The heart that pumps innovation

The article "The Heart That Pumps Innovation" from the book "From Poverty to Prosperity" written by Kling, Arnold and NIck Schulz, 2010 talks about what makes a person an entrepreneur and its source of innovation. Innovation comes from entrepreneur and a strong sense of private property ownership. Because of US unique economy that promotes small business to mobilize rather than having big businesses that dominate the economy, it ensures the competitiveness of US economy. However, the biggest problem that an entrepreneur will always need to dwell is the resistance of change that dominates in our action and behavior.

Some of the questions in my mind:
1. How to become a successful entrepreneur? The theory sounds very fantastic, but if you put into practice that might be a different story. The article talks about the story of Steve Job, but it also mentions lots of failure like netscape. It's a gambling, and only one out of the million can be truly successful.
2. Is everyone suitable to be an entrepreneur? It needs charismatic, it needs luck... ... which is like, not everyone?
3. Is change really a good thing? At least according to the ex-Prime Minister of Malaysia, change might not be a good thing. :P

I think there's nothing much I can argue back to the article because I personally very much Pro-entrepreneur. I like the article part that emphasizes on change and the resistance of change faced by many people around the world. The world is unfair but if we can tackle the unfairness with techniques we can definitely become a successful entrepreneur.

Class 41: Profits losses and entrepreneurs

Today, Mr Rizzo moves into the topic of entrepreneurship. He talks about the reason of people being motivated so hard to produce something productive: the profit. He specifically talks about the healthcare sector. While people are fine with prostitution to sell sex and earn more profit, people are not fine with healthcare sector to earn profit. We have to understand the reason that prevent people from choosing a cheaper alternatives instead of asking why it's so expensive. In the end of his class he reveals the magical formula of Profitability equals to the sum of rental rate, appreciation rate minus the interest cost. If the number for profitability is positive, it means we should buy that product instead of renting it.

Class 40: the economic incidence of supply and demand part II

Today, Mr RIzzo talks about the second part of the taxation which is the income tax. We can see that although the tax charge to different side of the market, eventually they still bear the same burden of the tax. SO it comes to the ultimate question: who gets to determine which side bears more? The elasticity of the curve that determines it. If buyers are not sensitive to the changes, the buyers bare the burden.

Class 39: The economic incidence of supply and demand changes

Today, Mr Rizzo talks about the application of economic incidence of supply and demand changes in terms of taxation. Tax is actually neutral because it's actually a form of transfer of money. For excise tax, the burden will still be on the buyers more than on the sellers when the graph shifts. He also talks about drugs and illegal stuff and its application. When drug is illegal, the cost is actually higher because we spend more money on the enforcement of the law, but the money can be spend on something even more beneficial. Besides, the marginal cost for people to commit crime becomes lower and it actually leads to unintended consequences: the increases of violent crimes rate.

Bethpage Gray

The article Bethpage Gray written by Max Adler illustrates the idea of how to sanction things when it is scarce. Based on this article, Bethpage State Park is one of the most popular spot for people to play golf for free. However, despite that getting there is a phone call away, it is going be costly to get there. This profitable opportunity is seen by the company nygolfshuttle.com, which golfers would have to make an appointment to them in order to have his/her tee time right at their most preferable time at the state park. Although it is ridiculously expensive, but people still buy it because they value that much of it.

Rhetoric questions in my mind are:
1. Can this method be applied to any other field in the world? It seems to be a very lucrative business because what the company did is actually  abridging the consumer and the products, which reduces the cost between them two. It holds the information to allocate the resources (the tee time) to the consumers (golfers).
2. Is this really something illegal? I think it is just a smart business plan.
3. What would happen if we legalize it but set a price ceiling on the price offered by the company?

I think the whole article is fairly interesting, mainly because it shows that there is always people value something (which might not be obvious), and one of the way to make money is definitely bringing these valuable things to those who value them.

Scarcity and Rare

This picture specifically intrigues me because it illustrates an economic concept that is really hard to be understand. Rare and scarcity. When a football player earns more than a firefighter, does that mean that we value a football player more than a firefighter? Or does it means that we value someone who can kick a ball more than a person who saves life? Or does it mean that a football player is rarer/more costly than a firefighter? In this situation, which one is rarer, a football player or a firefighter?

Probably there's some factor that makes the salary of a football player higher than firefighter. Probably because a person who can really kick football is both really rare and scarce. Not everyone can kick football, so it makes a goodfootball player really rare. There is also the competition arise from different teams and companies and countries who are fighting against each other to get that football player. It makes a good footballplayer scarce. The cost of raising a firefighter is definitely lower than raising a football player subsequently.

Although it somehow demotivates me, this is the true face of reality: things become expensive when it's rare and scarce.

Class 38: Price Floor and Price Ceiling

Today, Mr Rizzo talks about the idea of price ceiling by further using the example of house rent. It is not good to anyone of us, even if the reason is good to help the overall population, because it creates inefficient use of resources; we end up using taxpayer's money to build houses. Next, he talks about the price floor through the illustration of minimum wage. The principle works the same: we end up not creating new jobs but worsening the unemployment rate because of the surplus that we created by setting up a minimum wage.

Class 37: the price ceiling

Today, Mr Rizzo uses the rent control as an example to illustrate the idea of price ceiling. He further describes the consequences of price ceiling set by the government such as the risen of black market, discrimination, the inefficient location of resources and low quality of products produced. Subsequently, it only increases the price of the original product that the price ceiling is set on.

Class 36 The market equilibrium

Today, Mr Rizzo introduces us the idea of market equilibrium and the practical properties of it. It would be inefficient for the seller to enter the market because the cost is higher than how much people value it. If the cost is low (which means the price is higher than how much people value it), the market becomes efficient because it encourage the buyers to buy more and the seller to sell more. Besides, Mr Rizzo emphasizes that the interruption of government in the process of market equilibrium would be disastrous because it disrupts the normal process of market to reach equilibrium.

The problem with Price Gouging Laws. Is optimal pricing during an emergency unethical?

"The problem with Price Gouging Laws. Is optimal pricing during an emergency unethical?" written by Micheal Giberson illustrates how the price gouging laws during an emergency situation might do more harm than good to both the consumers and the merchant. He points out that, although the intention of having a price gouging laws is ethical, the unintended harms towards the consumers, especially those who are really in need, makes the law itself unethical.  The author gives strong reasoning on why price gouging law is unethical based on the ideas that it distorted the natural response and flow of the goods in the market, the law is vaguely defined, and the unintended consequences that affects the behavior of merchants.

Some of the questions that intrigue me are:

1. What are the unintended consequences from not having a price gouging laws? Probably the merchants would stock out their stocks in order to sell it in a much higher price later on, isn't it going to affect those who are in need as well during an emergency time?

2. The author argues heavily based on the assumption of consequential ism that "the end justify its means." But isn't it hold true to a lot of people that the "end does not justify its means"? How about those people who believes that we have to have ethics in the means of economics?

3. Taking the example of Japan, during the time when tsunami struck Japan, they do not increase their price. Rather, culturally the whole society helps each other by saving without even relying on the price gouging laws. Through this, the cities around Tokyo manage to save electricity that can sustain the whole Tokyo for a month. They do not have Price Gouging Law, the price did not increase as well, but still, the goods are handled and allocated efficiently. How does that going to say about his idea that "Price Gouging Laws is unethical and impractical"?

I think that I partially agree with the author on Price Gauging Laws because not every country can be like Japan. Price Gauging Laws, in my view, works only to certain countries. It depends heavily on the culture of that particular country as well. If you are in Malaysia, without Price Gauging Laws or the intervention of the government, the price can literally go up like crazy and it leads to more corruption. However, isn't it that we all want to create a civilization that values ethics and help each other in times of disasters? 

Black Friday

Awesome! My very first black friday in US. I was at the NYC times square area on Thursday Night (sadly I didn't join the midnight madness because I don't think that it's worth the time I spend on waiting in the line.) It leads me to think, is there something as a discount/ sale? Does the thing actually become cheaper on Black Friday? From my point of view, on Black Friday the thing does not get cheaper because it costs you a lot more things in reality. You spend the whole night waiting in the line to get the deal. You can be spending that time to be with your love one which is even more productive. You need to fight to get the deal that you want! In fact I saw an article saying that in LA a woman used pepper spray on her competitors in order to stand advantage on the other buyers!
woman pepper sprays others

So instead I went to shop in the afternoon at a mall called Roosevelt Mall somewhere in the long Island. I found that there's less people as compared to the midnight madness. There's still some great offer but less than midnight madness. Most of the great deals are off the shelves, what's left is just some ugly stuffs on the shelves with less discounts. I still think that there is actually not a big difference because you have less attentive care from the salesgirls. you lack the convenient and comfort while shopping. I can't even find a place to try my new shoes. The line to pay is like crazily long. We can't find a seating while having our lunch. When we eventually found a seat to enjoy our meal, at the very right moment when I stood up just to get a new drink, a Chinese Old guy sitting next to me just literally grab my chair behind me, pull it towards him and put his leg onto the chair, and stared arrogantly to the sky pretending that nothing had happened!

Maybe the price is cheaper, but overall cost? It could be even higher than usual.

Class 35: Centralized knowledge and decentralized knowledge

Today, Mr Rizzo talks about the idea of centralized knowledge and decentralized knowledge through the example of czar of titanium. Decentralized knowledge is better than centralized knowledge is because of it's practicality with the help of a well functioning markets and democracy. The market, determined byu the price system, solves the problem as it reveals who has the particular specialized knowledge to solve the problem. A person with all the knowledge required to do certain thing is just impossible to be found in this world.

Class 34: Supply and Demand

Today, Mr Rizzo talks about the relationship between supply and demand as well as the equilibrium point. Sometimes there's surplus and sometimes there's shortage when supply and demand are not at the equilibrium point. The relationship between buyers and sellers are also talked and how prices affect the behavour of buyers and sellers towards the goods.

POSTERS

http://www.propagandaposters.us/poster4.html Waste helps the enemies, conserve materials.

When consumers conserve materials, the demand for the new materials  in the market will drop significantly. When demand drops the producers will either produce less or they will drop the price of the materials to earn more profits form the consumers. This can cut down the resources spent on producing materials in order to channel the resources to the war.

http://www.propagandaposters.us/poster10.html When you ride alone, you ride with Hitler.

During the world war II, these kind of posters often will affect the behaviors of consumers to carpool with others. This will cut down the demand for the resources used to ride a car such as petrol, time, space, materials to build car and so on. Subsequently these resources can also be used to channel to the war.

http://www.propagandaposters.us/poster19.html This world cannot exist half slave and half free, sacrifice for freedom.

During world war II the army requires a lot of recruitment from the public. This kind of posters affect the behavior of people and diverge their action to join in an army. This can affect the supply and demand of the market as people, regardless whether they have comparative advantage in becoming a soldier, might waste a lot of marginal opportunity cost. Resources are not efficiently used and then subsequently increase the price of every products in the society because the society becomes poorer.

http://www.propagandaposters.us/poster31.html I pay no more than top legal price. I accept no ration goods without giving up ration stamps.

During the war time, each household is given the ration book to ration the goods such as sugar, oil and so on so that no waste is produced during the transaction. Each household needs to pledge to pay no more than the top legal price that can stand advantage against the others to get what they want. It hurts the economics even more because not everyone is there to do what they interest and what motivates them the most. The stuff and goods are not being allocated to the most needed and most valued places. It becomes destructive to the economy because it is not efficient. It does not produce the things which everyone wants in the lowest cost. Demand and supply is controlled by the central planner, and central planner cannot possibly know everything. The price of stuff might increases while the supply and demand is not increases.

A bunch of buffalo wings

1 hour ago my roommate and I invited a bunch of friends to have buffalo chicken wings together. Awesome! However there are about 60 chicken wings and we have 5 people here. It seems enough right?

Nope. It is definitely not enough for 5 of us because we have unlimited desire and wants, and we would always want more even when we are already full. There is also the element of peer pressure as those who eat less will be deemed as weak and useless. (haha!) Each of us also has our own preference. For instance I would prefer chicken legs while Siqi only likes to eat wings. Jeff doesn't like to eat spicy stuff while Hogan eats really slow, he eat less and he only takes chicken that's near to him.

Although there is no money transaction between us, there is the simple mechanism of economics that plays in between us: the idea of trade among us that allows us to put the less valued chicken wings to those that value them the most! Eventually we sanction the chicken wings successfully. I am not sure whether we became richer or not through this system, but surely we were all very satisfied.

Class 33: Rationing through the price system

Today, Mr Rizzo talks more about the idea of rationing and the advantage and disadvantages of non-price system and price system. The non-price system fails greatly because it decentivizes people's motivation to produce more. However, rationing through price system allows efficient flow of low value products to people who value them most. All individuals through this mechanism can eventually get what they want without any law enforcement or central planning.

Class 32: The rationing

Today, Mr Rizzo draws 5 fishes and 12 people on the board to illustrate the idea of rationing: equally divide the fish to all 12 people. Some of the sample rationing criteria are need, queue, lottery, equal share, might makes right and merit. None works better compared to the price system as each of them have the information problem and efficiency problem. Therefore, we have to evaluate the rationing mechanism from multiple perspectives. With that he introduces the idea of competition arose from scarcity. An effective rationing system would be a system that encourage constructive competition so that the world becomes richer.

Class 31: The supply curve

Today, Mr Rizzo talks about the supply curve and what we can learn and observe from the supply curve. Similar to demand curve, it has the supply and the quantity supply that will be affected by either prices of the product or the other factors such as expectation, technology and prices of all other factors. It also has the elasticity of supply. For instance, if m=2, for every 1% of change of price of the goods, it will affect change of the quantity of supply by 2%.

The theory of the Leisure Class

This week reading is actually taken from several pages from the book "The Theory of the Leisure Class" written by Veblen, Thorstein. The main idea of the book is the role played by the upper level social class, which the author introduces it as the "leisure class", in the emerging of the market system and economics. However, the selected readings emphasize more on the idea of "conspicuous leisure" and "conspicuous consumption".

At page 36-37, although in the past the working force are very comfortable with their current social status, the more upper level social class naturally shows superiority over the lower class to feel more secure and appreciated. Such thinking and acts propagates our development from the poor to the rich, even until today.

At page 70-71, the article talks about the idea of conspicuous consumption through the example of ceremonial differentiation. One of the consumption good would be alcoholic drinks/ stimulants. Where the price is high, alcoholic drinks are seemed as luxury and noble. Through this, male shows superiority and nobility to women.

At page 230-232, the idea of "conspicuous leisure" and "conspicuous consumption" are further elaborate into today's profession and employment. The idea talks about that men are merely purposeless in competing against each other but only for the mere idea of status, respect and nobility. A lot of things serve no practical use, but because of "conspicuous leisure" and "conspicuous consumption", certain things evolve to gain respect and higher social status against others.

Some rhetorical question,
1. Isn't that the idea of "gaining respect" or show superiority one of the purpose of human? If humans are all merely purposeless then we will all just act randomly and by chances.
2. Like greed is bad and self interest is good, then should "showing superiority" be categorized as good or bad?
3. Is the attitude of conspicuous leisure and conspicuous consumption one of the cause to the complicated system of economics and the market?

Personally I think that the whole passage is very confusing because the reading lacks complete picture of the whole article. However, the idea that certain rituals and ceremonies are in our today society is because of the leisure class and the need to show superiority against others is very interesting. I remain neutral to the author opinion because the concept is vague to me.

CSA audition for China Nite 2012

Last Thursday Chinese Student Association have a audition session for China Nite 2012 at Haven Lounge, which is the night before our economics test. (Since I am in the eBoard I will also be one of the judge to vote on who will get the limited spots to perform during China Nite). Out of 10 participants, only four singers will be selected to be the official performers during China Nite. This is related to the concept of scarcity and competition, ethical problem.

The spots of performance opportunity is a form of scarcity because eventhough there is spots available, the  unlimited number of participants who wants to perform is far more than the spots that we can offer. CSA can't allow everyone to perform because time will be wasted largely if everyone is given the time to perform. Time in here is a scarce resource. We also have to let them fight in between so that we can have the best singers out of all of them through competition. As such, the quality of the night will increase.

However, not everyone is born to have good voices. What if someone really wants to have the opportunity to perform on the stage but just not the lucky one to get picked up? Is that consider fair and equal? I hope one day we can figure up a way to solve the limited scarcity problem.

Class 30: Summary for test + supply

Today, Mr Rizzo summarizes all the important stuffs that are required to know before entering the exam, such as "cost requires an action and a person", the law of demand and elasticity for normal goods and inferior goods. Then he talks about the law of supply, which basically means if you can make money, you will want to respond to it more. Similar to demand and the law of demand, there is also the concept of supply and quantity supply.

Class 29: Elasticity

Today, Mr Rizzo introduces us the idea of elasticity and explain it thoroughly. He gives the example of Rachel and Michael in graph forms. There are a lot of factors that affects the elasticity such as time, budget and the presence of substitutes. The main idea is that when there is more substitutes, there will be more elasticity for the products. Based on the elasticity, we can tell that whether we should increase or decrease the price of that particular products in order to increase the maximum profits earned.

Class 28: Market Demand

Today, Mr Rizzo shows us lots of graph on demand and aggregate demands. With all those graph, he introduces us the concepts of quantity demand and demand, and how different factors affect both concepts. Quantity demand is affected by the prices of the good itself while demand is affected by "all other stuffs", such as income of the buyers, the prices of other things, the expectations to the good, the tastes and so on. In the end he touches a part on elasticity, which is the concept in explaining "how much more" is the change.

The economic organization of a P.O.W camp

The economic organization of a P.O.W camp demonstrates the emergence of the market system and the price system in a stimulated environment called the P.O.W camp. Through the disorganized and decentralized activities of those prisoners in the camp we can see clearly that the spontaneous emergence of the market system and the magnificent role played by the price of the goods. It also demonstrates that a controlled system by a central planner is more harmful than beneficial to the market. Based on this simulation, we can see that this is how our real market system rise into our society, and how it eventually becomes part of our life and redefines the meaning of economy.

Some of the rhetorical questions that comes into my mind when I read this article are:
1. Can we play this experiment in a class scale with a time frame of 2 hours? I think most probably it will work though!
2. Can this simulation truly describe how the market system emerge in our real society when those prisoners might be exposed to the idea of exchange and trade already before they were even in the camp? So I think that although most probably this example can explain the process of the emergence of price and market, it still doesn't explain how the very idea of trade come into existence in a society with no exposure of any idea relevant to trade and exchange.
3. Why tobacco at the first place? it's so unhealthy.

I think this article is really interesting and it explains well the instability of the price and the importance of the price itself in keep motivating us and incentivizes us to earn more profit. It resonances with Mr Rizzo's classical quote, "trade is the road to wealth, self-sufficiency is the road to poverty".

PPSMI. My economics way of thought

PPSMI news

This news is about Malaysia's latest government policy in phasing out PPSMI, which stands for Teaching Maths and Science in English. PPSMI is a national project implemented by the government in 2003 which enforces all students to learn science and mathematics in English starting from standard one. The latest policy is that the government is going to phase out PPSMI in year 2012 and restores the teaching of science and maths in Malay Language, which is the national language of Malaysia. Such act causes outraged reaction from the public, both supporters and oppositions in PPSMI, mainly in the issue of the quality of the education in maths and science in future. Form the economics point of view, this particular articles is related to the idea of ethical trade, unintended consequences, and incentives/ behaviors of the public.

Some questions in my mind:
Who does the government counts to? Who do these policies makers represent? Does it lead to inequality between the people from the rural area and the urban area, since the people from the rural area does not have the opportunity to be exposed to maths and science in English if such policy is made?

How about paternalism problem? Why should government spend so much money on forcing the public to learn/ teach maths and science in Malay language just to "preserve the status of national language"?

Shouldn't the government just let the people choose what interest them most so that they can be incentivized the most from the learning process?

How about the unintended consequences? Does it really going to improve the grades of maths and science if the language is changed into Malay Language? When student becomes demotivated in learning the courses because of that particular language, will they still do well? How would the behaviours of students and parents and all people change after such policy is made?

This particular article also has the sham reasoning elements: by just showing that the result of maths and science drop during the implementation of PPSMI, it doesn't mean that PPSMI is the cause of dropping in grades of students in Maths and Science. Is there a causation fallacy in there?

In my opinion I do not agree with what the deputy prime minister's opinion in the abolishment of PPSMI mainly because I believe that such policy is made without the consideration of particular economics point of views. It is more like a political candy rather than an education policy.

Class 27: the Demand Curve

Today, Mr Rizzo talks about Burrito and his wife Rachel's demand for the burrito to the price of the burrito. He explains on what are the things that we can observe and analyze based on the demand curve, and some of the points from the curve that can explain why we behave in certain ways. The things that we can see are marginal values, total expenditure, total values and buyers' surplus. The reason why we behave in certain ways are because of wealth effects, substitution availability and diminishing marginal utility.

Class 26: The law of demand

Today, Mr Rizzo introduces us the law of demand by first explaining how prices come from. He defines that market as any decentralized, inorganized interaction between buyers (which are the demanders) and sellers( the suppliers) of goods and factors. He also talks on quantity demand and the relationship between price and demand. (the law of demand).

Ricardo's difficult ideas, In praise of Cheap Labor, A raspberry for free trade

In Ricardo's Difficult Idea, the author illustrates 5 points that why the idea of "comparative advantages" can be so misleading and confusing in today's time. He points out that, besides those stumbling blocks of cultural difference and modeling problems, the ignorance and arrogant attitudes of the authors of economics are the main reason why this very simple concept becomes confusing to non-economists. In the end he gives some opinion on what we can do to solve the misconception of the public to the concept of "comparative advantages". The whole reading is related to his lecture of "comparative advantages".

In Praise of Cheap Labor, the author tells us about that the importance of cheap labor market resulted by the multinational companies from the first world companies to the third world countries. Although it seems that it's unreasonable and unfair to have someone from the third world countries to work at a very low wages with no good working environment for the benefits of the people from the first world countries, these jobs are essential to promote the economic growth and the growth of infrastructure at the third world countries because these jobs incentivize people. Though it looks bad, it is still better than no jobs for these people and make then suffer at the third world countries. This passage has the idea that relates to "incentives" and "comparative advantages".

In A Raspberry for Free Trade, the author illustrates that free trade should be given among the countries even if the countries have much lower wages by using the raspberry as example. He compares raspberry that can lead to health issue with a product that is produced by a person paid with a very low wage, and concludes that these are different and therefore free trade should be allowed. People should not have a double standard on the economics and the market because competition is what makes the market efficient and subsequently improves the society and welfare of its people. It relates to the idea of "free trade and trade deficit".

Some rhetoric questions that happen to my mind:
1. Recently China has some really bad examples on how the entrepreneurs do some bad shitty business like putting some carcinogenic product into the milk product, extract cooking oil from the sewage collector and so on in order to earn more profits. Since lower wages to the workers might also mean that they are putting less effort in quality control, why we can't banned products from these countries because we also have legit reason to say that these products might cause health problems as well?

2. If most of the new idea are "cult" why do we have the reason to accept the idea of "comparative advantages" at the first place when it is first introduced against merchantilism?

3. Is it a sham reasoning to say that the globalization and the investment of foreign multinational countries are the reason that the quality of life go up for third world countries?

I think all these three paragraphs are well written and is interrelated with each other. By understanding that comparative advantages is as legit as the theory of evolution, simple yet complicated, we can picture easily on the situation illustrated in "praise of Cheap Labor" in relation to the comparative advantages in the third world countries. Third world countries have the comparative advantages in really cheap labor, by that the young entrepreneurs are incentivizes to produce. With such action to their own benefits they unintendedly improves the standard of living there. However, people still have the misconception that free trade from these third world countries are putting more disadvantages on them. The third passage "In a Raspberry for Free Trade" clears all the doubt for them and make a great conclusion by saying that "free trade between countries that produce stuffs based on their own comparatives advantages creates wealth for both countries."

Class 24: Trade deficit and roundabout

Today, Mr Rizzo TEARs a dollar!!! !!! ARHHH. Besides emphasizing on the importance on trade, specialization and comparative advantages, he continues to talk on why having a trade deficit on one particular sector doesn't mean the money is going to lose. The roundabout basically means that the money that goes out of the country through import will eventually go back to the country because of multiple means and methods. Even if the dollar is just getting torn and burnt, it just increases the value of USD in US, resulting in a net lost of zero as well.

Class 23: Trade deficit and manufacture

Today, Mr Rizzo illustrates situation on trade deficit in relationship to the manufacturing sector. Although trade deficit occurs but the employment in US increases as well. Therefore, trade doesn't cost jobs. Although manufacturing percentage drops, the output doubles. Therefore, globalization is not at fault why the manufacturing sector decreases. In conclusion, trade statistics are meaningless because trade cannot be at fault.

Class 22: Comparative advantages

Today, Mr Rizzo gives us the lecture on comparative advantages by using multiple examples and calculation. An absolute advantage in producing everything doesn't mean that you have comparative advantages in everything. Therefore, we can say that whoever sacrifices less in making another thing as compared to the others are also having a higher comparative advantage because they are more efficient. As we realize the importance of comparative advantages we can be specialized and conduct trade, that's when wealth comes in because "self sufficiency is the road to poverty."

Escaping the poverty

escaping the poverty

This is a video found on TED.com telling a story of a young poor girl named Jane growing up in a slum of Africa and how she eventually gets herself out of poverty. Since her childhood she had two dreams: becoming a doctor and marrying a good husband. Due to poverty she didn't manage to realize her first dream and married with a guy, got pregnant and gave birth to two sons. However, her husband left her and she was left with no jobs, no skills, no income and no life. She struggles through the social classes and market and eventually escaping poverty and end up having her own house. I find this video interesting because it relates to the few economic concepts that I had learnt in economics class: we all have comparative advantage in one or another field, specialization/ trade is the road to wealth while self-sufficient is the road to poverty, and how to place valueless items to where it's highly value.


1. In Jane's story that we can see that instead of becoming a doctor, she becomes a seller and a counselor which she fits perfectly into the role. She has the comparative advantage of encourage people with HIV positive because she is a living example of how people can still live with dignity as HIV positive. The society ends up getting better because it losses a not so good doctor to a great counselor. She does not need to sacrifice much to become a counselor and encouragement. Problem is, how do I know what's my very own comparative advantage?

2. Jane's specialized in sewing and she trades her skills to the market. She is efficient because she produces stuff with the lowest cost, maximum production that people want. She became richer by that. We can see that she has more resources by buying a sewing machine with the money that she earned, which makes her even more productive. Should there be anymore excuses on "I am skill-less"?

3. She places herself at a higher value because she understands her comparative advantages. Even without skills she can still become rich by many definition. Economic crisis is the time when innovation and creativity sprung in. As we being incentivized (without the intention of harming each others), we will be led to jobs. So why should we be worried much about unemployment?

I really like this video because it really gives us lots of things to learn from the story of Jane. We shouldn't be worried about whether in the future we are going to be employed or not. There is always a way to find wealth as long as trade involves.

Profit motivates human

Steve Jobs wasn't great; he wasn't even close.

A very interesting article that I found on the net that has the title of "Steve Jobs wasn't great; he wasn't even close" written by Neeraj Thakur. In this article, he argues that Steve Jobs wasn't really a great person that's worth the tears of millions of people because he did not really do what he did, but in fact he avoid doing lots of things that a billionaire should have done. He points out that Steve Jobs is a person who is "motivated by profits", a billionaire that has no association to any philanthropic action, and has some sort of virtual "property rights" over things such as personal computer and iPhone which were not even invented by his very own hand. He concludes that  motivation by profits among human civilization is not the reason why people should be referred as great.

However, I have a few questions after reading the articles:
1. Everyone is motivated under the self-interest. Talking about Mother Theresa, or the inventor of polio vaccine Dr Salk, just because their profit isn't in the form of money, they can be referred as great?
2. Why must a great company be philanthropic? Is it even wrong for Steve Jobs who is just trying to incentivized his workers in order to produce better phones?
3. Talking about opportunity cost that the whole world has lost, the sunk cost of human resource that the world will never ever get back, the comparative advantages and the absolute advantages that Steve Jobs has in his invention, would it be reasonable to say that he's indeed a great person?

I think that the author's point of view is worth for us to at least to reevaluate on how we decide who's great. However, the author has a very serious profit bias in his argument that I would disagree on most part of what he's written.

Principles Lecture Notes

This abridged note is basically about "property rights" established in a society. It talks about the importance of property rights as an institution, the reasons why other alternatives/ philosophies/models are not workable like "property rights", the role of "property rights" in making free and peaceful trading possible in our market, the relationship between property rights and other institutions in the market, and also the origin and evolution of property rights. It demonstrates clearly the definition of "property rights" as part of the human right and argues greatly on why other concerns on property rights are not legitimate.

Some of the questions that come into my mind:
1. why is it that when civilization was first born there were no property rights concept in the people who found the civilization? How did king eventually come into the picture and start forcing people to give things to them without the idea of property rights?
2. During the colonization era, when British colonized countries over the world, are they exploiting the natives?  The colonies are weaker, far less developed than British, lack of education and technology, but the nation grew, they gain technology and ideas and other products resulted from the industrial revolution and so on. What if they were deprived from the property rights, are they still being considered as being exploited?
3. Will there still be a need for property rights if all the resources become unlimited and abundant? (Like for instance in heaven which time is eternal with no scarcity at all)

I remain neutral to the notes (since it's just notes), but I think that the final legitimate concerns and considerations about property rights are not really a "legitimate" concern because humans react to incentives and this is what makes things around human evolve and become better. I believe it is just a matter of time before human comes out with a perfect scenario with perfect justice and equality through trial and error, innovation and so on.

Class 21: Advantages create wealth

Today, Mr Rizzo explains what's comparative advantages and absolute advantages and how trade creates wealth. He shows us examples to show that trading is not a zero sum game and it can create wealth. A few graphs are drawn to show absolute advantages, productivity efficient and the law of diminishing returns. Through trade, resources, and technology we become even richer.

Class 20: Feedback loops, trade, and factors of production

Today, Mr Rizzo explains to us why trade can create values. By introducing us the concept of feedback loops, trade, and factors of production, we can see that how trading creates values by putting the things that are lowly valued to places where they are highly valued.

Class 19: Gold and silver rule

Today, Mr Rizzo introduces us two important rules: the golden rules and the silver rules. Golden rule is summarized as the rule which people are motivated by their own self-interest for their own goals in order for the society to works. Silver rule is summarized as the rule which people, while pursuing their own self-interest, does not hurt others or do something onto others that they would not want others to do onto them. Both rules are important because we are just not omniscient.

Critical Reading: Unintended Consequences

Based on the reading of Stigler, George. 1984. “An Academic Episode,” in The Intellectual and the Marketplace. Cambridge: Harvard University Press, Chapter 1, pp. 3-9, it tells how a policy made in the education sector might lead to a desirable consequences as intended, but later will lead to disastrous unintended consequences which much efforts are required to mend it. The policy is that a person can challenge its upper level position in the academia and if he wins he gets a promotion. The initial result is very positive but soon problems arise like research stopped, injustice happens in between and so on. In the end nobody really knows which this policy may lead to. 


In Gans, Joshua. “The Most Unusual Day,” Core Economic, it illustrates the point that a government policy on birth rate and incentives lead to unintended consequences. Initially the birth policy was to reduce the cost of the health care in hospital by giving subsidy to babies born after certain dates. However, pregnant women reacts to incentives and their behaviors change, subsequently resulting in a crowded hospital packed with people after that particular date. 


The questions that I came out with the unintended consequences are,
1. it seems that every action that we did will definitely carry some unintended consequences, then what should we really do?
2. Mr Rizzo keeps incentivise-ing us in the class by giving us money around, using money to buy credits, so on... ... what's the unintended consequences? Are we encouraged to become very economized and leads to academic dishonesty?
3. If most economic model are unable to falsify a hypothesis or proof, like for instance the causation fallacy, how do you proof that this particular action is the cause of that particular unintended consequences?

From my personal view, the idea of unintended consequences is something that we couldn't really see and since it is an unintended consequences it would be very hard for us to really predict what would actually happen in the future. Conclusion, every policy has to be revised on and on and on again to reduce the negative effect of unintended consequences.

Airasia and Cost

http://blogs.telegraph.co.uk/finance/theasiafile/9132035/How_Air_Asia_keeps_costs_down/

This article is about how Airasia cut costs in order to provide very low fares tickets to its passengers. Airasia is a budget airlines company founded by a Malaysian and has now become one of the very top choice for travelers to travel around Asia because of its really cheap tickets and sometimes completely free ticket. In this article the chief executive of Airasia X shows us how the company actually cut the price and its cost in operating the company. This topic relates to the marginal cost, sunk cost, the idea of greed, nothing is free concept which is taught by Mr Rizzo recently.

1. Can the company be viewed as greedy? Greediness is self-interest taken too much, but in the field of business is greediness a necessity to earn more profit by cutting of cost as much as you can? Is Airasia cutting too much? Are they exchange the safety of its passengers for lower cost?

2. Are the workers in Airasia being exploited? I would say it is a yes because, for instance the pilot in Airasia, they earn less than a typical pilot in other company for more working hours and less welfare. If the workers are felt exploited then what are the factors that restricted them from making the choice in the market?

3. Are the tickets sold by Airasia Cheap? Think of the opportunity cost that they sacrifice if they buy Airasia ticket (inflexible time, smaller seats, lack of cabin crew, delayed time, waiting time, and so on). The ratio of money spent to the product/ service gain is far more better in other company. Don't the passengers value their life even more than the money spent?

I personally very much anti-airasia because of their shitty services. However, if this is what the majority people want and Airasia manage to produce what the people want in the lowest cost, I cannot deny that Airasia is still a very smart company in making the market even more efficient.

Class 18: Zero Sum and Markets

Today, Mr Rizzo introduces us a few concepts regarding the "zero sum assumption", "private property", "market transaction" and "the rule of law". He describes that the markets are often "wrong" because of the lack of markets and the disability of the institution itself. Therefore, market has to be efficient itself with the commonly accepted law that's not arbitrary (the rule of law)  in order to work.

Class 17: Unintended consequences

Today, Mr Rizzo introduces the law of unintended consequences and its application in economics. Law of unintended consequences is basically the unintended result coming out from the choices that we made. For instance, a well-intended law that is passed down to protect the disabled might lead to the rise of the cost of disabled people (unintended consequences). Therefore we have to be careful with the regulation.

Section 4: Theaters and Fine Arts

This week reading assignment is basically based on the reading from section four, Selected Essays on Political Economy written by Bastiat. The article is about his strong opinion against state subsidizing the arts because of broken window fallacy. His argument is that what's seen through subsidizing the arts from the state could be a form of increase in jobs in arts, but what's not seen is that the money used to subsidizing the arts has to be coming from the tax payer money which is also needed to be spent on some other jobs and careers in other field. In conclusion, he does not denounce the importance of arts in a state but he reasons that all forms of subsidizing in arts should be from the private sectors (the people) and not from the state. After reading this piece I have mixed feeling as well mainly because

1. Should the state be allowed to do some jobs through public funds on sectors that the public that is not highly interested in?

2. What's the difference from Private spending and Public Spending when both of them are actually from the pocket of the people as well? Government use public spending in order to maximize their profit, which is on power in the seats, through gaining popularity from the people. 

3.  Although we know that arts comes with value, should we just let it die along with the price system when nobody is really interested in it?

In conclusion I think that my opinion will still be mixed. If the majority public sees that there is a need to use public funds to subsidize people, why not? 

Why We shouldn't afraid that apple is afraid of samsung

SAMSUNG VS APPLE. WHY APPLE IS AFRAID OF SAMSUNG

My today's reading is an article about why Apple company is afraid of Samsung company. The main reason why Apple is afraid of Samsung is because that Samsung is a large company that penetrates into almost all industries while Apple is restricted to only IT products. Furthermore, Samsung innovates, produces and exchanges faster than Apple, which is the source to wealth and income. Besides, the leadership within Apple has suffered after Steve's dead. The interesting point that I found from this article is that instead of using the typical argument of why Android is a better system as an open source, the author actually uses principles of economics to explain why he thinks that Apple is afraid of Samsung.

Some of the questions that I like to ask is that,
1. We talked about specialization improves the people wealth as no-one knows about everything and by produce in mass quantity through specialization and exchange what they produce. Then is it that open source market that Android is currently using resembles a lot about "invisible hand" as well? Android opens up its source and let everyone contributes what they know a little bit about the apps and system and let them modify themselves.

2. Why in current era Apple is afraid of Samsung when Apple is the one more specialized in IT product than Samsung? Does it show that it is not sufficient that for a person to be just "specialized" in one single field when everyone can be specialized in your own field?

3. What if Apple fails to lead the innovation edge again, should we be afraid of the Samsung products invading US? Should we bother to save Apple?

My conclusion to this article is that we should be glad that Apple is finally afraid of something, because competition encourage innovation and better quality products. Consumers is going to get benefit from this in the end, in regardless which company reigns as the final king over the IT market.

Class 16: Marginal value vs Total value

Today, Mr Rizzo talks about the idea of marginal value versus total value. There is no such thing as intrinsic value as it depends on how human actually values on the product itself. Therefore, we can say that the relative scarcity actually determines the price of that particular product, because this is how much we really value them. The idea of sunk cost is also introduced, which is cost that will not be changed when making a decision.

Class 15: The Broken Window

Today, Mr Rizzo introduces us the idea of the broken window fallacy. One of the very interesting point about this lecture is that I realize that job is not actually a profit but it is a form of cost because the money given out to create new jobs can be used as other even more better thing. As a conclusion, destruction can't actually bring any good because it uses up the opportunity cost and resources which is not seen by now.

Class 14: Trade off and Opportunity cost

Today, Mr Rizzo talks about the opportunity costs and trade off, which are two of the very important basic economic principles. As economics is the study of scarcity, people made decisions and people interact with each other in order to make the maximum profit while reduce the cost. Since there is no such thing as free ( having anything without sacrificing anything), people can only make the best decision out of their best interest based on opportunity costs and trade off.

Economics of Happiness: Does Money Buy Happiness

http://www.aifestival.org/session/economics-happiness

The video "Economics of Happiness: Does Money Buy Happiness" is generally about two economics professors debating on whether Money can really buy Happiness. Professor Justin Wolfers from University of Pennsylvania, with lots of empirical data and graph, shows us that indeed money can buy us happiness as "richer people are generally happier than poorer people" and "richer societies are generally happier than poorer societies. Professor Robert H.Frank, on the other hand, shows us that money could not really buy happiness because of relative position: richer people might not be happy because human are constantly comparing themselves against each other, and that just pushes the standard bar higher and human become unhappy again. Overall, it relates to the lectures of "economic growth brings happiness" given by Professor Rizzo.

Is there such thing as "unhappy Millionaire"? If there is seriously no unhappy millionaire, then why George Eastman commit suicide?

If relative income matters, then humans are suppose to migrate to poorer countries, but why humans are constantly moving to richer places just to get poorer? No matter how much you earn, you are still, poor.

How can the country becomes richer but the general people are not getting any richer?

Personally I agree more to Professor Robert H. Frank that money can't buy us happiness but rather it is our feeling that makes us feel better when we compare to others.

C

http://en.wikipedia.org/wiki/C_(anime)

[C]: The Money and Soul of Possibility is one of the anime that I had watched recently. It basically talks about the story of an economics student name Kimimaro Yoga and his economic tournaments in the financial district, a parallel finance world that links to the real world, in order to win lots of money to pay for his tuition. In this weekly tournaments, each participant (entrepreneur) will be forced to compete (invest) with each other using their funds; the winner will gain more funds (Midas Money) which can be converted to money in the real world, while the loser will lost his "future" (the collateral). At the starting point, he allows his "future" to be taken as collateral in order to borrow lots of money. However, as the tournament goes on, Kimimaro Yoga realizes that "future" is something more precious than the money that he gained through the tournaments. The top entrepreneur of this tournament Shouichirou Mikuni thinks that the money that he won can be used to save the deteriorating economy of Japan even if it costs the disappearance of millions of "future" of his defeated entrepreneurs.

I think it is really an interesting story because it points up a few economics concepts very clearly:

1. greed and moral vs nothing is free
In this anime, each young entrepreneur is given the chance to choose whether they accept the offer to get lots of money while allowing the "future" to be taken as collateral or reject it. Taking for instance, the economic teacher of Kimimaro Yoga who accept the offer thinking that it's free in order to gain more money for his family. Soon after he lost the game and his future, his children just disappears literally and he feels utterly regret and realizes that nothing is free. He commits suicide in the end. But the thing is that what draws the line of greediness? The main character Yoga also joined the game out of greed but he wins eventually.

2. Laissez-faire
In the story, Shouichirou Mikuni is the top player and he wins everytime. With the money that he won he controls the market by constantly bringing in the money from the Financial District into the Japan's market. With his huge financial capability he keeps assisting the government to plan for the development of the economy. In the end it just becomes worse and worse. Future's disappearing. People become poorer and poorer. Of course as a person he couldn't plan for everything. I wonder what can the real world happen if we can seriously bring in alien currency freely and be changed into the real currency?

3. Trade is a zero sum
This is like the obvious rule in the game. If someone gains more money means that his opponent will lose money. The increasing of the property will cause someone to bankrupt, which leads to his future disappearance. If our real world is based on the system which every trade will definitely be a zero sum,what would our world become? A war zone like the anime has shown?

4. Interest and incentives
Everyone is incentivized by his/her own self-interest that makes the financial district works. It needs people to be constantly battle against each other in order to have more funds and investments. By giving such a huge incentives to the participants, the financial district manages to incentivized each and every single character in the district to fight.  Some are incentivized by their own future at sake, some are for heroic purpose like saving the real world economy, some are just purely want to have their own pocket money for their own reasons. Can anyone in the real world be incentivized by things that couldn't be seen such as future or truth?

Personally I think that the story depicts the economics concept well in a very entertaining way. The most important question that can be asked myself based on this anime would definitely be "would I allow my future to be taken as collateral to gain money?"

http://www.youtube.com/watch?v=9PUfkAJVvMs
http://www.youtube.com/watch?v=4s4ZZpMQQrM&feature=relmfu
http://www.youtube.com/watch?v=ia2HBTtn2eg&feature=relmfu
http://www.youtube.com/watch?v=Ag5AGu2XCCQ&feature=relmfu
http://www.youtube.com/watch?v=S_AMciHQpEk&feature=relmfu
http://www.youtube.com/watch?v=6Vx3RGzVUNw&feature=relmfu
http://www.youtube.com/watch?v=rnA0NyNfv_E&feature=relmfu
http://www.youtube.com/watch?v=WrMRnIZ0RXo&feature=relmfu
http://www.youtube.com/watch?v=W6NBWoeTjus&feature=relmfu
http://www.youtube.com/watch?v=SVFPPYBG0Gs&feature=relmfu
http://www.youtube.com/watch?v=lgOcXJWSBt4&feature=relmfu

Class 13: Adam Smith and Capitalism

Today, Mr Rizzo introduces us about Adam Smith and the summary that he learnt from reading his books. With this, he speaks about  laissez faire and how it relates to the source of wealth through spontaneous order. He concludes that these are the elements that give rise to the current capitalism which is able to produce for the masses and give them freedom to access to all types of necessities.

Class 12: Hume VS Mercantilism

Today, Mr Rizzo compares two different ideologies between Hume's and Mercantilism in terms of the source of wealth and the mechanism behind two different perspective on economics. Besides, Mr Rizzo also introduces us several books written by Hume. With the reasoning given in the books, he concludes that Hume's right and his idea in trade and commerce is the reason why we are rich and wealthy now.

Class 11: Industrial Revolution

Today, Mr Rizzo speaks about the Industrial Revolution and the direct causes of Industrial Revolution. By talking about the causes, he brings out the idea of merchantilism, an economic system practiced before the industrial revolution which the political system seems to regulate and plan the market system to protect the people. He also brings out the idea of "circular flow" which states that there is always a constant flow between individual and firm.

What Social Science Does- and Doesn't- know

What social science does- and doesn't- know is an article written by Jim Manzi on how social science like economics can be so scientific and yet so not scientific, mainly because social science could not have a control experiment like natural science can, which makes social science hard to be predicted and calculated.

However, the interesting part of this article is that social science, in regardless how not scientific it is seemed, has its own way to make its own experiment to prove something out of it. Although the society follows a general pattern, there's still unpredictability that can be found in human's behavior. Every person is somehow unique in itself, so how can an experiment conducted be called legitimate when the result couldn't represent everyone in the world? Why would experiments carried on social science always fail even until today? Conclusively, we are certain that the study of human society is beyond our scientific realm, then how can we know for sure that everything Mr. Rizzo has said in lectures is scientifically true when there is basically no absolute scientific approach to understand human society?

A video that contradicts to what Mr Rizzo has said for the past few lectures.

Based on this video alone, I don't think that Malaysian has become really poorer because of technology improvement alone. Nowadays we are able to bpuy mcdonald around everywhere in Malaysia. Transportation has improved and commute time has become shorter. Malaysian has greater holiday time as compared to their grandparents generation. International trade allows us to enjoy different types of cars produced by different countries. Although currently we have to work longer to earn an equal amount of gold, but it is due to inflation and there is a limited resources to gold. Gold becomes more expensive, which becomes a form of incentives to drive more people to work harder. The incomes of current Malaysian seriously understates the economic growth of Malaysia as Malaysia has experienced a stable economic growth that is never in the history of malaysia 50 years before.

Class 10: Safer environment

Today, Mr Rizzo points out that we are living in an environment that is so much safer as compared to the past and the world. The crime rate keeps decreasing, albeit in some part of the world the crime rate is still relatively high as compared to that in US.

Class 9: We are indeed richer

Today, Mr Rizzo used lots of data and graph to show us that we are indeed richer as compared to the past. The income that we have now has seriously understates the extent and magnitude of economic growth as things get cheaper, we spend half of our budget on only necessities as compared to those from 1750. These space, however, is free out for other expenditure, making our lifestyle even luxurious and enjoyable than the past.

Class 8: Income is very important

Today, Mr Rizzo emphasizes the importance of income (incentives & profits) in our daily life. As compared to the past, we work less to earn things what we care. We have more personal time for vacation, we live longer, and we can even learn new things that we were not born with.

The Economic Revolution

The Economic Revolution, a chapter taken from the book " The Worldly Philosophers. The Lives, Times, and Ideas of the Great Economic Thinkers" written by Robert L. Heilbroner, illustrates that economic is basically a modern concept that undergoes a multitude of changes and evolution. The current economic system, which we are educated in the modern perspective, is based on a market system with really invisible and intangible concepts on demands and prices that the old society could not possibly grasp. The old society depends largely on planning, rules, rituals, and so on; there's always a place for all types of people like philosophers, scientists, farmers, but never economists. So the very interesting part of this chapter is basically on how do economist and the study of economics in modern perspectives appear into the picture of today's world? Economics ways of thinking is just not something that fits into the picture of the mindset of the people. The people just don't need to think like that. And then the people began to slowly accept the new ways of thinking, which is giving the freedom to the people to do things that benefits them the most on their own. Economic revolution comes into the picture, still how can the world begin to come out of their own comfort zone and let the invisible hands taking care of their transactions and the market? I think it takes more than just a single event for me to move out of my own business well taken care, well planned by the authority and just go and make the thing that is out of my highest interest. It's just crazy, the world will definitely be a mess without something to take care of it. Besides, the religious institution has to react in certain ways when the economic ways of thinking penetrate into the conventional economics system. How were they modify with the system? The thinking is used to be that it is sinful to earn the highest benefits for your own. It's just weird and surprising to come into a realization that, in spite of everything that the economic revolution had gone through, the system works GREAT and we are so used to the modern market system until we become ignorant to the background and history of modern economic ways of thinking.

Malaysia's sustainable economy

http://biz.thestar.com.my/news/story.asp?file=/2011/9/17/business/9511941&sec=business

Personally, as a student from Malaysia, I think that Malaysia can achieve this economic growth mainly because of this few principles taken:

1. More freedom and less restriction from the planning of government. Government could not possibly know every minute details about the market. Freedom is given to the people and allow them to do whatever they want in order to maximize their profits. In few years back because of the affirmative actions in policy making, businesses for certain type of people are restricted. Now, as there is a greater realization that becoming rich does not come in the expenses of others, policies made have become more merit-bases, allowing everyone to work to maximize their profits. Though there is still planning from the government, a more optimal market is created based on this principle.

2. Prime minister of Malaysia has been visiting to several countries, including Japan, China and UK in order to strengthen the current business relationship between Malaysia and foreign countries. Malaysia relies heavily on foreign investments and international trades become integral for malaysia's economic growth. Malaysia is rich in natural resources like trees and petroleum, has relatively cheap labors, and is advance in technology. These give us the advantage as we are able to process these raw material rather cheap and efficient.

3. The latest MRT system build in the capital city of Malaysia is going to improve the economy of the country as it allows a greater movements of the people across the borders and cities. It improves the productivity of the people by allowing them to move freely from their residential area to working zones in the least amount of time and money, and subsequently improves the GDP per capita.

Class 7: old days vs current

Today, Mr. Rizzo tells lots of stories about the present and past. By comparing the present and the past, we can see that at this current era we get all things cheaper. The old society just couldn't sustain the living improvements in mass quantity.

Class 6: income and wealth

Today, Mr. Rizzo showed us lots of data that illustrates that technology improvements does not necessarily bring economic improvements. The two major economic changes,agricultural revolution and industrial revolution, have changes the way how we have transactions and how we sustain ourselves; we don't get rich at the expenses of others, but getting rich together.

Class 5: Coffee bean story

Today, Mr. Rizzo used an analogy of coffee bean in order to point out the main points of I. Pencil: impersonality, self-interest, cognitive issue wand who gave the orders. Through this analogy, he illustrates the points of invisible hands and tacit knowledge.

EWOT: Friendship

Friendship, in my definition, is a form of relationship when you have a trade with someone in a social content. Each one of us is a form of supply and demand. We require attention, however we couldn't really be self-sufficient. Therefore we have to socialize in order to meet the demand within ourselves. For instance, when someone who I have never met before introduces him and begin a conversation with me, he might be lonely or he just wants to talk to somebody to fulfill his social needs. Coincidentally I am also a supplier and I can supply what he needs. I talk to him. In exchange, he talks back to me and fulfills my social needs as well.  By looking at this we can say that we just have a mutual beneficial relationship.

Taking this logic a bit further down, how friendship bonds become even stronger. People act purposefully and responses to incentives. We can say that in the form of friendship an incentive can be a compliment, an encouragement, a secret shared, and many more. When I receive a compliment from a girl who I just met I become very happy and I response to it even happier, subsequently fulfill her social need or the attention that she wants from me. Moving on, we might ask each other out to have dinner together. I might ask her out because her presence or her speech makes me feel good. It's a form of incentives. In return she might be lonely and just want to have someone to accompany her as well. It's another trade in between a friendship.

Of course different people reacts to incentives differently, some might point out that it takes more effort to win a girl's heart to be her best friend forever. Other might not require any big physical forms of incentives because he truly wants to be your friend. Because all these forms of social "goods" (like chatting, hanging out, playing together, so on) definitely have no forms of intrinsic value, it is up to the supplier and consumer to determine their own reasonable price over these "goods".

Has friendship becomes cheaper in today's society, given that we currently have so many social network like Facebook, Twitter and Myspace? In my opinion it is kinda true, though you don't really have any statistical support to proof this. Because of the existence of new social network, our social needs can be fulfilled even more easily than before. Just by receiving a few click of like on my Facebook post and we are pretty much satisfied. Our friendship becomes more casual and simplistic.

Maybe by understanding friendship in an economist perspective can't really teach you how to make new friends to meet your social needs but it can surely explain to you why you end up having thousands of Facebook friends without anyone whom you can share your deepest secret with.



*Just some rambling thoughts that pops into my mind.*

I. Pencil.

Leonard E. Read in "I, Pencil" talks about how a pencil is made in great details and how it can be a lesson to us. What I found interesting about this piece is that a pencil is such a simple products of mankind yet it is a complicated product made from so many people across the globe. Who would have thought that a simple pencil. Comes from such a complex origin? The point is, no one, and that's the point. The pencil comes from the hands of many people across the world, but does the people around the world who were part of the process in making this pencil actually know what they are contributing? People have absolutely no idea what their actions will lead to, yet a pencil can be made from the clueless action of mankind. It goes to the other more complicated stuff that mankind has ever made, like cars, rocket, etc. Then, why should economics be left out from this logic? There shouldn't be any forms of interference from any forms of authority in the market as well; the market will somehow just be okay.

However, what I think is that Leonard E. Read does not bring in the idea of third party into his writing. What is the role of the authority then if the free market brings into a negative effect, like pollution (the third party) into the system? I understand that in a capitalism system market system is based on solely demand and cost but we couldn't ignore the fact that sometimes third party is involved as well.The authority has certain responsibility to stop or reduce these negative effects.

I also wonder about how free is the free market free? How much freedom can a person have in the market? If the authority has to be completely free from the market then it also means that the bubbles that free market create, the corruption and patent issues will not be regulated by the authority. All these problem will need to be solved by the market itself. Can we really trust the market to solve these problems by itself?

With the intrinsic value rules that there is actually no real value to everything in this world, what would happen if everyone knows what's their action will lead to? Since people work for incentives, would those people, who have worked throughout the process of making the pencil, realize their actions consequences, will the price of the pencil go up? Will consumers pay it for a higher price or a lower price? After all, human acts with purpose.

Class 4: intentions does not equal to results

Today, mr Rizzo introduces a few ways to analyze issues around the world through the lens oaf an economist. One of them will be to compare the change of price and benefits. Although by this method we could not really solve the problems around us, we understand the concepts and laws behind how everything happens the way it is. With that he comes out three reasons to study economics: have a sense of wonder about the world around us, understand the concepts of how things work and know the facts. A good intention doesn't really bring good result into the equation unless we understand the facts and concepts of how everything works out.

Class 3: Heaven and Hell

The idea that Rizzo shared today really sparks my mind. The very concept of why there will be no Economist in heaven and hell brings out the idea of what is it mean to be an economist and what does the study of economics really means. He defines economics in a rather unconventional ways. Economics is usually defined as the study of scarcity but in his opinion, it makes economics sounds like focusing just on expected benefits and expected costs. Economics should include about both prudence and temperance. Therefore, economics can be better defined as " the study of the emergence of order and wealth and creation and the consequences of the choices we made as part of the extended order of human cooperation. So, obviously, no room for economists to be in heaven because everything is in abundance. No room for them in hell as well because there is just no growth.

Class 2: Petroleum Conspiracy?

Given the data of 531,000,000,000 barrels of oil storage found beneath the earth and 16,500,000,000 barrels of oil used in an annual basis, when will we used up the storage of oil beneath the earth? It seems that the answer will be 32 years. In 32 years, which is by the year of 2043, we will used up all the storage of oil that can be found underneath the earth.

What if the data is actually found in 1970's?


We would have finished our oil resource by the year of 2002, but we are still drilling out oil consistently, and even more and more. The annual usage of oil is crazy all over the world. Statistics shows that, by January 2010, we still have 1,349,000,000,000 barrels of oil storage found beneath the earth, which is a triple to the data shown in 1970's, and an annual usage of 30,500,000,000 barrels of oil, which is a double to that of 1970's. How could this ever happen?

Maybe resources are unlimited, but people response to incentives, and as the incentives grow, so does people's action in order to gain more resources, and eventually more incentives to feel good. When the volume of oil decreases, the price of oil increases because of the demand of oil in the market. Higher price means a higher return to those who sell oils. These returns (a form of incentives) drive people to invent more powerful technology to drill more oil, which dramatically increase the volume of oil barrels that can be found beneath the earth.

As stated in previous class, the action of people is purposeful. Economics isn't really about the study of money and money, but rather the study of how purposeful people with unlimited desire response to limited resources. From this we can come out with the definition of economics as the study of SCARCITY.

The lightbulb consipracy

A documentary on planned obsolescence.

Generally this video is about planned obsolescence which the manufacturers intentionally create products that has short life spam in order to increase demand among the consumers.

Personally I think that this video really challenges my mind towards the relationship between the consumers, the manufactures and the economy of the country as a whole. From the perspective of economics, I think it is perfectly logical that when products can last long, like a few generations, then consumers would not buy new products produce by the manufacturers. When the demands of the products becomes low due to the long life spam of the products, manufacturers would not continue to produce goods, which is one of the channel which jobs and careers are produced. When people are out of job and the manufacturing industry becomes stagnant, that's the period that we call an economic depression.

Planned obsolescence provides a channel to support the economy. By shortening the life spam of the manufactured products, consumers have no choice but to dump their products and buy new one as substitutions. This raises the demand of the products in the market. The higher the demand the better the economy as more jobs are created to support this demand. More jobs opportunities will improve the economy status of a wider range of consumers as they are better paid and have higher buying power.

However, this engenders a hidden problem: the earth resources cannot support such consumerism. As shown in the video, wasted electronics are thrown into the developing countries as "second hand products". Natural resources of the earth are continuously used up to produce new goods for the market. Marketing strategies have influenced our ways of consuming products. We tend to change our phones, laptops and cameras in a yearly basis, or even in a monthly basis. Unlike the natural cycle which living organisms are dead and are being broken into nutrients to support the creation of new organisms, we don't reuse or recreate from the used products that we created initially. Not only does it damage our environment, but it also creates a future that our economy just couldn't support anymore.

I believe that planned obsolescence should be carried out to maintain the economy. My reasons are that jobs opportunities are required to sustain the economy and one of the most effective ways is to increase the demands of products from the consumers. When consumers consume, manufacturers can produce more goods, which results in more extensive products research that can be more environmental friendly and recyclable. Based on the law that people act purposefully and react proportionally to incentives, I believe that manufacturers will manufacture products that complies with the natural law: there is a balance cycle to the created and the dumped.

Hey yo. So this is my blog to write about my economics classes that I have just recently taken at the UofR. I think it's kinda smart. Everything can be organized in a really systematic way. To my friends who are taking economics 108 feel free to read my blogs about this class. Do share your notes with me as well. :)

Happy reading my blogs. You can post comment to correct any mistakes that I made in my blog. All comments are welcome. :)

Class 1: Money Money Money!!!

Professor is giving out one dollar to the class (for free). A few person raise up their hands to show their interest in the money. Now he's giving out two dollar to the class (also for free). More people shows their interest in the money. As the value of money increase more and more people raise up their hands to get the money. When the value of the money given out reaches 10 dollars, some of the students even rush to the front and grab the money into his hand veraciously. From this activity we can see that,

1. People response to incentives.
2. The greater the incentives, the more motivated people are. 

I strongly agree with the above statement. People's actions is driven by the desire to achieve certain purpose. People response to incentives because they want the money. They want to "feel good". The more the money, the more they "feel good". From this statement we can extrapolate that people is willing to work harder to earn more in order to feel even better. Therefore, to feel good is one of the central purpose of people's action.

Economic way of thinking.

1. What's the strongest non-religious belief?
2. Why do yo hold it?
3. Is there anyone who has a belief that is 180 degree contrary to your idea? Do you nonetheless still respect that person? Would you characterize the person?
4. Can you characterize the view or evidence that you don't support?
5. Is there any evidence/view/ data that can make you think of the opposite view?