HomeNaked Economics Assignment Terms:
Multiplier- an injection (government spending, imports, investments) into the economic system will result in an increase in the aggregate demand by some multiple of the original injection.
Marginal Propensity to Consume (MPC): Consumption is a function of income. An increase in income will result in a proportional increase in consumption. ΔC = ΔY * MPC
Marginal Propensity to Leak (MPL): The remaining income not used for consumption is used for taxes, imports or is saved. These funds are removed from the system and no longer contribute to the multiplication of demand. MPC + MPL = 1 Δ Agg Demand= $100 + $75 +$56.25 + 42.19 + …. = $100 * 1/MPL = $100 * 1/(1-MPC) = $100 * 1/.25 = $100 * 4 = $400 Multiplier = 1/(1-MPC) ΔAgg Demand = Injection * Multiplier Texas Cotton Market
The first of the markets discussed in Pietra Rivoli’s book The Travels of a T-Shirt in the Global Economy is the cotton market in Lubbock Texas. Rivoli’s book reveals how highly subsidized the cotton industry is by the government. Rivoli writes “On a per acre basis, subsidies paid to cotton farmers are 5 to 10 times as high as those for corn, soybeans, and wheat, and subsidies to cotton are also 3 to 6 times higher relative to production than are subsidies to soybeans and corn” (Rivoli 49). Government subsidies virtually protect cotton farmers from every business risk from labor, to demand, to damaged crops.
Many decisions in the cotton market are made by a demand by the farmers leading to an action by the government. For example cotton farmers wanted three things; “first, they wanted the labor they needed to be available on demand. Second, they wanted to know in advance what the labor would cost, and they did not want to compete with one another on the basis of price. The third, the wanted a guarantee that the labor would be productive. Congress gave the growers everything they asked for.” (Rivoli 32).
The beneficiaries in the cotton markets would definitely be the American cotton farmers. The American cotton farmers who receive government subsidies have few to no risks, limited completion, along with gaining an advantage to foreign producers of cotton. The 2002 Farm Bill would allow cotton farmers to be paid 6.66 cents per pound of cotton. The average world cotton proce was 38 cents for pound affirming that American cotton farmers received almost double of the worlds price for cotton (Rivoli 50). For this reason and others American cotton farmer are very successful.
Losers in the cotton market are cotton farmers from less developed countries. These farmers do not receive the subsidies and cannot compete with the Americans. Acts like the 2002 Farm Bill is an example of “America’s deep pockets virtually assure(ing) the continued dominance of the US (in the cotton industry)” (Rivoli 51).
Wheelan writes "people can disagree sharply over when and how the government should involve itself in a market economy or what kind of safty net we should offer to those whom capitalism treats badly." (Wheelan 22). Do you believe that markets should be so affected by governments so that such an unfair advantage can take place?Matt, Considerable improvement. Edited Version The Texas cotton market is one of subsidies, winners, and losers. Texas cotton industry has many commonalities to a command market but the government decisions are influenced by the cotton farmers themselves leaving the cotton industry leaning towards but not completely command on the market spectrum. Pietra Rivoli ,author of The Travels of a T-Shirt in the Global Economy, writes “On a per acre basis, subsidies paid to [American] cotton farmers are 5 to 10 times as high as those for corn, soybeans, and wheat, and subsidies to cotton are also 3 to 6 times higher relative to production than are subsidies to soybeans and corn” (Rivoli 49). This quote shows the large role government has in the cotton industry over any other agricultural sector. Government subsidies virtually protect cotton farmers from every business risk from labor, to demand, to damaged crops. Subsidies are very beneficial to American Cotton farmers making them the winners in the cotton market. Along with the elimination of risks for cotton famers they also enjoy limited competition in global sales. Rivoli describes “The 2002 Farm Bill [that] allow[ed] cotton farmers to be paid 6.66 cents per pound of cotton. The average world cotton price was 38 cents for pound affirming that American cotton farmers received almost double of the worlds price for cotton (Rivoli 50). This quote also revels the main common characteristic the cotton market shares with a command market, that being government setting the price rather than consumers. Due to such government intervention, inherently the losers in the cotton market are foreign cotton farmers especially those from less developed countries who have little to no subsidies. Farmers such as these can simply not compete with the Americans. Rivoli states that “America’s deep pockets virtually assure[ing] the continued dominance of the US [in the cotton industry]” (Rivoli 51). Evidence such as the 2002 farm bill prove that the Texas cotton market is very government oriented, allows for American cotton farmers to emerge successful and allows foreign competitors to be left behind. Tuesday, August 30: Chapter 2, Incentives Matter Adverse selection- Adverse selection is the sacrifice of passions or talents to pursue a more rewarding career. Adverse selection could be demonstrated through the choice of farming certain crops over others or the choice of students and their professions. As Rivoli describes, the American cotton farmers who receive government subsidies have few to no risks, limited completion, along with gaining an advantage to foreign producers of cotton. Government subsidies may lead many individuals interested in other occupations or farmers who would otherwise choose another beneficial crop instead becoming cotton farmers because of the government subsidies. Individuals who may have been excellent workers are cotton farmers because of adverse selection. Wheelen offers a very similar situation with educators and their uniform pay scale. Wheelen writes “Since the most talented teachers also likely to be good at other professions, they have a strong incentives to leave education for jobs which pay is more closely linked to productivity. For the least talented, incentives are just the opposite.” (Wheelen 29). Influences such as government subsidies or lack of pay affect jobs such as cotton farmers and teachers and provide examples of adverse selection. Your definition should include the idea that buyers and sellers have asymmetrical information. You task is to prove that you have read both texts. Make sure that you use evidence from Rivoli.
Principle-agent problem- Principle-agent problem is a situation in which members of a firm have different incentives that may not align with the firm. China’s apparel factories feature many young and old women working for many hours for minimal pay and horrid conditions. The incentives for these woman in the beginning was to escape life on Chinese farms, a life of great difficulty, but now These women also have an incentive to keep up with the demanding quotas of these textiles and to be very productive to keep their jobs. “Enormous “surplus” of labor in China imperils workers worldwide as international competition puts incessant downward pressure on wages and working conditions, leading the apparel and textile industries to favor the cheapest and most Draconian producers” (Rivoli 70). In this way, workers (the agent) stay productive ,benefiting the firms (the principle), and they keep their jobs. Burger King principle agent problem lies with cashiers and other employees pocketing the money that belongs to the firm. BK (the principle) solves this problem with their little sign reading “Your meal is free if you don’t get a receipt. Please see a manager” (Wheelen 30). The sign provides an incentive for the cashier (the agent) to not pocket any of the money and be forced to do what is best for the firm rather than himself. The Chinese sweat shop quota and the Bk receipt policy both insure that firm and employee incentives align and help fix the principle agent problem. Your example does not identify the principle and the agent.
Perverse incentive- Perverse incentive occurred in the decisions of governments regarding North Carolina textile mills along with the Mexico City pollution crises. Perverse incentive can be defined as a type of incentive which results in an undesired consequence one where “good intentions led to bad outcome because incentives were not fully anticipated” (Wheelen 30). In North Carolina politicians try to reduce unemployment in American textile mills (a good intention) by increasing tariffs and price of imports thus keeping some foreign competition out. Rivoli writes that even if it “completely protected [American textiles] from foreign competition they would still compete against each other, and any firm choosing to preserve jobs rather than mechanize would soon wither from the better performance of its competitors. While the rationale for the series of temporary jobs by giving U.S. industry breathing room in which to become competitive, the only hope for becoming competitive is often to get rid of the jobs.” (Rivoli 142). Mexico City is similar in the fact that the good intention of environmental conservation led to an unintended problem. Mexico City established a rule outlawing cars to drive every day of the week with intentions to reducing the level of smog over the city. This incentive proved to be perverse because families who are able to buy new cars did, and families able to keep their old cars as second cars to drive the remaining week choose that route as well. This led to an actual increase in the city’s pollution crises. The evidence of North Carolina textile mills and Mexico City’s pollution crises both align directly with the definition of perverse incentive.Your example fits the concept well. Revise your paragraph by setting up a power paragraph. Edit the Mexico citation to the essence of the economic concept.
Underground Economies Underground Economies can be considered black markets or markets simply escaping the governments eye. are markets in which trade of goods and services. Underground economies are not part of the official economy of a country. Underground Economies throughout the world have common characteristics of being illegal in an effort to avoid taxes. “As more individuals slip into the underground economy, tax rates must go up for everyone else to provide the same level of government revenue. Higher taxes in turn cause more flight to the underground economy” (Wheelen 39). The African mitumba market is in manry ways illegal due to the markets evading taxes through undocumented transactions and price discrimination. Undocumented transactions allows for African mitumba clerks to not have a paper trail and disabling the government to tax a proportion of the shop's sales. Another illegal activity is price descimination. “The divide between men’s and women’s clothing…lead to significant price discrimination against the men” (Rivoli 191). Due to the government being unable to regulate the market in Africa it can be considered an underground economy. Your example does not support the definition. Review Wheelan.
Work Cited
Rivoli, Pietra. The Travels of a T-Shirt in the Global Economy. Hoboken: Wiley, 2005. Print.
Balance of Payments · One of the best long-term ways to help Pakistan would be slashing protective tariffs on textiles and apparel products which are Pakistan’s biggest exports to the United States. o “Reducing or eliminating tariffs costs the American taxpayers nothing, lowers consumer prices here and the benefits would flow directly into the Pakistani civilian economy where it is desperately needed” o “Apparel items such as cotton shirts, blue jeans, trousers, socks and underwear is where Pakistan is most competitive.” · Textiles and Apparel accounted for 60 percent of Pakistan’s total exports and 40 percent of its manufacturing jobs. · The industry is sure to be staggered by the floods, which washed asway 20 percent of the annual cotton corp and destroyed major power stations that supply electricity to factories. · “Pakistan flood sets back infrastructure by years.” o Pakistan flood ruined just about every physical strand that knit this country together- roads, bridges and communications.” o It will take years to rebuild. o 5,000 miles of roads and railways have been washed away” § This major hit to the Pakistan infrastructure will make it very difficult to ship exports or transport imports. Foreign Relations · Last year U.S. Congress passed a five-year $7.5 billion American aid package for Pakistan for water and energy before the flood. · “The Obama administration had hoped to use the legislation as the centerpiece of a lasting strategic partnership with Pakistan and to help buttress the economy and Pakistan’s weak government institutions.” · Flood will certain[ly] distract from Americans requests for Pakistan to battle Taliban insurgents.” o Lack of infrastructure will make it hard to transport troops as well. o “U.S. worries that Taliban will make gains by stepping in to provide emergency meals and shelter” Sources of aid or Loans · “The Recovery cost will have to be met by a mixture of domestic money, international donations and loans from development banks.” · “United States has already redirected $50 million of aid package to help with flood recovery.” · American public aid has surpassed $100 million · “United States has sent 15 helicopters, rescuing nearly 6,000 people. On Wednesday, military cargo planes delivered 60,000 pounds of food and other relief supplies, bringing total deliveries to 717,000 pounds.”
Wednesday, September 1: chapter 3, "Government and the Economy
Matt, Revise your paragraphs for homework. I will be back to grade them tomorrow after school.
Thursday, September 2: "Trade and Globalization
Friday, September 3: Development Economics Pakistan Long Term Solution: Fixing the Gov’t · Pakistan government is very complicated and corrupt. · “The Worlds worst famine are not caused by crop failure, they are cuased by faulty political systems that prevent the market from correcting itself” · By fixing the Government it will help increase GDP · An Effective government could allow markets to run their course and not be motivated by corruption and making the market less efficient. · Government could relinquish their tariffs of Pakistani apparel items allowing for Pakistan to make more money as well due to textile and clothing exports being a major part of their economy. · Money could help government pay for the infrastructure that Pakistan lost during the flood. This would also help exports and imports.
Terms:
Multiplier- an injection (government spending, imports, investments) into the economic system will result in an increase in the aggregate demand by some multiple of the original injection.
Marginal Propensity to Consume (MPC): Consumption is a function of income. An increase in income will result in a proportional increase in consumption. ΔC = ΔY * MPC
Marginal Propensity to Leak (MPL): The remaining income not used for consumption is used for taxes, imports or is saved. These funds are removed from the system and no longer contribute to the multiplication of demand. MPC + MPL = 1
Δ Agg Demand= $100 + $75 +$56.25 + 42.19 + …. = $100 * 1/MPL = $100 * 1/(1-MPC)
= $100 * 1/.25
= $100 * 4
= $400
Multiplier = 1/(1-MPC)
ΔAgg Demand = Injection * Multiplier
Texas Cotton Market
The first of the markets discussed in Pietra Rivoli’s book The Travels of a T-Shirt in the Global Economy is the cotton market in Lubbock Texas. Rivoli’s book reveals how highly subsidized the cotton industry is by the government. Rivoli writes “On a per acre basis, subsidies paid to cotton farmers are 5 to 10 times as high as those for corn, soybeans, and wheat, and subsidies to cotton are also 3 to 6 times higher relative to production than are subsidies to soybeans and corn” (Rivoli 49). Government subsidies virtually protect cotton farmers from every business risk from labor, to demand, to damaged crops.
Many decisions in the cotton market are made by a demand by the farmers leading to an action by the government. For example cotton farmers wanted three things; “first, they wanted the labor they needed to be available on demand. Second, they wanted to know in advance what the labor would cost, and they did not want to compete with one another on the basis of price. The third, the wanted a guarantee that the labor would be productive. Congress gave the growers everything they asked for.” (Rivoli 32).
The beneficiaries in the cotton markets would definitely be the American cotton farmers. The American cotton farmers who receive government subsidies have few to no risks, limited completion, along with gaining an advantage to foreign producers of cotton. The 2002 Farm Bill would allow cotton farmers to be paid 6.66 cents per pound of cotton. The average world cotton proce was 38 cents for pound affirming that American cotton farmers received almost double of the worlds price for cotton (Rivoli 50). For this reason and others American cotton farmer are very successful.
Losers in the cotton market are cotton farmers from less developed countries. These farmers do not receive the subsidies and cannot compete with the Americans. Acts like the 2002 Farm Bill is an example of “America’s deep pockets virtually assure(ing) the continued dominance of the US (in the cotton industry)” (Rivoli 51).
Wheelan writes "people can disagree sharply over when and how the government should involve itself in a market economy or what kind of safty net we should offer to those whom capitalism treats badly." (Wheelan 22). Do you believe that markets should be so affected by governments so that such an unfair advantage can take place?Matt, Considerable improvement. Edited Version
The Texas cotton market is one of subsidies, winners, and losers. Texas cotton industry has many commonalities to a command market but the government decisions are influenced by the cotton farmers themselves leaving the cotton industry leaning towards but not completely command on the market spectrum. Pietra Rivoli ,author of The Travels of a T-Shirt in the Global Economy, writes “On a per acre basis, subsidies paid to [American] cotton farmers are 5 to 10 times as high as those for corn, soybeans, and wheat, and subsidies to cotton are also 3 to 6 times higher relative to production than are subsidies to soybeans and corn” (Rivoli 49). This quote shows the large role government has in the cotton industry over any other agricultural sector. Government subsidies virtually protect cotton farmers from every business risk from labor, to demand, to damaged crops. Subsidies are very beneficial to American Cotton farmers making them the winners in the cotton market. Along with the elimination of risks for cotton famers they also enjoy limited competition in global sales. Rivoli describes “The 2002 Farm Bill [that] allow[ed] cotton farmers to be paid 6.66 cents per pound of cotton. The average world cotton price was 38 cents for pound affirming that American cotton farmers received almost double of the worlds price for cotton (Rivoli 50). This quote also revels the main common characteristic the cotton market shares with a command market, that being government setting the price rather than consumers. Due to such government intervention, inherently the losers in the cotton market are foreign cotton farmers especially those from less developed countries who have little to no subsidies. Farmers such as these can simply not compete with the Americans. Rivoli states that “America’s deep pockets virtually assure[ing] the continued dominance of the US [in the cotton industry]” (Rivoli 51). Evidence such as the 2002 farm bill prove that the Texas cotton market is very government oriented, allows for American cotton farmers to emerge successful and allows foreign competitors to be left behind.
Tuesday, August 30: Chapter 2, Incentives Matter
Adverse selection-
Adverse selection is the sacrifice of passions or talents to pursue a more rewarding career. Adverse selection could be demonstrated through the choice of farming certain crops over others or the choice of students and their professions. As Rivoli describes, the American cotton farmers who receive government subsidies have few to no risks, limited completion, along with gaining an advantage to foreign producers of cotton. Government subsidies may lead many individuals interested in other occupations or farmers who would otherwise choose another beneficial crop instead becoming cotton farmers because of the government subsidies. Individuals who may have been excellent workers are cotton farmers because of adverse selection. Wheelen offers a very similar situation with educators and their uniform pay scale. Wheelen writes “Since the most talented teachers also likely to be good at other professions, they have a strong incentives to leave education for jobs which pay is more closely linked to productivity. For the least talented, incentives are just the opposite.” (Wheelen 29). Influences such as government subsidies or lack of pay affect jobs such as cotton farmers and teachers and provide examples of adverse selection.
Your definition should include the idea that buyers and sellers have asymmetrical information. You task is to prove that you have read both texts. Make sure that you use evidence from Rivoli.
Principle-agent problem-
Principle-agent problem is a situation in which members of a firm have different incentives that may not align with the firm. China’s apparel factories feature many young and old women working for many hours for minimal pay and horrid conditions. The incentives for these woman in the beginning was to escape life on Chinese farms, a life of great difficulty, but now These women also have an incentive to keep up with the demanding quotas of these textiles and to be very productive to keep their jobs. “Enormous “surplus” of labor in China imperils workers worldwide as international competition puts incessant downward pressure on wages and working conditions, leading the apparel and textile industries to favor the cheapest and most Draconian producers” (Rivoli 70). In this way, workers (the agent) stay productive ,benefiting the firms (the principle), and they keep their jobs. Burger King principle agent problem lies with cashiers and other employees pocketing the money that belongs to the firm. BK (the principle) solves this problem with their little sign reading “Your meal is free if you don’t get a receipt. Please see a manager” (Wheelen 30). The sign provides an incentive for the cashier (the agent) to not pocket any of the money and be forced to do what is best for the firm rather than himself. The Chinese sweat shop quota and the Bk receipt policy both insure that firm and employee incentives align and help fix the principle agent problem. Your example does not identify the principle and the agent.
Perverse incentive-
Perverse incentive occurred in the decisions of governments regarding North Carolina textile mills along with the Mexico City pollution crises. Perverse incentive can be defined as a type of incentive which results in an undesired consequence one where “good intentions led to bad outcome because incentives were not fully anticipated” (Wheelen 30). In North Carolina politicians try to reduce unemployment in American textile mills (a good intention) by increasing tariffs and price of imports thus keeping some foreign competition out. Rivoli writes that even if it “completely protected [American textiles] from foreign competition they would still compete against each other, and any firm choosing to preserve jobs rather than mechanize would soon wither from the better performance of its competitors. While the rationale for the series of temporary jobs by giving U.S. industry breathing room in which to become competitive, the only hope for becoming competitive is often to get rid of the jobs.” (Rivoli 142). Mexico City is similar in the fact that the good intention of environmental conservation led to an unintended problem. Mexico City established a rule outlawing cars to drive every day of the week with intentions to reducing the level of smog over the city. This incentive proved to be perverse because families who are able to buy new cars did, and families able to keep their old cars as second cars to drive the remaining week choose that route as well. This led to an actual increase in the city’s pollution crises. The evidence of North Carolina textile mills and Mexico City’s pollution crises both align directly with the definition of perverse incentive.Your example fits the concept well. Revise your paragraph by setting up a power paragraph. Edit the Mexico citation to the essence of the economic concept.
Underground Economies
Underground Economies can be considered black markets or markets simply escaping the governments eye. are markets in which trade of goods and services. Underground economies are not part of the official economy of a country. Underground Economies throughout the world have common characteristics of being illegal in an effort to avoid taxes. “As more individuals slip into the underground economy, tax rates must go up for everyone else to provide the same level of government revenue. Higher taxes in turn cause more flight to the underground economy” (Wheelen 39). The African mitumba market is in manry ways illegal due to the markets evading taxes through undocumented transactions and price discrimination. Undocumented transactions allows for African mitumba clerks to not have a paper trail and disabling the government to tax a proportion of the shop's sales. Another illegal activity is price descimination. “The divide between men’s and women’s clothing…lead to significant price discrimination against the men” (Rivoli 191). Due to the government being unable to regulate the market in Africa it can be considered an underground economy. Your example does not support the definition. Review Wheelan.
Work Cited
Rivoli, Pietra. The Travels of a T-Shirt in the Global Economy. Hoboken: Wiley, 2005. Print.
Balance of Payments
· One of the best long-term ways to help Pakistan would be slashing protective tariffs on textiles and apparel products which are Pakistan’s biggest exports to the United States.
o “Reducing or eliminating tariffs costs the American taxpayers nothing, lowers consumer prices here and the benefits would flow directly into the Pakistani civilian economy where it is desperately needed”
o “Apparel items such as cotton shirts, blue jeans, trousers, socks and underwear is where Pakistan is most competitive.”
· Textiles and Apparel accounted for 60 percent of Pakistan’s total exports and 40 percent of its manufacturing jobs.
· The industry is sure to be staggered by the floods, which washed asway 20 percent of the annual cotton corp and destroyed major power stations that supply electricity to factories.
· “Pakistan flood sets back infrastructure by years.”
o Pakistan flood ruined just about every physical strand that knit this country together- roads, bridges and communications.”
o It will take years to rebuild.
o 5,000 miles of roads and railways have been washed away”
§ This major hit to the Pakistan infrastructure will make it very difficult to ship exports or transport imports.
Foreign Relations
· Last year U.S. Congress passed a five-year $7.5 billion American aid package for Pakistan for water and energy before the flood.
· “The Obama administration had hoped to use the legislation as the centerpiece of a lasting strategic partnership with Pakistan and to help buttress the economy and Pakistan’s weak government institutions.”
· Flood will certain[ly] distract from Americans requests for Pakistan to battle Taliban insurgents.”
o Lack of infrastructure will make it hard to transport troops as well.
o “U.S. worries that Taliban will make gains by stepping in to provide emergency meals and shelter”
Sources of aid or Loans
· “The Recovery cost will have to be met by a mixture of domestic money, international donations and loans from development banks.”
· “United States has already redirected $50 million of aid package to help with flood recovery.”
· American public aid has surpassed $100 million
· “United States has sent 15 helicopters, rescuing nearly 6,000 people. On Wednesday, military cargo planes delivered 60,000 pounds of food and other relief supplies, bringing total deliveries to 717,000 pounds.”
Wednesday, September 1: chapter 3, "Government and the Economy
Matt,
Revise your paragraphs for homework. I will be back to grade them tomorrow after school.
Thursday, September 2: "Trade and Globalization
Friday, September 3: Development Economics
Pakistan Long Term Solution: Fixing the Gov’t
· Pakistan government is very complicated and corrupt.
· “The Worlds worst famine are not caused by crop failure, they are cuased by faulty political systems that prevent the market from correcting itself”
· By fixing the Government it will help increase GDP
· An Effective government could allow markets to run their course and not be motivated by corruption and making the market less efficient.
· Government could relinquish their tariffs of Pakistani apparel items allowing for Pakistan to make more money as well due to textile and clothing exports being a major part of their economy.
· Money could help government pay for the infrastructure that Pakistan lost during the flood. This would also help exports and imports.