ECN 211 Macroeconomics Lecture Notes
ECN 211 Macroeconomics Lecture Notes ECN 211
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This 7 page Class Notes was uploaded by Taylor Notetaker on Wednesday March 2, 2016. The Class Notes belongs to ECN 211 at Arizona State University taught by Dr. Brian Goegan in Spring 2016. Since its upload, it has received 94 views. For similar materials see Macroeconomic Principles in Economcs at Arizona State University.
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Date Created: 03/02/16
ECN 211 Lecture Notes In the Dust of this Planet Can we grow forever? Exam 1 2/17/16 Wednesday (pen & calculator) Malthusian Catastrophe •Thomas Malthus was an english Cleric and Scholar 17661834 •Fertility rates rise with an expansion of the economy bc more people can be sustained •If fertility rates rise above the rate which keeps per capita income steady, catastrophe strikes. Wars of extermination will break out as people fight for resources Sickness will ravage a population Famine •The Industrial Revolution proved all of Malthus’ worries unfounded, however. The limits to growth . . . •Many note that the limited resources of the earth can only be divided by so many Finite resources (metals) are being used at a growing rate Nonrenewable and nonrecyclable resources such as oil will run out eventually •Raising alarms about natural resources depletion has been popular for some time 1972 Limits of Growth book used computer simulation to forecast resource depletion “peak oil” is between 2010 and 2030 A Plateau •Average income could plateau •Labor Supply Curve How many hours of work per week would be contributed at a wage of (?) Labor Markets •Labor markets work the same as any market Firms have a demand for labor to do productive work •they will be willing to pay any wage which is still profitable to pay •Based on the marginal product of labor People make up the supply of labor •each person values their time and effort differently •the minimum wage they’d accept is called their RESERVATION WAGE •(SEE DIAGRAM _ GRAPH) Equilibrium in the labor market is reached where supply meets demand •the price of labor is the wage Enough is enough •If the wage is raised to $1000 an hour . . . Would you work more hours? Would you work less hours? •Eventually, enough is enough. Wages continue to rise, but incomes will stay stagnant as people trade work for leisure Incomes being GDP, production will also stagnate, even with new innovations Hours worked is decreasing 1830 2010 Unavoidable Scarcity •Our universe presents limits to the amount of growth that is possible •The observable universe is finite, limited space and stuff If population growth rates continue at about 1.4% by 2770 would be 10 human beings per square meter of land 3900 mass of human pop = mass of earth •The physics of the universe also seem to doom humanity •The earth will be destroyed in 4 billion years by a dying sun. •The universe is expanding forever. Continued Growth •Graph showing that same growth continues Average income $2 billion in 2500 Post Scarcity •Scarcity is what makes the marketeconomy necessary •It is possible to imagine technology which takes out of reality a sophisticated system of recycling and automation could bring an end to scarcity •Many suggest this new economy will eliminate the need for markets will enable a full realization of communism The singularity = the point when artificial intelligence is equal to human intelligence •preindustrial society was limited economically by population the greatest works of these societies were done on the backs of slaves forced to work •The industrial revolution paired human work with productive machines growth is possible today because these machines can be reproduced cheaply Innovation has reduced the amount of human work needed for some machines, but every machine in operation today has needed at least one human to operate it and maintain it Whole Brain Emulation •The economist robin Hanson foresees the singularity being brought about by ‘whole brain emulation’ or ‘ems’ as he calls them. •Ems would have major advantages compared to humans virtually immoral, duplicated, operate faster than humans Ems would push humans out of labor market completely Humans would be the retirees of the world The Great Filter •The Fermi Paradox is the contradiction between the likelihood of extraterrestrial life and humanities lack of contact with it •One explanation is called THE GREAT FILTER and suggests something is killing all the life out there life looks different than no life. But the universe looks completely dead There are 4 great filters: •1. Can your planet support life? •2. can it support multi cellular life? •3. Can that life create civilization? 4. can that civilization colonize the universe? ECN 211 Lecture Notes A Strong and Active Faith The Market for Lemons: the “good” car and “bad” car example. ($6000 vs $12000) Market Failure: The price is too high and all of the consumer/producer surplus becomes all dead weight loss, ALL SURPLUS IS DESTROYED Tragedy of the Commons •Let cows graze on the FREE land, all the farmers do that too. They eat up all of the grass. Then, the land is unusable and dies. It was used unsustainably. Common resource get overused and abused by people. Market Externalities (Pollution) •Markets are how things find their way to you Unspoken agreements between buyers and sellers produce and transport items to you In return, you have to compensate all of humanity for consuming a valuable resource •Markets ensure that you are paying the social cost of your actions •Market Externalities, or external costs, are costs imposed involuntarily on others. •In our supply and demand framework, this is represented by “shadow curve” social marginal cost = shadow curve Supply curve = private marginal costs PrincipleAgent Problem ex. Textbook over priced. •arises when the person choosing the consumption is not the person who is paying for the consumption •This problem creates moral hazard people choose where marginal benefit = marginal cost When the marginal cost is 0, they choose where marginal benefit is 0 If the true cost of their actions is not 0, then this creates market failure Monopoly •Firms which are able to scale back production and not see that gap filled by another company are said to have MONOPOLY POWER •Apple, Verizon, NFL . . . When these companies draw back production, there aren't competitors that can fill those drawbacks (No one else sells iphones) There’s always a point to the left of equilibrium that is more profitable for monopolies dead weight loss!!! A role for Government Public Goods = public park spaces, national defense, lighthouses, knowledge, street lighting, radio, roads •CluB Good benefit but wont pay for it •Common property resource •Public Good cant be efficiently supplied by markets (tragedy of the common) •The only way to provide an efficient level of this good is to FORCE people to pay for it •But what’s the cost, how much $$$? The Pigou Club •The government can correct the market externalities by internalizing the cost. •The government could charge producers an tax unit equal to the externality •The government can impose regulations limiting production •Hard to measure the externality Regulation •Sherman Antitrust Act passed in the USA 1890, allows courts to break up monopolies •Price ceiling = forcing the price down to the competitive level •It is difficult to differentiate between monopolies and intellectual property, or set the price ceiling •Ramsey Equation: to determine the most efficient rate…?? •Imperfect Information creates a market to buy and find that information Coasian Bargaining •Make a transaction pay polluters to not pollute •Ronald Case laid out the economics of bargaining over externalities Market Friction •Transaction costs = are costs you have to pay just to participate in the market Most markets work great, but sometimes they don't
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