Class Lecture #42 - 12/12

The final lecture in ECO 108!!! A lot of this lecture was spent discussing the potential profits of an entrepreneur.

Profits = Total revenues - Total costs
 - total costs: explicit (accounting profits) and implicit (economic profits)

If Rachel decides to start a pizza business, what does she gain and what does she give up?
 - she previously had a $30K and owned a building that rents for $6K
 - savings acct. of $23,000 at 10% interest
 - start business.... quits job, uses building, cashes out savings and borrows $20K
 - Profits = Total revenues - Total costs
     -> revenues = $85,000
     -> Costs:
            * explicit = -23,000 - 20,000 - (2,000)
            * implicit = -6,000 - 30,000 - (2,300) .... opportunity costs
 - Economic Profit = $1,700

Economic Profits
 - if economic profit > $0, should do it
 - how much better you are being an entrepreneur
 - your services more valuable to society than other things
 - only exist if there's uncertainty


Capitalism
 - positive profits means you're doing something right
 - negative profits means you should switch what you're doing --> incnetivizes people to do something else that's actually beneficial to society

EWOT Goggles - 12/11

So we discussed in class this week the "life and adventures" of an entrepreneur. And I've come to conclude that these are the ballsiest people in the world. Why? The spectrum of success and failure for pretty much all other jobs is relatively small: you can either do well in the job and make your wages, or you can get fired and find another job that pays, even if a little less. But for entrepreneurs, sometimes it can be as close to life and death as you can possibly get. The amount of costs, both monetary and non-monetary, that entrepreneurs endure to start their business venture is an extremely large amount. Success can mean an eventual earnings total in the millions or perhaps billions. Failure means you're not only out of all that money, but all the other possible endeavors you could've embarked on plus all the time that was lost. Becoming an entrepreneur means you're taking a massive risk and for this reason, entrepreneurs have more balls than anyone.

Reading Analysis - 12/11

A.) The piece I chose to read was the Sumptuary Manifesto. The whole piece, written by an anonymous source who supports the "Peerless leader," is a drastic attack on consumerism. Taxes, tariffs, and other prohibitive restrictions are laid out in huge numbers so as to reduce the material spending of the society. It's everyone's "social responsibility" to abide by these laws which serve the ultimate purpose of removing material consumerism. These people obviously have not been taught any level of basic economics. There are so many things wrong this it's hard to find a place to begin. First of all, price ceilings are a staple point in the laws because "to allow markets to go uncontrolled would be to 'ascribe a magical automatism to the price system'" (p. 122). Markets have a way of correcting themselves; they have a built-in feedback system called prices. Obviously these people don't understand that. Also, the laws talk about a big international tariff in order to keep the valuable resources that poorer countries have within the country. This is also laughable because production and exchange is the way countries get richer; self-sufficiency is the road to poverty and preventing trade with other countries only makes them poorer, or at least prevents them from getting richer. Finally, all these restrictions on material consumption such as restrictions on buying alcohol, clothes, food, etc. could all be avoided if you just allowed the price system to act. Prices will rise and fall accordingly and material goods that were once easy to purchase become more expensive and therefore people have less incentive to buy them. All this adds up to a pretty hilarious idea that was ACTUALLY CONSIDERED!! That, in my opinion, is the most hilarious point of all.

B.) What's so wrong with material consumerism to begin with? Is this just one big attack on capitalism?
     Doesn't it take up more resources to enforce all these laws?
     What do you think will happen in the end as a result of these regulations?

C.) This short, 4-page article actually does a good job of summing up a lot of things we've learned in Economics so far, especially regarding markets, self-sufficiency and price ceilings. There are obviously a lot of things wrong with this excerpt economically and identifying them helps to reinforce what we have learned in the class.

Class Lecture #41 - 12/9

- would professionals and employees really work their absolute hardest and devote so much time and energy into something that they were doing for free? --> $$ incentivizes them, only makes them more productive

Entrepreneurs: Figure out what people value and make those products
Three Factors of production:
   1. Land - explicit cost is the rent and implicit cost is the opportunity cost of paying that rent
   2. Labor - explicit cost is the wage and implicit cost is the opp. cost of that wage
   3. Capital - explicit cost is rent and implicit cost is opp. cost of rent

Entrepreneurial Equation
      Profitability Rate = Rental rate + Appreciation rate - Interest rate

          Rental rate = (annual rent)/price

Class Lecture #40 - 12/7

Tax Incidence: Sales Tax
 - if we draw out the supply/demand curve before and after the tax, we see that the same exact economic burden exists for buyers and sellers as it did for the excise tax
     * completely independent
 - the demand curve is steep --> inelastic, so less sensitive to price changes
 - the supply curve is flat --> elastic, so more sensitive to price changes
 - more efficient to tax the demanders and put the majority of the economic burden on them

Taxes
 - taxes cause people to look for substitutes
 - cost of taxes are the opportunity costs and the dead weight loss
 - not to mention there's a cost to sustain the IRS and the tax industry
 - all this adds up to a very inefficient way of taxing --> need more efficient way

Class Lecture #39 - 12/5

Does making drugs illegal solve the drug problem?
 - becomes costly to hire extra law enforcement to monitor the drug trade --> lose out on other services possible with that extra money spent (opp. cost)
 - more enforcement raises tension and results in more violent acts as a result

Tax Incidence: Excise Tax
 - tax on sellers
 - the initial EQ point for bubble gum yields a price of $3.00 and a quantity of 3 million
 - an excise tax of $1.00 produces:
     Pbuyers = $3.75
     Psellers = $2.75
     QT = 2.75 million
 - when we do out the math, we see that the net economic burden for the buyers (75 cents) is greater than that of the sellers (25 cents), even though an excise tax is supposed to be a tax on sellers
 - the tax also produces a dead weight loss
      * the world is poorer by that amount
      * represents the possible transactions that would've happened had the tax not been in place

EWOT Goggles - 12/4

Our futon broke! This sucks because now we have this piece of (essentially) junk in the middle of our room. It seems easy to fix: just pick up some screws and bolts from ACE and fix the damn thing. But, as college students, the opportunity cost of going to the store to actually pick them up and then to later reassemble the thing is exponentially high. Whether we like it or not, there are so many other things that we'd rather be doing that going to the store is like going to war or something. Not to mention, we're mad poor and while the monetary cost is extremely low and insignificant, the combination of that and the non-monetary costs creates a blockade of cost that we'd rather not endure. If only we could magically summon the bolts and have a guy fix the futon for us. I'll look into it....