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Week 7 Notes (10/12-10/16/2015)

by: Jade Miller

Week 7 Notes (10/12-10/16/2015) ECO 108

Marketplace > University of Rochester > Economcs > ECO 108 > Week 7 Notes 10 12 10 16 2015
Jade Miller
Principles of Economics

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About this Document

This set of notes talks about Mercantilism and Feudalism, but also focuses on the essence of economics. Later in the week, Rizzo focused on the Jealousy of Trade, and then the Basic Principles of E...
Principles of Economics
Class Notes
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This 9 page Class Notes was uploaded by Jade Miller on Friday October 16, 2015. The Class Notes belongs to ECO 108 at University of Rochester taught by Rizzo in Fall 2015. Since its upload, it has received 42 views. For similar materials see Principles of Economics in Economcs at University of Rochester.


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Date Created: 10/16/15
Monday October 12 2015 Eco 108 Day 17 Mercantilism Progressive Corporatilism Whoever was in authority took rightdutyresponsibility to oversee all economic duties Licensing Required discretionary approval of someone by a noble Government granted monopolies Heavy import and export regulations Limits on domestic production If you got too productive you had to stop Explicit details on how to produce products Ex If you wanted to weave shirts you had to use certain cottons Price Control Wage Control Weren t like minimum wages but maximum wage Why would there be a limit on worker s wage If people violated rules they weren t just ned Feudalism The king owns all the property within a country Anybody who s in that country only lives with permission France Physiocrats Mid 17th Century Quesnay Lived in 18th Century Maybe we can uncover a truth about the way we interact with each other Looking at an economy you re looking at a series of relationships If every interaction isn t a bilateral one changing one will cause change For example a tapestry The rst group of people to talk about Circular Flow Scotland Moral Philosophers 17 00s David Hume 1752 Balance of Trade AND Jealousy of Trade Economics isn t a social construct Mercantilist doctrines were harmful and dangerous and unnecessary There are actually checks and balances preventing kings from controlling entire economictrade ow Needed more than a scienti c approach to human interaction Grounded in aesthetics Emerging exchange economy how is it compatible with virtues Essence of Economics Being able to interact with other people Monday October 12 2015 You can be productive but it does not matter unless there are interactions Insular World You re alone Consumer and Factory Firms people and individuals Provide income Wages rent pro t Factor market inputs provide factors rent your own labor lend property out Also interacting with rms in the product market Everything that s happening is interrelated What ways can consumers spend their resources Can only spend it one way CONSUME IT Consumption Consume today Consume tomorrow The way you consume tomorrow is by saving some of your income from today Savings gt Investment Claims on future consumption exam question on eating money You can collectively consume things INCOME EXPENDITURES Economic Growth comes from making more How is it that people get wealthier ability to produce food Specie Flow Mechanism Mercantilist Argument There are winners and losers in trade Trade is zero sum Some other nation is getting poorer because of another s pro ts King doesn t want to impoverish country gold comes in gold doesn t go out Promote eXports why there were limits on domestic countries Trade cannot be allowed to be free LAW OF ONE PRICE Price will fall people will buy price will jump up people will stop buying You ll get deceived if you focus on the money Next Class How to eat a dollar Day 18 October 14 2015 Finish Section 2 Physical Foundation switching Friday Basic principles Real Economics Wednesday October 14 2015 Review If you have a system that s characterized by heavy restraints on trade there are problems If you restrict trade you lose out on three things that are hard to replicate On the Jealousy of Trade You lose competition Plan is to be workers when you graduate Life is better when you have lots of options for schoolj obs Protects us from being exploited Stasis within the companies if competition is lost Choice as a consumer Learning and Innovation and Knowledge Gains from Division of Labor Just making one car you d make it by yourself Take advantage of economy for trade Is China a bigger risk to the US today than in the past Adam Smith We need police in courts to protect us from domestic bandits People should be free to choose their own jobs how can this be possible We need a national defense to defend against foreigners People are free to choose the economic life they want to live Division of Labor has to exist How can other people be made better off when you work for yourself First to articulate what the sources of wealth are We were really poor for a long time and now we see differences What s the source of wealth in the world Production of things of value Exchange The great moral failings of universities is GO FIND YOUR PASSION Enjoy the world But find your passion though we shouldn t say explore Laissez Faire doesn t argue that working fixes things 100 of the time But does seem to give more optionsworks the most effectively Parties in a market should be able to buy and sell Should be free to buy anything that is made Doesn t oppose fair taxes Stability that yields economic changes Adam Ferguson 1767 Essays on civil societies The Industrial Revolution didn t just happen because society decided to make it happen Slow evolution Institutions evolve over time Wednesday October 14 2015 The world we live in People stumble on institutions that are the result of human actions but not design Nobody instituted capitalism The emergence of language Things just evolved Spontaneous institution Now imagine designing an entire economy Prosperity affected by 3 forces Limited amount of stuff in the world We will run out of it there s no other option Threatened by prejudice of the public Average individual finds it hard to follow markets Will tarnish how you view economic policy Not emotionally satisfying need that connection The Power of the Interest Something to constantly worry about Can cause government to grant special privileges Licenses to do certain things Concluding Topic Corn Laws Passed in early 1800s UK referred to grain Formally in 1815 favored protection of farms for cheap imported food Jacked up prices on the foreign items I d be protected but we d be starved Bad crops in England famine caused this to change Cost twice the weekly wage of a worker for a bushel of week 1820 AntiCom Law If you tried to establish an organization against a law you d be in prison 1845 Laws repealed Lost all trade protections We don t need the PTT in America The fact that there was a Trade Deal shows it was mainly protection VW Recall Exam question Wednesday October 14 2015 Recitation Wednesday October 14 2015 Why do people blame economists In Rizzo s view 1 A visceral and unwarranted dislike of markets and economists association with these 2 The opinion that the job of the economist is to predict What economists ARE doing and what they SHOULD be doing The task should not be about how to allocate resources to competing ends or uses A problem alludes to a solution and prescribing this to economics might as well be calling yourself a mathematician By creating outcomes or solutions that de ne a form in advance you are removing choice from the process The theory of choice and source allocation assumes no special role for an economists over any other social science The essence of economics is exchange not choice How they happen and why they happen Markets NOT competitive by construction or assumption Come to be established as institutions Becomes competitive It is the becoming process that is brought about by the continuous pressure of human behavior in exchange Becoming process hat is the central part of economics Thus nothing more than the institutional embodiment of individuals involved in the exchange process Economics and Politics Nature of the relationships among individuals in each order E The extent to which individuals are freely exchanging and negotiating P The extent to which relationships are inferiorsuperior or leader to follower How does one individual make you have a choicemake you exchange How do we make decisions when there are unique rules in each setting MatchingMarket Design The need to match buyers and sellers is the reason markets emerge in the first place Well functioning markets depend on detailed rules Market designers are like the engineers of economics Some problems in markets Limited number of buyers andor sellers Problem of congestion Safety Lloyd Shapley and Alvin Roth Some markets get cleared in a centralized way Wednesday October 14 2015 Small clearinghouses are established to match buyers ad sellers even absent prices Some markets get cleared in a decentralized way There is no central authority to allocate goods and services Example Hospitals are in need of hiring medical students and new med school graduates are in need of work 1940s Competition for new doctors increases hospitals began to hire 2 years in advance Lack of viable alternatives for the students 1950s Rules established about when hospitals can make offers Did this work Solution A central clearinghouse was established called the National Resident Matching Program still in use today and whose current version was designed by Nobelist Alvin Roth Question If creating a centralized clearinghouse improved the matching of residents and hospitals does that mean the same is true for other economic allocations Advantages must be weighed against gains of smaller groups Question Is this the rst step in being able to use algorithms big data and fantastic computer power to centrally plan an entire economy Are systems like this potentially rst step to over arching ability to centralize an entire place Schelling on Pre Commitment Schelling s insight which seems now obvious in hindsightis that either individuals or institutions can be much better off if choices are limited in advance Famous example is the way rms signal to their customers their quality in situations where only many years of experience would reveal if they delivered such as why bank lobbies are so ornate On Nuclear Deterrence Lesson Nuclear deterrence rather than being a simple policy of MAD is very much a paradox Focal PointsSchelling Points You can pretty much explain everything by referencing focal points ie in the stock market a price can be a focal point because to people need to agree on it in order to transact Chris Coyne has illustrated how changes in fashion can be understood as shifts in focal points The key is something needs to have symbolic value to serve as a focal point Four Implications of this Schelling Model It is really hard to determine whether in fact groups of individuals are racist Wednesday October 14 2015 If you can get it right the rst time Intervention may be necessary to maintain diversity Intervention may be needed to x things Day 19 Friday October 16 2015 As you gain income you gain weight Basic Principles Let s go back to the de nition of economics Study allocation of resources when they re scarce Principles derive directly from that Remember de nition of scarcity trade offs not enough stuff to go around 1 TANSTAAFL Ef ciency v Equity Do something to make outcomes more suitable then you slow economic growth Salary is an indication of how much value you can produce For something to be free there would have to be a trade off For it to be free things have to basically materialize which doesn t happen is it free to read a book Costly to read takes up time What action are we talking about when we say that something is free If you know there s always a tradeoff to be made it can be taught that there s too much to be a good thing You can have too much marriage searching You re always settling Bene ts of nding a spouse who39s better are really minimal If you clean up Lake Erie too much the air will be dirtier The algae will keep the streams clean Same thing with safety Transportation Security System has caused many lives to disappear What happens now 911 How many deaths has the security really stopped When we make airlines more eXpensive and more security forced what happens More people in cars and it s more dangerous to begin the car than in the plane Drug Safety Don t blame the FDA Drug lag kills more by safety standards Drug loss Because of rigorous testing it costs about a million dollars to produce a drug Friday October 16 2015 Over the last decade drug companies spend over a million dollars on 20 products You can have too much of a good thing la Every choice requires you to incur a cost Assume de nition of a cost Cost Something that consumes resources thing of value some things you think are costs but they re not costs at all Welfare transfer is only costly if it makes it harder to produce exchanges American healthcare is more costly than any other country What does that mean They tell you nothing about your resources We use less than any other country in the world Follow the goods not the money Always follow the resources 2 Opportunity Costs The question to ask Should I go play laser tag or do something else Comparing the next best opportunity to make choices Net value of your next best opportunity Suppose you Win concert tickets to Bruce Springsteen or you can go to Barry Manilow Value for BM is 50 and ticket costs 40 Friday October 16 2015


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