Chapter 13

Ah, Chapter 13, filled with information about production costs and boatloads of terminology. Mankiw warned us at the beginning of the chapter that the material would be boring, the topic being dry and technical, but I thought the ideas were actually pretty interesting, and it helps to break down the supply curve to get a more complete understanding of the reasons individual firms stay in or leave the marketplace. The first interesting bit I found with Chapter 13 came when Mankiw defined explicit and implicit costs being key to an economist's evaluation of the profitability of a business. Before, I hadn't really thought about the implications of opportunity costs on how a business makes their decisions, but now I see it as a very real factor. The difference between economists and accountants was a bit of a belabored point, but because it was drilled into my head, it helped me understand the concept of implicit costs better. One thing I didn't understand until we talked about it in class was why marginal product diminished from the get-go. The reason I didn't get it was because that wasn't correct. Marginal product initially increases, then levels out and THEN starts to diminish. That's what Mr. Waller talked about as the three stages of production, and it helped to clarify my understanding of the chapter. Overall, this chapter was one of the most difficult in terms of terminology so far, and I would give it a 3/3 in terms of difficulty.

Chapter 11

Mankiw begins the chapter with the age-old adage that the best things in life are free. He relates that to goods that are free to the public to enjoy- rivers, mountains, beaches, playgrounds and parks to name a few. This chapter examines how the government can provide goods that the private sector cannot, and how they ration those goods. Mankiw further breaks down various goods in the market using two characteristics, excludability and if the good is rival in consumption. With private goods, the consumption of a good leads to another person not being able to consume it, and it's possible to prevent people from consuming a private good. A public good is the complete opposite. Public goods promote people who are free riders, people who receive the benefit of a good without paying for it. It's hard, and near impossible, for the private market to supply a good in a market largely dominated by free riders. Once people figure out the good is not excludable, they will not be willing to pay for a ticket. Then, Mankiw goes on to list examples of important public goods, including national defense, basic research, and fighting poverty. He also argues that a free rider problem emerges when the number of beneficiaries is large and the exclusion of any one of them is impossible. All in all, this chapter wasn't too difficult, but it was a little clunky without any graphs to help along the way. I would rate it a 2/3 in terms of difficulty. 

Chapter 10

Chapter 10 is all about externalities, that is, the unintended consequences/benefits of various economic processes. With positive and negative externalities, society's interest in the market goes beyond the marketplace and instead extends to include the well-being of the bystanders affected indirectly. The book gives a few examples of positive and negative externalities, and it helped to paint a clearer picture in my head. Essentially, Mankiw argues that unlike a standard market, when externalities are involved, the government must consider its role and provide some sort of regulation to adjust the market for maximum social well-being. One possible way to regulate the market is through taxes on markets with negative externalities and subsidies on markets with positive externalities. These are called corrective taxes. With standard taxes in an efficient market with no externalities, the market operates inefficiently. But in a market with externalities, because consumers and producers don't take into account the effects of their actions on bystanders, the market isn't reacting at peak efficiency when it comes to societal well-being. Taxes and subsidies help shift the supply and demand curves in a more positive direction. Then, the positive gain usually outweighs the deadweight loss. But while taxes and subsidies are one way to handle externalities, they can also be handle through the marketplace. This is explained with the pollution permits example, and it was clear to see how again, the people with the most to lose valued the permits the most. Overall, this chapter was pretty easy, and I'd rate it 2/3 in terms of difficulty. 

Chapter 8: Taxation and Economic Welfare

Whereas chapter 6 was explaining how taxes affected the market, chapter 8 depicts how taxes affect economic welfare, and the two together form a bigger picture. An important thing to remember is that it doesn't matter who the tax is levied on, the determinant of who bears the tax burden between the producers and buyers depends on the elasticities of supply and demand. That leads us to learn that upon taxation, the losses to buyers and sellers from a tax exceed the revenue raised by the government. That fall in total surplus when a market outcome is distorted is called deadweight loss, as a result of people responding to incentives. It's also clear to see that the most dangerous effect of taxation is the canceling of transactions between buyers and sellers, resulting in no increase in revenue for the government (the intended effect) and a decrease in the size of the market. I got a little confused when Mankiw started talking about figure 4 and explaining that taxation caused a loss of benefit at every point on the graph, not because I didn't understand the concept, but because it wasn't depicted well on the graph. Mankiw's next lesson was pretty simple though, the greater the elasticities of supply and demand, the greater the deadweight loss of a tax. This makes sense because elasticity is a measure of how willing producers and buyers are to stay in the market in response to a price change, and a tax is nothing more than a price change. I also found it interesting that the labor tax debate can basically be boiled down to if one thinks the supply of labor is elastic or inelastic. All in all, this chapter was somewhat difficult at points, but nowhere close to a Stockman article. 2/3 for difficulty. 

Chapter 7: Consumers, Producers, and the Efficiency of Markets

This chapter is all about welfare economics, that is the study of how the allocation of resources affects economic well-being. We understand from previous chapters that the market tends to head towards equilibrium because of the laws of supply and demand, but now we understand better WHY that equilibrium is best for both the buyer and the seller. There's a whole lot about willingness to pay and consumer surplus, but the really interesting part is the use of the Beatles as example people. Coincidentally, listed in order of greatness. Surplus seems like a relatively simple concept as well, because more buyers will enter the market as the price goes down, and buyers whose willingness to pay was higher gain more individual consumer surplus. With the exception of heroin addicts, policymakers generally take into account buyer behavior when making policy decisions. Producer surplus works the same way as buyer surplus, except in reverse. Both of these concepts together combine to form "the Benevolent Social Planner". The hypothetical benevolent social planner is in charge of analyzing the total surplus of the market, which is the value of the goods to the buyers - the cost to the sellers. Overall, I couldn't really get into this chapter as I found it repeating some of the same concepts over and over again. I would rate this a 2/3 in terms of difficulty.

Article Review #2

Well, Stockman's at it again. Making economics more and more confusing, one obscure word at a time. Luckily, this article was a little bit easier than the last one, and I was able to determine what he was in fact talking about. Essentially, the point Stockman is trying to make is that the economy is not merely being retested as it was last October, but in fact heading towards another recession. When Stockman references "a bull market", he's talking about a market in which share prices are rising, encouraging buying. Stockman argues that this market, "battered and bloodied" so as to artificially remain a bull market, will finally "give up the ghost" and become a bear market in which prices fall, encouraging selling. Stockman also explains that the reason there has been the false sense of growth for so long is that their was hope for China as the great hope for expansion. But in the midst of the United States's quarter-trillion dollar capital outflow, it's clear that the market isn't expanding in the ways we would like it to. That, coupled with China increasing production of commodities, specifically steel, and the increase in supply will make it even harder for US suppliers to keep up. While I appreciate a lot of the points Stockman makes and agree with them too, I dislike how he presents them in such an arrogant, condescending way. Overall, I thought that the article was informative, but I would still rate it 3/3 in terms of difficulty.

Chapter 6: Supply, Demand, and Government Policies

Whereas the last two chapters examined the role of an economist as a scientist, chapter six delved into the role of an economist as a policy adviser. The first thing I found interesting in this chapter were the concepts of price ceiling and price floor because I had never put too much thought into how much influence the government often has over the market. Mankiw clearly opposes binding price ceilings, judging by how he argues against their restriction of the market early in the chapter. The examples confused me a little bit, but I understand the concept: the more restrictions, the less the free market principles and the invisible hand can guide the market towards prosperity. That seems to be the goal of this chapter: drill in the concept that binding price ceilings are bad for the economy and for free market values. Basically the same old lesson with price floors, except price floors lead to surpluses if they are binding. The most relevant part of this chapter was when Mankiw talked about the group that was most affected by minimum wage laws: the market for teenage labor. I had never thought about that before, and it's very interesting to think that the jobs I could hold throughout the rest of high school and in college could be dictated by the minimum wage laws. All in all, this chapter was not very difficult to read or understand. I would give it a 1/3 for difficulty.