Scot Wick Blog

  Free Trade Maximizes Total Surplus And Total Wealth Mostly summarized from sections of Gregory Mankiw’s Principles of Economics, 5th Ed., Chapter 9. … Figure 1 - Equilibrium without International Trade This figure for hypothetical country “Isoland” shows consumer and producer surplus in equilibrium without international trade for the textile market. When an economy does not trade in world markets the price and quantity adjusts to balance only the domestic supply and demand. … Figure 2 –International Trade in an Exporting Country Once Isoland engages in international trade the originally lower domestic price before trade rises to equal the after-trade higher world price. This is because the added demand in other countries drives up the price. The domestic supply curve shows the quantity of textiles produced domestically. The domestic demand curve shows the quantity of textiles consumed domestically. … The higher world price of textiles now applies to Isoland. Textiles exports quan...

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 8 The Data of Macroeconomics Chapter 23 of 36 Measuring A Nation’s Income Section 2 of 15 … Almost every day in the media we see some statistic about the economy. An economic statistic might measure: · total income of everyone in the economy - GDP · rate prices are rising - inflation · percentage of the labor force out of work - unemployment · total spending at stores - retail sales · imbalance of trade between the United States and the rest of the world - the trade deficit These statistics are macroeconomic measurements. They tell us something about the entire economy, which is macroeconomics, rather than telling us about a particular household, firm, or market, which is microeconomics. … Some questions macroeconomists address are: · why is average income higher in some countries than in others? · why do employment and production increase in some years and decrease in others? · why do prices sometimes rise r...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 8 The Data of Macroeconomics Chapter 23 of 36 Measuring A Nation’s Income Section 1 of 15 … Chapter 23 Measuring A Nation’s Income - Topics The Economy's Income and Expenditure The Measurement of Gross Domestic Product The Components of GDP Other Measures of Income Government Purchases Net Exports Real Versus Nominal GDP The GDP Deflator Real GDP Over Recent History Is GDP a Good Measure of Economic Well-Being? The Underground Economy International Differences in GDP and the Quality of Life … … Summary of Chapter 23: The Data of Macroeconomics, Measuring A Nation’s Income, Gregory Mankiw, Principles of Economics, 5th Ed. Grok: This chapter introduces how economists measure overall economic activity in a nation, focusing primarily on Gross Domestic Product (GDP) as the key indicator of a nation's income and output. … Key Concepts and Structure The Economy's Income Equals Its Expenditure Every tra...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 22 of 36 Frontiers of Microeconomics Section 15 of 15 … Chapter 22 conclusion. 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 … Two of the principles are: 6: markets are usually a good way to organize economic activity 7: governments can sometimes improve market outcomes The study of asymmetric information makes one more wary of market outco...

  c22s14 260126M, 221031, 180125, 140918 posted Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 22 of 36 Frontiers of Microeconomics Section 14 of 16 … Recently the field of behavioral economics has emerged, in which economists use basic psychology insights. We’ll consider these insights here: a· People aren't always rational b· People care about fairness c· People are inconsistent over time … c· People are inconsistent over time Consider some unpleasant task, such as doing laundry, shoveling snow, or filling income tax forms. 1-Would you (A) prefer to spend 50 minutes doing the task now, or (B) spend 60 minutes doing the task tomorrow? 2-Would you (A) prefer to spend 50 minutes doing the task 90 days later, or (B) spend 60 minutes doing the task 91 days later? Many people, for Question -1- choose B Question -2- choose A With Question -1- people faced with the choice of doing the task immediately or later often choos...

  The Laffer Curve – Lower Tax Rates Now Mean Higher Tax Revenues Later Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. At a meeting in 1974 economist Arthur Laffer drew a figure to show how tax rates affect tax revenue, looking like Figure 1. He said the United States was on the downward-sloping right side of the curve, point A. This meant tax rates were so high reducing them would raise tax revenue, up toward point C. The Laffer curve theory of too-high taxes was resulting in low tax revenues was accepted by President Ronald Reagan. The views of Laffer and Reagan became known as supply-side economics. Supply-side economists contend the Reagan tax cuts and economy boom of the 1980s proved the Laffer Curve. … Per Figure 1 the goal of Democrat politicians is to be at point C. They want to set tax rates where current tax revenues are maximized. Employees and employers keep less money to spend and invest and government has more money to spend. Per Figure 2 the...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 22 of 36 Frontiers of Microeconomics Section 13 of 16 … Recently the field of behavioral economics has emerged, in which economists use basic psychology insights. We’ll consider these insights here: a· People aren't always rational b· People care about fairness c· People are inconsistent over time … b· People care about fairness Another human behavior insight is shown with the ultimatum game. This is that people care about fairness. In the ultimatum game two volunteers who are strangers are told they are going to play a game and could win a total of $100. The game begins with a coin toss to designate player A and B. Player A then must propose a division of the $100 prize between the two. After player A makes his proposal, player B accepts or rejects it. If player B accepts player A’s proposal, both players are paid as proposed by A. If player B rejects, both players g...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 22 of 36 Frontiers of Microeconomics Section 12 of 16 … Recently the field of behavioral economics has emerged, in which economists use basic psychology insights. We’ll consider these insights here: a· People aren't always rational b· People care about fairness c· People are inconsistent over time … a· People aren't always rational, continued. Understanding behavior is easier once we don’t assume people always act rationally. Why is economics built on the rationality assumption when psychology study results show people don’t always act rationally? One answer is the assumption of rationality is true enough to yield reasonably accurate models of behavior, people are mostly rational. The assumption firms rationally maximize profits yields many important and valid insights. But if we included complex psychological deviations from rationality models of firms’ behavior ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 22 of 36 Frontiers of Microeconomics Section 11 of 16 … a· People aren't always rational, continued. Studies of human decision making have identified systematic mistakes people make. People can be overconfident. Imagine you were asked some numerical question about the number of African countries in the United Nations or the height of the tallest mountain in North America. Instead of being asked for a single estimate you were asked to give a 90 percent confidence interval a range you were 90 percent confident the true number falls within. For example, you answer “I’m 90 percent confident the tallest mountain in North America is between two and three miles high.” When psychologists run experiments like this they find most people give too-small ranges. The true number falls within their intervals far less than 90 percent of the time. A conclusion is most people are too c...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 22 of 36 Frontiers of Microeconomics Section 10 of 16 … The three topics of chapter 22: 1- the economics of asymmetric information 2- political economy 3- behavioral economics … 3-Behavioral economics. Like economics, the social science of psychology is a study of choices people make. Because they mostly address different questions, the studies of economics and psychology are usually independent. Economics assumes a "rational actor." Its questions focus on allocation, incentives, and equilibrium. Psychology doesn’t assume humans are rational. Its questions focus on the internal mechanisms of behavior - why we think and feel the way we do. … Recently the field of behavioral economics has emerged, in which economists use basic psychology insights. We’ll consider these insights here: · people aren't always rational · people care about fairness · people are inco...

  Blue, (democrat-leaning) states pay more federal taxes than federal spending received, and red (republican-leaning) states pay less federal taxes than federal spending received. … Is it true blue states subsidize, through federal taxes, the lower population poorer red states? Grok: The claim is largely accurate, though with some nuances and exceptions. Multiple independent analyses of federal fiscal flows (taxes paid vs. spending received) show a clear pattern: Democratic-leaning (blue) states tend to be net contributors to the federal budget, while Republican-leaning (red) states are more often net recipients. This results in a net transfer of funds from blue to red states. … Net Transfer from Blue to Red States A 2025 analysis of data from 2018–2022 found blue states contributed about 60% of federal tax receipts but received only 53% of federal spending, leading to a per capita transfer of around $4,300 from blue to red states. Of the top 20 net recipient states, 14 were red … ...