Ask an Economist

E.g., Thursday, August 6, 2020
E.g., Thursday, August 6, 2020
Question:
If budgets have to be approved by Congress before they get signed by the President, why does the Congress again have to approve an increase in the borrowing limits?

If govt debt is at $10 trillion, and Congress approves a budget with a budget deficit of $1 trillion, isn't it implied that the administration can implement the budget only by borrowing an extra trillion?
Answer:

Just to be clear, “the debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the...

Question:
I have been working, earning via weekly or bi-weekly paycheck since the late 1980's. Why is it that in 2020 the yearly salaries are the same as they were over 25 years ago? The salary of $40,000 earned in the 1990's also was a higher dollar earning than it is now, it bought more in 1990's. Today, in job postings the numbers are still the same numbers as they were over 25 years ago. Why?
Answer:

I will try to answer the questions as I interpret them, but first, it is important to explain what the facts are.

Annual compensation includes wages and salaries, but also benefits.  Benefits including federal social insurance taxes,...

Question:
I just wanted to know if price changes how much quantity is supplied or demanded then what creates the price in the first place? If you say that price affects supply and demand and supply and demand affect price then this just sounds like circular logic to me.
Answer:

First, it is important to understand the difference between a few concepts. The demand is a function that describes that the quantity demanded (consumption) declines as the price increases. That is, the demand is the relationship between the...

Question:
I read a summary of perfect competition which said that:
1. All market participants have perfect knowledge.
2. Excess profit is only possible in the short run.

If all participants have perfect knowledge, wouldn't all producers instantly know about excess profit opportunities, causing all of them to switch to producing that product at the same time, causing the price to crash and all of them to experience losses? Or, with second-order knowledge, wouldn't they all know that they all knew about the opportunity, and none of them would switch?

Is there a resolution to this perfect market dilemma?
Answer:

"I read a summary of perfect competition which said that: 1. All market participants have perfect knowledge."

An assumption that a market M for a good Q is a "perfectly competitive market" is not a presumption of perfect knowledge...

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