You know what they say about prison snich's

Due to the Nash equalibrium, it is always safer and more profitable for companies to break there collusive agreements, or for a couple of prisoners to rat eachother out. Since the outcome of blowing the whislte on your partner in crime is more beneficial to you then not doing so, the nash equalibrium suggests that people would rat each other out. The penalty of not doing so could be very detrimental if your partner rats you out. The main thing that makes the Nash equalibium a tricky thing though, is that it assumes that neither party has any way of knowing for sure what the other party is doing, or will do. Its based on which course of action hurts you the least assuming your partner acts in their own best interests.

When life gives you is lemons, make a junk yard.

I found the concept of lemons (junk used cars) to be an interesting concept. Since its hard for the average buyer to be able to tell the difference between a decent used car (which they would be willing to pay more for) and a lemon ( a piece of crap that might break as soon as they drive off the lot), what tends to happen is for lemons to flood the market. Since buyers cant destinguish between a $10000 quality used car and a $1000 pile of rust, they lower there to say 5k. This goes to undervalue good cars and overvaule bad ones. This creates an incentive for people with junk cars to sell for more then they're worth and for people with good cars not to sell, becasue they wont get the amount that their car is actually worth. Eventually, lemons take over the market and it becomes theoretically impossible to find a good used car.

Profit.

In class this past week we talked about how companies sometimes choose to opperate inefficiently. Why would a company intentionaly choose to do business in such a manner? Well, the simple answer is profit. At times, producing and selling at what is technically the market equilibrium and the most efficient point is actually less profitable for a business then opperating slightly under the efficient level. And as can be expected, a firm will generaly choose whichever route leads to the most profit. Afterall, a company's main objective is to make money, not neccessarily opperate efficiently.

I've got parkplace and boardwalk.McDonalds owes me $1 million

In class we began talking about monopolies. I've never come to a personal conclusion as to whether or not I think they are good or bad. As far as for consumers and potential businesses, it's rather obvious that monopolies are horribble, they allow no room for other firms and they have the priviledge of setting the market prices. However, I dont think it's right for government intervention to completly dissasemble monopolies, because it seems to violate property rights. Perhaps theres a happy medium somewhere in the middle, something like Wall Street, an entity that anyone can weasle into, and if the entity goes bad it drags everyone along with it.

Exit Market, Stage Right.

So we were begining to discuss how firms enter and exit markets. This is seen all the time, particularly with companies leaving markets, especialy given our recent economic circumstances. When the money to be made in a market dries up, firms shut their doors. If I were running a business, I think the hardest part for me would be deciding if I should shut down for good, or if I should just hang in there and hope the market picks up soon. As far as entering markets goes, it seems like things like that fluctuate alot. One day it seems like theres money everywhere in the car department, the next day everyone wants in the electronics business. So I sort of think that the best approach would be to find a market that you know would be sustainable, and simply jump into it at a beneficial time.

Failure to plan is planning to fail...or so I've heard.

I think the idea of short term variables and long run variables are intersting. They both need to be taken into account in order for a business to be successful, but certain variables can only be thought of from certain perspectives. The idea of a "plant" is such a variable. Certain companies would die overnight if they had no plant, however in long term planing it seems that not much can be said about the plant as it is tied directly to fixed costs in the short term. So even though the plant's cost's arn't counted for long term investing, if the plant ceased to exist the company would fail. A very important aspect of the company planning phase which seems to be well understood in order to be met with success.

Another would be gold rush...

Just a quick blurb on something thats been plauging my mind recently (mainly due to the nonstop comercials about it), why would one want to buy gold now? Gold is being advertized as the recession proof asset thats perfect for short and long term investors due to its relative stability and security and that we should all buy it right now because its dollar value has never been higher. It sounded like a good idea to me at first but I started thinking, and I began to wonder, if its more expensive now then its ever been...why would I want to buy it now. Its one thing to invest in something and expect it to turn you a profit but generaly one buys low and sells high. Ive never really heard of people buying high and then riding their investment to the ground. Also, if gold is desirable for its resiliance and stability, so that one could fall back on it in times of economic hardship, why would I want to buy gold during an economic hardship? Seems like those who didnt already have gold going into the recession already missed the boat on this one and should wait for prices to come back down. I could be wrong, just a thought.

My microeconomics text book cost me about 253 burritos from Taco Bell

I found this weeks discussion on relative prices both interesting and releaving. I found it interesting because I actually view the price of a prospective purchase in the form of hw much of something else I could buy with the same money. I was releaved to learn about relative prices, because for a while I sort of thought that I was the only one who viewed the price of a new TV in terms of cheeseburgers and tacos. As far as I can tell, the theory surronding relative prices seems to be pretty sound, that is if the price of one good goes down people buy more valuable things. A point that we touched on in class that didn't occur to me before for some reason, is that if you're budget consits of $1 tacos and $2 comic books and the price of tacos goes down enough so that you end up with $2 extra then normal, you might be inclined to spend it on antother comic book. I had always been confined to the thinking of spending a set amount of money on one particular good regardless of price, so that if the price on tacos went down, I'd simply end up with a bunch of tacos. I think I will deffinitly use this concept more consciencly and efficiently now that Ive learned a bit more about it. So the next time prices drop on something I was planning on buying multiples of, I'll stop and check my other options before I simply just buy more of the *discounted* good then what I had originaly intended.

“Bureaucracy, the rule of no one, has become the modern form of despotism”- Mary McCarthy

I enjoyed this weeks descussion in class on the concept of bureaucracies. I find it interesting how at the surface it seems to be the most rational and efficient way for governments and coorporations to opperate, a set of guidelines and procedures with a chain of command. What could go wrong? While it sounds like a good idea in theory, in practice it aint so great. Due to the nature of bureaucracies, no one person is really in complete control and no one individual stuck in the middle of the higherarchy has the authority to do what may seem to be more efficient or even simply what common sence would suggest at the time.In otherwords, regardless of efficiency,everyone involved has to abide by the rules set in place, they must follow procedure; regardless of whether or not they will actually accomplish anything by doing so. Thus, the inefficiency which employs well over 2,000,000 people continues on, becoming more and more pointless in a wonderful example of the snowball principle (number of federal bureau employees graciously provided by the bureau of labor statistics...isnt that just awsome?!?) . Another interesting thing we talked about in class was the major goal of any bureaucracy, not to actually accomplish what it was created for, but to simply continue existing...forever, in a perpetual state of pointlesness. Apperently they preserve themselves and try to grow by attempting to consume larger and larger chunks of the federal budget, with no regard for equalibrium points. Going back to the DOD defense satalite example we heard in class, even though we might only need $300 billion worth of satalites, if they can snach it up, the DOD (which is a part of the federal bureaucracy) would gladly spend $500 billion even though it is way past what is needed, or even beneficial. They seem to pay no mind to the concept of deminishing returns.

Why can't I dump nuclear waste in my front lawn?

This week in class we began talking about externalities; effects on those who are outside of a transaction. In other words effects caused by the producer or consumer and felt by someone who is not in either of thsese categories. I found it somewhat intuitive that one would expect a large company to pay for damages they caused to someone who had no stake in the matter at all. However, in my mind, it does bring into question some private property rights. If I own my own land in the middle of the city, and decide to build a small power plant on it and sell the power, but my manufacturing processes create massive amounts of air pollution then its pretty much a given that I'll be having quite a number of legal problems. And it seems logical that I would, afterall my business is causing people to breate in toxic air. However, if I own my own house and the land it sits on, why am I legaly required to get permits in order to build on an addition, or even redo a bathroom? I have heard the argument that this is to maintain standards for others safety, in otherwords: to prevent negative externalities. This is somewhat understandable, but then again I have to view this as an infringement on personal rights. Where do you draw the line with preventing 3rd parties from being harmed? As with all concepts in economics its easy to see the extremes, but as to where the balance is found?...its anybody's guess.

Taxation Without Accurate Representation

I personnaly found all the tax talk in class this week really interesting. I can recall watching the news in months past and hearing about different people's ideas for taxing . I think that in some respects, most of these tax types are valid and good ideas in some manner or another; howevers it seems as though there is a down side to all of them, someone always gets stuch with the short end of the stick (which seems to be a reoccurring pattern in multiple aareas of economic theory). At first glance proportional tax sounded the most reasonable to me at first, but when I considered that the flat rare would make more of a negative impact on lower incomes, it doesn't seem like the best idea. Then there's the progressive tax, where your taxes go up as your income goes up, which seems logical- those who make more can spare more, right? But yet again, problems can arise when you put that into practice, as it is harsher on higher incomes then lower. The most interesting I have have heard of is the marginal tax rate, which when I first heard of it I thought would be a horrible idea as it would create an incentive for people to be less efficient. At least that was the picture I got from the guys on the news networks. After Dr. Fleury explained it (and kudos to you for doing so, it makes a lot more sense to me now) it actually didn't seem too bad. The way I understand it now, it would appear to maintain both the fairness aspect of the flat rate, while still being reasonable for both higher and lower income households.

There’s a thin line between ludicrous profits and extortion of the needy…but where is it at?

Price gouging is a somewhat difficult thing to form a black and white opinion on. On one hand I would be tempted to say that its unethical and wrong to do, but when you think about it, the suppliers in a price gouging situation have the right to charge whatever they want; no one is forcing the consumers to buy the product. The suppliers do have extra costs and there are more risks involved, so to some extent higher prices should be expected in disasters. However, just because one has the right to do something doesn't necessarily mean that they should. Even though no one would be forcing consumers to pay $20 for a bottle of water in the aftermath of a disaster, the consumers do need the water so they're options are limited: pay the price and live or keep they're money and die. If decent people where operating during a situation like this, one would expect a reasonable profit to be made as well as somewhat higher prices, for a time, simply to cover the suppliers extra costs. One would also expect the consumers to have they're needs met at a reasonable price and without being taken advantage of.

Why are movie tickets almost $10?

It was mentioned in class that movie tickets are somewhat immune to changes in the economy. I thought this was interesting because I had noticed this myself, particularly after they raised the price of movie tickets by a couple of dollars.
Even though it is quite noticeable that they do seem to poses some sort of resistance to fluctuations in the economy, Im not quite sure why they do. How can something, which I would consider a luxury, do just as well in a recession as it does in good times? Perhaps movie goers have simply placed it at the top of their list. Perhaps AMC 20 gives out some sort of awesome coupons which I am unaware of. Or, could it be that movie patrons are generally effected less by recessions then others, and therefore give an advantage to theatres?
However they manage, I personally find their resilience intriguing. If anyone has any further insight into this I would appreciate it if you posted your thoughts.

Up and Running

My blog for microeconomics is now operational. I think...