Adventures in Economics
Adventures in Economics
Difficulty level: *****
Note: This video is not easy to understand (even in your native language...even in your native language and if you are an economist...)
Watch the following video, choose one adventure and explain it with your own words. Post it as a comment.
1. The invisible hand
ResponderEliminarBased in the Adam Smith theory in the second book from the main one that is called "Nature and causes of the wealth of nations" the way that we select our products is controlled by an invisible hand at the same time that the markets are controlled by the same one. Due to people will always want to maximize their incomes so, the markets do the same through of the promoting of its products and even they could change it just to get the consumer attention, but they have to be update about the prices and products that the competition manage so they have to still comparing it selves with others.
Not only have to offer the same product and decrease their prices, even they could offer an extra product, but we have to considerate
that everything works by the offer and demand.
So, markets are leaded by an invisible hand that allows with the competition about the scarce resources.
2.-The paradox of thrift
The culture of thrift is growing nowadays, but the real question is how does the banks makes this money works at the same time that they are giving you some interests.
Well, they increase the interests to control the inflation and the money that have been invested is working as a loan to support
the companies to keep growing buying new technologies. In spite the new technology could not be as good as we think because they
can take the human jobs with a lowest cost and it produce the unemployment increase. The only way that the government can fix it is by creating more jobs, which, most of the time, it doesn't work if they create those kind of jobs that have a lot of competition in the market.
3.-The Phillips curve
Bill Phillips was a crocodile and economist. He thought that, if the people is hired and have more money to spent, the prices are going to rise. On the other hand, when the unemployment is high, the lack of money produce the inflation gets low.
So, the government creates more jobs to control the inflation but, by the time that unemployed realize about this Phillips Curve, they demand to more money so, the inflation and the unemployment increase at the same time but only this happen in the 70's.
4.- The principle of comparative advantage
This is about the interchange of products, it means export and import, that the countries do each other taking account of its lower opportunities cost depending of its resources. So, the countries started to focus in the swap of the products instead of measure out the efficient or improvement of its own products.
Also, it does exist the situation when a country could made trades with others that produce the same thing but the quality of the product and the cost of it can make a big difference.
While the countries started to sign free trade agreement up, there were some countries where the low production cost is not working to its people.
5.- The impossible trinity
ResponderEliminarThere also exist others terms than the government have to control to stabilize the economy like de exchange and interest rates.
Through the comparative advantage, the countries started to allow the capital flows to get more foreign investments, thus the government are focus in stabilize the exchange rates.
At the same time, the countries try to stabilize their prices due to the foreign investment that produce more money than products to buy, hence cause inflation.
Thereby, governments try to raise interest rates to push the people to save their money in the banks and suck the extra money. On the other hand, the interest rates get lower when people are in debt or unemployment. But, nothing of these could happen at once.
6.- Rational choice theory
People is the meaning into economics choices, where markets try to lower production cost and producing more to be more competitive and allows the comparing to the clients. Governments try their best to provide the necessities to their people even with the exchange rates.
This is kind of what happen in 2007 when the crises started, where, in this case, the bank allows so many loans to the people who wanted to buy a house, but the deal was that they couldn’t pay the interest rates and the bank hasn’t enough money to still cover other loans and interest so, as a result, people get fired and it comes with a rescission.