Recent talks in Washington are leaning toward free trade restrictions against China. The argument behind such a move is in response to the Chinese currency, the Yuan, being held below its equilibrium value (price ceiling anyone?) Consider the argument for trade restrictions from our point of view, supply and demand. If there is a restriction in the demand for Chinese goods, less Chinese currency will be demanded (compliments - you can't buy Chinese goods without "Chinese dollars"). What do you forecast will happen to the price of the Yuan, aka the exchange rate, when demand decreases? Could you show this using a supply and demand graph? In what way will trade restrictions affect other currency prices?
Here's a great example of supply and demand at work. Before you check out the link work this one out for yourself. Assume the supply of castles is inelastic (a pretty safe assumption!). If the demand for castles decreases, what do you expect to happen to the equilibrium price level? Using a supply and demand graph, could you show this?
In a historic move the women of Saudi Arabia were finally given suffrage, albeit in the future. Here's a chart showing the relationship between democracy and gender inequality. As you can see, when a country becomes more democratic the inequality between genders falls.
What else do you think could be affected as the level of democracy increases? Is it possible that this chart is commiting the "post hoc" fallacy and gender inequality has nothing to do with democracy?
Actually, household income is falling for the third year in a row. We're now down to 1996 levels which has resounding effects for the economy. We know how this affects normal and inferior goods, but what does that mean for you and me? Depending on what's made domestically that could mean more or less demand for goods made at U.S. factories, which in turn affects income (again) . So, depending on the good (shirts, cars, food, etc..) this could be either a slippery slope or small a rough patch.
I want to dry your attention to a graphic on the side of this article because there are many interesting things to note. We'll talk about this in class, but isn't it interesting that even though income has fallen the amount of TVs per household has increased. Is TV an inferior good?
Utility theory was first developed in the late 18th and early 19th century as a sort of "guide" in developing government policy. The thought behind it was that government policies ought to maximize peoples utility (happiness, contentedness, etc...), even if that meant some were to be discarded. In what is now known as hedonic calculus, officials chose between policies by counting the amount of people who would be affected by a policy positively, and multiplying that amount by how happy that would make them. Then they subtracted those who would be hurt times how much they would be hurt by. Thus, utility as it used to be calculated was given by:
Utility = (People helped x Happy) - (People Hurt x Hurt)
The policy with the greatest (think of them as happy points) utility would then be used. Obviously there are some issues with this sort of "calculation", but what would you say they are? Can you calculate how happy or hurt someone other then yourself is ?
You don't need to read the following links for a current events quiz, they are just links to wikipedia articles about the economists talked about in this article in case you wanted to learn a bit more.
John Stuart Mill
atleast the Chinese government says so. Officially the saying is, "Genius comes from hard work - Tobacco helps you become talented" and it's written on the gate of many elementary schools. The reason this is scrawled across the opening gates is because many schools are sponsered by the state-owned tobacco-company. Here's an article and short audo clip (about 4 minutes) about how the government-run industry affects the people of China. Relating this article to te previous North Korea article, how do the policies of contorol for each government contrast? Could you provide an argument defending China's stance on tobacco in society?
Here is an article from The Economist on the dismal situation that many North Koreans face. What is the distinguishing difference between the way North Korea and America's governments operate? What would you predict to happen if Kim Jong Il allowed people to make their own choices about what/how much/what price to buy and sell? In the same city that offers luxury dog spas there are many who are homeless and without food. Do you judge the American system to be better?For lack of a better phrase... just some food for thought.
As we've learned, our choices are affected in many ways. In this Economix article about the "Beer Recession" we see the classic normal good scenario. If drinking beer at a bar is a "normal good" demand will fall as income falls, as we would predict! Also in the article, brewers are quoted saying that the hefty tax on beer has caused the dramatic drop in sales. You'll be able to answer this question more easily as the semester progresses, but how does a tax on beer change the quantity demanded? Do you expect the tax to lead to a big drop in quantity demanded, or only a little bit of a drop? What does it depend on?
It's back to the grind with a new batch of current events! This one is geared more toward informing those of you who have had (or will have) to finance college costs with student loans (like myself). I've picked this article so that you are more informed of all the costs you actually incur when borrowing from the government. Remember that economics is essentially the study of tradeoffs and cause and effect, so think economically next time you accept the full award amount of your student loans... present consumption may be hard for you to payoff in the future.
Also, here's a short video that accompanies the article
For the current events quiz this Friday you will not be accountable for the following post
-8/20 - First C.E. Post
-8/29 - Have a cold one...
-9/08 - Obama Jobs Proposal
Everything else is fair game :
Also, make sure you listen to the Tuesday Planet Money podcast (When Congress Plays Chicken) because there will be at least one question on the quiz pertaining to it. Happy reading, see you all on Friday!
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