Chapter 6: Supply, Demand, and Government Policies

Chapter six is titled "Supply, Demand, and Government Policies". The three main methods used by the government discussed in the chapter are price ceilings, price floors, and taxes. A price ceiling is a maximum price that a good can reach, whereas the price floor is the minimum price for a good to be sold. When the price is below the price ceiling, the price ceiling is not binding because there would not be a shortage (in which case the ceiling would be called a binding constraint on the market). As previously stated in chapter five, OPEC could not keep their oil prices high. Through chapter six, we are told that this is due to the fact that a price ceiling that was previously not binding became binding.

Somewhat like a price ceiling, price floors are a bit like the opposite. Price floors become binding when there is a surplus, unlike price ceilings, which become binding when there is a shortage. This relates back to chapter one, when it is stated that one of the principles are that government interference and SOMETIMES be good for the market. Chapter six delves into how the government’s interference could be detrimental to the market by causing either a surplus or shortage.

The final topic discussed in chapter six is tax. Tax impacts the market significantly not only because they are always imposed by the government to increase revenue, but because they have a stronger effect on the market. Taxes would reduce the equilibrium quantity of a good due to firms not wanting to make too many goods to avoid paying too much tax.

An idea within tax is incidence of tax and its relation to tax burdens. The incidence of a tax is the division of a tax burden between buyers and sellers, and it depends on the price elasticities of both supply and demand. Similarly to tax incidence is tax burden, which basically is how buyers would pay less for a good and sellers would receive less revenue when a tax is imposed because some of the money goes to the government.

Article Review: http://www.salientpartners.com/epsilon-theory/crisis-actors-reichstag-fire/

The thing about the article is that it is all about a conspiracy theory, in particular, crisis actors. The theory revolves around the fact that government agencies purposely hire people to hyperbolize the evils that are being done to the U.S. For example, the theory would go with the idea that ISIS is not actually a terrorist organization, and that it did not really kill people. Conspiracists would say that ISIS was created by the government.

Furthermore, the author says that he is trying to prevent us from becoming patsies like the other people influenced by the governments, but there is one huge flaw in that logic. First, we have to be able to believe in the fact that the government are hiring people to make others feel more patriotic. Only people who believe in the conspiracy theory and still believe in everything the government says are the only patsies. The author is trying to prevent us from becoming weak and succumbing to the government, but in doing so, he is calling the reader as weak (since most people who would read this type of article would believe in the conspiracy themselves).

Although the author does have some flaws in his logic, there are some interesting points that he does make. He takes examples from films and such, and inserts them into his article to fortify his argument. Although he does speak of the theory, he also connects it to global and national crises. I find this interesting because he is saying that the government’s use of crisis actors could bring exactly what the government does not want to occur. I find that very interesting, in how what we do can turn around and bite us when we are not looking, and how their little actions can cause a whole mess.

Chapter 5: Elasticity and its Application

Chapter 5 is all about elasticity, which is a measure of how demand or supply responds to a determinant. First off is the price elasticity of demand, which measures how much the quantity demanded changes in response to a price. This is determined through substitutes, luxuries/necessities, market, and time. If a good has no close substitutes, it would be closer to inelastic, whereas if two goods are closely related, prices could change dramatically. Luxuries and necessities depends on a person’s point of view on what either is, but the general idea is that necessities are more inelastic than compared to luxuries. The market changes demand based off how we define it, so if we categorize a good into a more broad category, it would be less inelastic and more elastic for a specific category. Meanwhile, there is the income elasticity of demand measuring how demand changes with consumer income and the cross price elasticity of demand which measures how much the demand of one good changes the price of another. Finally, time is a determinant based off the long or short run. We can compute the price elasticity of demand by using an equation of the percentage change in demand divided by the percentage change in price. However, given a graph, we could use another equation if we are given two points on the graph. The equation in this case would be ((x2-x1)/((x2+x1)/2))/((y2-y1)/((y2+y1)/2)). Finally, the last equation we could use to help us define elasticity would be total revenue = price*quantity, and the resulting number helps illustrate some rules concerning the elasticity of a product or good. Besides demand, elasticity also applies to supply. Similar to elasticity of demand, the elasticity of supply compares how the supply responds to a change in price. The elasticity of supply is determined by the flexibility of sellers to change how much they produce and time periods. Time is a major determinant for both the elasticity of supply or demand. Elasticity of supply is measured through dividing the percentages of supply and price, given values. The supply curves change with the values that are calculated using the equation, and the values determine the kind of graph. Like demand, supply has 5 graphs. The shape and size of the graph is found through the equation, and using the information provided, we calculate the number and create the graph that way. This is a general summary of Chapter 5 in “Principles of Economics” by George Mankiw: Elasticity and its Application.

Chapter 4: Supply and Demand

     Chapter 4 focuses on the idea of supply and demand as well as how it affects the market economy. Without supply, there would not be a demand, and without demand, there would not be a supply. One cannot exist without the other, but they can and will change often. For example, generally, if the supply of a good increases, the price would usually decrease IF the consumption remains constant. To take it one step further, if the prices decrease, consumption may also increase, leading to a change in the supply and demand curves. But as they are changing, the supply and demand are also trying to reach a state of equilibrium in the market, which means that supply = demand. The equilibrium can be reached by either changing the price to either promote or lower consumption, or firms could either increase or decrease the supply in order to create the state of equilibrium.

     There are two major laws that influence market: the law of demand and the law of supply. The law of demand claims that when other factors are equal, the quantity demanded of a good falls as the price rises. For example, if a coffee company increases their prices during the summer as the weather remains constant, the demand for hot coffee would decrease. Meanwhile, the law of supply states that when all other factors are equal, the supply of a good rises when the prices rises. These two laws deal with the equilibrium in the market as well as the market economy, and are important in understanding the idea of supply and demand.