent other firms from entering into markets because this reduces competition and market shares are advantagously proportioned. Water markes in the UK are monopolies because only one company supplies the water to consumers and it would not be possilbe to dig up roads and install more water pipes so only one company supplies the water and dominates the market, monopoly style. A company uses product strategies to maximise profits but with vertical integration there are different types of products in the sense that they are better or worse than each other in terms of computer processing power, as an example. Horizontal integration is where products are not significantly different for example drinks being different colours. If you were comparing markets it would be practical to look at numbers of firms but only in proportion to the size of the firms otherwise it is easy to be misled. There are only a few main supermarkets but they are very big.

Firms are run by employees who do jobs but they only work for wages and so are controlled by incentives. There are share options which are when employees try to increase share prices and if they reach a pre set target they get to purchase shares at the current price in large quantities and keep the profit. it is a monetary incentive because employees respond to incentives but particularly well to monetary incentives. Incentives are called carrots. The office of fair trading regulates competition in the uk. what does the oft do to remedy competition problems? oft can tell the firms off like a headmaster tells of a school pupil and asks them not to do it again. In extreme cases there are jail sentences.

There are many cases for investigation of competition regulation claims but no more than 10% are ever formally completed and I suspect that if more were formally completed it would be more pareto efficient and people would benefit without anyone becoming worse off. Perhaps too much regulation is not a good thing?

near monopolies

Why is it a problem that Microsoft dominates the operating system market? Microsoft has a 95% share in the market so it is basically a monopoly. There are many benefits to consumers so what kinds of costs are there? Microsoft is preventing server based software companies from entering the market because the operating systems are not compatable with the server softwares and this is costly to consumers because Microsoft is preventing a better product from coming into the market. Better products should be allowed into the markets to help boost competition which will drive prices down and so its better for consumers.

Saturday 20 September 2008

consumer loyalty

I wonder if its worth being loyal to a supermarket or a company in order to accrue a biggest amount possible of loyalty reward credits. By being unloyal and shopping around you can save money by getting lower prices. So it is worth shopping around or as the saying goes “it pays to shop around”

Revised definition of recession

The definition of a recession is debatable because of the way the r word is being used by the media. A rise in unemployment is a good signal that growth has fallen below its target level. The statistic unemployment is less likely to be revised. When gdp growth has fallen significantly below its target level it is a clear indicator that the economy is slowing and possibly going into a recession. So a better definition for recession.

Saying for economics

When a neighbour loses his job it is said the economy is in a slow down period but when you lose your job the economy is in recession and when an economist loses his job the economy is in a depression. An economics saying.

US government rescue plan

The US government has pumped billions of dollars into the financial markets to rescue them because they dont want people to lose confidence in the banking system. Share prices for HBOS are up 30%, which is their largest one day rise ever, because of the US governments rescue plan to save the banks.

Thursday 18 September 2008

High inflation in the UK

Inflation has reached 4.7% which reflects the bad shape the economy is in at the moment because the central banks target inflation rate is 2%. Consumers will have less money to spend on leisure consumption because the price of fuel, gas, food and electricity has gone up but wages have stayed the same.

Questions

Why do black apple imac laptops cost more than white ones for exactly the same technical specification? So the processor is the same, the memory is the same, the screen size is the same, the software is the same but one is white while the other is black.

Why do people buy things from high street shops when they can get the exact same things online but for lower prices?

Why are some people still connected to the internet with dial up when broadband is cheap and readily available in most areas in the country?

Why do grooms rent tuxedos while brides buy their wedding dresses given that the grooms will have many more occassions to use the tuxedos but brides only use their wedding dresses once?

Why are prices for airplane flights so much higher from STA than on the internet for the same flights?

Why do people pay £5 to go to the cinema when they could wait and buy the film on dvd for the same price from ebay?

Why are prices for gas and electricity different from different provider companies when the gas and electricity from the providers is the same?

Economist magazine subscription

The economist is on sale for £12 for 12 issues which is a saving of 76% off the shop price which is an excellent saving. The subscription also includes access to the economist web site where you can download the audio edition of the economist so you can listen to the economist on the move or while you work. The magazine is well laid out because it is split into sections for different countries as there is a section for Britain, USA, Asia etc.

Road sign economics


It would be interesting to know why the council plants solar and wind powered road signs because they cost £10,000 and by law the council has to plant a normal road sign which says exactly the same thing next to it. The council should just plant normal road signs and save thousands of pounds for spending on something else. Normal road signs are just as effective at night because they are covered with a reflective coating and so they reflect the light from car head lamps. Apparently the council has designated money for solar powered road signs and if the money wasn't used for the solar powered signs then it wouldn't be used at all. Its like those pointless road signs which warn drivers of toads or deer or horses crossing the road but there are no toads, deer or horses to be seen.

3 great economics works

All economists should read these works because they are widely regarded as the greatest works in economics of all time. In no particular order:

The wealth of nations-Adam Smith
The general theory-John Keynes
Das Kapital-Karl Marx

Alan Greenspan, one of the most influential figures of the financial universe, has read the General Theory twice.

AIG bail out

The federal reserve bank bails out AIG for $85 bn.

Lloyds buys HBOS

The prices of HBOS shares dropped by a large amount but recoevered to their previous price level when Lloyds bought HBOS.

Keynes online

John M Keynes is one of the most influential economists of all time and you can download one of his greatest works, the general theory, from the link below for free:
http://www.marxists.org/reference/subject/economics/keynes/general-theory/

Introduce myself

Hello I'm Sebastian Charles and I am an Economics undergraduate at the University of East Anglia. I made this blog to record my thoughts about economics and the economic issues in the news because I find economics really interesting, and I hope you enjoy my blog.

High unemployment in the UK

Unemployment has reached 1.72 million and is forecast to reach 2 million which is the highest it has been for the last decade. Due to Lehman brothers going bankrupt unemployment has risen by 5000 and unemployment rose by 100's when Xl airlines went bust because they could no longer afford fuel because of the recent rise in oil prices. Lehman brothers went bust because they were too dependent on the US house mortgage markets which have been suffering because of the credit crunch. The government didn't bail out Lehman brothers because they didn't want to appear as if they were bailing out everyone in trouble and believed that Lehman brothers should pay for their mistakes.

Economics for all blog is created

Today is a special day because my Economics for all blog has been created which is great.
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