Tsinghua Principles of Economics Lecture 1
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Transcript of Tsinghua Principles of Economics Lecture 1
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MacroeconomicsMichael Kratsios
Lecture 1
03.08.10
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IntroductionAcademics, Work Experience, and Interests
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About me
Graduated Princeton University in2008
AB in Politics, magna cum laude
Concentration in American PoliticsCertificates in Political Economyand Hellenic Studies
Carolyn M. Picard Prize in Politicsand the Hellenic Studies SeniorThesis Prize for Economics andVoting in the Third Hellenic
Republic
Interests: Economic Voting, VoteChoice, Ethics
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Work Experience
Barclays Capital
Consumer/Retail IBD
Real Estate IBD
Lyford Group International
Discretionary Macro
Hedge Fund
Business Today
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GoalsDiscoveryExtension
ApplicationParticipation
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Earthquake in HaitiResulting changes in labor market
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Devastating Tragedy
230,000 people dead
300,000 injured
1,000,000 homeless
250,000 residencesdestroyed
30,000 commercialbuildings collapsed
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Unprecedented Relief
USA
$665mm
Clinton/Bush Fund5,000 soldiers
Greece
!200,00025 healthcareprofessionals
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Effect of Relief on Business
Since earthquake, Haitian streetvendors & small business are suffering
Blame relief effort rather than decline indemand
"I have fewer customers now becausethey are handing out free food downthe street."
Usually only about 5% of the budgetsof humanitarian agencies is spent
locally (Peace Dividend Trust, CanadianNGO)
Priority is getting relief supplies inquickly
WSJ, 3/3/10
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Effect on
Labor Market Wage
Quantity of Labor
D1
S1
What happens to the price of
outputs?
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Effect on Labor Market
Price of goods fall since there
is a very cheap (free)
alternative to consumers
Labor demand shifts left
Equilibrium wage falls
This change reflects a change
in the value of the MPL. Firmcan only be profitable by
lowering wage and hiring less
workers
Wage
Quantity of Labor
D1
D2
S1
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Price GougingEthics and Economics
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What is Price Gouging?
Conditions:
1. Emergency situation
2. Necessary good
(ex: water, gas, ice)
3. Prices raised in response tosupply shock
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US Congress takes up issue
S. 1520: Price Gouging Act of
2007, sponsored by Ben Nelson
(D-NE)
The term `price gouging' means
the charging of an
unconscionably excessive price
by a supplier in an affected area.
What is unconscionably
excessive or necessary?
Never became law
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Is Price Gouging Legislation
a Mistake?Price, when set by the
market, allocates the goods
to those who value themmost.
If price cannot be raised
following a supply shock, firms
must ration.
Firms must resort to queuing,merit, nepotism, or black market.
Ex: NY landlords and rent
controlled apartments.
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Additional Considerations
But what about the poor?
Solution: Give them subsidies andthus those who value the scarcegood the most will have the same
ability to pay for it (at the marketclearing price) as the rich would.
Key takeaway: Price-controls do not
eliminate the scarcity.
Legislation discourages privateenterprise from investing in disasterreadiness.
Potential profits from selling thesescarce goods disappears.
Private companies can moreefficiently move goods.
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QuestionsEconomics, Princeton, Wall Street, Greece,anything...