Private saving impacts investment by essentially funding it. If somebody earns more money than they spend and they then chose to place their unspent income in the bank, for example, then that individual is saving that money. The person who then asks the bank for a loan to start a business is investing that money, and that investment was therefore funded by the 1st individual’s private saving. It is important for individuals to do this in an economy because the nation’s investment has to be backed by the nation’s saving, meaning if there are people who want to start a business, then there better be others who want to save and lend out.

Public policies such as tax policies discourage saving because this means the person saving has to pay taxes on their interest and dividend income, which leaves them with less than they would originally have without these policies.

Government budget deficits mean that the government spent more than it collected. What this does to the interest rate is make it rise because it has to be equal to investment, and if the nation’s saving is lower than the nation’s investment than financial markets must raise interest rates to lower investment. This brings them back to a balance, even if they are both now at a lower rate.

Crowding out is when investment is decreased due to government borrowing. Basically, both investment and savings decrease, and the only thing that increases is the interest rates. I believe it is a problem because, as discussed in the article cited below, GDP is decreased when crowding out occurs, and that means people get paid less and there will be less opportunity within that economy.

Mitchell, Matthew D., and Jakina R. Debnam. “In the Long Run, We’re All Crowded Out.” Mercatus Center, 15 Sept. 2019, http://www.mercatus.org/publications/regulation/long-run-we%E2%80%99re-all-crowded-out.

Productivity is important because it’s a huge factor in determining a country’s economy. Productivity is affected by physical capital, human capital, natural resources, and technological knowledge. If someone doesn’t have the tools they need to produce, also known as physical capital, then they are less productive than a worker who does. Similarly, if a worker doesn’t have the education they need to do the work, they’ll be less productive than the worker that went through proper training, and so on.

Public policy does affect the availability of resources needed to be productive sometimes. One good example of this is Proposition 112, which changed the oil and gas drilling policy to require companies to keep a distance of at least 2,500 feet from any structure that is occupied by humans. This got in the way of the productivity of many oil and gas companies in Colorado, as they could not drill into land that had oil which is how they achieved productivity.

Living in Rifle, it’s evident that the cost of living is high, but there are certainly surrounding areas which have a much higher cost of living such as Aspen. I did not chose to live here but my parents say they did consider the high cost of living, but they estimated they would still be making a higher purchasing power due to the much higher wages than those in Arizona, and they were right.

Someone can change the rate of inflation that they face by not purchasing what they would normally purchase if the prices are too high. This would cause the CPI in that year to lower, and bring it closer to the CPI of the base year which would give a lower inflation rate. The inflation rate can increase due to a serious overestimation of the CPI because if the current CPI is much higher than that of the base year than you would have a higher inflation rate. I personally try to time some purchases, especially electronics clothing and other things that aren’t really necessities, around sales because that’s a good way to save some money and evidently it could help fight inflation. I don’t necessarily change my purchases around sales unless I purchase something that I see on sale that I didn’t even plan to buy, also known as an impulse buy.

The distortion caused by improvements of goods can cause not only for more sales of the product but also an increase in prices while still maintaining the higher sales. The reason why this is a problem in measurement is because this will show up as a higher inflation rate, which is true, but this is typically associated as something negative in the economy. In this case, an improvement on a good would not be a bad thing even though it would cause inflation. The product the consumer received is now priced higher, but the consumers continue to buy it because it is worth that higher price to them. If I were to receive a 2% raise but the inflation rate also rose 2%, I broke even because even though I’m now getting more dollars, each dollar has a lower purchasing power.

The difference between an intermediate good and a final good is that the final goods are what are included in GDP, while intermediate goods may be resold further down the line or used as part of other goods and services. A final good refers to the goods sold to the final consumer, and it already includes intermediate goods because those were used in the process of making the final goods. We should care about this because if we didn’t differentiate between intermediate goods and final good then we would count many of the same products twice, or we wouldn’t how to incorporate goods that firms are keeping for later use or sale into the GDP.

GDP is overall a good way to measure well-being because while it may not directly measure the things that make us “wholesome” in life, it does measure the economics of the nation and that is a huge factor in well-being. It’s been proven that countries where their citizens have higher incomes also have citizens who tend to be happier because they don’t need to worry about where their next meal is going to come from; they can focus on things like the quality of education for their children and better healthcare. One thing that is missing, however, is a measure in how content those people are to be working all those hours in order to afford that lifestyle. Leisure is an important part of human life that is really not reflected in any way within the GDP. Another important thing not measured is pollution. While in the 1970’s it may have been alright for companies to do what they have to in order to raise the GDP, things in 2020 have changed drastically and GDP does not account for the polluted air in the environment which brings the quality of life down.

While there are certainly benefits to different measurements such as GNH (Gross National Happiness), I believe the best way to measure well-being is not directly by asking the people how happy they are but by measuring the country’s economy. When people are asked how happy they are, it is very easy for them to lie and say they are very happy when they really aren’t, especially if they don’t want to make their country look bad. That hypothetical person who lied about their happiness may be having trouble affording healthcare or may not have enough money to enroll their children into a better school. In the GDP measurement, on the other hand, there is no lying. Everything is based on numbers which are factual, and whether that country is content based on those numbers is up the viewer’s interpretation. I believe the most accurate measurement of a country’s happiness would be achieved by measuring both GDP and GNH, and see if there is in fact a correlation.

From the perspective of an economist, efficiency means placing a product precisely where it will produce the highest total surplus. This means that the producer or seller of the product is the lowest-cost producer possible, and the consumers of that product are the buyers who value the product the most, leaving the highest possible total surplus.

Producer and consumer surpluses are important as far as determining the market’s equilibrium because if the efficiency is maximized, the equilibrium is being met. This would mean that the product is both being sold by the seller who’s receiving the highest producer surplus and being purchased by the buyers who have the highest consumer surplus. In this perfect scenario, both the producer and the consumer is getting the most out of the transaction. Uber, as discussed in one of my previous blogs, is a prime example of a company who has mastered the art of finding the equilibrium point or, in this case, efficiency.

Market efficiency shouldn’t always be the goal of policy setters. In the case of minimum wage policy, if companies didn’t have one that they had to meet and they could pay their workers anything just to meet their lowest production costs, this would take advantage of many workers. The seller would achieve the highest possible surplus, but it would be at the expense of underpaid labor. This doesn’t necessarily mean there’s a trade off between efficiency and equality. A company can be fair and pay its workers reasonable wages and then maximizing its surplus in any way possible after that. It’s important to not cut corners when it comes to treating workers well. The quality of work will typically reflect how much the workers earn, and if paying them more is increasing sales or the quality of the product and customer satisfaction, then higher wages don’t necessarily mean lower surplus.

Venezuela’s government wanted to implement price ceilings that were an issue for the country’s economy. This relates to the chapter because in it, the effect that price ceilings could have on an economy were discussed, and in the article, Venezuela was going through those negative effects. If the government had placed price ceilings that would still allow for companies and farmers to still make money off of their products, then they wouldn’t have been binding price ceilings and there wouldn’t have been an issue. However, because the president believed the prices could be lower while still allowing companies to make money, the ceiling was placed too low and it creating a binding price ceiling because the president miscalculated and set the prices to where the companies were no longer profiting or not profiting enough.

Charging high prices for water after Hurricane Katrina was very wrong. It was taking advantage of people by charging a high price for an inelastic item that people are going to have to buy to survive, regardless of the price. Had there been price controls implemented in this particular scenario, perhaps things would’ve been more fair. Perhaps not though. Maybe the reason the water companies raised prices was because the demand was so drastic that they wouldn’t have been able to keep up in supply unless they charged higher prices. The concept of fairness is very difficult to implement in this case because the water suppliers could’ve tried being “fair” and selling the water at the normal prices, but maybe they would’ve run out of water and that, then, wouldn’t be “fair” to the consumers that were willing to pay the higher prices for the water but didn’t get any because they had run out.

These two situations are different because in the former, the government was placing a binding price ceiling on companies which was driving them out of business or at least out of doing business in Venezuela. In the latter, water companies were taking advantage of a shortage of an inelastic product by driving the prices higher, and there was no price ceiling to stop them. Supply and demand affect both situations in the same way because they both had a higher demand with a lower supply to meet it, except in the former, companies weren’t allowed to raise prices like they were in the latter. Prices tell us that they ultimately control people’s behavior. If left alone, prices will fluctuate and eventually match supply and demand together at an equilibrium point, much like in Hurricane Katrina. It controlled people’s behavior because they weren’t stomping over each other like they do on Black Friday since the prices were so high. If prices are limited by the government though, as we see in the first example, there will be a shortage and that is when people don’t act rationally.

https://wset.com/news/at-the-capitol/job-killer-minimum-wage-bill-could-have-devastating-impact-on-small-businesses

In this article about minimum wage increases, it is discussed how both the Senate and the House have bill propositions for raising the minimum wage to $15 an hour by 2025 or 2023 respectively. This would have a very negative impact as covered in the chapter because it would put people out of work. Sure, some people may be able to keep their jobs and earn more, but companies would now be facing a new price floor which would leave them with a surplus is labor costs, meaning they would need to cut back on workers to be back at the equilibrium point with demand. Furthermore, something not discussed in the chapter is the effect of advancements in technology such as AI (artificial intelligence). If, for example, a company has the option of paying more money for the same amount of labor or paying a one-time fee for a robot to do perhaps even more labor, they may chose to purchase the robot and leave even more without work.

Apps like Uber and Lyft really seem to have taken control of the taxi industry, especially is large cities where these services are more prevalent. This has certainly affected yellow cabs because now they must lower their prices to compete with a more convenient service such as Uber. The rates that Uber and Lyft charge aren’t necessarily cheap, but they have a more flexible system for both the consumers and the drivers. Allowing drivers to work on their own schedules, these services are more readily available for consumers through the simple tap of a button on their smartphone screens. For these more advanced, technology-based companies, this means the ability to charge similar if not higher rates than old-school taxis while still having higher demand along with higher supply.

The reason a service like Uber is able to keep a near-perfect supply and demand curve is because they are only paying the drivers when they are working, and the passengers have their demands met at any time because there’s always a driver available at any time of the day. If there’s a low demand, then Uber keeps its supply at that equilibrium level by not having to pay for labor from the drivers.

A perfect example of a supply of a service changing rapidly right in front of me was when I went to a Rockies game in Denver and right after the game, hundreds of people who were drinking needed a ride home so they were getting Ubers nonstop. It was late at night, and with that much demand, Uber was going to be able to keep up with supply but of course the rates of the rides were skyrocketing. On our way to the game, we paid $13 for the Uber ride in which we were alone with the driver. On our way back to the hotel, we paid $47 for the exact same milage and we had to share the car with other passengers. We saw this happen because the demand was so high at that particular time that Uber could afford to charge ridiculously high prices while still staying at that equilibrium point, which was now higher because there was now a higher equilibrium price and equilibrium quantity.

A service like AirBnB affected the supply of short term room rentals by providing a higher supply of them, which drove the prices of hotels down or else there would’ve been a surplus. AirBnB doesn’t seem to have very affordable option as far as long term rentals go, but since the demand for rentals in a city like San Fransisco is probably very high, these AirBnB rentals were able to charge ridiculous prices and still keep supply equal with the demand, much like my Uber example of prices that can just skyrocket and maintain equilibriums.

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economics.

– Joan Robinson

The economy of any country, big or small, can be too complicated for most of us to understand right away. A simplified model, such as the production possibilities frontier, can be tremendously helpful in understanding an economy. It is very easy to learn how the model works and one the viewer does, it also becomes easy to notice why a production number may be unrealistic or why a country may be unproductive. If a point falls very much inside a frontier, for example, then the viewer can do further research on why a country may not be producing to its highest potential. If a point falls clearly outside the frontier line, then the viewer may conclude that it’s an unrealistic level of production given the resources of that economy.

Something I frequently heard before reading this chapter was that infrastructure was the answer to unemployment. More often than not, this belief led to normative statements such as, “they should put money into the infrastructure of this country” and, “they need to put the construction industry to work for a better economy.” The reasons the government doesn’t allocate large amounts of resources into the construction industry isn’t because they don’t want construction workers to have jobs; it’s because the country’s resources are limited and there’s just priorities to be taken care of before building nicer roads. This is especially relevant in this area where construction plays a key role in the economy. It’s become very clear to me that construction is an industry which relies very heavily on how the rest of the economy is doing.

This first chapter covered the ten principles of economics, and while they’re all things that I’ve thought about when thinking of economics, there were also some concepts that made me think a little more than usual. First, Principle #3, which states that “rational people think at the margin,” made me think of economists and rational people almost as computers; they tend to see everything as something that needs to be optimized for better results. Principle 8 also made me think of the standards of living of each country a little differently. Mexico, for example, is a country where the average person made about 17 thousand dollars a year compared to the US at 55 thousand. The standard of living is therefor higher in the US. But the way I normally saw it was that the issue for the poorer countries was that there just wasn’t enough money; the problem is actually that those countries are simply not as productive as the ones that do better. It’s all about productivity.

This chapter made me ponder on the way the US economy works and what makes it so strong. I believe it is the way it’s set up for entrepreneurs and small businesses to succeed, as well as obviously the productivity rate of the country is very high. What I want to know is how the US can help implement this structure of economy into other countries; I’m sure that’s already being attempted all over the world, but what would be the single most important factor in getting the ball rolling to improve a country’s economy to the point that it is as good as the US?