Chapter 13: The Costs of Production

The costs of production are what firms take into consideration. They look at fixed costs, variable costs, average cost per unit, and marginal cost when deciding the quantity produced of a good. The chapter then went on to explain/analyze the graphs of each, later showing how social optimum (Qo) could be found from their intersections.
The graphs of each measurement are as follows:
The total cost graph (fixed cost+variable cost) increases. As we produce more, total cost is higher. It is also important to note that TC is the minimum cost of producing the output and it includes a reasonable profit.
Average cost per unit graphs (TC/q) are "U" shaped. As quantity increases, average cost decreases. This downward slope continues until a high level quantity is reached; where variable costs are larger (as the resource gets more scarce).
The Marginal cost (extra cost of producing one extra unit) also increases. For high output levels, MC usually rises w/ output. For low outputs, the curve is flatter and might even decrease due to worker's knowledge, etc. What do they mean by higher and lower output?
This chapter confused me quite a bit. I want to talk more about what happens when the graphs intersect. Also, how to find total cost on different graphs.

Article 4 Review

While emerging economies may appear to have moderate debts (to China), the data could actually be a major misrepresentation; and if it were, then the IMF would certainly have a lot to discuss over a possible crisis (similar to the one in 2008). The data, states Stockman, can be unreliable due to hidden debt in the form of off-balance-sheet borrowing. Hidden debt is rarely found before it is too late.
The data cannot be trusted because it does not include some projects {funded by China}, lenders, or borrowers, trade finance (domestic and international trade transactions), and currency-swap agreements (a foreign exchange derivative between two institutions to exchange the principal and/or interest payments of a loan in one currency for equivalent amounts, in net present value forms, in another currency). This last bit is a bit confusing to me..if the amounts are set in currency exchanges, why are there hidden costs?
I personally liked this reading because it was clear and short. However, I wish Stockman talked about the similarities of emerging economies' financial crises. He briefly stated them (significant slowdown in economic growth and exports, unwinding of asset price booms, growing current account and fiscal deficits, etc), but did not expand. Why are hidden costs so much more important? By how much does he think the debt could be off?
The last question I have regards China's economy. Obviously, China's collapse is hurting the global economy more but how so? I hope that we read an article devoted entirely to the Chinese economy since it has had major impacts in the last decade, plus. Why would China lend so much money to now be in a tough spot? Were Chinese Economists wrong? Will the Chinese economy "bounce back"- it's not as bad as we thought, because of hidden debts to China? Was my sister's four years of studying Mandarin for nothing?

Chapter 11: Public Goods and Common Resources

Normally prices determine efficient allocation of resources. However there are goods without prices that need government intervention.  These goods can either be excludable (when the property of a good prevents another from using it), rival in consumption (when the property of a good diminishes other people's uses), both, or neither. They are grouped into four categories: private goods, public goods, common resources, and naturalistic monopolies. A problem faced by private markets is the free rider, or the person who receives the benefit without actually paying. For example, someone who watches fireworks shows without actually paying because fireworks are not excludable or rival in consumption.
The government intervenes and creates public goods when private markets are inefficient (from not taking into consideration the externality). Some examples are national defense, basic research (not to be confused with patents!, this instead refers to general knowledge), and fighting poverty via the welfare system, subsidizing the cost of food for those with low income, etc.
This chapter was not that awful. The vocab might be the killer, but not the definitions/concepts. However, I want to go over categorizing different goods as I feel the line often gets hazy.

Chapter 10:Externalities

Chapter 10 discussed externalities, which are the uncompensated impacts of a person's actions on the well being of a bystander. When there are externalities, market equilibrium is inefficient because it fails to maximize the total benefit to society as a whole (not just the buyer and seller). To provide efficiency, governments create policies. Governments internalize the externality by moving the allocation of resources closer to the social optimum (though taxing or subsidizing). Activities with a negative externality (adverse impacts on the bystander) are taxed to create a negative incentive. Activities with a positive externality (beneficial impacts on the bystander) are subsidized.
When graphing negative externalities, the private costs of the producers plus bystanders affected adversely are taken into consideration. The social-cost curve is above the supply curve and the difference between the two curves shows the cost of the negative externality. The optimal quantity is where demand intersects the social-cost curve. When graphing positive externalities, the social value is greater than the private value, so the social value curve lies above the demand curve. Optimal quantity is where the social value curve and the supply curve intersect.

I wish we did not skip Chapter 9 because I don't really understand what subsidies are. Also, why do negative externalities affect supply, while positive externalities affect demand?

Article #3 Review

David Stockman once again explores the questionable decisions of the government. National debt has gone through the roof because banks can borrow money at relatively no cost (due to ZIRP, zero interest rate policy). Also, quantitive easing has caused a mad dash of printing money that is practically being given to Goldman Sachs (why is this happening?). Yet, we are all being told lies about the "growing" economy from people like Bernanke who leads the "Keynesian" chorus (talked about in the last article);  while Stockman is able to dispute all of Bernanke's so-called facts.
I feel like I am starting to understand the economy a little bit more; but that means I am starting to see just how corrupt it is. I don't understand why we buy treasury bonds from Goldman Sachs and not the treasury. I don't understand why people like Bernanke or William Dudley are in charge (who elected them?). I don't understand why there was a quantitive easing 2 when the first had literally no significant results in economic growth. I don't understand why the government insists that we are in a deflation, when in fact it is an inflation (as pointed out by Stockman in Bernanke's little slip-> "By keeping inflation low and stable,..").
I did have some technical questions like what is a DM economy? Isn't excess capacity good (as that means more efficiency)? What is Bullard Rip?
I feel like David Stockman is really opinionated, and so I am curious to know the other side's views. How do they justify what is going on in the economy? If Stockman is against Keynesian economics, what kind of economics does he side with? Which one is being taught in schools?

Chapter 8, Application: The Costs of Taxation

Mankiw discussed how taxes affect welfare. Taxation leads to a shrinkage in the market, or deadweight loss from a lower incentive to participate in a market. The total surplus therefore decreases which means a loss in potential surplus (this accurately called a"deadweight"). The government gains revenue by T (size of tax) * Q ( quantity sold) but not at an efficient ratio to the loss of buyers and sellers. Elasticity of the supply and demand curve affects the size of the deadweight loss.
I thought this chapter was easy to understand and I liked the size of the explanations. It didn't ramble on like last chapters ( which I think I am starting to understand better from this chapter emphasizing key pints like how the demand curve shows consumer willingness, supply curve shows producer willingness, how to find total consumer surplus on a graph, etc)
Some things I don't understand are the following:
1.) The book said welfare determines how high the price of civilized society can be. What exactly does this mean?
2.) Taxation can still be good, right? Even though there is a deadweight loss the trade off is better roads, police, etc? Or is there a better alternative to increasing the standard of living?
3.) I would like to talk about elasticity a bit more. It's one of the harder concepts for me.

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

Chapter 7 defined consumer and producer surplus and then used these tools to evaluate the efficiency of free markets. A consumer surplus measures the willingness of the buyer to pay for a certain good, while a producer surplus measures the willingness to sell a certain good. These tools were used to show free markets are the most efficient choice for a number of reasons: free markets allocate the supply of goods to the buyers and sellers with a higher willingness and the quantity of goods produced maximizes the total surplus.
I thought this chapter was pretty well paced, stopping to explain concepts that would otherwise be frustrating. I appreciate the graphs and examples comparing one condition to the other (like a price drop or raise). I also thought the section on an organ market was extremely interesting. I agree that it is fair to sell/trade organs with ones consent because not everyone is born with a healthy liver. However, price does pose a problem because someone will definitely not sell their organ for cheap but it promotes inequality between the rich and poor.
Some questions I have for this chapter are:
How is consumer and producer surplus measures on a larger scale? It seems hard to quantify willingness.
How exactly do market powers and externalities affect the market?

Review: David Stockman's Contra Corner

David Stockman predicts a global recession. His article starts with the vivid image of a bull crashing; where the bull represents the "coddled" and "intravenous liquidity injected" stock market that has been kept nearly alive for two decades. The instability of the U.S. stock market is not alone, but one of the many in a long list facing the effects of the decaying Chinese economy. As Stockman often sarcastically points out, we are not "decoupled" from the global deflation that is occurring. Our S&P conditions are similar to that of 2007, just prior to the 2008 recession. Stockman warns that this recession will be worse due to its global effects on "every significant central bank on the planet."
I think David Stockman got his point off very clearly. Though I am limited in sources, David Stockman establishes credibility and develops his argument for a global recession. How, then, are news channels like CNN broadcasting news at 2AM (or was it PM?) without a note of panic? Do most economists agree with Stockman?
From what I took away, stocks that were once considered giants in their fields are falling. An example is Glencore, a giant in the oil industry, with a hefty debt of $29.5 billion (which lead to decreases in the commodities market). The stock market is no doubtfully becoming unstable just like the Chinese economy and now economies worldwide.
Some questions I have are the following:
1.) How is the CDS market a way for traders to bet on a stock's collapse?
2.) Stockman said that China's largest steel company has led to price reductions in steel due to their idleness. This would cause a decrease in supply. How then, does this translate to price reductions? (similar to the graphs we've been analyzing in Chapters 4-5).
3.) How will the recession be the fall of "the cheap money era?" What exactly does this mean?
4.) Is Red Chip to the Chinese stock index as Dow Jones to the United State's stock index?
5.) Who will most likely be the next "Red Ponzi?"