Summary Book \"Cocktail Party Economics\" - Chapters 1-12 PDF

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Summary of Chapters 1-12 of the book ...

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Cocktail Party Economics Chapter 1: It’s All About Scarcity • Scarcity is fundamentally a relative term rather than an absolute one • Scarcity: resources available (limited) to potential recipients • To determine who gets the resources you can do any of the following: - queuing, lottery, favouritism or nepotism, tournament, social norms, market, rationing, Robin Hood • Getting the resources in the right hands not just any hands • Without scarcity there would be no economic problem exists because everyone could have as much as everything as they want • The greater the scarcity the more it costs to acquire • Opportunity cost is the choice you didn’t make • Every choice involves a loss, that loss is the cost • Some teenagers will camp out for trays for ticket and business men will pay someone to wait in line for them *opportunity cost* • “resource-constrained environment” wasn’t enough money to go around • Scarcity creates costly choices (opportunity costs)

Chapter 2: Where Emotions and Economics Collide • Value is subjective, its personal • Could be linked to opportunity cost because what you value may have an effect on the opportunity cost of something vs. what it may be to someone else • the individual with the highest value of something will ultimately acquire it • economists think their role is to use market analysis to explain why something is valuable and to explain what forces are at work to change the revealed value, which is known as the price • The more abundant something is the less we pay for it but the greater overall total value it has in the economy • Market prices reveal something about how much is available and how we value it Chapter 3: Exchange: Supply and Demand, Take One • Scarcity and market are fairly similar • scarcity leads to an allocated problem and markets offer a great system to allocate goods • Scarcity makes decisions costly and markets put a numerical value on those costs • When you give something up your are supplying, or selling it • When you get something, you are demanding or buying it • either money or trade • Markets require the willingness of both players to exchange something of value at a price they can agree upon • Only have to be in one market at the time when using money • Need to be in two markets at the same time when bartering • Halloween (supply and demand) • autarky: self-sufficiency • markets are about individuals trying to improve their situations • Free trade can make both people better off Chapter 4: Producing Wealth • resources don’t automatically mean wealth (japan vs zimbab) • production process: take the inputs available and efficiently make outputs out of them

• inputs are resources • Resources: land, raw materials, environment, physical capital, going into labour entrepreneurial ability, • land costs are about scarcity(location, location, location) • raw materials are not greater by humans • environment is the biggest complexity • physical capital is made when some inputs are used to make machines or buildings • going into labour: human working • education is at the for front in any future advancement • patents gave originators of ideas a temporary return on all of their hard-earned thinking • “middlemen” do serve a function (breast implants ex) • how to reduce poverty - find more inputs to use - improve input quality - change technology and use existing inputs better - administered effective gov programs in developing countries the best thing to spend money on is agricultural research, education • and roads • you need inputs to make outputs Chapter 5: The Absolute of Comparative Advantage • specialized goods: a pile of goods that is limited in variety • once you specialize in something you become reliant on other people for the goods you need but did not make • individuals that specialize make more money • specialization allows us to do more with what we have • more production leads to more consumption • specialization is based on: preferences, abilities and opportunities • whoever has the lowest opportunity cost has the comparative advantage • impossible to have a comparative advantage in everything • if you change the opportunity cost you change behaviour • new trade theory - economies of scale: as a company produces more and more of something the avg cost goes down - variety of the same thing: SUVs by merc, beamer, porsche, audi • protectionism: tries to eliminate any comparative advantage of another country by levelling the playing field - tariffs on imported goods - quotas so only a limited amount can enter the country - rules and regulations against selling in a country - tax breaks when firms can’t compete with foreign companies once playing field is levelled there is no benefit to trade • • if all the opportunity costs for identical items are the same there is no reason to trade • domestic producers gain from protectionism but consumers end up losing • in some cases protectionism gives companies a reprieve from the winds of competition in order for them to get up to speed

• they develop a comparative advantage where non existed making the country wealthy(dynamic Comparative Advantage) • infant industry argument: the industry needs protecting like a child • countries figure out how risky their trading relationships are and then protect accordingly • comparative advantage will determine what people will supply Chapter 6: Supply Side • people produce things with scarce resources • scarce resources mean there is an opportunity cost to them • make goods with inputs that have the lowest opportunity cost first • owners of lost cost inputs have comparative advantage in the production of goods because of low opportunity cost • less of something the lower the cost • retired workers move companies up the lineup (or to the top of the graph) • supply and quantity are all about opportunity costs • supply shifts - gov involvement (tax and regulate businesses) - productivity changes (works habitats of staff: late, slow, leaves early, calls) - prices of inputs (supply can increase or decrease if input prices go down or up) - weather (weather dependent businesses: farms,ski resorts) - technological advancement through innovation, invention, and production improvements (labour saving device? usually improves supply!) • supply is a relationship between the price and the quantity of a product that can shift due to changes in the cost of doing business Chapter 7: Demanding Clients • demand is all about what buyers value, what gives them pleasure and happiness • marginal value is the personal value to the consumer of an item when considered one at a time • As the number of items the consumer bus increases the value of each item decreases • first has the greatest marginal value and all the successors have lower marginal values • willingness to pay for different quantities of the same good • how consumers behave when the price changes • lower prices mean lower marginal values can be lower, only happens at higher quantities • as price falls quantity demanded increases • shift in consumer demand - preferences (clothing store seasonal clothing {81}) - income (people buy more stuff when their income increases, their spectrum broadens) - prices of related products (price change for one good can relate to another [complements and subs]) - number of buyers in the market (buyers in market go up, demand goes up as well) • demand is a relationship between price and quantity that shifts due to changes in the consumer’s world Chapter 8: Market Forces: A Beautiful Kind • demand: price must fall to motivate additional purchases of an item • marginal value drops when more of that same item are available • how much someone wants to pay is based on how much of it is available • supply: as the quantity produced increases the prices that it costs to make it go up

• opportunity costs for the new entrants in the market are higher than the costs of the firms currently in production • equil • equilibrium price is the one and only price where both the buyer and seller is satisfied (both curves) • as price decreases the quantity demanded goes up which brings the points to meet at equal • if price gets too low they end up with excess demand because only some manufactures can afford to produce stuff at that low of a opportunity cost and still make profit • the manufactures are motivated by profits, change their production levels to eliminate excess supply or demand efficiently • increase in demand leads to higher prices and higher quantity • decrease in supply leads to higher prices and lower quantity • profit-minded business owners cause markets to equilibrate • if supply or demand changes, then the market price and quantity also change Chapter 11: Getting an F: A look at market failures • a kind of market failure: each individual wanted something that day but atlas one party walks away unsatisfied • markets do not serve society well because they fail to bring about the desired result • sometimes markets need a little help from governments to make them work well • markets effortlessly coordinate large groups of people to either produce or consume goods or services, creating economic surplus • coordinating functions of markets work because of the role prices play • prices signal to the various players in the market useful information about the marginal costs of producing and the marginal benefits of consuming • market players then make choices based on that info • when the info content of prices accurately reflects the true value of he product, the final quantity produced and consumed is socially correct • economists label the ones that get it right efficient markets • 5 categories that lead to market failure - not enough players - market activity produces either neg or pos spillover effects not taken into account by decision makers - property rights are unclear or unenforceable - governments change the price or quantity of something - some market participants know more than other about what is really going on Monopoly Power • government can do any of the following to take the teeth out of the monopolies bite - create laws that encourage competitive markets - passing laws that prevent markets from concentrating - these laws usually have provisions that prevent collusion between competitors or practices that force competitors out of business - rules about how mergers and acquisitions can be done legally - regulate the monopoly - regulate big firms behaviours in the market - own the monopoly - air canada, canadian airways

• free market types prefer laws to regulatory agencies and prefer regulators to state ownership • those suspicious of free markets prefer the reverse order Chapter 12: Financial Markets • equity is ownership in a company and can take the form of stocks or shares • raise financial capital by selling off stocks • issuing stocks for the first time is called going public with an Initial public Offering (IPO) • costs a lot of $$$ to be part of an exchange so only the biggest of big players are in on multiple exchange • if a company cannot afford to be part of an exchange it can sell shares over the counter • shares can be sold electronically now! you set a price and it matches you up with shares at that price Markets that get it right! • market price accurately reflects the opportunity costs of both buyers and sellers who know everything there is to know • opportunity costs are purely financial • the kind of assets people hold is of greatest indifference to most of us, but the return on those assets is the same • everyone wants to buy low and sell high • if markets are efficient this should be hard to do •...