Why is unexpected inflation a societal problem?
Inflation is the rise in prices of most goods. Suppose you loan a friend $100 dollars and he will repay you the following year. Lets also assume that there is a constant annual inflation rate of 10%. You would expect him to pay you an interest of at least 10% to cancel out the loss of value in that 100 dollars you loaned him. In reality though, there is no constant anual inflation rate. Thus being said, people must predict inflation based on statistics. If you assumed that the inflation rate was 10% and demanded 110 dollars the following year, but the value only inflated by 4%, then your friend is losing an extra 6 dollars. Although you may come out richer than before, your friend came out poorer. On the other hand, the value of a dollar may have inflated by 15% instead of 10%. In this case, you lost 5 dollars.
Tuesday, October 23, 2012
Tuesday, October 16, 2012
GDP
What does real GDP growth mean for you and me?
Real GDP growth is not that relevant to us. The change in GDP has no change on the economy if there is an equal change in another field of the economy. The GDP is the total amount of products the economy produces. It is GDP per capita that makes a difference.
Real GDP growth is not that relevant to us. The change in GDP has no change on the economy if there is an equal change in another field of the economy. The GDP is the total amount of products the economy produces. It is GDP per capita that makes a difference.
Tuesday, September 11, 2012
Incentives
Why does the market for black rhinos create incentives that are different than other markets? How can these markets be changed?
The market for black rhinos is based on the value of the horn of the rhino. Rhinos' horns can be approximately up to $30K. This creates incentives for hunters to kill the rhinos, cut off their horns, and sell them in the black market. Rhinos eventually became endangered. Resources are scarce, so the value of the rhino's horns rose. Government tried changing these incentives by hunting rhinos, cutting off their horns, and then releasing them into the wild once again, however, hunters still hunted the endangered species for their trunks carried some value. These incentives are different than other markets because rhinos are public property, whereas in most markets, most property is private. Thus, everyone can hunt them and no one has the incentive to take care and preserve the animals. If rhinos were private property where only a limited number of people could own the animal, the owner would have the incentive to preserve the animal and breed it for future business. If the animal becomes extinct, then the owner loses his business. He has the incentive to kill while still preserving the animal.
The market for black rhinos is based on the value of the horn of the rhino. Rhinos' horns can be approximately up to $30K. This creates incentives for hunters to kill the rhinos, cut off their horns, and sell them in the black market. Rhinos eventually became endangered. Resources are scarce, so the value of the rhino's horns rose. Government tried changing these incentives by hunting rhinos, cutting off their horns, and then releasing them into the wild once again, however, hunters still hunted the endangered species for their trunks carried some value. These incentives are different than other markets because rhinos are public property, whereas in most markets, most property is private. Thus, everyone can hunt them and no one has the incentive to take care and preserve the animals. If rhinos were private property where only a limited number of people could own the animal, the owner would have the incentive to preserve the animal and breed it for future business. If the animal becomes extinct, then the owner loses his business. He has the incentive to kill while still preserving the animal.
Thursday, September 6, 2012
Power of Markets
Prompt:
Discuss three significant ideas or arguments that Whelan is making about markets. Be specific and provide examples:
1.) Whelan argues that in the tech business, there are many competitors, however, it is the competitor that consumers go to the most that will continue to gain profit. One example would be apple. Since apple already sells to a large amount of people, people will continue to purchase from them due to the compatibility with other apple devices. If you want to by a phone and you already have a mac, you will most likely look to purchase an iPhone due to the compatibility it shares with a mac.
2.) Another argument that Whelan poses is that there are varying incentives for people in the world. Most people want to graduate high school, go to college, and receive a degree. However, that incentive may change if the right opportunities arrise. Whelan uses LeBron James as his example. LeBron went to high school in Akron, Ohio. He had the choice to go to college and graduate, but before he even graduated, Nike had already chosen to sponsor him to a 100 million dollar deal. LeBron had the incentive to get drafted to the Cleveland Cavaliers where he can make a huge profit. In his first season, he was offered $15 million.
3.) Whelan argues that, in the entertainment business, a small margin of talent makes a huge difference in salary. Likewise to LeBron having the incentive to enter the NBA, he was a bit more talented than the majority of basketball players. Whelan says that all players are almost equally talented, but the ones who have some more skills are the ones who make it in the market.
Discuss three significant ideas or arguments that Whelan is making about markets. Be specific and provide examples:
1.) Whelan argues that in the tech business, there are many competitors, however, it is the competitor that consumers go to the most that will continue to gain profit. One example would be apple. Since apple already sells to a large amount of people, people will continue to purchase from them due to the compatibility with other apple devices. If you want to by a phone and you already have a mac, you will most likely look to purchase an iPhone due to the compatibility it shares with a mac.
2.) Another argument that Whelan poses is that there are varying incentives for people in the world. Most people want to graduate high school, go to college, and receive a degree. However, that incentive may change if the right opportunities arrise. Whelan uses LeBron James as his example. LeBron went to high school in Akron, Ohio. He had the choice to go to college and graduate, but before he even graduated, Nike had already chosen to sponsor him to a 100 million dollar deal. LeBron had the incentive to get drafted to the Cleveland Cavaliers where he can make a huge profit. In his first season, he was offered $15 million.
3.) Whelan argues that, in the entertainment business, a small margin of talent makes a huge difference in salary. Likewise to LeBron having the incentive to enter the NBA, he was a bit more talented than the majority of basketball players. Whelan says that all players are almost equally talented, but the ones who have some more skills are the ones who make it in the market.
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