Manon's Econ Blog

Archive for the ‘Section 2’ Category

The Pope and the Vatican is strongly opposed against the use of condoms, and thus because of problems with the religious ethics (see Article). For instance, Catholic religion “steadfastly opposed to the use of condoms for any reason.” Nevertheless, the use of condoms is a positive externality of consumption as shown on the diagram below.

As shown on the diagram above, the MPB differs from the MSB, with the MSB being greated than the MPB, which creates the positive externality. The MPB differs from the MSB because condoms can stop diseases such as HIV or AIDS. If less people have the disease since they used condoms, there is a greater change that less people in general will have it, since condoms largely reduce the risk of transferring the disease.

Nevertheless, the usual goal of economies is to increase demand (so Marginal Private Benefit) and make it closer to the Marginal Social Benefit. However, the goal of the Pope and the Vatican is to shift the demand curve the other way, as shown on the diagram below.

The Pope is hoping, and advertising people to do so, to shift the demand from D1 to D2, and thus reduce the quantity of condoms consumed from Q1 to Q2. He appeals to the people following religion to not use condoms, even though it has a positive externality on society and we should try to increase demand.

The Pope, by following so strongly its religious beliefs, is going against the economy and is not beneficing the society. It inforces the gap between the private benefit and the social benefit, instead of reducing it, which is quite surprising.

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In the world today, technology is everywhere. It is a great tool especially to store data. It is now impossible to find companies or individuals of developed countries not using technology. But this huge increase in demand has an impact on the economy. Demand keeps increasing more and more, and it is not likely that it is going to stop. Nevertheless, technology has positive externalities that do not seem to be always included in its price. Some of its externalities are the use of the knowledge gained through websites such as Google, or the increase in efficiency for companies that can now store all their data really easily, and so on.

For now, the equilibrium point is PQ, but it would be P*Q* if all society benefit (MSB) was taken into account, and not only the private benefit (MPB).

Although technology has some risks (databases can be stolen…) it has  benefits that are not necessarly taken into account.

Article

When teenagers are bored and alcohol is cheap, people choose to drink in order to fight the boredom. They use alcohol as a form of entertainment, as would be going to the movie theater or shopping. The major problem with teens drinking is not only that they may develop an addiction to alcohol, but also that they may not know how to control themselves while drunk. They may provoke disturbances, noise, accidents… also called negative externalities.

Because there are negative externalities in teens drinking, the Marginal Private Benefit (MPB – teens benefit) and the Marginal Social Benefit (MSB – benefit to society) are different. The MSB is lower than the MPB because although teenagers may enjoy and have fun while drinking, the society (for example the people around) are not enjoying it as much (because of negative externalities like public disturbances or noise). The actual value of alcohol is PQ, but its real value is P*Q*. The difference between the actual value and the real value is the welfare loss (how much society looses because of these negative externalities).

It is the government’s duty to keep the value of alcohol as close to its real value as possible in order for the society to lose less. Advertisement may be a good idea to do this; for example teenagers are told that “If young people are drinking they should eat something beforehand, space their alcoholic drinks with water or soft drinks, look after their mates and, if they’re out, plan how they’re going to get home.” You cannot stop teenagers from being bored and from drinking, but you can teach them to drink in the safest conditions as possible to reduce the welfare loss.

BBC News article

Perfect competition

Oligopoly

Monopolistic competition

Monopoly

Back to the time I was in France, it was quite common that I received mails on my phone from clubs saying “Ladies’ Night – Entrance free for ladies!” I thought this was an interesting example of price discrimination since the purpose of these “Ladies’ Night” is not to directly increase revenue nor to divide people into groups in order to maximize profit, but to increase the number of girls coming, hoping they would buy more drinks since the entrance is free for them.

With the “Ladies’ Night,” clubs do not increase their profit because of the entrance tickets but because of the drinks that people can buy while they are inside the club. In any case it contributes to a maximisation of the profit.

My favorite company is the Swedish clothing company Hennes & Maurtisz, known as H&M. It is the third-largest fashion chain in the world. Unless many brands, H&M provides a variety cheap clothing of good quality, created by designers such as Jimmy Choo, Karl Lagerfield, Stella McCartney and Matthew Williamson. It has about 1924 shops in various countries.

Nevertheless, the total sales for H&M clothes in October 2009 were not as good as expected. The forecast was a 13% increase in sale, but the actual increase was only 9%. Also, sales in stores open for a least a year fell by 3%.

Despite some decrease in sales, I think H&M has enough strength to resist and survive through the crisis, since new shops are still opening, such as in Portland where H&M should arrive during the later-half of 2010.

H&M sales unexpectedly fall in October

H&M setting up shop in Portland by 2010

During the tennis ball game, we had to pass on tennis balls from one end to the other, adding people into the line everytime.

The total product (the number of balls passed on to the other side) increased most of the time; it increased a lot at first, then slow down, and decreased at the end. This is because as the more people are added, we were all getting closer and closer to each other so it was getting hard.

The average product was a line getting lower and lower quite smoothly.

The marginal product is going up and down all the time because of changes in method; as more pople were added we had to change method because the old one was not working anymore; when the method was good the curve went up, when it was not it went down, sometimes to negative values.

The maximum output happened with 10 people because we had a good method and we were all focused; when it got to 14 people we did not have any space and the new people did not have any training so some messed up in passing the balls, so the total product, the marginal product, and the average product went down.

In conclusion, adding people is not always the best thing to do, but finding a good method and a correct number of labor make the level of output increase.