Unit One

A. Scarcity: the nature of economic systemsScarcity is when people's desires and wants exceed the amount of resources available. It means that we do not have the resources to fufill those desires and needs. An example of this was this Christmas with the Wii situation. Every child in America desired a Japanese- made Wii, but there were not enough to go around. People were buying them on Ebay for hundreds of dollars more than they were worth and still not everyone got one. This is a scarce good. Not enough to go around. Things that cause scarcity are the factors of production, along with insufficient

technology or limits in skilled workers. The production possibilities curve is determined by scarce resources. The inefficient use of resources (less that full employment, waste of land) will cause the economy to work below its production possibilities frontier. The graph to the right is

an example of a production possibilities curve between food and computers. If the PPF was inside the curve, the economy would be making its scarce goods, or economic goods, even scarcer.Goods that are not scarce, such as sand or salt water, are free goods. Due to the scarcity of goods, it becomes necessary for society to choose how the scarce goods are allocated. An example of this is diamonds. Because diamonds are scarce, we choose how much is distributed to everyone. In a market economy, the way to achieve this is trade but other ways it is done by centralized command, tradition, or community democracy.1. Opportunity CostsScarcity causes trade-offs (since not everyone can have a good, they have to choose a different good), and trade-offs result in opportunity costs. Opportunity cost is what must be given up when you choose something. For example, if a student chooses to go back to school to earn his or her

master's degree, the cost of the tuition and fees is roughly 30,000 dollars (it's an expensive school). One also has to consider the income he or she would have been making during that time he or she went to school. If the student was making 60,000 dollars a year and went back to school for two years, the opportunity cost would be 120,000 dollars.2. Production Possibilities CurvesA production possibilities curve is a graph that shows the amount of to goods an economy can produce with scarce resources. The curve shows the maximum amount of a good that economy can produce for the amount of another good. It illustrates the possibilities for a firm or company to produce for two goods. It also demonstrates the trade-off of choosing one good over another. The graph to the right shows how much wine compared to grain an economy can effectively produce. The more wine it can produce results in less grain that it can produce. The more grain it can produce results in less wine is can produce.

B. Specialization, Trade, and Comparative AdvantageWhat is specialization? It allows a person, business, or nation to specialize in a certain activity that they do best, instead of striving for self-sufficiency. What's so great about it? It allows for a greater variety of goods and services to be available at a lower cost. It also allows for increased output by giving people the chance at becoming better at what they do.Trade helps people exchange what they have for what they want. It also facilitates economic growth, because it allows for specialization. Specialization allows a person to specialize in creating something that they are most efficient in making and then trading the products they make for things that they have a higher opportunity cost in making. A person has a comparative advantage when he or she has a lower opportunity cost in producing a good or a service than another person. Opportunity cost is what one gives up, when choosing to do one thing over the other. For example: you have two cupcakes in front of you. One is chocolate, the other vanilla. When you choose the chocolate one, your opportunity cost is the vanilla cupcake. When you choose the vanilla cupcake, your opportunity cost is the chocolate cupcake.Specialization, comparative advantage, and opportunity cost, they are all some of the basic ideas behind free trade and the World Trade Organization (WTO).Here's a link that talks about the Heckscher-Ohlin Trade Theory, which basically discusses the reasons why two countries should specialize and trade with one another.http://nobelprize.org/educational_games/economics/trade/ohlin.html

1. Determining Comparative Advantage with input informationNOTE: input information refers to the resources ( i.e. time, money, etc) that are put into performing a certain task, such as baking cupcakes.Here is an example, since that is the best way to try and explain this.Suppose you have two countries: the US and Japan. Now suppose you have two tasks: making airplanes and cars.

Cars AirplanesUS 6 hours 2 hoursJapan 3 hours 4 hours

US has the absolute advantage in making airplanes, because the US takes fewer hours to make 1 airplanes than Japan does. Japan has the absolute advantage in making cars, because Japan takes fewer hours to make 1 car as opposed to the time taken by the US.

Now what is the opportunity cost of the US for making cars in terms of airplanes? For airplanes in terms of cars?opportunity cost for making cars : car hours / airplane hours6/2 airplanes or 3 airplanesopportunity cost for making airplanes: airplane hours / car hours1/3 cars or .33 car

Now what is the opportunity cost of Japan for making cars in terms of airplanes? For airplanes in terms of cars?opportunity cost for making cars : car hours / airplane hours3/4 airplanes or .75 airplanesopportunity cost for making airplanes: airplane hours / car hours4/3 cars or 1.33 cars

So . . . which country has the comparative advantage in cars? In airplanes?Japan has the comparative advantage in making cars, because it has the lower opportunity cost. The US has the comparative advantage in making airplanes, because it has the lower opportunity cost. Therefore . . .US should make airplanes, and Japan should make cars.

2. Determining Comparative Advantage with output informationNOTE: output information refers to how many of one product (i.e. cupcakes, cars, airplanes, etc) a person can make with limited resources (i.e. hours, money, labor, etc)Here is an example, since that is probably the best way to explain this.

US JapanCars 6 3Airplanes 2 4

This is how many cars and airplanes either country can make within an alloted time of one hour. *

Now what is the opportunity cost of the US for making cars? For airplanes?opportunity cost for making cars : # of airplanes / # of cars2/6 airplane or 1/3 airplaneopportunity cost for making airplanes: # of cars / # of airplanes6/2 cars or 3 cars

Now what is the opportunity cost of Japan for making cars? For airplanes?opportunity cost for making cars : # of airplanes / # of cars4/3 airplanes or 1.33 airplanesopportunity cost for making airplanes: # of cars / # of airplanes

3/4 car or .75 car

US has the absolute advantage in making cars, because the US makes more cars than Japan does. Japan has the absolute advantage in making airplanes, because Japan makes more airplanes than the US.

So . . . which country has the comparative advantage in cars? In airplanes?Japan has the comparative advantage in making airplanes, because it has the lower opportunity cost. The US has the comparative advantage in making cars, because it has the lower opportunity cost. Therefore . . .US should make cars, and Japan should make airplanes.

If you still have some doubt over absolute advantage, comparative advantage, and some of the other basic concepts, here are some videos. Hopefully they'll help clear out any remaining doubts. :)http://youtube.com/watch?v=aLe_LF622JIhttp://youtube.com/watch?v=8UsOCSBt3fAhttp://youtube.com/watch?v=9leliceP63chttp://youtube.com/watch?v=A6_v7okrO-s

C. Introduction to Demand1. Relationship Between Price and Quantity DemandedThe term supply and demand refers to the relationship between the producers and the consumers of a good. The demand aspect, which we will be discussing in this section, refers to what degree the consumers demand that product and what price they will pay for it. This is shown by the demand curve as seen on the right. The position of the demand curve, meaning its orientation to the right or left, determines the price of that product. In this particular supply and demand model the demand curve has shifted to the right indicating a increase in the demand for than product. Because of this shift the demand curve now crosses the supply curve at a different place indicating a new equilibrium point. The dotted lines on the graph show that this shift has caused an increase in price and quantity. These two factors are represented by the x and y axes and depending on the equilibrium point these factors can either increase or decrease. In this instance they have both increased but they do not always act in the same way. For example if the supply curve were to shift to the left indicating a decrease in the amount of product the producers are willing to sell, the price would increase but the quantity would decrease. In summation the supply and demand curves represent the amount consumers will pay

for a product and the amount producers will sell the product for. Where these two curves meet is the equilibrium point. Based on where this equilibrium point is found and its position on the x and y axes the price and quantity change. The more demand there is for a product the more money people will be willing to pay for it and the higher price the producers can charge.Here is a video that I found that might help if you are having trouble understanding the supply and demand curves: http://www.youtube.com/watch?v=JWVG0FAfgmA

2. Determinants of DemandThere are certain factors that cause the demand to shift to either the right or the left. Thses factors, which change the demand for a certain product, are known as the determinants of demand. Some of the most common determinants of demand are:1.) tastes or preferences of consumers

an increased taste in a product increases its demand a decreased taste in a product decreases its demand

2.) number of consumers in the market

more consumers increases a products demand fewer consumers decreases a products demand

3.) the money incomes of consumers

Superior goods or normal goods

As income increases, a superior good's demand increases As income decreases, a superior good's demand decreases Superior goods are most common good

Inferior Goods

As income increases, an inferior good's demand decreases As income decreases, an inferior good's demand increases

4.) prices of related goods

Substitute Goods

As price of A increases, demand for B increases As price of A decreases, demand for B decreases Example: Nike's and Reeboks

Complementary Goods

As price of A increases, demand for B decreases As price of B decreases, demand for A increases Example: computers and computer games; gasoline and motor oil

Independent Goods

As price of good A changes, demand for good B does not change

5.) consumer expectations about the future prices and incomes

if consumers expect a price increase in near future, demand increases if consumers expect a price decrease in the near future, demand decreases

3. Changes in Quantity Demanded vs. Changes in DemandBefore we can delve into this topic it is important to understand the difference between a movement along the demand curve and a shift of the demand curve. A movement refers to a movement along the demand curve and a shift means a translation of the entire curve to the left or right depending on how demand has changed. On your left you can see a graph that shows a movement along the demand curve, and on the right is a shift of the entire demand curve.

A change in quantity demanded is a movement along the curve while a change in demand means a shift of the entire curve. A change in quantity demanded is usually caused by a change in the price of the product. This price could be enforced by the government or by individual sellers. This movement along the graph only occurs when the supply and demand relationship remains consistent and the change is caused when a price change effects only quantity or vice versa. A change in demand results in a shift of the curve right or left and is caused by a change in a

determinant (such as one stated above) other than price.

http://economics.about.com/

D. Supply

1. Relationship between supply and quantity supplied.

Supply is defined as being "the quantity of a good or resource that sellers/suppliers are willing and able to offer to the market for sale under a given set of conditions over aspecific period of time." A supply curve illustrates the law of supply which states that ceteris paribus, if a price of a product rises, the quantity of that product supplied will increase. Likewise, if the price of a

product decreases, the quantity supplied will also

decrease.The Supply CurveThe supply curve (shown at left) shows the relationship between the price and quantity supplied. Price is measured on the vertical axis and quantity supplied is displayed along the horizontal axis. Due to the law of supply (see below), the supply curve generally slopes upward. A situation in which the supply curve would not slope upward is the supply curve of labor. Under normal circumstances, if a product has a higher price, more will be supplied. With the labor supply curve, the more a company is willing to pay, the more hours a person will be willing to work. However, as the hours get higher and higher, the person may begin to value their time more and more and choose to forgo extra income in order to spend their time in leisure. This backward bending supply curve is illustrated on the right.

The Law Of SupplyThe law of supply states that if other things remain constant, if the price of a good rises, the corresponding quantity supplied increases, and as the price falls the quantity supplied will decrease. In order for a business to supply more of a product, they will have to charge more in order to have the financial resources to produce more.

2. Determinants of supply

The following factors cause supply to shift to the right or the left on a supply curve:1) Prices of Resources:As resource prices rise, typically supply will be reduced. It will cost more for the producer to manufacture their product, and therefore they will require higher prices to be paid for their product. As a result, the producer may choose to lower supply in order to drive prices up. For example, let's say that Furby are made from plastic and a magical ingredient known as Furbz. If the price of Furbz increases, it will cost the producer more money to create each individual Furby. As a result, the producer will need to charge more for each Ferby in order to make up for the increased price of Furbz. Thus, the supply of Ferbys on the market will decrease.2) Technological Innovations:Technological innovations usually lead to improved productivity, which means that the prices of production can be decreased. A decrease in the cost of production will allow for supply to increase. An example of this is that if you are manufacturing a Wii and new technology comes along that allows you to make a Wii in half the time and for half the price, the supply of Wiis will increase.3) Number of Producers:If there are more producers producing a product in a market, the supply will increase.4) Taxes and Subsidies:If the government is willing to provide tax breaks and subsidies, then the supply of a product will increase. Likewise, if the government imposes new taxes on a product, the supply will most likely decrease.5) Price Expectations:Producers may choose to change the supply of their products due to their expectations about what prices will be in the future. Let's say an eggnog company distributes eggnog all year round. The company comes to the realization that their consumers will most likely buy more eggnog around the holidays, and therefore they would be able to charge more for their eggnog and still receive business. The company would possible choose to hold on to some of their eggnog and wait to sell it at a later date when they could make more money off of it thereby decreasing supply now and increasing supply in the future.

3. Changes in quantity supplied vs. changes in supply

A change in price results in a change in quantity supplied. Therefore, this results in movement along the supply curve, NOT a shift in the supply curve. This is illustrated below on the left.A change in supply is caused by factors other than price. These factors will cause shifts of the supply curve. This is illustrated below on the right. Changes in the determinants of supply lead to shifts in the supply curve.

E. Introduction to Elasticity of Supply and Demand

1. Elasticity is the responsiveness in which the supply and demand curve will change. A curve that has a high elasticity is susceptible to change. If the curve has a low elasticity, a higher change in measure, such as price level, is needed in order to affect the curve. There are many factors that can affect elasticity. Supply elasticity is affected by price changes. Demand elasticity is affected by the availability of substitutes, amount of income available to spend on the good, and time.

1.

elastic_s.gif2.

inelastic_s.gif

3. Supply elasticity- If there is a large change in price, as well as a large change in supply, then the supply graph is considered to be elastic. A large change in price, but small change in supply, the graph is then considered to be inelastic.

1. Elastic Supply Inelastic Supply4. Demand elasticity- If there is little change in price level, but large change in

quantity, then the demand curve is considered to be elastic. An inelastic demand curve would have a large change in price level, but little change in quantity.

1. Availability of substitutes- If a price rises in a product, then the demand will decrease. As a result, consumers will more than likely buy another

product of similar fashion, but lower in price. This will then cause a decrease in price level for the first product, and possibly increasing demand for it again. However, not every product can be easily switched over to. One example of an inelastic product is oil. There are very few other options for energy resources other than oil. Consumers can not change what they put in their gas tank over night, so as a result, countries such as Saudi Arabia may charge what ever price they want on oil and the consumers can do very little about it. Products that are necessities have very little price changes as opposed to goods and services, which are relatively elastic.

2. Amount of income available- This is another important factor when determining the elasticity of supply and demand. A simple way to see this is if the price of a product were to go up and a buyer's income were to stay the same, then demand would go down. If a product were to increase proportionately in price with the buyer's income, then demand should not change. On the other hand, if the price of a product were to down, but the buyer's income were to either stay the same or increase, then demand will increase because the buyer's purchasing power has increased.

3. Time- Time is unlimited, yet so important because we have so little of it. Any product can be affected by time. Take for example you only like satellite TV (as opposed to cable), so you pay a monthly fee of $30 for Direct TV. Unfortunately, the only other satellite service is Dish Network, which is actually more expensive (say $50 for example). By paying for Direct TV monthly, the demand for it become inelastic. However, say the person can no longer pay for the service, then he or she will have to cancel the service. As a result, the service of Direct TV becomes elastic over time.

4.

elastic_d.gif5.

inelastic_d.gif

Elastic Demand Inelastic Demand,

Supply and Demand Curve Video

jcleare Jan 2, 2008

I found this on youtube and at first just thought it was a funny video but it actually was a pretty good tutorial about supply and demand curves

user-14387

http://www.youtube.com/watch?v=JWVGOFAfgmA

jcleare Jan 2, 2008

Oops sorry I typed it in wrong its actually this:

http://www.youtube.com/watch?v=JWVG0FAfgmA

Heckscher-Ohlin Trade Theory

danielarudman Jan 1, 2008

This theory makes sense, of course. However, it is interesting to see how currency could almost be meaningless in direct trading via specialization. The theory states that one stipulation of specialization is that both countries must want what the other produces. I thought this was a good way to think of how people traded before set currencies were developed. To be able to get what someone else wants, you must have something he or she wants in return. Specialization works the same way. Because of the Law of Demand, the value of any product produced can be measured with regard to how much you are willing to pay for it. This being whether you are paying in dollars, pesos, any other currency, or just another product that your nation specializes in. Basically, bartering is still part of economics today through specialization except cost of input matters in specialization while it had no meaning in the old days when there was no set currency.

Scarcity of Water

NatalieJordan Jan 1, 2008

http://finance.yahoo.com/expert/article/economist/59232

This article talks about how water resources could become the next oil. I'll respond seperately.

NatalieJordan Jan 1, 2008

I agree with Charles Wheelan’s theory that water could become the next oil. Wheelan uses the example of a rice farmer who is operating in the desert. While I highly doubt that someone would seriously cultivate rice in the desert, many agricultural endeavors take place in locations where the natural resources of the area are not compatible with what is being grown. As a strong environmentalist, I don’t think that any development should take place that is not environmentally sustainable. Golf courses in the desert are absurd wastes of resources. The economist in me, though slightly smaller, agrees with Wheelan because of the concept of creative destruction. If someone has to be subsidized to use a resource which is already being uneconomically expended, why should this be allowed to continue? It only harms the environment and the economy. (138 words)

peytonrocks Jan 2, 2008

Talking about the scarcity of water makes me think of the drought we are going through. It's the second worst drought Georgia has ever experienced and many Georgian inhabitants try to place the blame on the government. This in itself is seriously ridiculous because the only true solution is rain and I'm not quite sure that my mom is a rainmaker. But anyway, someone emailed my mom asking her to build a desalinization (spelled right?) plant and ship salt water here from the ocean. My mom laughed out loud. One, it is an incredibly large waste of money, being one of the most expensive sources of water, so if that came to be expect a dramatic increase in your taxes. Two, you would have to do this forever. You can't just abandoned the plant once people are dependent on it. Everyone is freaking out about the drought but when you look at the grander picture, it'll fix itself. Hard times come but it'll rain again. The environment with steady itself like it always does. I'm not saying we shouldn't conserve water because we should. The environment is very important but there are bigger issues out there than the drought in the southeast region of the United States. It's like we learned in Naked Economics. People worry so much about global warming because they have nothing else to worry about.

BenKretschman Jan 2, 2008

First off, i must say that golf courses in the desert are wonderful. They provide a great source of entertainment even if they are wasteful. Besides, golf courses in the desert have higher prices than other golf courses because they have to cover the cost of watering the course. And since this is a free country, anybody can purchase water and do whatever they want with it. Even if it is morally or enviromentally wrong. Anyways, I don't think water will ever become scarce because the enviroment will even itself out. A drought this year and flooding next year. It happens everywhere. But, lets say that it doesn't rain in Georgia anymore and we have to convert to desalinization plants. What will we do? Well, we simply just do what we are doing now with oil. Deal with it. The higher price of water would not deter us from using it. Just like with oil. Prices are up to 3 dollars a gallon and we still don't have any type of law that makes us look for a more efficient way of doing things. Since we have no other options for powering our cars, we alter our spending habitats to combat the higher prices of oil. The same would happen with water. We have no better alternatives if our water runs out. We will just have to adjust our lifes to the higher

price of water just like we did with oil. On a person note, it is a very sad reality that the only thing that will make us change our fuel consumption is the complete absence of oil. (270 words)

christinabins Jan 2, 2008

First of all, I have to address the environmental concern: I love the environment. Go tree-huggers! Yay! But only to a certain extent: global warming is not the biggest issue in the world, and some times you have to sacrifice certain aspects of the environment to, oh I don't know... survive. It's just like what we read about in Naked Economics, we stress about pesticide use in the USA because malaria doesn't threaten to kill us on a day to day basis. However, it would behoove us (even in our own happy stable nation) to use potentially harmful substances to help out Africa. Who knows what they could contribute to the world market if they were actually able to reach a certain level of productivity? They certainly cannot reach such heights without a healthy populace.Ben says that the water will just level itself out in time. That's true; we have years of drought and years of surplus. But the fact remains that each year the world's population grows. Aren't we up to 7 billion now? Will nature's stabilizing effects be able to sustain such continuous growth? And water is not like oil because there are alternatives to oil. Life requires water, can you think of any other alternative?I agree with Wheelan in that something needs to be done about the potential shortage. Grants should be awarded to researchers to encourage investigation into desalination techniques. The problem will not isolate itself to the Middle East. Water conservation should be one of our chief concerns.And finally, I'd like to point out this summer's battle between Georgia, Florida, and Alabama over the water from Lake Lanier. Surely even greater battles over water would occur if the Great Lakes were used to hydrate all of America.

christinabins Jan 2, 2008

295 words

Trade between Punjab and Pakistan

gvanchi Dec 31, 2007

article: http://in.news.yahoo.com/071230/203/6p0pk.html

Considering recent events, I thought this article was pretty relevant. Plus it also talks about what happens when trade between two places stop.

It basically discusses how trade between Punjab ( a part of India) and Pakistan has been affected since the assassination of Benazir Bhutto. Because of the turmoil going on in Pakistan at this time due to the recent death of Benazir Bhutto, trade between the two places has almost completely stopped, and transportation between the borders has been shut down. All in all this is also affecting peace discussion between India and Pakistan, not just the economies of both places. Punjab’s export of cement and dry fruit to Pakistan are halted. Because of this both Punjab and Pakistan have been adversely affected. This all goes with the idea of two countries can benefit from and lose the benefits brought from it upon stopping trade.

jcleare Jan 2, 2008

I found this to be very interesting. This goes beyond comparative advantage and stuf we learned in class and into the realm of foreign policy. When two countries stop trading with each other, especially if they are economically dependent on one another, stop trading it clearly is a crisis. Judging from the article it seems like these two nations depended a lot on each other for trade and to lose your largest trading partner would be a serious financial hit. You would think that over time these two nations developed a very strong trading system and as stated in the article through trade and comparative advantage both nations were profiting tremendously. When this amount of economic relations comes to a screeching hault one would wonder where each nation would get the supplies that were once supplied by that nation. Obviously each nation had resources that the other needed and vice versa. Pakistan, being the wealthier of the two nations would like be able to bounce back but Punjab sounds like that will be in a serious economic depression until that source of trade can be made up else where. It's a very interesting article. It will be interesting to see how Punjab recovers after this economic hit.(207 words)

Shooting Ourselves in the Economy

gvanchi Dec 31, 2007

article: http://finance.yahoo.com/expert/article/economist/55241;_ylt=AinQwmVGfgU4gT.JHLrc_tExt9IF

So this article is basically one of those pro-free trade arguments, and considering my topic (specialization, trade, and comparative advantage) I thought it to be pretty relevant. It starts off talking about how there are sanctions on Gaza and Iran, and then goes on to talk about how sanctions work. Basically sanctions hurt the economy by limiting what the sanctioned country can export and prevent that country from taking part in the global economy. So it is equivalent fencing off a country's market, which as you can tell is really bad for the economy of that nation. The article also talks about how presidential candidates and many in the US believe that the US should trade less with the rest of the world. It argues the against that opinion, saying that less

trade is the equivalent of "self-inflicted embargo" and the effects of such an action. So basically it's arguing for free trade, pointing out the pros.

Kris90 Dec 31, 2007

Ah, we meet again Charles Wheelan. I propose a trade: your economics intelligence for some clothes. There are certain topics in which I stand different from Mr. Wheelan but in this instance, I highly agree that trade benefits the United States of America. I’m not quite sure if the Gaza analogy applies to us though. The United States is such a powerhouse country that I am sure if one country tried to cut off trade with us, we would just get the goods from some other place.I for one think it’s sad that trade is being used as a weapon. If your mom and dad found out you smoke crack, they wouldn’t take away your food and shelter (hopefully). They’d send you to rehab so you could become a better, drug-free person. Similarly, I think Israel should use force to create a stable, non-violent government in the country of Gaza, much like what we are doing in Iraq.Along with trade forming jobs and putting more money in the pockets of the consumer, it also builds friendly relations and allows a country to network. It definitely boosts the GDP of a country as well. After all, gross domestic product does involve net exports. (206 words)

danielarudman Jan 1, 2008

Kris, I completely agree with you that Israel should use force to create a stable government and environment for its citizens. Unfortunately, trading and allied partners continue to stand against Israel in its fight to do so. Whenever force on the part of the Israelis is used, the rest of the world criticizes and belittles them. Although Israel is an extraordinarily productive place considering its awesome lack of natural resources, this tiny state tends to listen to the outside world as it threatens to cut Israel off from trade and allied relationships. Trade is being used as blackmail nowadays, something that many people do not know, nor could have predicted.

This is wrong on many levels. First, of course, it is not anyone else’s business how Israel deals with people who violently invade them. Ultimately, though, this could begin a trend of blackmail or lose outside resources, goods, and services. More and more countries will be cautious of their trading partners and the idea of specialization could eventually disappear. This would cause an unproductive and hostile world that we do not ever want to live in.

On the other hand, I think it is important for nations, especially the United States to because semi-independent. We should begin to manufacture goods inside our borders so that our GDP and standard of living may grow and the price of our dollar will increase so that when we do need to buy goods from other countries, we can do so. Prices of domestic goods will be high at first, but because the dollar is worth very little in other currencies, we will export more goods, and eventually the dollar will regain its strength and the price will decrease because it must then compete with the global market for those goods or services. Once the dollar becomes balanced,

countries can choose to buy elsewhere, so we must be competitive and even the domestic price will decrease.

AndrewC48 Jan 2, 2008

I agree completely with this article. The main point that Wheelan is advocating here, is that if you want to bring harm to a country or enemy, then restrict trade. Therefore, by restricting ourselves from trading we are harming ourselves. What is smart about doing this? Trading has been going on since the time of the cavemen when he traded a an animal skin for a wheel. They both were happy because neither of them could make the other's product as well. It's the same principle today. Some people loose their jobs in the process but many more have jobs in the end due to trade. As you can see this is precisely the fallacy behind Protectionist arguments here in the United States. Restricting imports is just like shooting ourselves in the foot. We end up with higher relative prices here in our homeland. Additionally, although some jobs are being saved and protected we are in essence promoting inefficient processes that these jobs are based around in the first place. If someone abroad can produce something cheaper and more efficiently then we should promote buying this product and perhaps adopting the same practices here ourselves to make our own economy more efficient. Wheelan also provides an answer to those people who would say that we need to restrict trade in order to force some countries to follow certain policies and/or to develop certain standards within their own sovereignty. He states that this practice is O.K., even though it potentially hurts us as well as greatly injuring the victims of said restrictions. He points out that this practice provides an opportunity to enforce requirements when all other diplomatic processes fail. I completely agree with this point as well. When countries refuse to adopt certain world standards and promote damaging policies, we should use this practice in order to provide an effective and efficient route of punishment.(315 words)

BlaneParrish Jan 2, 2008

Free Trade equals low prices. It is not a very difficult statement to comprehend. When the supply of a good or service increases then the price of that good or service decreases. By limiting the supply of foreign goods through sanctions, we guarantee that prices will not be as low as possible. We do not allow the market to stabilize itself and allow the natural (as in the equilibrium without sanctions or trade restrictions) equalibrium price to be reached. The higher prices do not benefit the consumer at all. Trade using true comparative advantage would be a benefit to all parties involved in both the short run and the lone run. In addition, I think I came up with a situation where trade is not neccesary. Steve and Bob (this is not the same Bob who injured himself on the fence) both produce ice cream and gloves. Steve produces 100 of each in a year. Bob, on the other hand produces 1 of each per year. I cannot think of any good reason why these two should trade. Steve has absolute advantage in both ice cream and gloves. He also has the same comparative advantage as Bob for both ice cream and gloves. Can anyone think of a reason why these two should trade? All of this is assuming that ice

cream and gloves have the same market price and that producing ice cream and gloves is the only job that these two men have.

(246 words)

NancyM333 Jan 3, 2008

"Steve and Bob (this is not the same Bob who injured himself on the fence) both produce ice cream and gloves. Steve produces 100 of each in a year. Bob, on the other hand produces 1 of each per year."

Blane--I had to comment on your quote above. I really like the possibly unintended pun on the glove making of Bob.

Scarcity of Wiis

peytonrocks Dec 31, 2007

http://www.kentucky.com/101/story/259581.html

Show more replies (5 hidden)

danielarudman Jan 1, 2008

Also, the reason the demand for other game consoles has not gone up because of the Wii scarcity is simply because the Wii is different. PS2 and PS3 are fun and have the same basic concepts behind them, but I haven’t really heard of anything like the Wii that could be a sufficient substitute. The customers’ demands are different, and other game consoles seem to not be satisfying to them.

GeorgeSun Jan 2, 2008

daniela is right! there is no substitute for a Wii. It's too fun.

BenKretschman Jan 2, 2008

The Wii is a fun video game system, but if people only knew about the hidden dangers that the system has, it would not be as popular. I played the "Wii" system this winter break while visting my relatives in Arizona. It is a great system, yet it as a downfall......it causes many injuries. My dad didn't stretch his arm before playing a game of Wii golf. The next morning, he woke up and his arm was swollen. He realized that he had pulled a muscle in his forearm while preforming the demanding technique of the golf swing on the Wii. The demand for Wiis would drastiscally decrease if more people knew that playing Wii can cause physical damage. Not to mention the emotional scars left behind because of the embarassement of being injured by a video game system. It is just a matter of time till supply catches up with the demand since I believe demand for the Wii will go down in the very near future.(167 words)

peytonrocks Jan 2, 2008

Kris, I understand your anger at my post about kids getting fat but I guess I'm talking about myself. I have been playing the Wii I got for Christmas non-stop since the 25th but I mostly play Wii fishing and target practice. On occasion I might break a sweat boxing (which is very tiring) but I'd say on the whole I've gained weight. One funny story I have is we were just at the beach and my brothers went out to fish on the dock and I was inside Wii fishing. My mom kicked me off the Wii. It was horrible. And Ben, Wii does have dangers. My dad was playing Wii tennis against my brother and ended up knocking a lamp over and it hit my dog. I agree there is no substitute for we. Everything else sucks.

jcleare Jan 2, 2008

Economically speaking hoarding the all the wii's to drive up the price seems to be a pretty smart play by Nintendo. It doesn't take an economic genius to understand that if there is a wii shortage and demand for wii's will go up and people will be willing to pay more money. I was thought the concept of wii sports in general was a little wierd. Wii tennis is really and I have played it on numerous occasions but it is basically a lamer version of actually tennis as is true of nearly all the wii sport games. I would venture to say that ping pong is probably more of a workout than wii-tennis. Now I understand that most people just play for fun and its not always convenient to be able to go to a bowling alley or tennis court but if it becomes a cubstitute for actually physical activity I would be concerned. I live less than a half a mile away from a tennis court and unless it was sub 50 degrees outside it would be hard for me to play wii tennis without thinking about how weird it was.

jcleare Jan 2, 2008

I guess ultimately it doesn't matter and the importance of wii sports really has nothing to do with economics. (Last 2 posts 212 words)

AndrewC48 Jan 2, 2008

I think this problem is moderately funny. When you think about how drastic the lack of supply the Wii is currently experiencing, it brings to mind all the conspiracy theorists that have ever complained about “The Man,” when referring to the government or large corporations. It is funny to think that Nintendo could purposefully be holding back the supply of the Wii to drive up prices and demand. All those people who say that they could be doing this intentionally are hilarious. Think about it. The price of the Wii hasn’t changed at all since it has first came out last year. It was $249.99 then and it is still $249.99 today. The only places where the price has gone up significantly for the Wii is on places like Ebay or other buy/sell organizations throughout the planet. The ironic thing is that when the prices go up in these places, Nintendo does not profit. The profit in fact goes to the people who bought the Wii originally from the company at $249.99 and then sold it for exorbitant prices to people desperate to get their hands on one of the gaming systems. Now if the price of the Wii directly from the manufactures went up, then Nintendo could perhaps be doing this on purpose. But until that happens, there is definitely no conspiracy behind the elusive Wii. (227 Words)

NatalieJordan Jan 2, 2008

I want a Wii. (4 words)

christinabins Jan 2, 2008

If the scarcity of Wiis only benefits people that sell them on eBay, then why does the manufacturer continue to make them so scarce? In theory, Nintendo should be acting in their own rational self-interest: selling as many Wiis as possible. Clearly, they could still sell more Wiis at $250. Which leads me to believe that 1. There actually IS a conspiracy, or 2. Economics isn't real. I'm going to have to go with the latter.

christinabins Jan 2, 2008

solid 72 words.

BlaneParrish Jan 2, 2008

Scarcity is a beautiful thing! It is the basis for all economics. From Pokemon cards (you know you loved them and still have a collection of your best "shiny" ones in your closet) to the overly

expensive black truffles (truffle oil is a great way to get the truffle taste without the truffle cost), our lives are founded upon scarcity. There is never going to be enough of anything for everyone. It is that simple. Personally I am not effected by the shortage of Wiis (although my grandmother does play Wii against others in her retirement home), but I am slightly surprised by the show of ethics by Nintendo. Not raising the price during the holiday season? I cannot help but applaud the integrity that Nintendo has shown (unlike other people who seem to sense desperation and go for the monetary carotid). Places like eBay allow people to seize upon the weaknesses of others, but is also a part of the market economy that we love so dearly. I read a story about a man who sold his son's Christmas present, Guitar Hero III (which I am aweful at), after he caught his smoking pot and made over $5000. As a football card collector I thrive on scarcity. Without scarcity, those cards are worth about as much as the ink and cardbord they are made with. I, for one, am grateful for scarcity. Without scarcity our lives would be completely different. I can hardly imagine what this world would be like.

(252 words)

PaulD128 Jan 2, 2008

This is actually a decent article, considering that Kris uses a Wii to get his exercise. It proves a point though; we can only work as fast as our slowest component. Or at least that’s what they want you to think. We can all produce outside our productions possibility cure, but for how long. The response is as long as we want. If the demand for Wii increase then the only logical thing for Nintendo to do is increase their production of the item, right? WRONG! Nintendo does, in fact, the opposite. By decreasing the number of Wii to the public, the only increase the popularity of the product as well as the demand.

I, myself, have received a Wii this past Christmas. My parents tell me that my Father had to wait in line a Toys R Us at four in the morning to get it. A few minutes before opening the store, the manager of the store told everyone in line the exact amount of Wiis in the store (lets say 50 for this example). The people in line were given a number corresponding to their location in the line. Then only those first 50 were guaranteed a Wii. However this creates a dilemma. But what about customer number 51. After handing out the tickets, does this person still stand in line? Of course he does. Just in case person number 32 decides not to get the product, number 51 will have a Wii for their child their Christmas. So is the thinking of every customer in that line (well... up to a certain point). It's pure genius on Nintendo’s part though. Nintendo can continually sell their product, even if it was released a year ago. Other product like the Xbox 360 and (not really) the PS3 have only maintained or decreased in their annual sales. So, go job Nintendo. You’ve managed to beat the system and still come out on top. (Words 326)

reacting to articles

peytonrocks Dec 31, 2007

how do u post reactions to articles? like those 1000 words you need to have? i dont get it

peytonrocks Dec 31, 2007

disregard this everyone. im stupid

BenKretschman Jan 2, 2008

wow

Ginny81190 Jan 2, 2008

awe pj its ok babe...

Supply and Demand of Wheat Prices in the US

rchan1 Dec 17, 2007

http://www.usatoday.com/money/industries/food/2007-12-17-wheat_N.htm?csp=34

I was about to do an article about soybeans in China, but then discovered it has absolutely nothing to do with this topic. Just thought I'd throw that in.

I'm not quite sure what is considered to be expensive for a bushel of wheat, but apparently, the high demand for wheat has caused prices to rise at a soaring $10.095 for a bushel of wheat. :O The problem that the article introduces is that US supply of wheat is limited. When supply runs low this can only mean that prices levels will increase and reduce GDP because companies and countries are no longer willing to pay a higher price for a bushel of wheat. I guess the main problem is not how to supply more wheat, but are there other alternatives to wheat? If not, how can we fix this? One can't simply replace wheat, because wheat is in many things we eat, such as bread, cereal, oatmeal, etc. After all...eating your wheaties every morning is important!

LizaGurley Dec 26, 2007

Its articles like this that make me really ponder imposing questions such as: "What on Earth would we do without wheat?" I mean, if the prices of wheat continue on their escalatory path, how will hungry and nutrition-deprived folks receive their ever-so-vital daily intake of wheat? With the United States supply of wheat drastically limited, prices are sure to increase. However, I yet again ask myself: "Self, could there possibly be a limit to how much companies are willing to pay for a bushel of wheat?" Let's hope not, lest all Americans become wheat-less. In response to Raymond’s questions, I am not entirely sure if there are any other alternatives to wheat. Possibly flour or corn :)... I really don't know. How about maize, like the natives used to use? If nothing else, maybe we should start looking for a new source for wheat in order to cure our ailing shortage.

peytonrocks Dec 31, 2007

This article makes me cringe just thinking about the possibility that I may not get my vital daily dose of Lucky Charms in the morning. And then picturing the situation that poverty-stricken areas are in makes me think myself lucky. Maybe we could start growing potatoes more and have that be our main source of carbohydrate. We could ship potatoes by the billions (they're pretty cheap) to hungry children all across the world. Since many can no longer afford wheat, it is becoming more and more necessary to find an alternative good. Maybe the answer lies in that ever-growing root called the potato. Everyone likes them, whether baked, mashed, or fried (french fries).

BenKretschman Jan 2, 2008

While the idea of replacing wheat with potatoes appeals to me personally, the potato is harder to cultivate which is why fewer of them are made. Have you ever seen the episode of Dirty Jobs where Mike has to go harvest potatoes? Well, that job is on that show for a reason. The job is messy and very time comsuming simply because the potatoes grow underground. Wheat can easily be chopped down while potatoes must be dug out of the earth. Now, on to the problem with the wheat shortage. There is a shortage of wheat which causes priices to increase. But, if everybody stopped growing foods that are not native to their region, we would not have this problem. Farmers grow whatever will make them the most money, that's just the way it is. But, if the government could put limits on which regions could grow certain types of food, our amount of food produced would increase drastically. (159 words)

BlaneParrish Jan 2, 2008

Do not knock potato bread before you try it! Still, it would be difficult to think about what we would have to eat in the cafeteria if wheat was not on the market to most of the world's population. I can't think of a single person who doesn't like bread. Growing potatoes seems like a viable option, but we should not depend on a single crop to save us. After the potato famine in

Ireland we should know better. Another plausible option would be genetic engineering. There has not been too much research in this area and a small breakthrough could drop prices sufficiently and might also save some lives in the proces(did you know that some genetic engineers developed corn that turns red when it needs water because previous corn plants did not show dehydration until just before they died?). There is no doubt that wheat is one of the most important food products in the market today (although most people would agree that the importance of a Greebe far surpasses any other food item on the planet) and it would be very difficult to live without it.

(190 words)

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