Inflation

Jordan Ross

Economics in a Changing World

Mr. Bloom

12/6/11

 1) What is the purpose of money?

Money provides the economy with a singular form of currency. Instead of trading 4 chickens for 1 cow, transactions can occur through one common function. The main value of modern currency is the "purchasing power." Money allows consumers to gain goods and services from sellers, and money sanctions the trade of products for value.

2) What was the gold standard?  What is money backed by today?

The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold. A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. That fixed price is used to determine the value of the currency. For example, if the U.S. sets the price of gold at $500 an ounce, the value of the dollar would be 1/500th of an ounce of gold.

3) What is inflation? 

"Inflation means, quiet simply, that average prices are rising. The inflation rate, or the change in the consumer price index, is the government's attempt to reflect changing prices with a single number, say 4.2 percent."

4) If prices are higher today than they were 30 years ago does it mean that we are poorer?

No, because "inflation is not that prices are going up, but rather that the purchasing power of the dollar is going down."

5) What is the difference between real and nominal figures?

"The nominal rate is used to calculate what you have to pay back; it's the number you see posted on the blank window or on the front page of a loan document." And a "real interest rate, which takes inflation into account and therefore reflects the true cost of "renting" capital. The real interest rate is the nominal rare minus the rate of inflation."

6) Who gets hurt the worst by inflation?

"Individuals who are retired or otherwise living on fixed incomes," are hurt the worst by inflation. "If that income is not indexed for inflation, then its purchasing power will gradually fade away."

7) Why is unexpected inflation worse than predictable inflation?

Unexpected inflation is worse than predictable inflation because of how devastating inflation can be if the rate of change is very high and no safety measures were taken to protect the economy. "But inflation is not constant or predictable," so unexpected inflation is also more common.

8)  Is there an incentive for politicians to invoke inflationary policies?

There is a lot of incentive for politicians to invoke inflationary policies, especially if they are corrupt. "Because shortsighted, corrupt, or desperate governments can buy themselves some time by stoking inflation. "Governments often owe large debts, and troubled governments owe even more. Plus, "inflation is good for debtors because it erodes the value of the money they must pay back.” And "governments control the inflation rate." All together, "governments can cut their own debts by pulling the inflation rip cord." Governments also utilize "inflation taxes" to "[tax] the people of [a] country - indirectly." "[Governments] have not physically taken money from their wallets; instead, [governments have] done it by devaluating the money that stays in their wallets."

9) Why is deflation bad? Aren’t low prices good?

"Inflation is bad; deflation, or steadily falling prices, is much worse." The "falling prices [of deflation] cause consumers to postpone purchases." "Consumers watch the value of their homes drop sharply while their mortgage payments stay the same. They feel poorer (because they are.)" Plus, "when consumers spend less, the economy grows less. Firms respond to this slowdown by cutting prices further still." Then, "some banks begin to have solvency problems; others just have the less capital for making new loans, which deprives otherwise healthy firms of credit and spreads the economic distress."

Economics Essay Final Draft

Jordan Ross

Economics in a Changing World

Mr. Bloom

12/1/11

Is a Free Market Economy Greedy?

            Mahatma Gandhi once said, “Earth provides enough to satisfy every man's need, but not every man's greed.” In this statement, Gandhi acknowledges the tension between satisfaction and greed. Gandhi essentially separates what people need, from what people want: the need being what is sufficient, and the want being what is selfish. Greed often emerges in relation to the economy. Greed is personified in a free market economy.

            Before understanding a free market economy, one must first define greed. Greed is defined as “An excessive desire to acquire or possess more than what one needs or deserves,” or the wish to gain more than necessary.

            Some economists like to justify a free market economy by using the term, “self-interest.” It is simply a kind twist to the phrase, interested in oneself, or greedy. However, self-interest is a selfishness that transpires to both ends of the free market economy.

            On one end lies the firm, or the buyer. A firm’s greed begins in the production of its service or good. In order to produce a good, a cost of production is charged to the producer. The product is then sold at a price for revenue. The revenue gained, minus the cost of production, creates the profit. In a free market economy, a successful firm is a business with a maximum profit, through low cost of production, and large revenue. But, to achieve a large profit, the firm must rely on greed and selfishness. One can lower the cost of production by cheaper materials, non-educated labor, or outsourced labor, all of which increase the amount of profit, and greed. Firms also falsely advertise goods at higher prices to gain larger revenue, resulting in a larger profit. The attempt alone to increase profit is an act of greed.

            Yet, maximizing profit is not the only selfish tactic used in a free market economy. Competition is another staple of the free market economy that promotes greed. Competition occurs when two or more firms produce the same product. In order to attract the most consumers, the firms will continuously lower prices of their goods and services to make a quick buck of the consumer, while eliminating the competition that cannot keep up. Competition is a bloody and greedy concept that is not only used, but is also promoted in a free market economy.

            Greed is also prevalent on the consumer’s side of an economic transaction. A consumer, or buyer, will always try to maximize their utilities. Maximizing one’s utilities is accomplished through using the least, to attain the most. The greedy consumer’s will buy from the firms with the lowest cost. This not only lowers the profit of the firm they purchased from, but it also negatively impacts the firms they did not decide to buy from by not adding to their revenue. This greedy cycle occurs because a free market economy promotes it.

            Some call the free market economy a necessary evil. This is due to the vast success the free market economy has had on a global scale. While successful however, it is one of the most greedy standards in the modern economy. The greed infested within both the consumers and the sellers tend to balance each other out. The greed of both parties seems to ironically keep them united and honest. The necessary evil of a free market economy will never achieve peace, but then again, not everyone wants it to.

Food Court Reflection

Jordan Ross

Economics in a Changing World

Mr. Bloom

11/22/11

Food Court Reflection

            My group chose our 5^th restaurant for reasons besides profit. Even though Hunan Wok, Taco Villa, Bennie’s, and Pasta Place gave the student government more profit, they did not adhere to the best health and environmental standards. Although our first four restaurants were based on profits, our 5^th served as our healthy choice aimed toward meeting the needs of the health conscious, vegetarian, and environment friendly students.

            We decided that as the student government, we wanted the most profit to help the school at large. However, as the process went on our goals changed ever so slightly. We did not choose two of the top five most profitable restaurants for one main reason. We did not choose the Wildcats Den because we, the student government, did not receive any of the profits. For this same reason, we decided not to include the Consumer Science Kitchen despite its positive influence on the student body.

            We chose Sally’s for other reasons besides its green and healthy principles. Luckily, Sally’s did not face any scarcity issues. The average demand for Sally’s at the best price delivered the most profit, only behind the two restaurants that did not give the student government any profit. These opportunity costs lead my group to believe that Sally’s was the most profitable and healthy choice in this situation. The marginal decision making skills needed in based on the trade offs presented in the different restaurants. We chose Sally’s because it gave us benefits that we felt overcame its deficits.  The health aspects, along with the student government’s direct gain of the profit were considered its benefits. While its overall 7^th highest total profit, and higher price of labor and ingredients revealed its deficits. A high demand, along with a more than “healthy” supply, translated into a successful profit. Since people demanded the salad, and Sally’s was able to supply it, Sally’s was the best choice for our 5^th restaurant.

            Overall as a team, I felt that my group did our best work in trying to achieve a vey difficult goal. The work was divided up evenly, and an equal amount of effort was put forth toward the project. We stayed connected via First Class, a Google Document, and in class. Our time spent working on the project out of class was also productive and effective. I trusted my teammates as much as they trusted me. I did feel however, that during the presentation we became nervous as the first group in front of the panel, and our presentation reflected our anxiety. Yet, I think our main issue in terms of our performance, lay in the medium of operation. While it seems to have benefits, overall, the Prezi program only thwarted our attempts at conveying our economic knowledge. Most of the actual work was spent trying to figure out the best way to present economic understanding on a sub-par project platform. I am not blaming our poor presentation on the technology, but the program itself did nothing to help, if not hurt our grade. In conclusion, I enjoyed the project because it challenged my economic knowledge, and made me strive to convey my comprehension in the Prezi format. I just wish that the outcome had been more successful.

            

Food Court Presentation on Prezi

Food Court Presentation by J.J. Ross Noah Sall and Jeremy Mintz

International Trade

Voluntary, open international trade is bad because it costs domestic jobs:
This true statement, is a current reality because, "trade create loser." (pg. 275) According to Charles Wheelan, "If a worker in Maine earns $14 an hour for something that can be in in Vietnam for $1 an hour, then he had better be 14 times as productive. If  not, a profit-maximizing firm will choose Vietnam." (pg. 2675) Essentially, open international trade promotes out-of-country labor. Usually, foreign workers can produce a good for a cheaper cost, because of their lower living standards, in this example Vietnam. And unless the domestic production can make sufficiently more of the product, it would be irrational for a company to use that producer, like in Maine. The profit-maximizing, or most efficient business, will always choose the foreign production because it costs less to manufacture. Therefore, international trade is bad because it deprives domestic workers of their jobs.

Free Market Economy Essay

Does a Free Market Economy Promote Greed and Selfishness?

"Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States." Former president Ronald Reagan said these words to acknowledge the success of the free market in America's current economy. In fact, President Reagan credits the entirety of America's efficiency on the foundation of the United State's free market economy. America's vast success is both a testament to its individual capabilities and economic ethics. Economic ethics tend to be left behind in a dominant economy, which can lead to materialism and gluttony. However, America's current market economy promotes self-interest, not greed and selfishness.

Before determining the ethical validity of a market economy, one must first understand the process and workings of a market economy. A market economy can be defined as a financial system that is controlled by the citizens. This type of market differs radically from a central planned economy, where a given government’s decisions dictate the economy’s activity. In a market economy, the consumer or citizen controls the market by system of supply and demand. The two elements of the market economy go hand in hand. If a certain company offers a widget, or a given product, there is a demand and supply for the widget. If the widget is being rapidly purchased, that means its demand is high. Hence, the company would have to increase its supply of widgets to meet the consumers’ demand. Contrastingly, if the demand for the widget is low, then the company needs to lower the supply. If the company continues to buy supply for a low demand, the company risks going out of business because they will be wasting money in manufacturing goods that they will not be able to supply. This is known is inefficiency.

Another important concept needed to understand a market economy is the formula of profit. Two key components make up profit; they are total revenue and cost. A companies profit is determined by taking their income, or total revenue, and subtracting it by the amount they spend making their good or service, known as cost. The most efficient companies will typically have high total revenue and a low cost, resulting in a substantial profit. 

The free market economy was created to allow businesses and people to buy and sell their goods, with the purpose on living off more than what they supply themselves. What the people want relies on the law of demand. The law states that as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa. An example may help in understanding the self-interest aspect and unselfish nature of a free market economy.

 If 20 businesses offer the same type of suitcase, business will need to differentiate them from the norm in order to make a profit. Several steps could be taken to ensure a positive income and profit.

One concept for example, may require a company to use higher quality material in the suitcase to make it lost longer and be more durable. This would usually increase the cost of labor, and in order to stay in business the company would need to increase its price. The price increase is not because of greed; it is simply for economic and ethical reasons. If the company upgraded to higher quality without increasing the cost of production, then the workers and manufactures would be cheated out of money that went into the pocket of the company. The other negative outcome of not increasing the cost, or pay to the manufacturer, would lead to an eventual termination of the company. This would deprive the consumer of a quality suitcase, and would place, the workers, manufactures, employees, stalk holders, and owners out of a job, and a lot of money. An attempt at selfishness or greed would land this company into closing up shop for good. As a result, a market economy does promote self-interest while thwarting greed and selfishness.

Another action the company may consider, involves lowering the cost of a suitcase in order increase profit. While at first, increasing profit may seem like a greedy act, it actually benefits everyone within the free market economy. By lowering the price of a suitcase, the business will be able to sell more suitcases to the citizens, and the citizens will be able to own more suitcases. This remains true because of the consumers’ main objective. The objective of the consumer is to use as little resources to attain the most value, also known as maximizing there utilizes. This is sometimes referred to as more “bang for your buck.” For instance, buying a cheaper suitcase for with more value. By decreasing the price to the consumer, and hopefully increasing the profit, an ethical company would use the additional money to increase the salary of their employees and manufacturers. Obviously, not every business, company, or enterprise in the free market economy is completely ethical, however every single one of them does have the option to be. In other words, ever business can promote self-interest, while not being economically greedy or selfish.

In his work, The Invisible Hand, Adam Smith explains that, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from regard to his or her own self interest.” One of Confucius’ descendants, ancient Philosopher Mengzi agues that, “benevolence is the most rational motive for human action rather than the desire for profit or for personal gain. Benevolence and righteousness may promote social harmony, but the desire for profit may promote social conflict.” In this excerpt from the Invisible Hand, Adam Smith expresses that a producer does not make a product out of passion, but rather he does so to simply turn a profit. However, Mengzi sees benevolence as a more powerful motive for profit, rather than greed or selfishness. Mengzi continues to state this same benevolence promotes social harmony, and discourages greed. Essentially, through benevolence and ethical practices, a free market economy promotes self- interest and success, while refuting and dissuading greed and selfishness.                                                                                                                                              

Byparticipating in a free market economy a business, such as the suitcase company previously mentioned, is promoting self-interest, not greed. The proper use of a free market economy includes: supply and demand, the law of demand, and maximizing a consumer’s utilities. Incorporating and applying all of these laws and factors, result in an ethical and productive economy free of greed and selfishness. Therefore, a free market economy promotes self-interest, and daunts greed and selfishness.

Supply

Why is price higher at Fde'L than Taco Villa?
The price is higher at Fde'L because their supplies are more expensive. In order to maintain a positive revenue, Fde'L's must charge a higher price to counteract the high cost of supplies. However, Taco Villa is able to offer a lower price because their supplies cost less.