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

1. Economists would describe efficiency, in respect to markets, as maximizing both consumer and producer surplus. In an efficient market, where supply and demand meet at equilibrium price, total surplus is split evenly among producers and consumers.

2. The most difficult concept of this chapter is understanding the significance of total surplus.There are so many aspects to consider simultaneously. For instance, total surplus will always be the same right? Whether it is shared equally - 50/50, or if it's 40/60, 80/20, or even one side has all the surplus and the other has none. Since we're all part of both supply and demand in one way or the other, any type of surplus will be shared by the economy as a whole. I also have a problem making all the assumptions we are asked to make to believe in the the theory of market efficiency and I think equality cannot be left out of the efficiency theory all together. Just because it looks nice and neat on a graph, doesn't mean it applies in the real world. Does it?

Policy Assignment: Should the federal government impose a price ceiling on essential items during emergencies?

 I believe that the federal government should not impose a price ceiling on essential items during emergencies. Price ceilings decrease supply during a time of increased demand. The result is a shortage of supply. Isn't it better to pay more for something you need than to not have the option to buy it at all? 

Consider the economic effects of a price ceiling on hotel rooms during a time of mass evacuations of a nearby area. We'll assume there are more people than hotel rooms (if there weren't, the price ceiling would probably not be binding), the hotel rooms would quickly fill most people could afford the rate and many families would be left without shelter. If hotels could charge higher rates, people would become more resourceful. They may share hotels rooms to divide the cost or find cheaper alternatives like staying with friends or family. Consequently there would be more hotel rooms available to those who most needed to stay and were willing to pay the price. Sadly, there would be families who desperately needed the hotel room but could not afford to pay the raised prices. However, a price ceiling would not guarantee that family a room, and would instead result in many families being left homeless. It does seem worth mentioning that by not imposing a price ceiling, wealthier people will benefit more than the poor. The point is that less people overall will be left without shelter if there is no price ceiling. 

There are ways to maintain fairness without running the high risk of shortages of essential items. Raising prices during emergencies is known as price gouging. At least 28 states in the US have anti-gouging laws (Burr). Though they vary from state to state and are incredibly vague and subjective, they do give pause to suppliers who may have done much worse. Many companies argue that these laws are unfair and too vague to abide by. These companies can, without a doubt still legally make a profit off of those less fortunate but when that profit becomes excessive, the law steps in. If a company is greedy enough to cross that line, they deserve to have some of those profits taken away. 

Price gouging is currently an extremely controversial topic in legal and ethical circles and I believe the laws will continue to evolve as a way to avoid the necessity of price ceilings during emergencies. While it is unfortunate that the victims of natural disaster and similar crisis can be exploited by sellers, by not imposing price controls, additional and unnecessary tragedy can be avoided.




Works cited:


Burr, Michael T. "Getting Gouged." Insidecounsel 16.174 (2006): 32. MasterFILE Premier. Web. 18 Sept. 2012.

LLAMONT, JULIAN, and CHRISTI FAVOR. "Price Gouging In Disaster Zones: An Ethical Framework." Social Alternatives 28.1 (2009): 49-54.Academic Search Complete. Web. 18 Sept. 2012.


Page, Edward J., and Min K. Cho. "Price Gouging 101: A Call To Florida Lawmakers To Perfect Florida's Price Gouging Law." Florida Bar Journal 80.4 (2006): 49-52. Academic Search Complete. Web. 18 Sept. 2012.

Reflections on Chapter 6: Supply, Demand, and Government Policies

The New York Times article about price controls in Venezuela causing food shortages relates directly to the concept price of ceilings and their effects. Just as the text predicted, when the government imposes a binding price ceiling, the supply curve shifts left because it's less profitable to produce the good. When this happens, the quantity supplied decreases and since the price is not allowed to increase, the result is a shortage of the good. As is the case in Venezuela.

A similar situation would have occurred if price controls were imposed on bottled water during the post-Katrina crisis. It seems to me that the government must choose between the lesser of two evils when deciding whether to impose price controls. Those two evils being shortage of supplies and speculators profiting from the suffering of others. In a capitalist society, isn't the entire idea of it to make a profit? Speculators are just being resourceful in a culture that encourages that type of ingenuity. In this case especially it seems that a shortage of drinking water would have much worse results than speculators making huge profits.

The theory of price control is all about fairness. However, a capitalist society is all about making a profit, not fairness. Therefore, the task of trying to make a capitalist society a fair one will always be a difficult (if not impossible) balancing act.

Reflections on Chapter 5: Elasticity and Its Application

1. When I think of sales based on price elasticity, I think of cable, phone, and internet carriers. I recently changed carriers because the price of my current carrier was getting too high. It was an easy decision to make since other companies are offering very similar products. I believe demand for such products is becoming more price elastic since there are now so many close substitutes and it's easy to get the same service for less money.

2. I find the fact that a linear demand curve can have varying degrees of elasticity a bit confusing. When using the table of data and doing each equation, I see that indeed the elasticity does change. But I find it difficult to understand the concept on a more abstract level.

Reflections on Chapter 4: The Market Forces of Supply & Demand

1. Yes, I think oil speculators can be responsible for large price hikes in the price of oil, especially when all other factors are held constant. On the other hand, they could also cause prices to fall. They can cause both of these results because they act as the demand portion of the market. As I understand it, oil speculators buy contracts for future deliveries of oil based on what they're expecting to happen in the oil market. If they expect prices for oil contracts to fall, they will wait until they do, then make a purchase. Of course they will be right because by not purchasing the contracts at the given price, the market will respond to the fall in demand by decreasing the price. As speculators begin purchasing these lower priced contracts, the demand will increase and drive the price up. Then the speculators can sell their contracts for a better price and make a profit. It's a self fulfilling prophecy. The bottom line, as I see it, is that oil speculators significantly effect the prices of oil, for better or worse.

2. In the article, A Ban on Oil Speculators?, James Hamilton asserts that most of the transactions I mentioned above are all happening within the course of a day so they are essentially canceling each other out. I agree with his point that Kennedy's interpretation of all the statistics are exaggerated and therefor inaccurate. Even though speculators do play a major role in the prices for oil, banning them would not solve the problem. There is a huge demand for oil so whether speculators are representing that demand or the actual refineries/consumers are, there will still be a demand. Furthermore, as Hamilton suggests, people will always try to find a way to make a profit or "hedge their risks" and banning that type of activity would go against the fabric of our capitalistic society.

Reflections of Chapter 3: Interdependence and the Gains From Trade

1. It surprised me that one person (or country) can be the best at producing a good or goods (by best I mean using fewer inputs to produce than another country -having the absolute advantage) but still benefit by letting another country produce that good, because the other country has the comparative advantage.

2. I believe that international trade is a good thing. If it weren't for international trade, we wouldn't be able to enjoy the variety of goods we have access to now. Much of the produce in the grocery store, for instance, comes from other countries that have different climates and seasons than the US. We couldn't grow some of it no matter what. Some of the items that we could grow in our country would be much more expensive if we supplied them. Since other countries can grow them at a lower opportunity cost, they charge less for them. Some people may complain about the loss of jobs when they get outsourced to foreign countries, but they take for granted all the luxuries provided to them as a result of international trade. You can't have one without the other. As the book says, we're all better off as a result of trade, whether we know it or not.

Reflections on Chapter 2: Thinking Like an Economist

1. The production possibilities frontier makes it easy to understand a concept that in words alone would be difficult for me to really comprehend. When looking at the data in a table form, I can more easily see the opportunity costs but answering questions about efficient, inefficient, and unfeasible points would be very difficult. When looking at the model, those questions are simple to answer. The circular-flow diagram really simplifies the economy in a way that makes it easy to understand. I don't consider myself a visual learner but obviously some concepts are easier to understand when modeled.

 2. Positive statement: Unemployment is up 1% from last year.
     Normative statement: The current administration needs to reduce unemployment by 1% in order to reverse the economic recession.

It is important to know that difference since one statement is based on fact (positive) and the other is based on opinion (normative). When forming your own opinion, when deciding on which candidate to vote for, for instance, it's imperative that you know which statements are fact and which are based on someone's opinion.

Reflections on Chapter 1: Ten Principles of Economics

1. What in this chapter made me think about an economic concept differently than I did before?

I did take macroeconomics last Spring so I'm not reading about these principles for the first time. Knowing nothing about economics before that class, most of the ten principles were enlightening. Basically everything in the book made me think differently. My viewpoints on these economic concepts changed drastically about eight months ago so this chapter is not really making me see things differently. I do remember that after reading about opportunity costs (#2) for the first time, I began noticing that I was making trade-offs all the time in my personal life that I never really noticed.   Principle Number 5 (Trade Can Make Everyone Better Off) definitely changed my way of thinking about trade. I used to buy into the idea that losing jobs to oversees was such a terrible thing. Now I understand about comparative advantages and that, while it's not easy for people, evolving and changing one's skill set to fit the country's economy is sometime necessary. 

2. What new questions do you have now about the US economy based on this chapter?

Now that election season is upon us, I understand the role that policy makers play in relation to the economy much better. From an economics stand point, I see that it's not always in the country's best interest for them to try to offset what they see as negative economic activity. People vote based on short-term economic markers when often, economic cycles happen on their on in the long term. This semester I hope to gain a better understanding of when it's in the country's overall best interest to make fiscal and monetary changes and when it's just for political gain.