Class 41 - Entrepreneurs

Society only cares about the distribution of wealth, not the accumulation.

Entrepreneurs

Factors of production = land, labor, capital

Land = explicit cost = rent

         = implicit cost = forgone opportunities

Labor = explicit cost = wages

           = implicit cost = forgone wages

Capital = explicit cost = rent (materials)

             = implicit cost = forgone rent

Profitability = rental rate + appreciation rate – interest rate

Benefits of buying assets = forgone rental payments

Annual [(rental payments) / (price)] + [(change in asset price) / (price)] – 10% = 2.5%

2.5% = how much richer you get each year by owning a car compared to renting it. Positive = buy it, negative = rent it.

Class 40 - Dead Weight

An excise tax makes sellers pay. The sellers send money to the government – legally. Putting a $1 tax on something causes the supply curve to shift out and the price rises by less than the dollar.

The cost of taxes is the value of forgone trades. The value (not money) of the products that don’t get sold due to the tax= dead weight loss.

Taxes are just transfers but they change people’s behaviors. Taxes make people substitute. They give sellers an incentive to sell other things.

Resources collect taxes inefficiently so America has a 30% dead weight loss.

Buyers pay sales tax = Taxes cause demand curves to shift by the amount of the tax.

Excise and sales tax graphs look the same. Legal incidence of taxes doesn’t matter; they’re independent of economic incidence.

Economic incidence is determine by relative elasticity of supply and demand. A steep demand curve is inelastic.

The party less sensitive to price change will bear the burden of the tax.
*More elastic = bare less burden

Economic burden is a function of the slopes!!!

ECONOMIC IMPACT OF TAX = how much worse off you are compared to beginning after taxed
buyers - how much more they pay for product
sellers - how much less they take home for product

Class 39 - Everything's Bigger in Taxes

An excise tax is where the legal liability for the tax is on the seller – they have to pay the government.

The tax may increase but the product’s price did not increase. The ultimate price increases.

Why do taxes not raise as much as they should? The make wedges between buyers and sellers.
-inefficient
-hurts the world

Taxes are bad = prevent socially beneficial transactions.

Taxes aren’t costly. The act of raising taxes is.

Fore!!!!

At Bethpage Golf Course in NYC, a public golf course, there is a shortage of tee times. As the demand of tee-times increase for avid golfers in a highly populated area, supply stays constant. The Golf Course has tried to ration off the scarce tee-times but the allocation has only resulted in the emergence of a black market. There are about 70,000 golfers trying to play the limited 35,000 rounds a year. The nygolfshuttle.com has been able to play the system and created a business of supplying tee-times to golfers for a very expensive price. This rationing system gives the tee-times to people who can afford it and not always to the persons who most value golfing. Bethpage has tried to deal with the scalping of the tee-times but the shuttle company operates under totally legal procedures. Bethpage has tried to institute rules to prevent scalping and people who go around the rules but has failed. Look I admire the shuttle company. Sure they are a horrible scalping company who is making money where they shouldn’t in a system much like rent control, but they are a good middleman and deserve to profit for being smart enough for instituting the shuttles and scalping system.

1.  Is there a better rationing mechanism for the tee-times? Can we give the tee-times to people who really value them and can’t purely just afford them?

2. Can we fix the system? Is there a way to eliminate the shuttle company and scalping system? Should we even fix it?

3. Is the shuttle system a good or bad thing? Is it ethical?

Supply cannot meet the increase in demand so a shortage emerges. Because of this a black (secondary) market develops as well.

End of the Semester....Need......Food!

So as we get closer to the end of the semester all students are facing one issue: we have very little declining left!

Look at the beginning of the semester I had $500 in my declining balance and used it without hesitation through the months. I have as of today $64 left in my declining balance. Now this is probably just enough to make it through the next 14 days I am here at school especially with my ability to use unlimited at Douglas and Danforth. However, I have noticed some things over the past week or so.

As people start losing declining and notice that their balance is getting under $100 or so they start spending less at the Pit and Starbucks. This has lessened my late night trips, study breaks, and just boredom to go get some Panda Express or coffee. And it could not have come at a worse time.

Look Danforth and Douglas are great, they have edible unlimited food, but it never changes and I'm sick of it, but the Pit has varieties and stuff from the "real world."Coffee is becoming more of an essential as finals near and I am up late writing papers or studying. So when I need my declining the most, I see I have the least available.

So people have responded. People buy less. They use declining less often. People (yes I have seen it) steal. And the Pit and Starbucks have done NOTHING! As a company, these restaurants should be ashamed. Here's what I say: We should have a system where we save about $50 for finals week when we want to use our declining the most. Also turn off the light up screens that say our balance when we check out. We can easily have a system where we check a price online if we care that much and we just get a bill at the end of a semester telling us how much we owe for our declining spent. This way people won't stop their spending in a time that spending is most encouraged and companies will prosper.

Class 38 - Minimum Wage and Rarity

The world needs no regulation...what?

Minimum wage
Companies respond to increases in minimum wage - hire less.

Rarity and Scarcity
Rarity is something we don't have a lot of (absolute concept)
Scarcity is something that is not enough to go around (relative concept)
Rare but not scarce or scarce but not rare.

Surplus and Scarcity
In a surplus, Qs > Qd. Scarcity means there are tradeoffs to get things. Surpluses describe how much supply and demand there is at a particular price.


Making things illegal:
1. Producers keep making the goods. You make a lot more when its illegal - inelastic.

Class 37 - Rent Control

There are things in our world that are unearned and we shouldn't profit from them. Unearned rent is rent that people pay to you that isn't a result of your own productive activities.

Rent control - price ceilings

Consequences of Rent Controls
1. Reduced availability and goods are harder to get - still have competition/rationing
2. Lower quality
3. Money is paid other places - black markets
4. Misallocations - people who want goods don't get them
5. Impact other markets
6. Fairness
7. Discrimination
8. Monitoring/Enforcement Costs - costs associated with regulating leads to costs
            -intrusions reduce incentives to keep apartments in the long run and the supply curve shifts/flattens
            -monitoring doesn't produces goods/services
            -raises taxes