Tuesday, December 18, 2012

Topic 17: Tragedy of the Commons Experiment

Consider the fishing game we did in class last week and write about your experience. Use the questions below to guide your writing. Due Monday, Dec. 24.
  1. Did anyone at your lake take too many fish?  How did that make you feel?  Did everyone try to take as many as possible? Why or Why not?  Does society reward those with the “most”?
  2. Did anyone sacrifice the number of fish he or she took for the good of the community?  Why or why not?  Does society ever reward that type of person?
  3. How did your strategy change in game 2 (if at all)? Does it make a difference to know what the rewards are?
  4. Is it possible to maximize the number of fish caught per person as well as the number of fish remaining in the pond at the same time?Why or Why not?
  5. Think of a local commons that you are familiar with (a park, sidewalk, or the sofa area or cafeteria at PAS) Do similar situations arise? Explain. HOW might those problems be solved?
  6. What are some natural resources that are common resources?
  7. What are the global commons? Are these being used wisely? Why or why not?
  8. What can people do to use these resources most wisely?
  1. The people in my group all tried to take as many fish as possible. When I saw someone else taking a large amount of fish, I automatically tried to take as many fish as possible as well in order to "not lose". People had a feeling of competitiveness, and think that if we don't take the fish, someone else will, so why not just take it? At first, society rewards those with the most fish, but later on, when the resource depletes, everyone will die.
  2. Later on during the experiment, when we found out that the resource was being depleted, some people did release some fish back into the lake. They did so because they remembered that they shouldn't deplete the resources now, or else there will be no available resources in the future and everyone will starve. However, society doesn't reward them, and some other fisherman even wanted to fish for the ones released back into the lake.
  3. Our strategies in the 2nd round completely changed. Everyone followed the agreed rules and fished only a certain amount. Because of this, we had an ample amount of remaining fish. It does make a difference, and a big one at that, to know that the reward would be to have fish available for the coming years.
  4. It is possible to maximize the number of fish caught per person as well as the number of fish remaining by creating a formula and calculating how many fish can be caught and how many must remain in order for enough to be available in the future.
  5. When I think about some of the local commons, such as parks, sidewalks, sofa area, or cafeteria, I cannot think of similar situations, since these areas cannot be used "too many time", and the resources don't exhaust as they are being used.
  6. Some common natural resources include food supplies such as fish.
  7. As said before, fish is global common because people anywhere, as long as they are on the cost, can fish and use these resources. Currently, the global community do face these problems and these resources aren't being used wisely. However, there are regulations now to help solve this problem.
  8. To use resources most wisely, there must be regulations.

Sunday, December 16, 2012

Topic 16: Game Theory and Chicken

This week we experimented with game theory using "The Prisoner's Dilemma." We found that the equilibrium (the Nash Equilibrium) occurs when each player acts in his/her own best interest no matter what the other does. As we found, this always ends up in a "bad" result. Considering the video clip and what Nash says about Adam Smith, and considering the results of our experiment, comment on your thoughts and feelings about how people behave in competitive situations.

  • Game theory assumes that people make rational decisions. Do you think that assumption is valid?
  • Do you think that the "bad" outcome is always inevitable? Why or why not?
  • Under what circumstances might a better outcome occur (think of what Nash says in the video)?

  • Game theory's assumption that people make rational decisions is mostly true. However, there are two cases where this is not the case. The first one is when people are emotional. Scientific studies have proved that the limbic system may sometimes overcome our rational brain, and thus result in irrational and impulsive decisions and actions. The other case is when people are uninformed. When people do not know all information pertaining to something, then they cannot make the best and most rational choice.
  • The "bad" outcome is inevitable unless during exceptions such as when people make mistakes or during accidents (and they get lucky and stumble upon the best outcome for them). We assume that people always make rational decision; because of this, they always choose the action that's best for them. And these actions are always one of the "bad" outcomes due to the Nash equilibrium (people choose the dominant strategy).
  • As mentioned above, a better outcome might be accidental, when people make mistakes, or when accidents happen and something out of human being's control happens. Another way for a better outcome to happen is, as Nash said, for people to communicate and cooperate so that they all get the best out of what is available.

Monday, December 3, 2012

Topic 15: What is a Monopoly?

After watching the video "What is a Monopoly," respond to the questions below:
1. What are the three main characteristics that make a firm a monopoly?
2. How does a monopoly firm decide how much to produce and what price to charge?
3. What are the costs and benefits of monopoly to the monopolist firm and to society?
4. In the video, one commentator mentions some of the problems with monopolies, but he says that those aren't what economists are concerned with. What are the problems he is referring to? If economists are not concerned with those problems, what are they concerned about? Do you agree with their concerns?
5. Monopolies are often looked at as bad. Can they also be good? Under what circumstances could a monopoly be a good thing?
6. Given that in the long run monopolists spend all of their surplus in maintaining their monopoly position, do you think it is worth it to try to attain a monopoly? Why or why not?
  1. The three main characteristics that main a firm a monopoly are that there is only one firm in the market, the product is unique and there are no substitutes for it, and there are barriers to entry for the market.
  2. Monopoly decides how much to produce by choosing the quantity where marginal cost equals to marginal revenue, and it decides how to charge its product by charging the highest price that people are willing to pay on the market demand curve for the good.
  3. The costs of monopolies are that a deadweight loss arises when the monopoly is not completely efficient. The benefits of monopolies are that monopolies encourage innovation and research (since there are patents), and society can enjoy cheaper prices since only one firm supplies a product, and a larger quantity supplied means that average total cost is spread out, lowering the costs.
  4. The problem that the economists are not concerned with is the transferring of income from consumers to monopolists, and that in competitive markets, prices will be lower and quantity produced will be higher. The economists are concerned with the inefficiency and efficiency of monopolies, and whether or not deadweight lost arises. If talking about fairness, then I do not agree with the economist's concern about efficiency. However, if talking about productivity and the use of resources, then yes, I do agree with the economists view for efficient monopolies.
  5. Monopolies can be considered good because if the average cost is decreasing, then there are advantages to large scale manufacturing and production.
  6. If, in the long run, a monopoly spends all of its surplus to maintain its position, then it is not worth it to attain a monopoly because it would mean that a lot of resources that could be used for other things would be wasted and not properly distributed between the consumers and the producers, which is a huge opportunity cost.

Wednesday, November 14, 2012

Topic 14: Productivity Experiment

Please write about the in-class experiment you performed by producing widgets (those paper rings). In it please describe the experiment and your role in it. Write about what went well and where problems came up, keeping in mind concepts like the law of diminishing returns (both for labor and capitol), capital accumulation (especially in terms of human capital), and division of labor and specialization. Did things go the way you would have expected in terms of these concepts? If not, why do you think that was so? What were the surprises, if any? What do you think the "company" could do in the short-run to improve productivity? What about the long-run? How close do you think this experiment came to approximating a real-life situation?

  • The experiment was to test how the number of laborers and capital varies and influences that amount of product produces, and what the costs were. These are determined and described with marginal product and marginal cost. My role in this experiment was the last laborer to be added, the twelfth laborer. There were many problems in this experiment. It went well when there was only one worker. However, when more and more workers were added, the cooperation between these workers was very ineffective and inefficient. Our curve was very strange. The marginal product was increasing and then decreasing in the first few work days, but later on it gradually increased, even if it is slightly. However, diminishing returns was still illustrated. Once again, the experiment didn't go as we had expected in terms of concepts such as the law of diminishing returns, capital accumulation, and division of labor and specialization. The reason was mainly because of "technical issues", or capital problems, and because there wasn't an effective and efficient system of division of labor and specialization. The surprise was that the quality of the products was very bad because of the insufficient time in the work day. To improve productivity in the short-run, the firm should allocate one day to dividing and specializing labor. To improve productivity in the long-run, the firm should increase capital such as scissors and staplers, since there was too much labor capital and the technological capital could not be distributed evenly. This experiment, I believe, is quite far from approaching a real-life situation.

Tuesday, November 6, 2012

Topic 13: The Return of the Zeppelin

Watch the video (a required assignment, so be sure to click "submit" after you watch it) "The Return Of Zeppelin." After watching it, you should also watch a clip of the Hindenberg disaster. There are many on YouTube. Here is a link to one: http://youtu.be/F54rqDh2mWA.

When you have watched the videos, write about the following:
  • Discuss the determinants of demand and supply, and which of these determinants apply to the success of Zeppelin and to Airship Ventures. 
  • Discuss the role technology has played in the return of the Zeppelin. Review the different market structures (perfect competition, monopolistic competition, oligopoly, and so on) to identify which market structure best describes Zeppelin and which best describes Airship Ventures. 
  • List three determinants, or variables, of demand and explain how changes in those determinants could result in the continued success of Airship Ventures.
  • Finally, express your thoughts on airship travel. Do you think it is a good idea? Under what circumstances would you want to try it, if ever?
  • The determinants of demand include change in consumer tastes, change in the number of buyers, change in consumer incomes, change in the prices of complementary and substitute goods,  and change in consumer expectations. The determinants of supply include change in input prices, change in technology, change in taxes and subsidies, change in the prices of other goods, change in producer expectations, and change in the number of suppliers. The most major determinants that apply to the success of Zeppelin and Airship Ventures include change in consumer tastes, change in technology, and change in number of suppliers.
  • Technology is the major force that changed consumer preferences. Now that Zeppelins are safer and more advanced, more consumers are turning to Zeppelins as an option of transportation. I believe that the best market structure to identify Zeppelin is monopoly, and the best market structure to identify Airship Ventures is oligopoly.
  • Three determinants, or variables, of demand that can result in the continued success of Airship Ventures include change in consumer tastes, change in technology, and change in input prices. If consumer tastes start to incline toward Zeppelin, then Airship Ventures will be able to increase their sales and profit. Advanced in technology would further change consumer tastes and also help decrease certain costs. Decreases in input prices means that Airship Ventures will be more efficient and will earn more profit.
  • Yes, I believe airship travel is a good idea, especially for industries such as tourism. I would like to try airship travel in a small area, where the sky is clear and the view is magnificent.

Tuesday, October 23, 2012

Topic 12: Pizza for Pesos?

For this journal entry, watch the video "Pizza for Pesos" (watching this video has been assigned as a homework assignment, so be sure to click on the "submit" button after you watch it so that you can get credit). After watching the video, comment on it in your journal. In your writing, consider the following questions:
  • How does the story in the video relate to the idea of utility?
  • How does it relate to the concept of consumer preference?
  • What affect do you think a change in the exchange rate between Mexican Pesos and U.S. Dollars would have on Pizza PatrĂ³n's business? How would it affect the budget lines of its customers? (currently the exchange rate is 12.97 pesos to the dollar).
  • What do you think about the arguments against accepting pesos? How are these arguments related to our previous discussions regarding international trade?

  • The story in the video relates to the idea of utility because one, the pizza chain consumers have to consider whether buying pizzas in pesos will increase their utility or not - when they buy pizzas with pesos, do they feel like they gain? How does it compare to the consumers buying with regular American dollar?
  • The story in the video relates to the idea of consumer preference because it has to do with whether they prefer paying with pesos or the American dollar. Some people, who have a few extra pesos left, maybe from a trip to Mexico, may prefer pesos over the American dollar because they want to get rid of the extra peso change they have. For people who prefer to buy pizzas using the American dollar, then it doesn't matter that much to them, so their preferences and utility are not influenced.
  • The exchange rate plays an important role because it may influence whether the consumer has to pay a higher fee or not, and it may cause some disputes. If the peso value increases, then the budget line for customers using the pesos will increase. If the peso value decreases, then the budget line for customers using the pesos will decrease.
  • I believe that the argument accepting pesos is a good one, and quite valid as well. These arguments relate to our previous discussions regarding international trade because it has to do with the country prices and world prices.

Friday, October 19, 2012

Topic 11: Brand Names and Utility

Consider the definition of utility: The benefit or satisfaction that a person gets from the consumption of goods and services.

After watching the video, "No Frills Grocery Shopping," write about the effect that brand names have on utility, or sense of satisfaction, that you receive when consuming goods or services. For example, how does your demand curve differ for various products (quantity demanded at different price levels) when comparing brand-name products and no-name or generic products? All things being equal (ceteris paribus), such as quality, durability, and so on, do you think a product having a brand name brings you more utility? If so, how does it do so? If not, why not? Provide specific examples of products that you feel must be brand name for you get get the most utility from, as well as products for which a brand name is not important.

  • Brand names have an effect on utility because it affects the limbic system, or the emotional part of the brain, to a certain degree. Brand names provide people a feeling of belonging to a cool or identified group of people who also buy that item. For example, if a product is advertised by an idol, then the person who buys the product may feel as if they are as superior as that idol. The product is automatically associated with coolness.
  • My demand curve for brand name products does differ from my demand curve for no name products. This is because brand name products are more elastic, more responsive to price. To me, they are luxuries, so I can forgo these products for other products that are necessities.
  • As I as in the above paragraphs, buying brand name products gives people a sense, a feeling of belonging. This is the same for me. A very good example would be clothing and other accessories such as bags and shoes; these are the things that would be compared and shown to peers and other social groups. By buying the same type of clothes, I get a strong sense of utility because I belong and have something to talk about with my friends. A product in which a brand name is not important is water - it doesn't matter the type of water I drink as long as it's water.