Advanced Theory Mixed Strategies and Existence of Equilibrium
In Section 1.1.C we defined S, to be the set of strategies available to player i, and the combination of strategies s , ,s to be a Nash equilibrium if, for each player i, s is player i's best response to the strategies of the n 1 other players si, ,s _ ,s , s 1, ,sn gt Ui s , , s _i, Si, sf 1, , NE for every strategy s, in S,. By this definition, there is no Nash equilibrium in the following game, known as Matching Pennies. In this game, each player's strategy space is Heads, Tails . As a story...
Xiv National Income Statistics 1
The problem is to assign to goods and services produced a measure largely derived from money flows. But if money does not flow, this does not mean that income which is not being recorded is not being generated. This is an old problem. A classical illustration is that of persons living in houses they own themselves. If these same houses were owned by others, rent would have to be paid in money, goods, or services , thereby swelling the national product. To avoid this, a value has to be imputed...
Should Monetary Policy Be Made By Rule Rather Than By Discretion
As we learned in the chapter on the monetary system, the Federal Open Market Committee sets monetary policy in the United States. The committee meets about every six weeks to evaluate the state of the economy. Based on this evaluation and forecasts of future economic conditions, it chooses whether to raise, lower, or leave unchanged the level of short-term interest rates. The Fed then adjusts the money supply to reach that interest-rate target, which will normally remain unchanged until the...
ISLM Model in the Long Run
So far in our ISLM analysis, we have been assuming that the price level is fixed so that nominal values and real values are the same. This is a reasonable assumption for the short run, but in the long run the price level does change. To see what happens in the ISLM model in the long run, we make use of the concept of the natural rate level of output denoted by Yn , which is the rate of output at which the price level has no tendency to rise or fall. When output is above the natural rate level,...
Inflationinduced Tax Distortions
Almost all taxes distort incentives, cause people to alter their behavior, and lead to a less efficient allocation of the economy's resources. Many taxes, however, become even more problematic in the presence of inflation. The reason is that lawmakers often fail to take inflation into account when writing the tax laws. Economists who have studied the tax code conclude that inflation tends to raise the tax burden on income earned from savings. One example of how inflation discourages saving is...
European Road Administration Data Exchange Format Radef 2
IDENTIFICATION 20 85024 99 015951 N ORGANISME PILOTE - PILOT ORGANISATION MVA LTD, WOKING, UNITED KINGDOM, INITIATEURS - SPONSORS THE WESTERN EUROPEAN ROAD DIRECTORS, AUTRES INSTITUTS - OTHER INSTITUTES KPMG CHERCHEURS - RESEARCH TEAM QUEREE,C - POOL,G -WILSON,C DEBUT DES TRAVAUX - STARTING DATE 1999 ETAT D'AVANCEMENT - PRESENT POSITION IN PROGRESS RESUME - ABSTRACT RADEF 2 WILL FURTHER IMPROVE THE EXCHANGE OF HIGHWAY INFORMATION AMONG TRANSPORT AUTHORITIES AND COMMERCIAL ORGANISATIONS. MVA WAS...
The Market for Reserves and the Federal Funds Rate
In Chapter 15, we saw how open market operations and discount lending affect the balance sheet of the Fed and the amount of reserves. The market for reserves is where the federal funds rate is determined, and this is why we turn to a supply-and-demand analysis of this market to analyze how all three tools of monetary policy affect the federal funds rate. Supply and The analysis of the market for reserves proceeds in a similar fashion to the analysis of Demand in the the bond market we conducted...
Factors That Cause the IS Curve to Shift
You have already learned that the IS curve describes equilibrium points in the goods market the combinations of aggregate output and interest rate for which aggregate output produced equals aggregate demand. The IS curve shifts whenever a change in autonomous factors independent of aggregate output occurs that is unrelated to the interest rate. A change in the interest rate that affects equilibrium aggregate output http cepa.newschool.edu het essays kevnes hickshansen.htm A detailed discussion...
More on Intertemporal Trade
This appendix contains a more detailed examination of the two-period intertemporal trade modeJ described in the chapter. The concepts used are the same as those used in Chapter 5 to analyze international exchanges of different consumption goods at a single point in time. In the present setting, however, the trade model explains international patterns of investment and borrowing and the determination of the intertemporal terms of trade that is, the real interest rate . First consider Home, whose...
Balance Sheet Entries for a Hypothetical Commercial Bank
When a bank is organized as a corporation, the owners contribute cash used to buy buildings and furniture. In return, the owners receive stock. When a customer opens an account, some of the deposit is set aside as a reserve, while the excess can be loaned out. Note that Net Worth NW remains unchanged. When a customer opens an account, some of the deposit is set aside as a reserve, while the excess can be loaned out. Note that Net Worth NW remains unchanged. Q When another person wants to...
The Flow Of Goods And Net Exports
As we first noted in Chapter 3, exports are domestically produced goods and services that are sold abroad, and imports are foreign-produced goods and services that are sold domestically. When Boeing, the U.S. aircraft manufacturer, builds a plane and sells it to Air France, the sale is an export for the United States and an import for France. When Volvo, the Swedish car manufacturer, makes a car and sells it to a U.S. resident, the sale is an import for the United States and an export for...
The Deadweight Loss Of Taxation
We begin by recalling one of the surprising lessons from Chapter 6 It does not matter whether a tax on a good is levied on buyers or sellers of the good. When a tax is levied on buyers, the demand curve shifts downward by the size of the tax when it is levied on sellers, the supply curve shifts upward by that amount. In either case, when the tax is enacted, the price paid by buyers rises, and the price received by sellers falls. In the end, buyers and sellers share the burden of the tax,...
The Winners And Losers From Trade
International Trade in an Exporting Country. Once trade is allowed, the domestic price rises to equal the world price. The supply curve shows the quantity of steel produced domestically, and the demand curve shows the quantity consumed domestically. Exports from Isoland equal the difference between the domestic quantity supplied and the domestic quantity demanded at the world price. Now consider the gains and losses from opening up trade. Clearly, not everyone benefits. Trade forces the...
How a Bill Becomes a Law
Several complex steps are Involved In taking an Idea and turning It Into a law. joint resolution, special-interest group, rider, filibuster, cloture, voice vote, roll-call vote, veto, pocket veto Reading Strategy Sequencing Information As you read, create a graphic organizer similar to the one below. In each box write a step In the lawmaking process, showing how an idea becomes a low. Add as many boxes as necessary. How are bills Introduced and how do they work their way through Congress What...
Total Revenue Total Cost and Profit
We begin with the firm's objective. To understand the decisions a firm make , we must understand what it is trying to do. It is conceivable that Caroline started her firm because of an altruistic desire to provide the world with cookies or, perhaps, out of love for the cookie business. More likely, Caroline started her business to make money. Economists normally assume that the goal of a firm is to maximize profit, and they find that this assumption works ss-ell in most can's. What is a firm's...
How Taxes On Buyers Affect Market Outcomes
We first consider a tax levied on buyers of a good. Suppose, for instance, that our local government passes a law requiring buyers of ice-cream cones to send 0.50 to the government for each ice-cream cone they buy. How does this law affect the buyers and sellers of ice cream To answer this question, we can follow the three steps in Chapter 4 for analyzing supply and demand 1 We decide whether the law affects the supply curve or demand curve. 2 We decide which way the curve shifts. 3 We examine...
The Shortrun Tradeoff Between Inflation And Unemployment
Learn why policymakers face a short-run tradeoff between inflation and unemployment Consider why the inflation-unemployment tradeoff disappears in the long run See how supply shocks can shift the inflation-unemployment tradeoff Two closely watched indicators of economic performance are inflation and unemployment. When the Bureau of Labor Statistics releases data on these variables each month, policymakers are eager to hear the news. Some commentators have added together the inflation rate and...
Rational Expectations Implications for Policy
PREVIEW After World War II, economists, armed with Keynesian models such as the ISLM model that described how government policies could be used to manipulate employment and output, felt that activist policies could reduce the severity of business cycle fluctuations without creating inflation. In the 1960s and 1970s, these economists got their chance to put their policies into practice see Chapter 27 , but the results were not what they had anticipated. The economic record for that period is not...
The Classical Dichotomy And Monetary Neutrality
We have seen how changes in the money supply lead to changes in the average level of prices of goods and services. How do these monetary changes affect other important macroeconomic variables, such as production, employment, real wages, and real interest rates This question has long intrigued economists. Indeed, the great philosopher David Hume wrote about it in the eighteenth century. The answer we give today owes much to Hume's analysis. Hume and his contemporaries suggested that all economic...
The Politics of Interest Rates
Because the Fed is privately owned by its member banks, and because the members of the Board of Governors have 14-year terms of office, the Fed is widely regarded as being an independent monetary authority. Even so, the Fed often comes under political pressure because it has the ability to move interest rates one way or the other. The president or members of Congress up for reelection may call for low interest rates to stimulate the economy. Incumbent politicians know that their reelection...
Summary And Conclusions Xrx
548 PART TWO RELAXING THE ASSUMPTIONS OF THE CLASSICAL MODEL 6. A special kind of specification error is errors of measurement in the values of the regressand and regressors. If there are errors of measurement in the regressand only, the OLS estimators are unbiased as well as consistent but they are less efficient. If there are errors of measurement in the regressors, the OLS estimators are biased as well as inconsistent. 7. Even if errors of measurement are detected or suspected, the remedies...
The Case Against Active Stabilization Policy
Some economists argue that the government should avoid active use of monetary and fiscal policy to try to stabilize the economy. They claim that these policy instruments should be set to achieve long-run goals, such as rapid economic growth and low inflation, and that the economy should be left to deal with short-run fluctuations on its own. Although these economists may admit that monetary and fiscal policy can stabilize the economy in theory, they doubt whether it can do so in practice. The...
The Case For Active Stabilization Policy
Let's return to the question that began this chapter When the president and Congress cut government spending, how should the Federal Reserve respond As we have seen, government spending is one determinant of the position of the aggregate-demand curve. When the government cuts spending, aggregate demand will fall, which will depress production and employment in the short run. If the Federal Reserve wants to prevent this adverse effect of the fiscal policy, it can act to expand aggregate demand...
The Deadweight Loss Of Taxation
We begin by recalling one of the surprising lessons from Chapter 6 It does not matter whether a tax on a good is levied on buyers or sellers of the good. When a tax is levied on buyers, the demand curve shifts downward by the size of the tax when it is levied on sellers, the supply curve shifts upward by that amount. In either case, when the tax is enacted, the price paid by buyers rises, and the price received by sellers falls. In the end, buyers and sellers share the burden of the tax,...
Problems In Measuring Inequality
Although data on the income distribution and the poverty rate help to give us some idea about the degree of inequality in our society, interpreting these data is not as straightforward as it might first appear. The data are based on households' annual incomes. What people care about, however, is not their incomes but their ability to maintain a good standard of living. For various reasons, data on the income distribution and the poverty rate give an incomplete picture of inequality in living...
The Effects Of A Monetary Injection
A theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate Let's now consider the effects of a change in monetary policy. To do so, imagine that the economy is in equilibrium and then, suddenly, the Fed doubles the supply of money by printing some dollar bills and dropping them around the country from helicopters. Or, less dramatically and more realistically, the Fed could inject...
Government Budget Deficits And Surpluses
Throughout the 1980s and 1990s, one of the most pressing policy issues was the size of the government budget deficit. Recall that a budget deficit is an excess of government spending over tax revenue. Governments finance budget deficits by borrowing in the bond market, and the accumulation of past government borrowing is called the government debt. In the 1980s and 1990s, the U.S. federal government ran large budget deficits, resulting in a rapidly growing government debt. As a result, much...
Bearer share G1
A company share owned by the person holding it at a particular time. Becker, Gary Stanley, 1930- B3 Us economist, educated at Princeton and Chicago, who was a professor at Columbia University from 1960 to 1970 and then at Chicago from 1970. Famous for his analy sis of racial and sexual discrimination in labour markets using the utility functions of employers and employees to demonstrate a 'taste for discrimination' the formalisation of the study of human capital by an examination of the...
The Equilibrium For An Oligopoly
Although oligopolists would like to form cartels and earn monopoly profits, often that is not possible. As we discuss later in this chapter, antitrust laws prohibit explicit agreements among oligopolists as a matter of public policy. In addition, squabbling among cartel members over how to divide the profit in the market sometimes makes agreement among them impossible. Let's therefore consider what happens if Jack and Jill decide separately how much water to produce. At first, one might expect...
Average And Marginal Cost
As the owner of her firm, Thelma has to decide how much to produce. A key part of this decision is how her costs will vary as she changes the level of production. In making this decision, Thelma might ask her production supervisor the following two questions about the cost of producing lemonade How much does it cost to make the typical glass of lemonade How much does it cost to increase production of lemonade by 1 glass total cost divided by the quantity of output fixed costs divided by the...
Elasticity And Its Application
Learn the meaning of the elasticity of demand Examine what determines the elasticity of demand Learn the meaning of the elasticity of supply Imagine yourself as a Kansas wheat farmer. Because you earn all your income from selling wheat, you devote much effort to making your land as productive as it can be. You monitor weather and soil conditions, check your fields for pests and disease, and study the latest advances in farm technology. You know that the more wheat you grow, the more you will...
The Costs Of Production
Learn the meaning of average total cost and marginal cost and how they are related The economy is made up of thousands of firms that produce the goods and services you enjoy every day General Motors produces automobiles, General Electric produces lightbulbs, and General Mills produces breakfast cereals. Some firms, such as these three, are large they employ thousands of workers and have thousands of stockholders who share in the firms' profits. Other firms, such as the local barbershop or candy...
Elasticity And Tax Incidence
When a good is taxed, buyers and sellers of the good share the burden of the tax. But how exactly is the tax burden divided Only rarely will it be shared equally. To see how the burden is divided, consider the impact of taxation in the two markets in Figure 6-9. In both cases, the figure shows the initial demand curve, the initial supply curve, and a tax that drives a wedge between the amount paid by buyers and the amount received by sellers. Not drawn in either panel of the figure is the new...
The Measurement Of Inequality
We begin our study of the distribution of income by addressing four questions of measurement How much inequality is there in our society How many people live in poverty As far as I'm concerned, they can do what they want with the minimum wage, just as long as they keep their hands off the maximum wage. As far as I'm concerned, they can do what they want with the minimum wage, just as long as they keep their hands off the maximum wage. What problems arise in measuring the amount of inequality...
The Circular Flow of Economic Activity
Using Charts The circular flow diagram shows the high degree of economic interdependence in our economy. In the diagram, the factors of production and the products made from them flow in one direction. The payments for the factors, which consumers spend on goods and services, flow in the opposite direction. As a consumer, what role do you play in the circular flow of economic activity the next period with the same number inputs, than productivity went up. Productivity is often discussed in...
The Theory Of Consumer Choice
See how a consumer responds to changes in income and changes in prices When you walk into a store, you are confronted with thousands of goods that you might buy. Of course, because your financial resources are limited, you cannot buy everything that you want. You therefore consider the prices of the various goods being offered for sale and buy a bundle of goods that, given your resources, best suits your needs and desires. In this chapter we develop the theory that describes how consumers make...
Public Policy And Job Search
Even if some frictional unemployment is inevitable, the precise amount is not. The faster information spreads about job openings and worker availability, the more rapidly the economy can match workers and firms. The Internet, for instance, may help facilitate job search and reduce frictional unemployment. In addition, public policy may play a role. If policy can reduce the time it takes unemployed workers to find new jobs, it can reduce the economy's natural rate of unemployment. Government...
Fixing the Exchange Rate to Escape from a Liquidity Trap
During the lengthy Great Depression of the 1930s, the nominal interest rate hit zero in the United States and the country found itself caught in what economists call a liquidity trap. Recall from Chapter 13 that money is the most liquid of assets, unique in the ease with which it can be exchanged for goods. A liquidity trap is a trap because once an economy's nominal interest rate falls to zero, the central bank cannot reduce it further by increasing the money supply that is, by increasing the...
Average and Marginal Products
The contribution that labor makes to the production process can be described in terms of the average and marginal products of labor. The fourth column in Table 6.2 shows the average product of labor APl, which is the output per unit of labor input. The average product is calculated by dividing the total output Q by the total input of labor, L. In our example the average product increases initially but falls when the labor input becomes greater than 4. The fifth column shows the marginal product...
Cost Revenue and Profit Maximization
Profit is maximized when the marginal costs of production equal the marginal revenue from sales. Graphic Organizer As you read the section, complete a graphic organizer similar to the one below by explaining how total revenue differs from marginal revenue. Then provide an example of each. fixed cost, overhead, variable cost, total cost, marginal cost, e-commerce, total revenue, marginal revenue, marginal analysis, break-even point, profit-maximizing quantity of output After studying this...
Union Membership and Representation by Industry
Percent of Employed Workers That Are Members of Represented Unions by Unions Source Bureau of Labor Statistics, 1999 Using Tables Labor unions are the most influential in the service industries, which include government, communications, public portation. In what industries do unions have few members Visit epp.glencoe.com and click on Textbook Updates Chapter 8 for an update of the data. Visit epp.glencoe.com and click on Textbook Updates Chapter 8 for an update of the data. CHAPTER 8 EMPLOYMENT...
The Economics Of Unions
A union is a type of cartel. Like any cartel, a union is a group of sellers acting together in the hope of exerting their joint market power. Most workers in the U.S. economy discuss their wages, benefits, and working conditions with their employers as individuals. By contrast, workers in a union do so as a group. The process by which unions and firms agree on the terms of employment is called collective bargaining. When a union bargains with a firm, it asks for higher wages, better benefits,...
The Effects Of An Import Quota
The Isolandian economists next consider the effects of an import quota a limit on the quantity of imports. In particular, imagine that the Isolandian government distributes a limited number of import licenses. Each license gives the license holder the right to import 1 ton of steel into Isoland from abroad. The Isolandian economists want to compare welfare under a policy of free trade and welfare with the addition of this import quota. Figure 9-7 shows how an import quota affects the Isolandian...
Examples Of Price Discrimination
Firms in our economy use various business strategies aimed at charging different prices to different customers. Now that we understand the economics of price discrimination, let's consider some examples. Movie Tickets Many movie theaters charge a lower price for children and senior citizens than for other patrons. This fact is hard to explain in a competitive market. In a competitive market, price equals marginal cost, and the marginal cost of providing a seat for a child or senior citizen is...
Sources of State and Local Government Revenue
Source Statistical Abstract of the United States, 1999 23.8 Intergovernmental Revenue 34.2 21.7 Sales Taxes 5.3 17.7 Employee Retirement amp Insurance 2.1 13.9 Individual Income Tax 1.6 3.9 Higher Education Fees Charges 0.6 3.2 Corporate Income Tax 0.3 3.0 Interest Earnings 3.4 1.7 Hospital Fees 4.2 1.1 Property Taxes 25.6 0.8 Utility and Liquor Store 8.6 9.3 Other 14.0 - Source Statistical Abstract of the United States, 1999 Using Charts State and local governments have their own sources of...
Expenditures by State and Local Governments
State 837,082 million Local 759,368 million 28.8 Intergovernmental Expenditure 19.4 Public Welfare 4.3 11.2 Insurance Trust 1.8 Elementary amp Secondary Education 34.5 9.8 Higher Education 1.9 5.6 Highways 4.0 3.5 Hospitals 5.1 2.9 Interest on General Debt 4.3 2.9 Corrections 1.5 2.7 Governmental Administration 3.9 2.5 Health 2.3 1.2 Utilities 11.1 Fire Protection 2.2 0.7 Police Protection 4.7 0.4 Parks and Recreation 2.0 Housing amp Community Development 2.6 8.5 Other 13.8 Source Statistical...
The Traditional Theory of Wage Determination
Using Graphs The market forces of supply and demand explain the equilibrium wage rate for the traditional theory of wage determination. How does this theory differ from the theory of negotiated wages CHAPTER 8 EMPLOYMENT, LABOR AND WAGES 207 Median Weekly Earnings by Occupation and Union Affiliation Managerial and Professional Specialty Precision Production, Craft and Repair Technical, Sales, and Administrative Support Operators, Fabricators, and Laborers Source Bureau of Labor Statistics, 1999...
Evaluating The Market Equilibrium
Figure 7-7 shows consumer and producer surplus when a market reaches the equilibrium of supply and demand. Recall that consumer surplus equals the area above the price and under the demand curve and producer surplus equals the area below the price and above the supply curve. Thus, the total area between the supply and demand curves up to the point of equilibrium represents the total surplus from this market. Is this equilibrium allocation of resources efficient Does it maximize total surplus To...
The Tradeoff Between Work And Leisure
One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. Probably no tradeoff is more obvious or more important in a person's life than the tradeoff between work and leisure. The more hours you spend working, the fewer hours you have to watch TV, have dinner with friends, or pursue your favorite hobby. The tradeoff between labor and leisure lies behind the labor supply curve. Another one of the Ten Principles of Economics is that the cost of something is what you give...
Rank of a Matrix
Even though the concept of row independence has been discussed only with regard to square matrices, it is equally applicable to any m x n rectangular matrix. If the maximum number of linearly independent rows that can be found in such a matrix is r, the matrix is said to be of rankr. The rank also tells us the maximum number of linearly independent columns in the said matrix. The rank of an m x n matrix can be at most m or , whichever is smaller. Given a matrix with only two rows or two columns...
