Scot Wick Blog

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 16 of 23 … Restated from Chapter 1, the Ten Principles of Economics: 1: people face trade-offs 2: the cost of something is what you give up to get it 3: rational people think at the margin 4: people respond to incentives 5: trade can make everyone better off 6: markets are usually a good way to organize economic activity 7: governments can sometimes improve market outcomes 8: a country's standard of living depends on its ability to produce goods and services 9: prices rise when the government issues too much money 10: society faces a short-run trade-off between inflation and unemployment … One of the ten principles of economics, #7 : governments can sometimes improve market outcomes. Cooperation among oligopolists is undesirable from the standpoint of society as a whole. It leads to too high prices and too low product...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 15 of 23 … In a prisoners’ dilemma situation cooperation is difficult but not impossible. Not all prisoners decide to turn in their partners in crime. Cartels sometimes hold to collusive arrangements, despite the incentive for members to defect. … Players can solve the prisoners' dilemma by playing the game many times. Reconsider the duopolists Jack and Jill, Figure 2. Jack and Jill would like to maintain the cell D monopoly outcome · each produces 30 gallons a week · each gains $1,800 profit a week If Jack and Jill play this game only once neither has incentive to stay with this agreement. Self-interest drives both to renege and choose the dominant 40 gallons strategy, cell A. … Suppose Jack and Jill know they will play the same game every week at their scheduled meetings. When they make their initial agreement...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 14 of 23 … In the game theory prisoners’ dilemma, the police question two suspects. Lack of cooperation between the suspects is socially desirable, it results in conviction of more criminals. The prisoners' dilemma is a dilemma for the prisoners, but it results in a gain for society. … The prisoners' dilemma describes many of life's situations. It shows cooperation can be difficult to maintain even when cooperation would make both players in the game better off. This lack of cooperation is a problem for those involved in these situations. But in some cases, the non-cooperative equilibrium is bad for both the players and society. … In the arms-race game, the United States and the Soviet Union end up at the equilibrium of armed and at mutual risk. In the common-resources game, the cost of the extra wells dug...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 13 of 23 … Figure 4 - A Common-Resources Game In this game between two firms pumping oil from a common pool the profit each earns depends on both the number of wells it drills and the number of wells drilled by the other firm. … We can consider the problem of overuse of common resources using game theory. In Figure 4 two oil companies, Texaco and Exxon, own adjacent oil fields. A common pool of oil worth $12 million extends under the two fields. Drilling a well to recover the oil costs $1 million. … If both Texaco and Exxon drill one well, each will get half of the oil and earn a $5 million profit. If Texaco drills a second well Texaco has two of the three wells · Texaco gets two-thirds of the oil, and a profit of $6 million. · Exxon gets one-third of the oil, and a profit of $3 million. … If Exxon also drills a...

  Tax Basics Mostly from article Tax Basics In Five Charts. Adam Michel. February 28, 2024. Cato Institute. It is natural to wonder where the $4.4 trillion the federal government collected last year came from and what it funds, or doesn’t. Newly released data from the IRS show the federal tax system remains highly progressive (the higher the income the higher the tax percent rate) and has become more progressive over time. The highest‐​income Americans pay a disproportionate share of income taxes and face the highest average tax rates across all federal taxes. Despite high tax rates on some, the United States is a relatively low‐​tax country. But with a projected $2 trillion annual gap between revenue and spending over the next decade, it is unlikely to stay that way unless Congress cuts spending. … Most federal revenue comes from taxes on income, i.e. income taxes. Americans paid roughly $6.5 trillion in taxes across all levels of government (federal, state, local) in 2023. ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 12 of 23 … Figure 3 - An Arms-Race Game In this game between two countries the safety and power of each country depend on both its decision whether to arm or disarm and the decision made by the other country. … The logic of the prisoners' dilemma in which self-interest prevents cooperation and leads to an inferior outcome for the two prisoners applies to many other situations. In the decades after World War II the world's two military superpowers, the U.S. and the Soviet Union (U.S.S.R.), were in a competition over military power. Consider the decisions of the U.S. and the U.S.S.R. about whether to build new weapons or to disarm. … Each country prefers to have more arms than the other because a larger arsenal would give it more relative power But each country also prefers to live in a safe world. Figure 3 shows...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 11 of 23 … Much of the world's oil is produced by a few countries. These countries make up an oligopoly. Their decisions about quantity of oil to pump and supply are the same as Jack and Jill's decisions about water. In 1960 an oil-producing countries cartel was formed, the Organization of Petroleum Exporting Countries (OPEC). Original members included Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. By 1973 these others had joined: Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon. … The OPEC countries have about three quarters of the world's oil reserves. OPEC, acting as an oligopoly tries to control the price of oil with coordinated limiting of quantity produced by setting production levels for each of the member countries. The problem OPEC has is the same as with...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 10 of 23 ... Figure 2 - Jack and Jill's Oligopoly Game In this game between Jack and Jill profit each earns from selling water depends on both the quantity he or she chooses to sell and the quantity the other chooses to sell. … The game oligopolists play in trying to reach the monopoly outcome is similar to the game two prisoners play in the prisoners' dilemma. Consider the choices for Jack and Jill, per Table 1. These two water suppliers negotiate and agree to keep production at 30 gallons each for a total of 60. The price will be kept at $60 and together they will earn the maximum total profit of $3600, $1800 each. After they agree on production levels of 30 gallons each they must decide whether to cooperate and live up to this agreement or to ignore it and produce a greater quantity. … Figure 2 shows how the pro...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 17 of 36 - Oligopoly Section 9 of 23 … Figure 1 - The Prisoners' Dilemma Game Theory ChatGPT: game theory is the study of how people or groups make decisions in situations where the outcome depends on the choices of multiple players. Each player chooses a strategy, aiming to maximize their own benefit, while considering what others might do. A key concept is the Nash Equilibrium, where no player can do better by changing only their own strategy. Game theory helps explain competition, cooperation, and conflict in economics, politics, and everyday life. … In this game two criminals are suspected of committing a crime. The sentence each receives depends both on · his or her decision whether to confess or remain silent · the decision made by the other prisoner … Oligopolies would like to reach the monopoly outcome, where profit is maximized. Doi...