Chapter 5

Where supply and demand seemed like an oversimplified way of measuring changes in market conditions, elasticity, which takes into account the magnitude of effects on the market, is a portal to a greater understanding of how the market really works. The key to understanding this chapter is to know the difference between elastic and inelastic goods, the former responding substantially to changes in price, and the latter responding only slightly to price changes. The factor of elasticity I found the most interesting was how the definition of the market had such a big impact on elasticity. The tighter the definition, the easier it is to find a substitute good. The toughest concept to remember is the difference between the five types of elastic/inelastic demand. I also enjoyed Mankiw breaking the fourth wall and talking directly to the reader about a trick to use on the next exam, very creative. I still need some time for the concepts to sink in though, it's a little more advanced than the last chapter. I'd rate this chapter a 2/3 in terms of difficulty, not too hard to understand. 

Article Review #1

When I wasn't spending time figuring out which thesaurus David Stockman used to make himself sound both obnoxiously intelligent and unquestionably biased, I read between the lines and learned a little bit about modern-day economics. Basically, the article examines the fault in the Goldman Sachs Financial Conditions Index, the lowering of interest rates, the Federal Reserve's mass printing of money, the lack of non-theoretical proof of economic growth, and the (non) effect of federal stimulus on household borrowing and spending. Stockman's main argument throughout the article is against the "Keynesian Chorus", who claims that federal monetary policy as of late has been too restrictive. Stockman claims that regardless of what 'real' interest rate (negative but still too tight) a corporate financial executive may have concocted, that thought never crosses the mind of any real-world borrowers. What they do think about, however, is how much debt they can afford to carry and their potential penalties based on their credit histories. The result of that thinking? Even though interest rates dropped to 0% in the wake of the recession, household debt has remained flat and has in fact decreased since 2008. What does that mean? All the federal monetary stimulus had no effect on household spending and borrowing. Stockman says all this to break down his main point at the end of the article, explaining the inflationary impact the lower rates have had in the "canyons of Wall Street". Stockman disputes that the interest rates have fueled the "third and greatest financial bubble of this century", going on to argue that if the government continues to heed the advice of the people who have let this bubble build up to this point, it will burst. My main question is, where is Stockman's evidence? Is it merely a process of elimination, because the growth hasn't been seen in the business or household sectors? Overall I'd rate this article 3/3 because Stockman's obtrusive language made it a difficult read on the first time through, but as I re-read it became easier to understand.

Chapter 4 Overview

Ah, supply and demand. The first two words the average person thinks of when they think about economics. I learned about the difference between less organised markets (standard ones we see in our everyday lives) and more organised markets (agricultural commodities, stock market). The idea of a competitive market also makes sense, because unless you're Andrew Carnegie, it's really hard to monopolise a marketplace on a large scale. When it comes to quantity demanded of a good, the most important factor is price. But other factors can be crucial when looking at shifts in the demand curve, like buyer's incomes, prices of related goods, tastes, expectations, and the number of buyers. One thing that's very important to remember is that to determine if you need to shift or move along the curve, all you need to do is examine both the vertical and horizontal axis, and if the variable being changed isn't on either axis, it results in a shift in the demand curve. I enjoyed the "real world application" of these theories with the hypothetical smoker problem, because it helped me to think about various ways policy makers might go about achieving the same goal. The laws of supply and demand are also interesting, because price and demand have an inverse correlation, while price and supply have a direct correlation. While price is the most factor when it comes to determining supply, other factors must be considered. When looking at shifts in the supply curve, we must look at changes in input prices, technology, expectations about the market, and the number of sellers. Overall, supply and demand was an interesting topic. I would rate it 2/3 in terms of difficulty. 

Chapter 3: Interdependence & Gains from Trade

This chapter really dove into the concept of comparative advantage, and explained it with a drawn-out example using a farmer and a rancher. Before reading it, I didn't really understand how if someone had an absolute advantage when producing two goods over another person, how they benefited from trade whatsoever. Now I understand that the real cost of an action has more to do with opportunity cost, and since the opportunity cost of producing one good is the inverse of producing another, one person will always have the comparative advantage while producing one good and likewise. It's impossible for someone to have a comparative advantage in both goods. However, it must be noted that for both parties to gain from trade, the price at which they trade must lie between the two opportunity costs. This allows for specialization for people in activities in which they have a comparative advantage in. Question: When international trade is so clearly in the best interest of a country in relation to maximizing efficiency, why do countries so often restrict trade? Question: How can we determine our comparative advantages in a more complex economy (e.g. one that produces more than two goods). Although some concepts took a little bit to sink in, I would rate this chapter 2/3 in terms of difficulty.