Profits 12/12

-> Profits = Total Revenues - Total Costs (Explicit and Implicit)

-> Contracts reduce uncertainty, helping facilitate transaction

-> "Interest" - Price paid to consume today though you haven't earned it yet, and cost for loaner to not have that money over loan period

-> Even if accounting flow brings in positive monetary profits, economic profits may be negative due to implicit and opportunity costs

-> No such thing as guaranteed profits

-> Competition drives prices down and increases worker profits; preventing it does the opposite

-> Losses insulate against waste and curb risk-taking, preventing resource misallocation

The Entrepreneur 12/9

-> Entrepreneurs need 3 things:
1. Land
2. Labor
3. Capital

-> In determining profits, entrepreneurs can't ignore opportunity costs of using the land, labor, and capital they have for their business rather than for other means

-> The formation of entrepreneurial businesses is key to the economy and should not be overlooked in determining policy. 

New Ruling on "Plan B" Contraceptives

Recently, the government overruled an FDA recommendation to allow "Plan B" birth control without a prescription. The decision has come under heavy fire from the left and right, and especially from Female-interest groups and groups dedicated to advancing women's equality and liberty. But as the decision holds, anyone over the age of 17 can get "Plan B" without a prescription, while those under 17 must get a prescription. Hopefully it won't hold for long. 

The rationale provided by the Health and Human Services Secretary Kathleen Sebelius for ignoring the FDA recommendation was that the study conducted failed to assess the impact on girls of all ages. Additionally, she worried that girls under the age of 17 would buy the pill and use it incorrectly. Another argument I have heard is that girls under age 17 could also come to abuse it in other ways, such as relying on it as a form of birth control. Frankly, I find these arguments ridiculous. First, Sebelius wanted the study to include girls all the way down to age 11. I don't think this is a reasonable claim. Second, imagine how easily a black market will develop. Girls who want to get the pill without a prescription will simply find an older friend or even a sibling and have them buy it instead. The same tactic already occurs with alcohol, which, let me remind you, is not hard to get by any measure despite the age limit. Third, girls who are on the fence about taking the emergency contraceptive may now be incentivized to err on the side opposite caution, since the cost of getting the pill has just been raised. And four, the "Plan B" contraceptive only has a 72 hour period of effectiveness after any sort of pregnancy scare. For some, the added time of finding out how to get a prescription, locating a doctor to prescribe it, and then finding a pharmacy to fill it may take too long for some. What if the doctor is out of town, the pharmacy is closed, or there are other extenuating circumstances? 

To give the other side a point I have not yet heard, this does have at least one benefit, which is that now girls must go to a doctor to get a prescription, which means that both a doctor and likely a parent will be involved, which will make the use safer. This will also facilitate discussion about sex, pregnancy, and contraceptives, and promote responsibility. However, these reasons are not enough to offset the high cost of this decision. It will be interesting to see if there are more teen pregnancies in the future.

The Sumptuary Manifesto

"Sumptuary" - Regulating or otherwise limiting consumption

This particular JSOTR piece was a brief satire aimed at dismantling the ridiculous and arbitrary nature of laws that regulate consumption, termed sumptuary laws. The piece was short and pithy, a very easy read. Essentially it was a description of different hypothetical laws that limited various types of consumption, from housing sizes to liquor to facial hair, with the justification being the mutual benefit of society. At the beginning and end, in a nice symmetry, the "Peerless Leader" remarked upon the outdated, misguided view of liberty held by the enemy party of libertarians and the like.

I personally enjoyed reading the piece. It conveyed a simple insight into the arbitrary and often ridiculous nature of attempts to regulate consumption, using exaggerated examples to drive the point across. In our society, there are certainly people who believe that there is too much consumption and wish we could do something to deal with it. Many point to a consumption tax as the solution. Perhaps this would work, perhaps it wouldn't, but is there really an issue of over-consumption? Efficiency should be lauded, and some people certainly do lead extravagant lifestyles, but who are we to tell them what they can and can't do, based on our subjective and vague perception of what is "too much" consumption"? The exception to this rule is when there are externalities to the consumption that directly affect others. However, given that every dollar spent has an opportunity cost of whatever else it could have been spent on, is it moral to give money spent on excess and re-direct it to those who are more needy and would use it to buy food, water, or other necessities? This is the mentality behind wealth re-distribution and social safety nets. The economic argument would be that the dollar to a person who is poor has a greater marginal utility than a person who has much money and spends at least some of it on excesses such as super nice cars or extravagantly large houses. Now, I personally try to live within my means, and would be happy without a nice car, but is it necessarily moral for me to turn to someone else who makes more and say "because you have too much money, you should give some away?" In my opinion, this is an immoral mentality. However, assuming that the money is spent well, and used towards infrastructure and social programs, is it a necessary moral casualty to help those in need? This is an open question and one I am personally still debating.

Legal and Economic Incidence 12/7

1. Cost of taxes includes the deadweight loss and the cost of collecting, in terms of time and money: also includes cost of time spent preparing taxes and cost of hiring others to do it, again in terms of time and money

2. Whichever side of the market is more inelastic will always take the brunt of the tax, despite who the tax is aimed at -> RELATIVE ELASTICITY is the key to analyzing tax revenues and determining who takes the burden of taxation

3. Legal incidence and economic incidence are orthogonal

4. "Incidence" - Who really pays

Supply-Demand Changes 12/5

1. Illegality of drugs encourages:

• Less moral people to enter the market
• Stronger drugs
• Need for enforcement, which takes time and money

2. Taxes are neither a cost nor a benefit, since they only shift money around; however they prevent potential transactions, called the dead weight loss. This is where they hurt the economy.

3. Placing a tax on sellers is essentially taxing buyers; can't just isolate one side of the market for taxation without affecting other side

Golf at Bethpage Grey

This article dealt with the overwhelming demand for tee times at a newly renovated golf course in NYC, one of the most population dense areas in the world, and the legal black market which developed as a way to get people tee times. In the end, the demand created a sort of lottery system: the second tee times were open to buy, people would desperately call in, and the lucky few who got through would purchase a chance to play on the US Open quality golf course, while the others would just get the beeping of a busy signal and be forced to try again. The author detailed his own experience with the system and those of others who have also had difficulty in getting a reservation. Though overseers have attempted to regulate the NY Golf Shuttle company, which constitutes the black market, they have largely failed. Each attempt at shackling it only causes more issues, often to the detriment of unintended customers. How can this situation be fixed, or at the very least improved?

I have one response, which is that the golf course should raise its prices. This is the best way to remove the scalping issue. Though people will cry foul and say that this is biased towards the more wealthy citizens, which it is, it is a logical solution. The scalping business is an example of a de facto "black market" caused by the excess of demand relative to supply, and the forced inability of the market to equilibrate by raising prices. Despite well-intentioned attempts at regulation and keeping the price of the golf course the same, the black market seems to defy all attempts to regulate it. Though the price for a tee time is $120, it seems the only way to actually get a tee time is to use this booking and shuttle service, which for the author of the piece cost $850 and was inconsistent with times. Raising the price would solve this problem, decreasing quantity demanded and letting people realistically plan with the golf course, rather than using a middle-man service that blitzes the phone system and scalps tee times. As Rizzo said, there is money left on the table here for people to earn by exploiting the disequilibrium of the market, and the NY Golf Shuttle is certainly taking advantage.

Saving the Last of my Declining

This week I finally got around to purchasing a clamshell. I don't know why I didn't earlier. Honestly, it is one of the best investments anyone with an unlimited plan can make. For $5, you can buy access to clamshells for the entirety of the school year. Then, you can take as much food as you would like from either of the unlimited dining centers, which are a sunk cost, and bring it back to the dorm to save for times when you get hungry. Instead of going to the Pit or Hillside, you can just take the food you stored from Danforth or Douglass. Over time, the money saved adds up. Maybe I wouldn't have so little declining if I had just invested in the clamshell earlier.

Now, here's the interesting thing. I was baffled that the price of the clamshell was so low! Honestly, $5 for the entire year? Given the fact that you only have to purchase the clamshell once each year, the demand should be relatively inelastic, and the price elasticity should be very low. I would pay much more than $5 for access to the clamshell. Even a $20 price would seem low given how much it would save me. And again, I only have to buy it once? I truly would buy it a a lot more than $5. So why is the price so low? Well, I figured it had something to do with the price of tupperware, and the price of other potential containers, which act as substitutes for the clamshell. However, I don't believe people will turn quickly to tupperware. The clamshell is too convenient, and people often don't care to invest the time to utilize the alternative options. For me, it was a relatively spontaneous decision, made when I was in a rush but wanted to eat more. Buying one had been in the back of my mind for some time, but I had denied that I needed one. Guess having $15 left in declining changed that mentality...

Class Notes 12/2

1. Price controls create need for security which creates opportunity costs of what enforcers could be doing. Security is a cost.
2. Housing vouchers would be much better than price ceiling
3. Increase in price decreases quantity demanded, not demand
4. Minimum wage does not help the poor, but admittedly it doesn't hurt too much either; a better system would use an Earned Income Tax Credit (EITC)

Price Controls 11/30

Outcomes of Price Ceilings
1. Reduced availability of good; harder to get! -> Shortages
2. Lower quality goods
3. Development of Black markets
4. Misallocations
5. Other neighborhoods face higher demand and higher prices
6. Lack of fairness
7. Discrimination since there is a lower cost of being discriminatory
8. Costs of enforcement

Market Equilibrium 11/28

1. Prices economize and give information to solve economic problems, without comprehensive knowledge on either side of the market -> personality traits, lifestyles, etc... Despite this, prices force consumers to take into account how much other people value goods

2. Markets have trial and error advantage over politics and central planning

3. Planned economies suffer from a knowledge problem and leave room for side deals and other hidden transactions, despite attempts to prevent this.