* ECON103 - Economics in the Information Age [#t3443c86]
#contents
** 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.
CENTER:References
-- 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.
CENTER:Reference
-- 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.
(THIS NEED NOT BE YOUR ACTUAL POLITICAL/ECONOMIC POINT OF VIEW).
- 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.
CENTER:Reference
-- Mayer, D. (2010). The Everything Economics Book: From theory to practice, your complete guide to understanding economics today. Avon, MA: Adams Media. ISBN 1440506027
** Week5 The unemployment rate [#pa556e14]
- Question
What is the current unemployment rate?
Mayer (Ch. 11) describes different types of unemployment. Define each of them, given an example of each, and then offer your opinion as to which type is the most prevalent in our economy today.
- Answer
Mayer (2012) defines frictional unemployment and structural unemployment.
Frictional unemployment happens when people voluntarily enter the labor force, or when they are between jobs for which they are qualified. One of the reasons caused this type of unemployment is recessions.
Structural unemployment happens caused when job seekers' skill sets are not in demand because of geography or obsolescence. For example, with the advent of Amazon.com, bookstores are drastically decreasing, so that many of their workers lose jobs.
To be honest, I am not sure in the U.S.. In Japan, it seems to me that frictional unemployment is more prevalent due to a lengthy recession.
** Week5 Trade and wages [#m3c29c22]
- Question
Give an example of how globalization has affected wages in an industry or profession that you are familiar with.
- Answer
In software development industry, offshoring is rapidly accelerating. Actually, my company outsources development to a company in Vietnam. With decreasing amount of charge for customized development of software in accordance with specifications, wages of programmers are on the decline.
** Week5 Exchange rates and the McPPP [#eb25f03b]
- Question
Review a recent Economist report on the Hamburger Index, at http://www.economist.com/blogs/dailychart/2011/07/big-mac-index
Choose a foreign country that you have visited - or would like to visit - and explain whether a Big Mac costs more or less than in the United States. Is their currency over- or under-valued, when exchanging money at the market exchange rate? Explain what that means, in your own words.
(A more recent version of this article is available, but it is a more complicated presentation of the same ideas. If you would like to read it, visit http://www.economist.com/content/big-mac-index
- Answer
I chose Japan, which is my country. According to the Bic Mac index in 2011, the price in Japan in dollars is $4.08. This is the almost same as the price in the United States. This is because, between 2011 and 2012, Japanese yen was the strongest as long as I can remember. Looking at the more recent version, the price in Japan is $3.20. However, adjusted for GDP person of Japan in 2011 is only +5%. This shows that we Japanese thought a strong yen in 2011 but it might have been appropriate.
** Week6 Fed and Monetary Policy [#n1c8c301]
- Question
Monetary policy is the action taken by the Federal Reserve to expand or contract the money supply and influence interest rates.
After checking the current news on monetary policy, describe the Fed's current policy - is it expanding or contracting the money supply, and why? Do you think that this policy could increase or reduce inflation?
- Answer
After the Lehman Shock in 2008, the Fed tried to expand the money supply by keeping interest rates low as an economic stimulus measure. This policy could increase inflation due to decreasing relative currency value. Also, this caused a sharp yen appreciation against the dollar.
Actually, the Federal Open Market Committee anticipated that a target range for the federal funds rate of 0 to 1/4 will be appropriate (Board of Governors of the Federal Reserve System, 2013). According to Baum, C. (2013), the Fed has been targeting inflation of 2 percent.
CENTER:References
-- Baum, C. (2013). Consumers Tune Out Fed's Inflation Target. Bloomberg, Retrieved December 1, 2013 from http://www.bloomberg.com/news/2013-09-13/consumers-tune-out-fed-s-inflation-target.html
-- Board of Governors of the Federal Reserve System. (2013). Why are interest rates being kept at a low level? Retrieved December 1, 2013 from http://www.federalreserve.gov/faqs/money_12849.htm
** Week6 Wall Street - Friend or Foe? [#addf3da5]
- Question
Wall Street's image has taken a beating due to its role in causing the 2008 financial crisis. What is the positive role that financial markets play in our economy, and what are areas in which you would argue that it needs government oversight?
- Answer
In the Wall Street area, there are headquarters of major banks and New York Stock Exchange, and they have helped companies to raise funds effectively.
One of the biggest reasons for causing the 2008 financial crisis was that investment banks produced many of high-risk high-return financial products such as derivatives, which are apparently low-risk, by using financial engineering.
After the crisis, those investment banks were disappeared practically. but we never know when financial institutions forget the lessons of the past and repeat similar mistakes again in another way. Therefore, government should continue monitoring and control them as appropriate.
** Week6 Efficient Markets [#j7e7610d]
- Question
In Chapter 7, Wheelan describes the efficient markets theory. Define this theory in your own words. Now let's assume that I have just listed and sold my new Mercedes Benz sedan on Craigslist for $500. Explain why this violates the theory. Does this theory seem realistic to you?
- Answer
The efficient markets theory states asset prices already reflect all available information because everyone has access to the same information about the assets. Selling a new Mercedes Benz sedan for $500 violates the theory because it is worth much more. By the price-adjustment rule, it should be set at a fair price immediately. The theory is not realistic to me because investors are humans that have emotions. They often react so much, so that this could lead a bubble.
** Week7 Design a Fiscal Policy: Classical or Keynesian? [#k3ddb511]
- Question
Fiscal policies are the actions of Congress on spending and taxing. (Monetary policy is the action take by the Federal Reserve to change the money supply.)
The effects of the US recession on employment continue to linger, and the jobless rate remains stubbornly high. Some economists are recommending another stimulus program, in which the government's fiscal policy is an increase in government spending, which will thereby increase demand and employment.
Take either the classical or Keynesian point of view on the stimulus (AS ALWAYS IN THIS CLASS, THIS POSITION NEED NOT BE YOUR ACTUAL OPINION.) Support your point of view using principles of Classical or Keynesian economics, as described by Mayer in Chapter 16 of "Everything Economics."
- Answer
Generally, Keynesian point of view cares very little about long-term economic growth and national government debts. Certainly, monetary policy is important for steady economic growth; however, it seems indirect and uncertain. In addition, there is a limit on monetary stimuli because interest rates are already near zero. Therefore, government should implement aggressive fiscal policies as well. Since consumer spending accounts for 71% of US GDP, government by itself needs to create employment, which directly affects consumer spending.
** Week7 The Role of Government [#k969bfe2]
- Question
In Chapter 3, Wheelan describes a number of ways in which the "government is your friend" in a well-functioning society and economy. List and explain two ways in which there is a need for effective government in an economy, and give examples of these two roles from your own experience.
- Answer
According to Wheelan, C (2010), a crucial role for government in a market economy is dealing with externalities. Government lowers the cost of doing business in the private sector in all kinds of ways; by providing uniform rules and regulations, such as contract low; by rooting out fraud; by circulating a sound currency, and it builds and maintains infrastructure.
For example, government imposes tariffs on imports to keep self-sufficiency ratio in many kinds of goods. Also, it mandates labeling of origins for some food products to secure food safety.
** Week7 Design a Monetary Policy [#ib4c272e]
- Question
The mandate of the Federal Reserve is to manage the money supply so as to maintain employment and keep the price level stable. Describe our current economy - its unemployment rate and inflation rate. (You can google these data, which are available from the U.S. Government - be sure to cite your source.)
As the advisor the the Federal Reserve Chairman, would you advocate an expansionary or contractionary monetary policy over the next several months? Explain how to implement your policy (i.e., buy or sell bonds) and how your policy would affect the economy, unemployment and inflation.
- Answer
Current U.S. unemployment rates for states are openly available on http://www.bls.gov/web/laus/laumstrk.htm (The Bureau of Labor Statistics of the U.S. Department of Labor, 2013). Its overall average is about 6.74%.
Also, you can check U.S. inflation rates from 2003 to 2013 on http://www.usinflationcalculator.com/inflation/current-inflation-rates/ (CoinNews, 2013). Current inflation rate is 1.0%.
** Week8 Tragedy of the Commons [#ac38502a]
- Question
What is the Tragedy of the Commons? Can you give an example of an environmental problem that has the same features as the public pasture described by Hardin?
- Answer
According to Mayer, the Tragedy of the Commons refers to the depletion of resources that are not regulated by government or privately owned. An example of this phenomenon is air pollution and global warming. Even if an country emits CO2 and air pollutants for economic growth at home on its own, this is a global problem because air is absolutely a common resource in people all over the world.
** Week8 Sustainability of GDP Growth [#mdcf046f]
- Question
In Chapter 21 of Everything Economics, Meyer asks if GDP growth is sustainable - particularly if it harms the environment. This is not a factor that Wheelan includes in his list in Chapter 13 of what makes nation's wealthy. Should sustainability be included? Why or why not?
- Answer
I think sustainability should be included. One of the most crucial missions of us is making a better world for the next generation. Without exception, no one has an elixir of life. I strongly agree with the idea of Happy Planet Index that measures ecological efficiency as described in Chapter 21.
** Week8 Life in 2050 [#pb808b1a]
- Question
Consider the 7 questions that Wheelan poses in the Epilogue to Naked Economics. Which of these questions, in your view, is the most important? What would be your response to that question? Try to use some of the economic ideas that we have studied this term in your response.
- Answer
In my view, the question "Will we use have strip malls in 2050?" is the most important. As Wheelan says, life is about maximizing utility, not income. However, from an economic viewpoint, it is not always efficient. Improving utility is uneconomical because GDP does not count values of humanity, culture, beauty, and community. Therefore, we need to establish an indicator of affluence, which might replace GDP in the future. In addition, for economic growth with an attempt to protect cultures and natural environments, tourism will be a key industry.
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