Ask an Economist
Economists distinguish broadly among three types of goods along the private to public continuum. Purely private goods are purchased and used by individuals and families. Another way of explaining a private good is to say that my use (or...
The writer of this question understands economics and the market failure associated with externalities very well. Thank you for such an informed and interesting question! The writer is quite correct that the fact that agriculture generates an...
As for the high price of apartments in China's big cities, I believe the supply and demand play the main role.
1. The supply in big cities is depressed by the heavy land regulation. There are two types of regulation. First, according to...
Under the gold system, either gold circulates as money, or there is a fixed relationship between the amount of currency in circulation and the amount of gold, given the dollar price of gold. In either case, it means that a valuable resource which...
The event that you are referring to is what economists call recessions. During recessions, GDP drops or grows significantly below normal times for a period of usually less than two years. Recessions are dreaded by many but not all economists....
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?
"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...
The local mussel farm has a cost advantage in supplying in its own town mostly because it saves on transportation costs. Even with that cost advantage, the local firm may not be able to fully exert monopoly power on the local market. It is easy...
When the Federal Reserve announces to the world that it’s going to slow down the economy to hold back inflation that has always meant that unemployment will eventually take a hit. In the three cycles since 1989 the unemployment rate starts declining 2.59-3.09 years after the Federal Reserve starts dropping the federal fund rate. The monthly unemployment rate has been falling at a predictable rate within 2.31% since January 2012. For some reason whoever is in the White House gets the blame or credit.
As noted, when the Federal Reserve changes the amount of “monetary stimulus” in the economy, it tends to push inflation and employment in the same direction. Lowering the level of stimulus (by raising interest rates) puts downward pressure on...
Unfortunately data are not readily available on the percent of hog firms using forward contracting or options. What is readily available through Mandatory Price Reporting (MPR) data provided by USDA’s Agricultural Marketing Service is the volume...
This week the Congressional Budget Office analyzed the effects of raising the minimum wage to $10.10. They say (Table 4) that it will raise the average income for families in poverty by $300, but also (Table 1) that it will raise the total income for families in poverty by $5 bn.
These two numbers would make sense if there were 17 million families in poverty, but the census says there are only 9.5 million families in poverty. The numbers about families at other income levels have the same issue. Somewhere a number or an interpretation is wrong -- but where?
CBO link: www.cbo.gov/publication/44995
Census link: www.census.gov/hhes/www/cpstables/032013/pov/pov04_000.htm
That’s an astute observation. As you say, $5 billion divided by $300 per family in poverty suggests there are about 17 million families in poverty. But the Census data cited in the CBO report indicate far fewer families in poverty. Updating your...
Are your students economists? If so, it will be difficult to fashion a legitimate bumper sticker in support of the minimum wage. Boehner’s quote is called the “Law of Demand” in economics. You might use:
“Because employers can pay...
Lifting boxes up to 150 lbs.
Loading and unloading trucks in a warehouse that can be freezing or sweltering,
Driving a large truck anywhere from 10-150 miles a day,
Customer interaction,
Route planning.
Now if the minimum wage was raised to $15, what would make me choose to work at this parcel company when I could work at a grocery store as a cashier? Wouldn't the new minimum wage increase cascade into other jobs in order to entice people to fill those more difficult positions?
I can see such a large jump in the minimum wage having unforeseen consequences. I would love someone's opinion on this. Thank you for your time!
The current federal minimum wage for workers in covered sectors is $7.25 an hour. As you suggest, raising the minimum wage to $15 an hour would motivate many workers who were already being paid $15 in the old regime to seek employment in less...
First, the characterization of foodservice and restaurant workers as a career track is inaccurate. The median age of restaurant workers is 28.4 years, the second youngest sector of our economy (next to retail shoe stores at 24 years). As shown in...
"Economic data usually influence policy through a reduced-form analysis...Explicit assumptions about behavior that underlie the relationship are not emphasized; rather, the researcher asserts that the “data do the talking.”"
The author later specifies what he means by "reduced-form":
"We use the term in a wider context, where the pattern in the data — not an assumed behavioral structure — forms the point of departure for estimation."
A “reduced-form” analysis, also often referred to as “non-structural” analysis, is the most common kind of econometric analysis performed by economists. The other kind, which you called “a non-reduced form,” is customarily referred to as “...
The problem of underfunded pension plans is complex. Some possible economic effects are as follows.
1. Plan beneficiaries will suffer economically in retirement unless they are bailed out by taxpayers. Whether and how much to bail them out...
As noted, the Federal Reserve has significantly expanded its balance sheet from about $800 billion prior to the Financial Crisis, to roughly $4.5 trillion as of November, 2014. The Fed expanded its balance sheet by buying long-term assets and...
Black Friday is mostly a marketing gimmick to stimulate shopping during an extended weekend of wide-spread idleness, and the weekend’s performance is not a reliable predictor of total holiday spending or the health of the economy. To understand...
The model of perfect competition among firms is supposed to eliminate economic profits (a.k.a producers' surplus) in the long run. The idea is that such surplus will bring in new firms, pushing the economic surplus down to nothing, so that there are only normal market rates of return on all factor inputs, explicit and implicit.
Why then does this same model not apply to consumers? I have never seen it stated in any econ text that the entry of new consumers will push their surplus down to zero, including their search costs. Is this a serious inconsistency, or is unlimited entry of new consumers simply not a good way to model most markets? (I suspect the latter.) Even if this is so, should not this asymmetry in our most basic model be explicitly noted?
Yes, economic theory traditionally has emphasized the role of the entry and exit of firms in dividing market surplus. In microeconomics, free entry and exit of firms is an important part of the assumption of free competition. For macroeconomists...
Agriculture and agriculture-related industries contributed $777.0 billion to the U.S. GDP in 2012, a 4.7% share. The value of U.S. livestock production output (dairy products, milk; meat animals; miscellaneous livestock; and poultry and eggs)...
To my knowledge, a publically-accessible national listing of all the agricultural cooperatives and their branches does not exist. However, many states have cooperative associations or cooperative development centers that likely maintain a list of...
As the layoffs suggest, a large part of agriculture, in this case the crop sector of agriculture, has seen a significant reduction in prices and incomes over the past two years. This drop in prices and incomes can mainly be linked to a surge in U...
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?
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...
Assume that you decide to buy a new cell phone. Are you going to buy iPhone or Xiaomi, some unknown brand? For a typical US consumer, you have about 40% chance to buy iPhone, but almost 0% chance to buy Xiaomi. An iPhone costs you about $600, but...
If central banks are to lend to the government, they would have to print money and that is potentially inflationary. Forward-thinking countries try to control such a temptation by legislating in advance that their central bank be independent....
Thank you for your question. Indeed, part of the expenditure in health expenditure and defense will count towards total GDP. The reason why the total GDP (including health expenditure or defense expenditure themselves) is used as a denominator to...
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