Samuelson's book Summary Chapter 22

Chapter 22 Summary

A. Consumption and Saving 1. Disposable income is an important determinant of consumption and saving. The consumption function is the schedule relating total consumption to total disposable income. Because each dollar of disposable income is either saved or consumed, the saving function is the other side or mirror image of the consumption function. 2. Recall the major features of consumption and saving functions: a. The consumption (or saving) function relates the level of consumption (or saving) to the level of disposable income. b. The marginal propensity to consume (MPC) is the amount of extra consumption generated by an extra dollar of disposable income. c. The marginal propensity to save (MPS) is the extra saving generated by an extra dollar of disposable income. d. Graphically, the MPC and the MPS are the slopes of the consumption and saving schedules, respectively. e. MPS / 1 - MPC. 3. Adding together individual consumption functions gives us the national consumption function. In simplest form, it shows total consumption expenditures as a function of disposable income. Other variables, such as permanent income or the life-cycle effect, wealth, and age also have a significant impact on consumption patterns. 4. The personal saving rate has declined sharply in the last two decades. To explain this decline, economists point to social security and government health programs, changes in capital markets, and the rapid rise in personal wealth due to the stock-market boom of the 1990s. Declining saving hurts the economy because personal saving is a major component of national saving and investment. While people feel richer because of the booming stock market, the nation's true wealth increases only when its productive tangible and intangible assets increase. B. Investment 5. The second major component of spending is gross private domestic investment in housing, plant, software, and equipment. Firms invest to earn profits. The major economic forces that determine investment are therefore the revenues produced by investment (primarily influenced by the state of the business cycle), the cost of investment (determined by interest rates and tax policy), and the state of expectations about the future. Because the determinants of investment depend on highly unpredictable future events, investment is the most volatile component of aggregate spending. 6. An important relationship is the investment demand schedule, which connects the level of investment spending to the interest rate. Because the profitability of investment varies inversely with the interest rate, which affects the cost of capital, we can derive a downward-sloping investment demand curve. As the interest rate declines, more investment projects become profitable, showing why the investment demand schedule slopes downward.

Samuelson's book Summary Chapter 21

Chapter 21 Summary

1. The national income and product accounts contain the major measures of income and product for a country. The gross domestic product (GDP) is the most comprehensive measure of a nation's production of goods and services. It comprises the dollar value of consumption (C), gross private domestic investment (I), government purchases (G), and net exports (X) produced within a nation during a given year. Recall the formula: GDP = C + I + G + X This will sometimes be simplified by combining private domestic investment and net exports into total gross national investment (IT = I + X): GDP = C + IT + G 2. Because of the way we define residual profit, we can match the upper-loop, flow-of-product measurement of GDP with the lower-loop, flow-of-cost measurement, as shown in Figure 21.1. The flow-of-cost approach uses factor earnings and carefully computes value added to eliminate double counting of intermediate products. And after summing up all (before-tax) wage, interest, rent, depreciation, and profit income, it adds to this total all indirect tax costs of business. GDP does not include transfer items such as interest on government bonds or welfare payments. 3. By use of a price index, we can "deflate" nominal GDP (GDP in current dollars) to arrive at a more accurate measure of real GDP (GDP expressed in dollars of some base year's purchasing power). Use of such a price index corrects for the "rubber yardstick" implied by changing levels of prices. 4. Net investment is positive when the nation is producing more capital goods than are currently being used up in the form of depreciation. Since depreciation is hard to estimate accurately, statisticians have more confidence in their measures of gross investment than in those of net investment. 5. National income and disposable income are two additional official measurements. Disposable income (DI) is what people actually have left - after all tax payments, corporate saving of undistributed profits, and transfer adjustments have been made - to spend on consumption or to save. 6. Using the rules of the national accounts, measured saving must exactly equal measured investment. This is easily seen in a hypothetical economy with nothing but households. In a complete economy, private saving and government surplus equal domestic investment plus net foreign investment. The identity between saving and investment is just that: Saving must equal investment no matter whether the economy is in boom or recession, war or peace. It is a consequence of the definitions of national income accounting. 7. Gross domestic product and even net domestic product are imperfect measures of genuine economic welfare. In recent years, statisticians have started correcting for nonmarket measures such as unpaid work at home and environmental externalities. 8. Inflation occurs when the general level of prices is rising (and deflation occurs when it is falling). We measure the overall price level and rate of inflation using price indexes - weighted averages of the prices of thousands of individual products. The most important price index is the consumer price index (CPI), which traditionally measured the cost of a fixed market basket of consumer goods and services relative to the cost of that bundle during a particular base year. Recent studies indicate that the CPI trend has a major upward bias because of index-number problems and omission of new and improved goods, and the government has undertaken steps to correct some of this bias.

Samuelson's book Summary Chapter 20

Chapter 20 Summary

A. Key Concepts of Macroeconomics

1. Macroeconomics is the study of the behavior of the entire economy: it analyzes long-run growth as well as the cyclical movements in total output, unemployment and inflation, the money supply and the budget deficit, and international trade and finance. This contrasts with microeconomics, which studies the behavior of individual markets, prices, and outputs.

2. The United States proclaimed its macroeconomic goals in the Employment Act of 1946, which declared that federal policy was "to promote maximum employment, production, and purchasing power." Since then, the nation's priorities among these three goals have shifted. But all market economies still face three central macroeconomic questions: (a) Why do output and employment sometimes fall, and how can unemployment be reduced? (b) What are the sources of price inflation, and how can it be kept under control? (c) How can a nation increase its rate of economic growth?

3. In addition to these perplexing questions is the hard fact that there are inevitable conflicts or trade-offs among these goals: Rapid growth in future living standards may mean reducing consumption today, and curbing inflation may involve a temporary period of high unemployment.

4. Economists evaluate the success of an economy's overall performance by how well it attains these objectives: (a) high levels and rapid growth of output and consumption [output is usually measured by the gross domestic product (GDP), which is the total value of all final goods and services produced in a given year; also, GDP should be close to potential GDP, the maximum sustainable or high-employment level of output]; (b) low unemployment rate and high employment, with an ample supply of good jobs; (c) price-level stability (or low inflation).

5. Before the science of macroeconomics was developed, countries tended to drift around in the shifting macroeconomic currents without a rudder. Today, there are numerous instruments with which governments can steer the economy: (a) Fiscal policy (government spending and taxation) helps determine the allocation of resources between private and collective goods, affects people's incomes and consumption, and provides incentives for investment and other economic decisions. (b) Monetary policy (particularly central-bank regulation of the money supply to influence interest rates and credit conditions) affects sectors in the economy that are interest-sensitive. The most affected sectors are housing, business investment, and net exports.

6. The nation is but a small part of an increasingly integrated global economy in which countries are linked together through trade of goods and services and through financial flows. A smoothly running international economic system contributes to rapid economic growth, but the international economy can throw sand in the engine of growth when trade flows are interrupted or the international financial mechanism breaks down. Dealing with international trade and finance is high on the agenda of all countries.

B. Aggregate Supply and Demand

7. The central concepts for understanding the determination of national output and the price level are aggregate supply (AS) and aggregate demand (AD). Aggregate demand consists of the total spending in an economy by households, businesses, governments, and foreigners. It represents the total output that would be willingly bought at each price level, given the monetary and fiscal policies and other factors affecting demand. Aggregate supply describes how much output businesses would willingly produce and sell given prices, costs, and market conditions.

8. AS and AD curves have the same shapes as the familiar supply and demand curves analyzed in microeconomics. The downward-sloping AD curve shows the amount that consumers, firms, and other purchasers would buy at each level of prices, with other factors held constant. The AS curve depicts the amount that businesses would willingly produce and sell at each price level, other things held constant. (But beware of potential confusions of microeconomic and aggregate supply and demand.)

9. The overall macroeconomic equilibrium, determining both aggregate price and output, comes where the AS and AD curves intersect. At the equilibrium price level, purchasers willingly buy what businesses willingly sell. Equilibrium output can depart from full employment or potential output.

10. Recent American history shows an irregular cycle of aggregate demand and supply shocks and policy reactions. In the mid-1960s, war-bloated deficits plus easy money led to a rapid increase in aggregate demand. The result was a sharp upturn in prices and inflation. In 1973 and again in 1979, adverse supply shocks led to an upward shift in aggregate supply. This led to stagflation, with a simultaneous rise in unemployment and inflation. At the end of the 1970s, economic policymakers reacted to the rising inflation by tightening monetary policy and raising interest rates. The result lowered spending on interest-sensitive demands such as housing, investment, and net exports. The period of austerity in the early 1980s ushered in a long period of macroeconomic stability.

11. Over the long run of the entire century, the growth of potential output has increased aggregate supply enormously and led to continual growth in output and living standards.

Childs Nowaday

Here’s a pop quiz:  Who is the U.S. Secretary of State?  The answer, as we prepared this report in the summer of 2008, was Condoleezza Rice.  If you knew the answer, you’re smarter than 74 percent of the 18- to 29-year-olds in a Pew Research Center study who recently answered incorrectly.¹

Moreover, 70 percent of them do not know what the Reconstruction was, and they were six times more likely to be able to identify the latest winner of theAmerican Idol reality television show than the Speaker of the House of Representatives.

Another study found that nearly 60 percent of 17-year-olds don’t know that the Civil War took place in the second half of the 19^th century.  And yet another survey found that 25 percent of 17-year-olds think that Christopher Columbus discovered America after 1750.

Could the vast majority of teens and adults under the age of 30 really be so clueless?  As a matter of fact, yes.  This is a generation of young people who grew up reading blogs instead of books.  They read updates about their friends’ parties on MySpace instead of reading about world events in newspapers.  They know more about video games like World of Warcraft than they do about World War II.

They look up information on Wikipedia instead of Encyclopedia Britannica.  They get their political information from Comedy Central’s “The Daily Show,” hosted by comedian Jon Stewart.  When they do read news online, it is filtered through RSS feeds that only send them stories about subjects that interest them — a list that could be as brief as celebrity weddings, panda bears, Paris Hilton, and new games for the Wii video game console.  They don’t want to read about subjects of which they know little or nothing.

Ironically, the generation that is most comfortable with digital technology, which gives them unprecedented access to all of the world’s knowledge, knows less than the previous generations that lacked this advantage.  Instead of using the Internet to improve their understanding of the world, young people are using it to stay in touch with their friends.

Mark Bauerlein, an English professor at Emory University, has seen this first-hand in his...

The Dawn

I ask God's protection, from the temptations of the accursed Satan
In the name of Allah, Most Gracious, Most Merciful.

By dawn,
and night for the ten,
and the even and odd,
and the night when passed.
At that, that was a pledge (which can be accepted) by the people who have sense. 
Have you not seen how thy Lord did against the Aad?, 
(It is) the people of Iram that have high buildings  
Which had never built (the city) like that, in other countries, 
and Thamood that cut boulders in the valley,
and the Pharaoh who have the spikes (lots of soldiers), 
The arbitrary act of domestic, 
then they do much damage in that country, 
Therefore thy Lord pour on them scourge the punishment, 
For thy Lord is ever watchful. 
As for man, when his Lord tested and honored him and given him pleasure, then he said: "My Lord has honored me '. 
But when his Lord tested him, restricting provision he said: "My Lord hath humiliated".
By no means (so), actually you do not honor the orphan, 
and you do not invite each other to feed the poor, 
and you eat treasures by mixing (which is lawful and a false way),
and you love your property with excessive love.
Do not (do so). When the earth is shaken in a row, 
and then came the Lord. and the angels lined up in rows.
And on that day, they were shown Hell Fire. and on that day man will remember but no longer useful to remember that for him.
He said: "I wish I would do (good deeds) for my life."
So on that day, no one who tormented him as He did,
and there is no bond like the bond of his. 
"O peaceful soul.
Go back to your Lord with a heart that is satisfied and liked by Him.
Then go to My congregation servants
and enter into My Paradise" {89 : 1-30}

Allah the truest , with all his words

Samuelson's book Summary Chapter 19

Chapter 19 Summary

A. The Sources of Inequality 1. In the last century, the classical economists believed that inequality was a universal constant, unchangeable by public policy. This view does not stand up to scrutiny. Poverty made a glacial retreat over the early part of this century, and absolute incomes for those in the bottom part of the income distribution rose sharply. Since the early 1970s, this trend has reversed, and inequality has increased. 2. The Lorenz curve is a convenient device for measuring the spreads or inequalities of income distribution. It shows what percentage of total income goes to the poorest 1 percent of the population, to the poorest 10 percent, to the poorest 95 percent, and so forth. 3. Poverty is essentially a relative notion. In the United States, poverty was defined in terms of the adequacy of incomes in the early 1960s. By this standard of measured income, little progress in reducing inequality has been made in the last decade. 4. The distribution of American income today appears to be less unequal than in the early part of this century or than in less developed countries now. But it still shows a considerable measure of inequality and increasing inequality over the last quarter-century. Wealth is even more unequally distributed than is income, both in the United States and in other capitalist economies. 5. To explain the inequality in income distribution, we can look separately at labor income and property income. Labor earnings vary because of differences in abilities and in intensities of work (both hours and effort) and because occupational earnings differ, due to divergent amounts of human capital, among other factors. 6. Property incomes are more unevenly distributed than labor earnings, largely because of the great disparities in wealth. Inheritance helps the children of the wealthy begin ahead of the average person; only a small fraction of America's wealth can be accounted for by life_cycle savings. B. Antipoverty Policies 7. Political philosophers write of three types of equality: (a) equality of political rights, such as the right to vote; (b) equality of opportunity, providing equal access to jobs, education, and other social systems; and (c) equality of outcome, whereby people are guaranteed equal incomes or consumptions. Whereas the first two types of equality are increasingly accepted in most advanced democracies like the United States, equality of outcome is generally rejected as impractical and too harmful to economic efficiency. 8. Equality has costs as well as benefits; the costs show up as drains from Okun's "leaky bucket." That is, attempts to reduce income inequality by progressive taxation or transfer payments may harm economic incentives to work or save and may thereby reduce the size of national output. Potential leakages are administrative costs and reduced hours of work or savings rates. 9. Major programs to alleviate poverty are welfare payments, food stamps, Medicaid, and a group of smaller or less targeted programs. As a whole, these programs are criticized because they impose high benefit-reduction rates (or marginal "tax" rates) on low-income families when families begin to earn wages or other income. 10. People are divided on how to improve the current income-support system. One proposal, called the negative income tax, would consolidate current programs into a unified cash income supplement. The supplement would be reduced (that is, income would be "taxed") at a moderate rate (say, one-third or one-half), so that low-income families would have a significant incentive to seek market employment. The United States has adopted a variant known as the earned-income tax credit, which provides a wage supplement to families with low earnings. C. Health Care: The Problem That Won't Go Away 11. Health care is one of the largest and most rapidly growing sectors of the economy. It is characterized by multiple market failures that lead governments to intervene heavily. Health systems have major externalities, which include preventing communicable diseases and discovering new biomedical knowledge. In addition, there are market failures such as the asymmetric information between doctors and patients and between patients and insurance companies. These asymmetries lead to adverse selection in the purchase of insurance and to moral hazard (or the third-party payment syndrome) in excessive consumption of medical services. Finally, because health is so important to human welfare and to labor productivity, governments strive to provide a minimum standard of health care to the population. 12. Dissatisfaction with the health-care system - over rising costs, a growing number of uninsured, and lagging health status, particularly of poor and minority groups - has prompted proposals for reform. Few advocate returning to a pure-market system because of hardships on the poor and adverse effects on public health and on the generation of new biomedical knowledge. A nationalized system would provide universal coverage but ration health care by long waits for services. The predominant organization of the private health system in the United States today is managed care; this system provides a package of benefits for workers or those who can afford to buy care, but the provider limits access to curb costs.

Samuelson's book Summary Chapter 18

Chapter 18 Summary

A. Population and Resource Limitations 1. Malthus's theory of population rests on the law of diminishing returns. He contended that population, if unchecked, would tend to grow at a geometric (or exponential) rate, doubling every generation or so. But each member of the growing population would have less land and natural resources to work with. Because of diminishing returns, income could grow at an arithmetic rate at best; output per person would tend to fall so low as to stabilize population at a subsistence level of near-starvation. 2. Over the last century and a half, Malthus and his followers have been criticized on several grounds. Among the major criticisms are that Malthusians ignored the possibility of technological advance and overlooked the significance of birth control as a force in lowering population growth. 3. Studies of the relationship between pollution, population, and income have determined that the demand for environmental quality rises rapidly with per capita income, so for most indicators environmental quality improves rather than deteriorates as per capita income rises. B. Natural-Resource Economics 4. Natural resources are nonrenewable when they are essentially fixed in supply and cannot regenerate quickly. Renewable resources are ones whose services are replenished regularly and which, if properly managed, can yield useful services indefinitely. 5. From an economic point of view, the crucial distinction is between appropriable and inappropriable resources. Natural resources are appropriable when firms or consumers can capture the full benefits of their services; examples include vineyards or oil fields. Natural resources are inappropriable when their costs or benefits do not accrue to the owners; in other words, they involve externalities. Examples include air quality and climate, which have externalities that are affected by such activities as the burning of fossil fuels. 6. Important examples of appropriable, nonrenewable natural resources are fossil fuels such as oil, gas, and coal. Economists argue that because private markets can efficiently price and allocate their services, such natural resources should be treated the same as any other capital asset. C. Curbing Externalities: Environmental Economics 7. A major market failure that is increasing in importance is externalities. These occur when the costs (or benefits) of an activity spill over to other people, without those other people being paid (or paying) for the costs (or benefits) incurred (or received). 8. The most clear-cut example of an externality is the case of public goods, like defense, where all consumers in a group share equally in the consumption and cannot be excluded. Less obvious examples like public health, inventions, parks, and dams also possess public-good properties. These contrast with private goods, like bread, which can be divided and provided to a single individual. 9. Environmental problems arise because of externalities that stem from production or consumption. An unregulated market economy will produce too much pollution and too little pollution abatement. Unregulated firms decide on abatement (and other public goods) by comparing the marginal private benefits with the marginal private costs. Efficiency requires that marginal social benefits equal marginal social abatement costs. 10. There are numerous steps by which governments can internalize or correct the inefficiencies arising from externalities. Alternatives include decentralized solutions (such as negotiations or legal liability rules) and government-imposed approaches (such as pollution-emission standards or emissions taxes). Experience indicates that no approach is ideal in all circumstances, but many economists believe that greater use of market-oriented approaches would improve the efficiency of regulatory systems. 11. Global public goods, like slowing climate change, present the thorniest problems, which often cannot be solved by either markets or national governments. Nations must devise new tools to forge international agreements when global environmental trends threaten our living standards or ecosystems.

Samuelson's book Summary Chapter 17

Chapter 17 Summary

A. Business Regulation: Theory and Practice 1. Regulation consists of government rules commanding firms to alter their business conduct. Economic regulation involves the control of prices, production, entry and exit conditions, and standards of service in a particular industry; social regulation consists of rules aimed at correcting information failures and externalities, particularly those that impinge on health and safety and the environment. 2. The normative view of regulation is that government intervention is appropriate when there are major market failures. These include excess market power in an industry, inadequate supply of information to consumers and workers, and externalities such as pollution. Economists have developed a positive theory of regulation in which regulation often serves the purpose of actually benefitting regulated firms, whose interests are furthered by exclusion of potential rivals. 3. The strongest case for economic regulation comes in regard to natural monopolies. Natural monopoly occurs when average costs are falling for every level of output, so the most efficient organization of the industry requires production by a single firm. Few industries come close to this condition today - perhaps only local utilities like water and electricity. 4. In conditions of natural monopoly, governments regulate the price and service of private companies. Traditionally, government regulation of monopoly has required that price be set at the average cost of production. The ideal regulation would require price to be set equal to marginal cost, but this approach is impractical because it requires that government subsidize the monopolist. A new approach is performance-based regulation, such as price caps, which provides superior incentives to regulated firms to reduce costs and improve productivity. 5. Given the strength of competitive forces, particularly from the global marketplace, the case for economic regulation holds for few industries today. The deregulation movement of the 1970s reduced the extent of economic regulation markedly, producing gains in industries such as the airlines. B. Antitrust Policy 6. Antitrust policy, prohibiting anticompetitive conduct and preventing monopolistic structures, is the primary way that public policy limits abuses of market power by large firms. This policy grew out of legislation like the Sherman Act (1890) and the Clayton Act (1914). The primary purposes of antitrust are (a) to prohibit anticompetitive activities (which include agreements to fix prices or divide up territories, price discrimination, and tie-in agreements) and (b) to break up monopoly structures. In today's legal theory, such structures are those that have excessive market power (a large share of the market) and also engage in anticompetitive acts. 7. In addition to limiting the behavior of existing firms, antitrust law prevents mergers that would lessen competition. Today, horizontal mergers (between firms in the same industry) are the main source of concern, while vertical and conglomerate mergers tend to be tolerated. 8. Antitrust policy has been significantly influenced by economic thinking during the last three decades. As a result, antitrust policy now focuses almost exclusively on improving efficiency and ignores earlier populist concerns with bigness itself. Moreover, in today's economy - with intense competition from foreign producers and deregulated rivals - many believe that antitrust policy should concentrate primarily on preventing collusive agreements like price fixing.

Samuelson's book Summary Chapter 16

Chapter 16 Summary

A. Government Control of the Economy 1. The economic role of government has increased sharply over the last century. The government influences and controls private economic activity by using taxes, expenditures, and direct regulation. 2. A modern welfare state performs four economic functions: (a) It remedies market failures; (b) it redistributes income and resources; (c) it establishes macroeconomic stabilization policy to stabilize the business cycle and promote long-term economic growth; and (d) it manages international economic affairs. 3. Public-choice theory analyzes how governments actually behave. Just as the invisible hand can break down, so there are government failures, in which government interventions lead to waste or redistribute income in an undesirable fashion. B. Government Expenditures 4. The American system of public finance is one of fiscal federalism. The federal government concentrates its spending on issues of national concern - on national public goods like defense and space exploration. States and localities generally focus on local public goods - those whose benefits are largely confined within state or city boundaries. 5. Government spending and taxation today take approximately one-third of total national output. Of this total, 70 percent is spent at the federal level, and the balance is divided between state and local governments. Only a tiny fraction of government outlays is devoted to traditional functions like police and the courts. C. Economic Aspects of Taxation 6. Notions of "benefits" and "ability to pay" are two principal theories of taxation. A tax is progressive, proportional, or regressive as it takes a larger, equal, or smaller fraction of income from rich families than it does from poor families. Direct and progressive taxes on incomes are in contrast to indirect and regressive sales and excise taxes. 7. More than half of federal revenues come from personal and corporation income taxes. The rest comes from taxes on payrolls or consumption goods. Local governments raise most of their revenue from property taxes, while sales taxes are most important for states. 8. The individual income tax is levied on "income from whatever source derived," less certain exemptions and deductions. The marginal tax rate, denoting the fraction paid in taxes for every dollar of additional income, is key to determining the impact of taxes on incentives to work and save. Marginal tax rates were lowered sharply during the 1980s, but top rates were then raised in President Clinton's fiscal package of 1993. 9. The fastest-growing federal tax is the payroll tax, used to finance social security. This is an "earmarked" levy, with funds going to provide public pensions and health and disability benefits. Because there are visible benefits at the end of the stream of payments, the payroll tax has elements of a benefit tax. 10. Economists point to the Ramsey tax rule, which emphasizes that efficiency will be promoted when taxes are levied more heavily on those activities that are relatively price-inelastic. A new approach is green taxes, which levy fees on environmental externalities, reducing harmful activities while raising revenues that would otherwise be levied on goods or productive inputs. But in all taxes, equity and political acceptability are severe constraints. 11. The incidence of a tax refers to its ultimate economic burden and to its total effect on prices, outputs, and other economic magnitudes. Those who pay a tax can often pass its burden forward to consumers or backward to factors of production. The current U.S. tax and transfer system is moderately progressive.

Samuelson's book Summary Chapter 15

Chapter 15 Summary

A. Comparative Advantage Among Nations 1. Recall that trade occurs because of differences in the conditions of production or diversity in tastes. The foundation of international trade is the Ricardian principle of comparative advantage. The principle of comparative advantage holds that each country will benefit if it specializes in the production and export of those goods that it can produce at relatively low cost. Conversely, each country will also benefit if it imports those goods which it produces at relatively high cost. This principle holds even if one region is absolutely more or less productive than another in all commodities. As long as there are differences in relative or comparative efficiencies among countries, every country must enjoy a comparative advantage or a comparative disadvantage in the production of some goods. 2. The law of comparative advantage predicts more than just the geographical pattern of specialization and the direction of trade. It also demonstrates that countries are made better off and that real wages (or, more generally, total national income) are improved by trade and the resulting enlarged world production. Quotas and tariffs, designed to "protect" workers or industries, will lower a nation's total income and consumption possibilities. 3. Even with many goods or many countries, the same principles of comparative advantage apply. With many commodities, we can arrange products along a continuum of comparative advantage, from relatively more efficient to relatively less efficient. With many countries, trade may be triangular or multilateral, with countries having large bilateral (or two-sided) surpluses or deficits with other individual countries. B. Protectionism 4. Completely free trade equalizes prices of tradeable goods at home with those in world markets. Under trade, goods flow uphill from low-price to high-price markets. 5. A tariff raises the domestic prices of imported goods, leading to a decline in consumption and imports along with an increase in domestic production. Quotas have very similar effects and may, in addition, lower government revenues. 6. A tariff causes economic waste. The economy suffers losses from decreased domestic consumption and from wasting resources on goods lacking comparative advantage. The losses generally exceed government revenues from the tariff. 7. Most arguments for tariffs simply rationalize special benefits to particular pressure groups and cannot withstand economic analysis. Three arguments that can stand up to careful scrutiny are the following: (a) The terms-of-trade or optimal tariff can in principle raise the real income of a large country at the expense of its trading partners. (b) In a situation of less-than-full employment, tariffs might push an economy toward fuller employment, but monetary or fiscal policies could attain the same employment goal with fewer inefficiencies than this beggar-thy-neighbor policy. (c) Sometimes, infant industries may need temporary protection in order to realize their true long-run comparative advantages. 8. The principle of comparative advantage must be qualified if markets malfunction because of unemployment or exchange-market disturbances. Moreover, individual sectors or factors may be injured by trade if imports lower their returns.

Samuelson's book Summary Chapter 14

Chapter 14 Summary

A. Land and Rent 1. The return to fixed factors like land is called pure economic rent, or rent for short. Since the supply curve for land is vertical and totally inelastic, the rent will be price-determined rather than price-determining. 2. A factor like land that is inelastically supplied will continue to work the same amount even though its factor reward is reduced. For this reason, Henry George pointed out that rent is in the nature of a surplus rather than a reward necessary to coax out the factor's effort. This provides the basis for his single-tax proposal to tax the unearned increment of land value, without shifting the tax forward to consumers or distorting production. Modern tax theory extends this proposition by showing that inefficiencies are minimized by taxing goods that are relatively inelastic in supply or demand. B. Capital and Interest 3. A third factor of production is capital, a produced durable good that is used in further production. In the most general sense, investing in capital represents deferred consumption. By postponing consumption today and producing buildings or equipment, society increases consumption in the future. It is a technological fact that roundabout production yields a positive rate of return. 4. Recall the definitions: Capital goods: durable produced goods used for further production Rentals: net annual dollar returns on capital goods Rate of return on capital: net annual receipts on capital divided by dollar value of capital (measured as percent per year) Interest rate: yield on funds, measured as percent per year Real interest rate: yield on funds corrected for inflation, also measured as percent per year Present value: value today of a stream of future returns generated by an asset Profits: a residual income item equal to revenues minus costs 5. Assets generate streams of income in future periods. By calculating the present value, we can convert the stream of returns into a single value today. This is done by asking what amount of dollars today will generate the stream of future returns when invested at the market interest rate. 6. The exact present-value formula is as follows: Each dollar payable t years from now is a present value (V) of $1/(1 + i) "to the" t. So for any net receipt stream (N1, N2, . . . , Nt, . . .) where Nt is the dollar value of receipts t years in the future, we have:

7. Interest is a device that serves two functions in the economy. As a motivating device, it provides an incentive for people to save and accumulate wealth. As a rationing device, interest allows society to select only those investment projects with the highest rates of return. However, as more and more capital is accumulated, and as the law of diminishing returns sets in, the rate of return on capital and the interest rate will be beaten down by competition. Falling interest rates are a signal to society to adopt more capital-intensive projects with lower rates of return. 8. Saving and investment involve waiting for future consumption rather than consuming today. Such thrift interacts with the net productivity of capital to determine interest rates, the rate of return on capital, and the capital stock. The funds or financial assets needed to purchase capital are provided by households that are willing to sacrifice consumption today in return for larger consumption tomorrow. The demand for capital comes from firms that have a variety of roundabout investment projects. In long_run equilibrium, the interest rate is thus determined by the interaction between the net productivity of capital and the willingness of households to sacrifice consumption today for consumption tomorrow. 9. Important qualifications of classical capital theory include the following: Technological change shifts the productivity of capital; imperfect foresight means that capital's return is highly volatile; and investors must consider the impact of taxes and inflation. 10. Profits are revenues less costs. Reported business profits are chiefly corporate earnings. Economically, we distinguish three categories of profits. (a) An important source is profits as implicit returns. Firms generally own many of their own nonlabor factors of production - capital, natural resources, and patents. In these cases, the implicit return on unpaid or owned inputs is part of profits. (b) Another source of profits is uninsurable risk, particularly that associated with the business cycle or sovereign risk. (c) Finally, innovational profits will be earned by entrepreneurs who introduce new products or innovations.

Samuelson's book Summary Chapter 13

Chapter 13

A. Fundamentals of Wage Determination 1. The demand for labor, as for any factor of production, is determined by labor's marginal product. Therefore, a country's general wage level tends to be higher when its workers are better trained and educated, when it has more and better capital to work with, and when it uses more advanced production techniques. 2. For a given population, the supply of labor depends on three key factors: population size, average number of hours worked, and labor-force participation. For the United States, immigration has been a major source of new workers in recent years, increasing the proportion of relatively unskilled workers. 3. As wages rise, there are two opposite effects on the supply of labor. The substitution effect tempts each worker to work longer because of the higher pay for each hour of work. The income effect operates in the opposite direction because higher wages mean that workers can now afford more leisure time along with other good things of life. At some critical wage, the supply curve may bend backward. The labor supply of very gifted, unique people is quite inelastic: their wages are largely pure economic rent. 4. Under perfect competition, if all people and jobs were exactly alike, there would be no wage differentials. The equilibrium wage rates determined by supply and demand would all be equal. But once we drop unrealistic assumptions concerning the uniformity of people and jobs, we find substantial wage differentials even in a perfectly competitive labor market. Compensating wage differentials, which compensate for nonmonetary differences in the quality of jobs, explain some of the differentials. Differences in the quality of labor explain many of the other differentials. In addition, the labor market is made up of innumerable categories of noncompeting and partially competing groups. B. The American Labor Movement 5. Labor unions occupy an important but diminishing role in the American economy, in terms of both membership and influence. Management and labor representatives meet together in collective bargaining to negotiate a contract. Such agreements typically contain provisions for wages, fringe benefits, and work rules. Unions affect wages by bargaining for standard rates. However, in order to raise real wages above prevailing market-determined levels, unions generally must prevent entry or competition from nonunion workers. 6. According to economic theory, there is no unique outcome of a collective-bargaining session. Bilateral monopoly or management-union bargaining (like war or two-person games) has a theoretically indeterminate solution. Empirical studies find that unions have raised the wages of their members 10 to 30 percent relative to those of nonunionized workers with the same characteristics. This union differential may have eroded in the last decade's period of competition from nonunion and foreign labor. 7. While unions may raise the wages of their members, they probably do not increase a country's real wages or labor's share of national income. They are likely to increase unemployment among union members who would prefer to wait for recall from layoff of their high-paid jobs rather than move or take low-paying jobs in other industries. And in a nation with inflexible prices, real wages that are too high may induce classical unemployment. C. Discrimination by Race and Gender 8. By an accident of history, a tiny minority of white males in the world has enjoyed the greatest affluence. Even more than a century after the abolition of slavery, inequality of opportunity and economic, racial, and gender discrimination continue to lead to loss of income by underprivileged groups. 9. There are many sources of discrimination. One important mechanism is the establishment and maintenance of noncompeting groups. By segmenting labor markets, reserving managerial and professional positions for white men while relegating women and minorities to menial, dead-end jobs, an economy can allow inequality of earnings to persist for decades. In addition, statistical discrimination occurs when individuals are treated on the basis of the average behavior of members of the group to which they belong. This subtle form of discrimination stereotypes individuals on the basis of group characteristics, reduces the incentives of individuals to engage in self-improvement, and thereby reinforces the original stereotype. 10. Steps to reduce labor-market discrimination have been taken in many directions. Early approaches focused on outlawing discriminatory practices, while later steps mandated policies such as affirmative action.

Samuelson's book Summary Chapter 12

Chapter 12 Summary

A. Income and Wealth 1. Distribution theory is concerned with the basic question of for whom economic goods are to be produced. In examining how the different factors of production - land, labor, and capital - get priced in the market, distribution theory considers how supplies and demands for these factors are linked and how they determine all kinds of wages, rents, interest rates, and profits. 2. Income refers to the total receipts or cash earned by a person or household during a given time period (usually a year). Income consists of labor earnings, property income, and government transfer payments. 3. National income consists of the labor earnings and property income generated by the economy in a year. Government takes a share of that national income in the form of taxes and gives back part of what it collects as transfer payments. The post-tax personal income of an individual includes the returns on all the factors of production - labor and property - that the individual owns, plus transfer payments from the government, less taxes. 4. Wealth consists of the net dollar value of assets owned at a given point in time. Wealth is a stock while income is a flow per unit of time. A household's wealth includes its tangible items such as houses and its financial holdings such as bonds. Items that are of value are called assets, while those that are owed are called liabilities. The difference between total assets and total liabilities is called wealth or net worth. B. Input Pricing by Marginal Productivity 5. To understand the pricing of different factors of production, we must analyze the theory of production and the derived demand for factors. The demand for inputs is a derived demand: We demand pizza ovens not for their own sake but for the pizzas that they can produce for consumers. Factor demand curves are derived from demand curves for final products. An upward shift in the final demand curve causes a similar upward shift in the derived factor demand curve; greater inelasticity in commodity demand produces greater inelasticity of derived factor demand. 6. We met in earlier chapters the concepts of the production function and marginal products. The demand for a factor is drawn from its marginal revenue product (MRP), which is defined as the extra revenue earned from employing an extra unit of a factor. In any market, MRP of a factor equals the marginal revenue earned by the sale of an additional unit of the product times the marginal product of the factor (MRP = MR × MP). For competitive firms, because price equals marginal revenue, this simplifies to MRP = P × MP. 7. A firm maximizes profits (and minimizes costs) when it sets the MRP of each factor equal to that factor's marginal cost, which is the factor's price. This can be stated equivalently as a condition in which the MRP per dollar of input is equalized for each input. This must hold in equilibrium because a profit-maximizing employer will hire any factor up to the point where the factor's marginal product will return in dollars of marginal revenue just what the factor costs. 8. To obtain the market demand for a factor, we add horizontally all firms' demand curves. This, along with the particular factor's own supply curve, determines the supply-and-demand equilibrium. At the market price for the factor of production, the amounts demanded and supplied will be exactly equal - only at equilibrium will the factor price have no tendency to change. 9. The marginal-productivity theory of income distribution analyzes the way total national income gets distributed among the different factors. Competition of numerous landowners and laborers drives factor prices to equal their marginal products. That process will allocate exactly 100 percent of the product. Any factor, not just labor alone, can be the varying factor. Because each unit of the factor gets paid only the MP of the last unit hired, there is a residual surplus of output left over from the MPs of early inputs. This residual is exactly equal to the incomes of the other factors under marginal productivity pricing. Hence, the marginal-productivity theory of distribution, though simplified, is a logically complete picture of the distribution of income under perfect competition. 10. Even though a competitive economy may squeeze the maximum amount of bread out of its available resources, one major reservation about a market economy remains. We have no reason to think that incomes will be fairly distributed under laissez-faire capitalism. Market incomes might produce acceptable differences or enormous disparities in income and wealth that persist for generations.

Samuelson's book Summary Chapter 11

Chapter 11 Summary

A. Economics of Risk and Uncertainty 1. Economic life is full of uncertainty. Consumers face uncertain incomes and employment patterns as well as the threat of catastrophic losses; businesses have uncertain costs and their revenues contain uncertainties about price and production. 2. In well-functioning markets, arbitrage, speculation, and insurance help smooth out the unavoidable risks. Speculators are people who buy and sell assets or commodities with an eye to making profits on price differentials across markets. They move goods across regions from low-price to high-price markets, across time from periods of abundance to periods of scarcity, and even across uncertain states of nature to periods when chance makes goods scarce. 3. The profit-seeking action of speculators and arbitragers tends to create certain equilibrium patterns of price over space and time. These market equilibria are zero-profit outcomes where the marginal costs and marginal utilities in different regions, times, or uncertain states of nature are in balance. To the extent that speculators moderate price and consumption instability, they are part of the invisible-hand mechanism that performs the socially useful function of reallocating goods from feast times (when prices are low) to famine times (when prices are high). 4. Speculative markets allow individuals to hedge against unwelcome risks. The economic principle of risk aversion, which derives from diminishing marginal utility, implies that individuals will not accept risky situations with zero expected value. Risk aversion implies that people will buy insurance to reduce the disastrous declines in utility from fire, death, or other calamities. 5. Insurance and risk spreading tend to stabilize consumption in different states of nature. Insurance takes large individual risks and spreads them so broadly that they become acceptable to a large number of individuals. Insurance is beneficial because, by helping to equalize consumption across different uncertain states, it raises the expected level of utility. 6. The conditions for operation of efficient insurance markets are stringent: there must be large numbers of independent events, with little chance of moral hazard or adverse selection. When market failures such as pollution arise, prices can become distorted or markets may simply not exist. If private insurance markets fail, the government may step in to provide social insurance. Even in the most laissez-faire of advanced market economies today, governments insure against unemployment and health risks in old age. B. Game Theory 7. Economic life contains many situations of strategic interaction among firms, households, governments, or others. Game theory analyzes the way that two or more parties, who interact in an arena such as a market, choose actions or strategies that jointly affect each participant. 8. The basic structure of a game includes the players, who have different actions or strategies, and the payoffs, which describe the profits or other benefits that the players obtain in each outcome. The key new concept is the payoff table of a game, which shows the strategies and the payoffs or profits of the different players. 9. The key to choosing strategies in game theory is for players to think through both their own and their opponent's goals, never forgetting that the other side is doing the same. When playing a game in economics or any other field, assume that your opponent will choose his or her best option. Then pick your strategy so as to maximize your benefit, always assuming that your opponent is similarly analyzing your options. 10. Sometimes a dominant strategy is available, one that is best no matter what the opposition does. More often, we find the Nash equilibrium (or noncooperative equilibrium) a useful equilibrium concept. A Nash equilibrium is one in which no player can improve his or her payoff given the other player's strategy. Sometimes, parties can collude or cooperate, which produces the cooperative equilibrium. 11. A Nash equilibrium produces an efficient outcome in Adam Smith's invisible-hand game. Here, noncollusive firms produce at prices equal to marginal costs, and the noncooperative equilibrium is efficient. In such situations, cooperation leads to inefficient production. 12. Sometimes, however, noncooperative behavior leads to social ruin, as when competitors pollute the planet or engage in dangerous arms races. Winner-take-all games, such as lawsuits or athletic contests, can induce the entry of too many contestants and increase the inequality of fame and incomes.

Samuelson's book Summary Chapter 10

Chapter 10 Summary

A. Behavior of Imperfect Competitors 1. Recall the four major market structures: (a) Perfect competition is found when no firm is large enough to affect the market price. (b) Monopolistic competition occurs when a large number of firms produce slightly differentiated products. (c) Oligopoly is an intermediate form of imperfect competition in which an industry is dominated by a few firms. (d) Monopoly comes when a single firm produces the entire output of an industry. 2. Measures of concentration are designed to indicate the degree of market power in an imperfectly competitive industry. Industries which are more concentrated tend to have higher levels of R&D expenditures, but their profitability is not higher on average. 3. High barriers to entry and complete collusion can lead to collusive oligopoly. This market structure produces a price and quantity relation similar to that under monopoly. 4. Another common structure is the monopolistic competition that characterizes many retail industries. Here we see many small firms, with slight differences in the quality of products (such as different locations of gasoline stations). The existence of product differentiation leads each firm to face a downward-sloping dd demand curve. In the long run, free entry extinguishes profits as these industries show an equilibrium in which firms' AC curves are tangent to their dd demand curves. In this tangency equilibrium, prices are above marginal costs but the industry exhibits greater diversity of quality and service than under perfect competition. 5. A final situation recognizes the strategic interplay when an industry has but a handful of firms. Where a small number of firms compete in a market, they must recognize their strategic interactions. Competition among the few introduces a completely new feature into economic life: It forces firms to take into account competitors' reactions to price and output deviations and brings strategic considerations into these markets. 6. Price discrimination occurs when the same product is sold to different consumers for different prices. This practice often occurs when sellers can segment their market into different groups. B. Innovation and Information 7. A careful study of the actual behavior of oligopolists shows certain kinds of behavior at variance with standard economic assumptions about profit maximization. One limit on profit maximization is bounded rationality. This principle recognizes that it may take time and effort to make perfectly informed decisions, so managers may make less-than-perfect decisions, often employing rules of thumb, to economize on search and decision time. An important example of rule-of-thumb behavior is markup pricing - where prices are set by adding a percentage increase on top of costs of production. Also, remember that market power can allow firms to lead the easy life. 8. Schumpeter emphasized the importance of the innovator, who introduces "new combinations" in the form of new products or methods of organization and is rewarded by temporary entrepreneurial profits. The Schumpeterian hypothesis holds that traditional monopoly theory ignores the dynamics of technological change. According to this view, monopolies and oligopolies are the chief source of innovation and growth in living standards - to turn large firms into perfect competitors would risk raising prices in the long run as the fragmentation of industry slows technological progress. 9. Today, the economics of information emphasizes the difficulties involved in efficient production and distribution of new and improved knowledge. Information is different from normal goods because it is expensive to produce but cheap to reproduce. The inability of firms to capture the full monetary value of their inventions is called inappropriability. To increase appropriability, governments create intellectual property rights governing patents, copyrights, trade secrets, and electronic media. The rise of electronic information systems like the Internet raises, in heightened form, the dilemma of the efficient pricing of information services. C. A Balance Sheet on Imperfect Competition 10. Monopoly power often leads to economic inefficiency when price rises above marginal cost, costs are bloated by lack of competitive pressure, and product quality deteriorates. 11. To curb the abuses of imperfect competition, governments in an earlier age sometimes used taxation, price controls, and nationalization. These are little used today in most market economies. The three major tools in American industrial policy today are regulation, antitrust laws, and the encouragement of competition. Of these, the most important is to ensure vigorous rivalry by lowering the barriers to competition whenever possible.

Samuelson's book Summary Chapter 9

Chapter 9 Summary

A. Patterns of Imperfect Competition 1. Most market structures today fall somewhere on a spectrum between perfect competition and pure monopoly. Under imperfect competition, a firm has some control over its price, a fact seen as a downward-sloping demand curve for the firm's output. 2. Important kinds of market structure are (a) monopoly, where a single firm produces all the output in a given industry; (b) oligopoly, where a few sellers of a similar or differentiated product supply the industry; (c) monopolistic competition, where a large number of small firms supply related but somewhat differentiated products; and (d) perfect competition, where a large number of small firms supply an identical product. In the first three cases, firms in the industry face downward-sloping demand curves. 3. Economies of scale, or decreasing average costs, are the major source of imperfect competition. When firms can lower costs by expanding their output, perfect competition is destroyed because a few companies can produce the industry's output most efficiently. When the minimum efficient size of plant is large relative to the national or regional market, cost conditions produce imperfect competition. 4. In addition to declining costs, other forces leading to imperfect competition are barriers to entry in the form of legal restrictions (such as patents or government regulation), high entry costs, advertising, and product differentiation. B. Marginal Revenue and Monopoly 5. We can easily derive a firm's total revenue curve from its demand curve. From the schedule or curve of total revenue, we can then derive marginal revenue, which denotes the change in revenue resulting from an additional unit of sales. For the imperfect competitor, marginal revenue is less than price because of the lost revenue on all previous units of output that will result when the firm is forced to drop its price in order to sell an extra unit of output. That is, with demand sloping downward, P = AR > MR = P - lost revenue on all previous q. 6. Recall Table 9-4's rules relating demand elasticity, price and quantity, total revenue, and marginal revenue. 7. A monopolist will find its maximum-profit position where MR = MC, that is, where the last unit it sells brings in extra revenue just equal to its extra cost. This same MR = MC result can be shown graphically by the intersection of the MR and MC curves or by the equality of the slopes of the total revenue and total cost curves. In any case, marginal revenue = marginal cost must always hold at the equilibrium position of maximum profit. 8. For perfect competitors, marginal revenue equals price. Therefore, the profit-maximizing output for a competitor comes where MC = P. 9. Economic reasoning leads to the important marginal principle. In making decisions, count marginal future advantages and disadvantages, and disregard sunk costs that have already been paid.

HEY MONDAY’s SIX MONTHS CHORDS

Well, I believe thats about it.  I'm sure there's stuff wrong but it's definitely close...

what a good song...  enjoy! You can change D9 to A 

chords used:

Asus4 - x02230

D9 - x0021x

Cadd9 - x32033

Dsus2 - xx0230

A - x02220

Em - 022000

G - 320033

Riff 1

E |  | -------------------------------------------- | 

B |  | ---3-3-3-3-3-3-3-3---3-3-3-3---3-3-3-3------ | 

G |  | ---2-2-2-2-2-2-2-2---2-2-2-2---0-0-0-0------ |  

D |  | ---2-2-2-2-2-2-2-2---0-0-0-0---0-0-0-0------ | 

A |  | -------------------------------------------- | 

E |  | -------------------------------------------- | 

Riff 2

E |  | -------------------------------------------- | 

B |  | ---3-3-3-3-3-3-3-3---3-3-3-3---3------------ | 

G |  | ---2-2-2-2-2-2-2-2---2-2-2-2---0------------ |  

D |  | ---2-2-2-2-2-2-2-2---0-0-0-0---0------------ | 

A |  | -------------------------------------------- | 

E |  | -------------------------------------------- | 

Introdução:  Riff 1     Riff 2

              D9            D

You're the direction I follow

        C9

To get home

        D9                   D

When I feel like I can't go on

                C9

You tell me to go

         D9                     D

And it's like I can't feel a thing

              C9

Without you around

     D9                     D

And don't mind me if I get weak in the knees

       C9

Cause you have that effect on me

You do

D              D9

Everything you say

D            D9            Em

Everytime we kiss I can't think straight

        G

But I'm ok

    D              D9    D    D9     

And I can't think of anybody else

       Em                     G

Who I hate to miss as much as I hate missing you

Riff 2

D9                      D                C9

Months are going strong now, and all goodbye

     D9                  D                C9

Unconditional, unoriginal, always by my side

D9                              D                          

Meant to be together, meant for no one but each other

          C9

You love me, I love you harder, so

D               D9

Everything you say

D            D9            Em

Everytime we kiss I can't think straight

        G

But I'm ok

    D              D9    D    D9     

And I can't think of anybody else

       Em                     G

Who I hate to miss as much as I hate missing you

So please, give me your hand                                         >> Riff 1 (3x)  Riff 2

So please, give me your lesson on how to steal  

                                          Em

Steal a heart, as fast as you stole mine

         G                   ( D    D9    C9 )

As you stole mine

D              D9

Everything you say

D            D9            Em

Everytime we kiss I can't think straight

        G

But I'm ok

    D              D9    D    D9     

And I can't think of anybody else

       Em                     G

Who I hate to miss as much as I hate missing you

So please, give me your hand              >>  Riff 1

So please, just take my hand              >>  Riff 

Samuelson's book Summary Chapter 8

  

Chapter 8 Summary

A. Supply Behavior of the Competitive Firm 1. A perfectly competitive firm sells a homogeneous product and is too small to affect the market price. Competitive firms are assumed to maximize their profits. To maximize profits, the competitive firm will choose that output level at which price equals the marginal cost of production, i.e., P = MC. Diagrammatically, the competitive firm's equilibrium will come where the rising MC supply curve intersects its horizontal demand curve. 2. Variable costs must be taken into consideration in determining a firm's short-run shutdown point. Below the shutdown point, the firm loses more than its fixed costs. It will therefore produce nothing when price falls below the shutdown price. 3. A competitive industry's long-run supply curve, SLSL, must take into account the entry of new firms and the exodus of old ones. In the long run, all of a firm's commitments expire. It will stay in business only if price is at least as high as long-run average costs. These costs include out-of-pocket payments to labor, lenders, material suppliers, or landlords and opportunity costs, such as returns on the property assets owned by the firm. B. Supply Behavior in Competitive Industries 4. Each firm's rising MC curve is its supply curve. To obtain the supply curve of a group of competitive firms, we add horizontally their separate supply curves. The supply curve of the industry hence represents the marginal cost curve for the competitive industry as a whole. 5. Because firms can adjust production over time, we distinguish two different time periods: (a) short-run equilibrium, when variable factors like labor can change but fixed factors like capital and the number of firms can not, and (b) long-run equilibrium, when the numbers of firms and plants, and all other conditions, adjust completely to the new demand conditions. 6. In the long run, when firms are free to enter and leave the industry and no one firm has any particular advantage of skill or location, competition will eliminate any excess profits earned by existing firms in the industry. So, just as free exit implies that price cannot fall below the zero-profit point, free entry implies that price cannot exceed long-run average cost in long-run equilibrium. 7. When an industry can expand its production without pushing up the prices of its factors of production, the resulting long-run supply curve will be horizontal. When an industry uses factors specific to it, such as scarce beachfront property, its long-run supply curve will slope upward. C. Special Cases of Competitive Markets 8. Recall the general rules that apply to competitive supply and demand: Under the demand rule, an increase in the demand for a commodity (the supply curve being unchanged) will generally raise the price of the commodity and also increase the quantity demanded. A decrease in demand will have the opposite effects. Under the supply rule, an increase in the supply of a commodity (the demand curve being constant) will generally lower the price and increase the quantity sold. A decrease in supply has the opposite effects. 9. Important special cases include constant and increasing costs, completely inelastic supply (which produces economic rents), and backward-bending supply. These special cases will explain many important phenomena found in markets. D. Efficiency and Equity of Competitive Markets 10. The analysis of competitive markets sheds light on the efficient organization of a society. Allocative efficiency occurs when there is no way of reorganizing production and distribution such that everyone's satisfaction can be improved. Put differently, an economy is efficient when no individual can be made better off without making another individual worse off. 11. Under ideal conditions, a competitive economy attains allocative efficiency. Efficiency requires that all firms are perfect competitors and that there are no externalities like pollution or improved information. Efficiency implies that economic surplus is maximized, where economic surplus equals consumer surplus plus producer surplus. 12. Efficiency comes because (a) when consumers maximize satisfaction, the marginal utility (in terms of leisure) just equals the price; (b) when competitive producers supply goods, they choose output so that marginal cost just equals price; (c) Since MU = P and MC = P, it follows that MU = MC. Thus the marginal social cost of producing a good under perfect competition just equals its marginal utility valuation in terms of goods or leisure forgone. It is exactly this condition - that the marginal gain to society from the last unit consumed equals the marginal cost to society of that last unit produced - which guarantees that a competitive equilibrium is efficient. 13. There are exacting limits on the conditions under which an efficient competitive equilibrium can be attained: There can be no externalities and no imperfect competition, and consumers and producers must have complete information. The presence of imperfections leads to a breakdown of the price ratio = marginal cost ratio = marginal utility ratio conditions, and hence to inefficiency. 14. The outcome of competitive markets, even when efficient, may not be socially desirable. Competitive markets by themselves will not necessarily ensure outcomes that correspond to the society's ideals about the fair distribution of income and consumption. Societies may modify the laissez-faire equilibrium to change the income distribution to correct for a perceived unfairness of dollar votes of demand.

Samuelson's book Summary Chapter 7

Chapter 7 Summary

A. Economic Analysis of Costs 1. Total cost (TC) can be broken down into fixed cost (FC) and variable cost (VC). Fixed costs are unaffected by any production decisions, while variable costs are incurred on items like labor or materials which increase as production levels rise. 2. Marginal cost (MC) is the extra total cost resulting from 1 extra unit of output. Average total cost (AC) is the sum of ever-declining average fixed cost (AFC) and average variable cost (AVC). Short-run average cost is generally represented by a U-shaped curve that is always intersected at its minimum point by the rising MC curve. 3. Useful rules to remember are TC = FC + VC AC = TC/q AC = AFC + AVC At the bottom of U-shaped AC, MC = AC = minimum AC. 4. Costs and productivity are like mirror images. When the law of diminishing returns holds, the marginal product falls and the MC curve rises. When there is an initial stage of increasing returns, MC initially falls. 5. We can apply cost and production concepts to understand a firm's choice of the best combination of factors of production. Firms that desire to maximize profits will want to minimize the cost of producing a given level of output. In this case, the firm will follow the least-cost rule: different factors will be chosen so that the marginal product per dollar of input is equalized for all inputs. This implies that MPL/PL = MPA/PA B. Economic Costs and Business Accounting 6. To understand accounting, the most important relationships are: a. The character of the income statement (or profit-and-loss statement); the residual nature of profits; depreciation on fixed assets b. The fundamental balance sheet relationsup between assets, liabilities, and net worth; the breakdown of each of these into financial and fixed assets; and the residual nature of net worth C. Opportunity Costs 7. The economist's definition of costs is broader than the accountant's. Economic cost includes not only the obvious out-of-pocket purchases or monetary transactions but also more subtle opportunity costs, such as the return to labor supplied by the owner of a firm. These opportunity costs are tightly constrained by the bids and offers in competitive markets, so price is close to opportunity cost for marketed goods and services. 8. The most important application of opportunity cost arises for nonmarket goods - those like clean air or health or recreation - whose services may be highly valuable even though they are not bought and sold in markets.

Samuelson's book Summary Chapter 6

Chapter 6 Summary

A. Basic Concepts 1. The relationship between the quantity of output (such as wheat, steel, or automobiles) and the quantities of inputs (of labor, land, and capital) is called the production function. Total product is the total output produced. Average product equals total output divided by the total quantity of inputs. We can calculate the marginal product of a factor as the extra output added for each additional unit of input while holding all other inputs constant. 2. According to the law of diminishing returns, the marginal product of each input will generally decline as the amount of that input increases, when all other inputs are held constant. 3. The returns to scale reflect the impact on output of a balanced increase in all inputs. A technology in which doubling all inputs leads to an exact doubling of outputs displays constant returns to scale. When doubling inputs leads to less than double (more than double) the quantity of output, the situation is one of decreasing (increasing) returns to scale. 4. Because decisions take time to implement, and because capital and other factors are often very long lived, the reaction of production may change over different time periods. The short run is a period in which variable factors, such as labor or material inputs, can be easily changed but fixed factors cannot. In the long run, the capital stock (a firm's machinery and factories) can depreciate and be replaced. In the long run, all inputs, fixed and variable, can be adjusted. 5. Technological change refers to a change in the underlying techniques of production, as occurs when a new product or process of production is invented or an old product or process is improved. In such situations, the same output is produced with fewer inputs or more output is produced with the same inputs. Technological change shifts the production function upward. 6. Attempts to measure an aggregate production function for the American economy tend to corroborate theories of production and marginal products. In this century, technological change has increased the productivity of both labor and capital. Total factor productivity (measuring the ratio of total output to total inputs) has grown at around 1½ percent per year over the twentieth century, although since 1970 the rate of productivity growth has slowed markedly and real wages have stopped growing. But underestimating the importance of new and improved products may lead to a significant underestimate of productivity growth. B. Business Organizations 7. Business firms are specialized organizations devoted to managing the process of production. 8. Firms come in many shapes and sizes - with some economic activity in tiny one-person proprietorships, some in partnerships, and the bulk in corporations. Each kind of enterprise has advantages and disadvantages. Small businesses are flexible, can market new products, and can disappear quickly. But they suffer from the fundamental disadvantage of being unable to accumulate large amounts of capital from a dispersed group of investors. Today's large corporation, granted limited liability by the state, is able to amass billions of dollars of capital by borrowing from banks, bondholders, and stock markets. 9. In a modern economy, business corporations produce most goods and services because economies of mass production necessitate that output be produced at high volumes, the technology of production requires much more capital than a single individual would willingly put at risk, and efficient production requires careful management and coordination of tasks by a centrally directed entity.

Samuelson's book Summary Chapter 5

Chapter 5 Summary

1. Market demands or demand curves are explained as stemming from the process of individuals' choosing their most preferred bundle of consumption goods and services. 2. Economists explain consumer demand by the concept of utility, which denotes the relative satisfaction that a consumer obtains from using different commodities. The additional satisfaction obtained from consuming an additional unit of a good is given the name marginal utility, where "marginal" means the extra or incremental utility. The law of diminishing marginal utility states that as the amount of a commodity consumed increases, the marginal utility of the last unit consumed tends to decrease. 3. Economists assume that consumers allocate their limited incomes so as to obtain the greatest satisfaction or utility. To maximize utility, a consumer must satisfy the equimarginal principle that the marginal utilities of the last dollar spent on each and every good must be equal. Only when the marginal utility per dollar is equal for apples, bacon, coffee, and everything else will the consumer attain the greatest satisfaction from a limited dollar income. But be careful to note that the marginal utility of a $50-per-ounce bottle of perfume is not equal to the marginal utility of a 50-cent glass of cola. Rather, their marginal utilities divided by price per unit are all equal in the consumer's optimal allocation. That is, their marginal utilities per last dollar, MU/P, are equalized. 4. Equal marginal utility or benefit per unit of resource is a fundamental rule of choice. Take any scarce resource, such as time. If you want to maximize the value or utility of that resource, make sure that the marginal benefit per unit of the resource is equalized in all uses. 5. The market demand curve for all consumers is derived by adding horizontally the separate demand curves of each consumer. A demand curve can shift for many reasons. For example, a rise in income will normally shift DD rightward, thus increasing demand; a rise in the price of a substitute good (e.g., chicken for beef) will also create a similar upward shift in demand; a rise in the price of a complementary good (e.g., hamburger buns for beef) will in turn cause the DD curve to shift downward and leftward. Still other factors - changing tastes, population, or expectations - can affect demand. 6. We can gain added insight into the factors that cause downward-sloping demand by separating the effect of a price rise into substitution and income effects. (a) The substitution effect occurs when a higher price leads to substitution of other goods to meet satisfactions; (b) the income effect means that a price increase lowers real income and thereby reduces the desired consumption of most commodities. For most goods, substitution and income effects of a price increase reinforce one another and lead to the law of downward-sloping demand. We measure the quantitative responsiveness of demand to income by the income elasticity, which measures the percentage change in quantity demanded divided by the percentage change in income. 7. Remember that it is the tail of marginal utility that wags the market dog of prices and quantities. This point is emphasized by the concept of consumer surplus. We pay the same price for the last quart of milk as for the first. But, because of the law of diminishing marginal utility, marginal utilities of earlier units are greater than that of the last unit. This means that we would have been willing to pay more than the market price for each of the earlier units. The excess of total value over market value is called consumer surplus. Consumer surplus reflects the benefit we gain from being able to buy all units at the same low price. In simplified cases, we can measure consumer surplus as the area between the demand curve and the price line. It is a concept relevant for many public decisions - such as deciding when the community should incur the heavy expenses of a road or bridge or set aside land for a wilderness area.

GENIE

A blond, bruett, and a red head are on top of a cliff and a genie comes and says," If you jump off the cliff yelling something you will land on it." So, the bruett jumps off and yells, "money!!!"And she lands in a pile of money and lives happlly ever after. The red head jumps off and yells,"trampoline!!!" She land on a tampoline and lives less but happly ever after. The blond gets ready to jump and then she trips on a rock while falling off the cliff she yells,"CRAP!!!!!" and she dies(in crap)!

living

You've got to live life, not think about it. Step into the midst of things, try and fail and learn and stand up again. The question is not whether you will or will not make mistakes - you will. The question is do you want to learn and grow, or do you want to shrink back and be stuck? Take that step you've been avoiding. You can succeed, or you can get feedback that it didn't work, but in either case you are sure to feel alive.

war plans

ready for the BATTLE in the MID test and as the exterminator examinator .......... i shall win dis fight prepare our short lance, and we'll see our finger fly away riding those lance tonight, finish all the problem SHE has made ........ and as her pupil i'll leave nothing ................ BTW i ve learnt it yet :( ........... i wish upon my luck DAWN

Samuelson's book Summary Chapter 4

now updating summary. the 4 th chapter

Chapter 4 Summary

A. Elasticity of Demand and Supply 1. Price elasticity of demand measures the quantitative response of demand to a change in price. Price elasticity of demand (ED) is defined as the percentage change in quantity demanded divided by the percentage change in price. That is, Price elasticity of demand = ED ED = (% change in quantity demanded)/(% change in price) In this calculation, the sign is taken to be positive, and P and Q are averages of old and new values. 2. We divide price elasticities into three categories: (a) Demand is elastic when the percentage change in quantity demanded exceeds the percentage change in price; that is, ED > 1. (b) Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price; here, ED <>ED = 1. 3. Price elasticity is a pure number, involving percentages; it should not be confused with slope. 4. The demand elasticity tells us about the impact of a price change on total revenue. A price reduction increases total revenue if demand is elastic; a price reduction decreases total revenue if demand is inelastic; in the unit-elastic case, a price change has no effect on total revenue. 5. Price elasticity of demand tends to be low for necessities like food and shelter and high for luxuries like snowmobiles and vacation air travel. Other factors affecting price elasticity are the extent to which a good has good substitutes and the length of time that consumers have to adjust to price changes. 6. Price elasticity of supply measures the percentage change of output supplied by producers when the market price changes by a given percentage. B. Applications to Major Economic Issues 7. One of the most fruitful arenas for application of supply-and-demand analysis is agriculture. Improvements in agricultural technology mean that supply increases greatly, while demand for food rises less than proportionately with income. Hence free-market prices for foodstuffs tend to fall. No wonder governments have adopted a variety of programs, like crop restrictions, to prop up farm incomes. 8. A commodity tax shifts the supply-and-demand equilibrium. The tax's incidence (or impact on incomes) will fall more heavily on consumers than on producers to the degree that the demand is inelastic relative to supply. 9. Governments occasionally interfere with the workings of competitive markets by setting maximum ceilings or minimum floors on prices. In such situations, quantity supplied need no longer equal quantity demanded; ceilings lead to excess demand, while floors lead to excess supply. Sometimes, the interference may raise the incomes of a particular group, as in the case of farmers or low-skilled workers. Often, distortions and inefficiencies result.