* ECON103 - Economics in the Information Age [#t3443c86]


** Week1 More Utils, Anyone? [#r744b9ed]

- Question

The textbook introduced the concept of "utils."  What are they? What kind of economic decision-making do they lead to?  

Give a concrete example from your own life of your desire for more utility, your budget constraint, and the price or cost of that utility.  When thinking about this, remember that economic transactions are not limited to buying stuff at stores.  What about the utility versus cost of asking that certain relative for Thanksgiving dinner?  You can be creative with describing your economic decision!  

- Answer

Mayer, D.A. (2010) defines utils are the amount of utility or happiness you get from doing something, and they can be converted into dollars easily.

In my case, I drive to my office everyday, and it normally takes almost two hours from my home to get there. Because I don't want to waste my time for driving as possible, I use a toll expressway so that I can save 45 minutes. I pay 300 yen (3 dollars) for an one-way trip, and I can get a one-dollar discount during the rush hours. The reason I choose to use the road is I think 45 minutes are worth more than 3 dollars. Actually, the minimum wage in Okinawa is 664 yen (6.64 dollars) per hour, which is the lowest in the country. Of course I work for more than 664 yen an hour, 45 minutes at least 498 yen by applying the rate.

Although I have never experienced a Thanksgiving dinner, I guess it takes a good amount of time and money to prepare for it. Nevertheless, it is a significant annual event for the most of American people maybe because it tightens family ties.

- Reply to Arleen

That's exactly true, Arleen.

Actually, I save approximately 375 hours a year by using the toll road. Still, I spend 12.5 hours a week, or 625 hours a year to commute. So I try to learn something new by listening to Podcasts or iTunes U while driving.

Also, since my company allows teleworking up to 32 hours a month, I try to utilize the system when I have outside appointments.

** Week1 Technology and Markets [#y70259f7]

- Question

In Naked Economics, Charles Wheelan gave a number of examples of how technology has affected supply, demand and price in certain markets.  Describe one example that you found especially compelling.  Illustrate and explain that example using an experience from your own observations of the economy. 

- Answer

I agree with the idea that Wheelan, C (2010) says that nowadays grocery stores post one price, but charge another to shoppers.

I often fly to Tokyo with All Nippon Airways. Although I can choose other low-cost carriers, I use the airline to earn frequent-flyer miles. Of course, I have its mileage credit card and can use it as an Edy card, which is a rechargeable prepaid card. Edy card is can be used at many convenience-stores or major supermarkets. I earn miles by my shopping with the card. After earning enough miles, I usually get an extra flight ticket for free, or I use for shopping at ANA online store.

- Comment on Geraldine's Post

I agree. Definitely, Amazon is the most successful online retailer in the world by use of technology.

They analyze your purchasing trends by using association analysis, and suggest products which people who have similar buying histories to you are interested in.

The major reasons they can sell products at cheaper prices than the others I think are direct sales and economies of scale. They do centralized control of inventories at large-scale warehouses. It allows them to improve inventory turnover rate. A symbolic example of Amazon's corporate culture is that they had more than 30 price reductions of AWS, or their cloud computing services, since 2006.

** Week2 A Decline in Demand [#c9947333]

- Question

Chapter 6 of Everything Economics describes three reasons why demand for a good could fall.   List and explain at least two of them, and give a concrete example from your own experience of why your demand for some specific good fell.

- Answer

According to Mayer D. A. (2010), the reasons of decline in demand are diminishing marginal utility, income effect, and substitution effect.

An example of diminishing marginal utility I come up with is Nintendo Wii. Because consumers' marginal utility has been in decline, Nintendo finally announced to end Wii production (Whitehead, T., 2013), which is one of the most successful video game consoles and has been sold over 100 million units since 2006 (East, T., 2013).

An example of substitution effect is MiniDisk or MD player which was replaced with MP3 player as represented by Apple's iPod. MiniDisk system was developed by Sony as a replacement for the CD; however, MDs died out with the advent of iPod and iTunes Music Store. Then, you became to buy songs you really want one by one on the iTMS, and carry more songs in the smaller lighter device. Actually, I had a Sony's MD player when I was in high school. Still, I have bunch of MDs which are no further use.


-- East, T. (2013). Wii sales pass 100 million. Future Publishing Limited, Retrieved November 3, 2013 from http://www.officialnintendomagazine.co.uk/52752/wii-sales-100-million/
-- Mayer, D. (2010). The Everything Economics Book: From theory to practice, your complete guide to understanding economics today. Avon, MA: Adams Media. ISBN 1440506027
-- Whitehead, T.. (2013). Nintendo Japan Confirms an End to Wii Production. Nintendo Life, Retrieved November 3, 2013 from http://www.nintendolife.com/news/2013/10/nintendo_japan_confirms_an_end_to_wii_production

** Week2 Perverse Incentives [#cafc9e62]

- Question

In Chapter 2 of Naked Economics, Wheelan describes the problem of perverse incentives - that is, getting economic incentives wrong.  Principal-agent, prisoner's dilemma, and tax disincentives are three cases of misaligned incentives.  

(1) Briefly explain, in your own words, what each of the three cases means.  Then, 

(2) Provide an example from your own experience to illustrate one of these cases.  Explain why the incentives were wrong. 

- Answer

Principal-agent is occurred when the principal provides incentives to the agent to increase the agent's loyalty to the principal. Wheelan, C. (2010) gives an example of the problem that giving stock options to companies' CEOs causes them to tend to focus more short-term profits than long-term profits. Perhaps, that behaviors might trigger accounting frauds. At worst, it might cause massive bankruptcies such as Lehman Brothers by taking too many risks to maximize short-time profits.

Prisoner's dilemma is occurred when two suspects are arrested. If a prisoner confesses the other is a principal offender, then he or she gets shorter prison term. As a consequence, both of them confess in most cases.

Tax disincentives are that increasing of tax rate has unexpected negative impacts on economy. For example, women tend to prefer low-paid jobs due to high taxes. Also, Wheelan, C (2010) points out high taxes grow underground economy.

In my case, excessive overtime working for particular projects and employees has been a problem at my work. So my company tries to improve employees' productivity by visualizing tasks. All employees are obliged to record what and how many minutes they spend in a time book and submit it to their boss.

It seems to be a perverse incentive. Still many of tasks are dependent on individual skills. Nevertheless, the company targets its growth, to achieve both increasing profit and reducing working overtime. Some managers often work overtime without pay. Also, because the company uses outsourcing instead of internal implementation and an outsourcing project is a low profit margin, we have to deal with more projects.
As a result, employee satisfaction failed to increase as expected this year.

-- Wheelan, C. (2010). Naked Economics: Undressing the Dismal Science (2nd ed.). New York, NY: W. W. Norton & Company. ISBN 0393337642

** Week3 Microsoft monopoly [#s982b6c9]

- Question

Drawing on Chapter 8 in Everything Economics, 

1. When is a monopoly a good thing?

2. What harm can a monopoly cause to consumers and its competitors?

3. In what ways was Microsoft a good or a bad monopoly?

4. Do you think government action is needed to prevent monopolies like Microsoft or the recent airline mergers? 

- Answer

1. When is a monopoly a good thing?

A monopoly is a good thing when it is a natural monopoly or a technological monopoly. Natural monopoly exists when consumers take advantage of economies of scale by a single producer. Those companies such as electric power companies and railroad companies. Under this form of monopoly, goverment usually regulates the prices and encourages low-cost production to prevent from price increase.

Technological monopoly exists when a company has a patent and trademarks to protect intellectual property.

2. What harm can a monopoly cause to consumers and its competitors?

A monopoly can harm consumers and competitors when it is a pure monopoly. Under this form of monopoly, monopolies easily control the prices.

3. In what ways was Microsoft a good or a bad monopoly?

Microsoft has been bundling applications with OS in partnership with Intel and PC makers. I think the way of partnership prevented from perfect competitions is a bad monopoly, while this sales strategy brought MS greater success as a result.

In the early days of the web, Netscape Navigator was sophisticated and had huge market share in web browsers. However, Netscape was finally disappeared by growing Microsoft's Internet Explorer. Internet Explorer is not necessarily highly functional and many vulnerabilities in it were identified in the past. Nevertheless, it had more than 90% market share in its peak.

4. Do you think government action is needed to prevent monopolies like Microsoft or the recent airline mergers?

As in the many parts of the world, I think government should continue to regulate natural monopolies because it is having a large effect on people's life.

Against rapid growth monopolies in the technology field like Microsoft, it seems to be difficult for government to control prices actually. Instead, they should regulate forming cartels or partnerships that have harmful effects which generates imperfect competitions.

** Week3 Price Discrimination [#b77ededa]

- Question

What is price discrimination?  Give an example of how you have experienced it as a consumer. 

- Answer

Wheelan, C. (2010) defines price discrimination is the ability to charge different customers different prices for the same good or service.

An example I come up with is mobile carriers' services in Japan. Most of them offer a student discount and family plans. Also they have different options depending on if the customer is corporate or individual.

** Week4 GDP as a measure of well-being [#rdd9f703]

- Question

Both Wheeler and Mayer describe the importance of GDP as a measure of our economic well-being.  But they also note that this measure omits some things that are important in describing how well-off we are.

Provide 3 specific examples of things that your think are important to you or to society, but which are are omitted from the GDP measure.   

- Answer

Three factors that are important to our society I think are destruction of environment, parenting, and liberation from time constraints and mental pressure.

Avoiding destruction of environment is also essential for keeping social sustainability in the future. Parenting has a large effect on children's growth and development, and they are responsible for the next generation.

And the most important factor especially for my society I think is liberation from time constraints and mental pressure. By lack of the factor, people would lose their kindness to others, and then the number of crimes would increase. Also people might lose ambitions and aspirations.

** Week4 GDP growth [#x629beca]

- Question

In Chapter 19, Mayer describes four factors that lead to economic growth.  Explain each of them.

In order to boost our country's economic growth, develop a 3-point plan for the US President to follow.  Support each of your points with at least one of the 4 factors that you have identified.  


- Answer

The four factors Mayer, D. (2010) describes are human capital, physical capital, research and development, and the rule of law.

Human capital consists of the education, skills, and abilities possessed by an individual. Physical capital is the tools, factories, and equipment. Research and development leads to creativity, innovation and invention. One of the important rule of laws is fiscal policy such as tax policies and policies by the central bank including interest rates. Also, private property of firms, individuals, and foreign investors should be protected by law to encourage capital investment.

I would propose imposition of stock transaction taxes, government subsidies for college tuition, and financial support for basic research as a 3-point plan for the US President to follow.

First, if the government imposes a tax on stock transactions, it would be an enormous amount of tax revenues even if an amount of each transaction is slightly small. In addition, it discourages excessive zero-sum games and redeploys the labor power to more productive jobs.

Second, if the government gives grant money for college tuition to enhance human capital, it would be much easier for students to attend college.

Finally, the government should invest more in basic research because it is essential for innovation. Although companies have a limited capacity to conduct basic research, for example, material science and mathematics are essential in order to invent a longer lasting battery and a more secure encryption algorithm.


-- Mayer, D. (2010). The Everything Economics Book: From theory to practice, your complete guide to understanding economics today. Avon, MA: Adams Media. ISBN 1440506027

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