Wednesday, 10 April 2013

Everyday Economics Entertainment: Economics Books Recommended Reading (possibly fun)

In reality economics is about us. This concept makes approaching a complex topic like economics a little less intimidating, surely? Economics becomes less about confusing charts and graphs and more about how we wish to order our lives and build our society. I used this theory to start my study into economics and so far it has proved very useful.

As we wrestle with tough questions regarding faith and economics, it’s helpful to have an understanding of basic economic facts.

For those just beginning to wade into the waters of economic thought here is a list of books that will help initiate that interest and the individual begin to grasp the important concepts. These books by no means represent a single small portion of the total books on economics. But here are some of the lighter ones:

  • Basic Economics – A suitable primer for everyday people that explains the basics behind any type of economy.
  • Economics in One Lesson – As the book bills itself, it’s one of the shortest, surest ways to understand basic economics.
  • The Economics Book (Hardback) From Aristotle and Thomas Aquinas, to Adam Smith and John Maynard Keynes, to the top economic thought leaders of today, this is an essential reference for students and anyone else with an interest in how economies work.
  • Freakenomics - What do estate agents and the Ku Klux Klan have in common? Why do drug dealers live with their mothers? What do schoolteachers and sumo wrestlers have in common? How can your name affect how well you do in life? This title shows you a totally new way of seeing the world.
  • The Undercover Economist - A brilliant and eye-opening explanation of the economics of everyday life - Britain's answer to FREAKONOMICS
  • Economics for dummies - It pains me to suggest this book, but if you know nothing about Economics and would like to know more, then the ‘for dummies’ series may be your best bet, for inculcating yourself with the ideas and theory of economics - the book is called, inevitably, Economics for Dummies by Sean Masaki Flynn. Read and let the initiation to the money world start.
  • The world is flat- A brand new look at all things is one of the reasons behind the tremendous success of the Thomas L. Friedman authored book The World is Flat: A Brief History of the Twenty-first Century. The book talks about all the things that has led to the ‘flattening’ up of the world; right from the coming of the Gutenberg Press, the industrial revolution to the advent of open source software, online knowledge sources like Wikipedia, blogging and communication sharing mediums like YouTube and podcasting. 
  • The argumentative indian - Amartya Sen’s book The Argumentative Indian. The book is not strictly about economics. It is about Indian culture, history and identity. The book also talks about the success of Indian democracy, India’s wide social and economic inequalities and where India stands in the world today.
Please comment if you have some suggested reading. 

Monday, 8 April 2013

Production Possibility Frontier (or Curve)

In micro-economics, a production–possibility frontier (PPF), sometimes called a production–possibility curve, production-possibility boundary or product transformation curve, is a graph that shows the various combinations of amounts of two commodities that could be produced using the same fixed total amount of each of the factors of production. 

The amount capable of being produced is limited by factors such as natural resources, time, or capital. 

Graphically bounding the production set for fixed input quantities, the PPF curve shows the maximum possible production level of one commodity for any given production level of the other, given the existing state of technology. The aim is to show the amount or one commodity capable of being produced against another. 

Efficiency- A PPF shows it takes the form of the curve on the right. For an economy to increase the quantity of one good produced, production of the other good must be sacrificed. Fruit picking: Say if you had a limited number of workers, time, and capital resources (ladders to pick the fruit) the number of oranges able to be picked must be sacrificed in order to pick more apples. The same applies the other way round, if you wish to pick more apples in the day, then the number of oranges picked must drop. PPFs represent how much of the latter must be sacrificed for a given increase in production of the former. 

Product A in the graph above (taken from investopedia) can be Oranges, Product B can be apples. Points A, B and C represent the points at which production of Good A and Good B is most efficient. Point X demonstrates the point at which resources are not being used efficiently in the production of both goods; point Y demonstrates an output that is not attainable with the given inputs (time, people, capital). 

Opportunity Cost- In the context of a PPF, opportunity cost is directly related to the shape of the curve. If the shape of the PPF curve is straight-line, the opportunity cost is constant as production of different goods is changing. But, opportunity cost usually will vary depending on the start and end point. In the diagram on the above, producing more oranges results in less apples, this can be carted on the line between the two. So producing 10 more oranges could be an opportunity cost of 5 less apples. 

Opportunity cost has been seen as the foundation of the marginal theory of value as well as the theory of time and money. It has received criticism as an over simplification of markets, but it does help economists understand the relation between goods and resources. 

Government policy, and technology can produce a dramatic shift in the PPF. 

Sunday, 7 April 2013

The Demand Curve

Following on from supply and demand, there needs to be a way to chart and understand this relationship in visual form. Economists use the supply and demand curve to do so. It is best to get acquainted with the graphical representation of the study before they become too much.

In the diagram below, supply is illustrated by the upward sloping blue line and demand is illustrated by the downward sloping green line. At a price of P* and a quantity of Q*, the quantity demanded and the supply demanded intersect at the Equilibirum Price. At equilibrium price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding. This is the optimal economic condition, where both consumers and producers of goods and services are satisfied.

The quantity demand is the price and quantity the market is willing to pay for an item. Price and quantity demand have an inverse relationship. When price goes up the demand goes down, and when demand goes down the price goes up. The use of this graphing can enable you to make market predictions. 

The shift of a demand curve takes place when there is a change in any non-price determinant of demand, resulting in a new demand curve. Non-price determinants of demand are those things that will cause demand to change even if prices remain the same—in other words, the things whose changes might cause a consumer to buy more or less of a good even if the good's own price remained unchanged. Some of the more important factors are the prices of related goods (both substitutes and complements), income, population, and expectations. However, demand is the willingness and ability of a consumer to purchase a good under the prevailing circumstances; so, any circumstance that affects the consumer's willingness or ability to buy the good or service in question can be a non-price determinant of demand.

So a good example of a shift of demand is policy changes: The government changes the law on smoking in public places and forces smokers to smoke outside holding a picture of a cancer cell. The tobacco control policies can affect consumer buying decisions and can alter the supply and demand of cigarettes.

Various examples of demand shifters are:
  • Changes in disposable income,
  • Changes in tastes and preferences - tastes and preferences are assumed to be fixed in the short-run. This assumption of fixed preferences is a necessary condition for aggregation of individual demand curves to derive market demand.
  • Changes in expectations,
  • Changes in the prices of related goods (substitutes and complements),
  • Population size and composition.

Changes that decrease demand
  • decrease in price of a substitute,
  • increase in price of a complement,
  • decrease in consumer income if the good is a normal good,
  • increase in consumer income if the good is an inferior good.
Market or aggregate demand is the summation of individual demand curves. In addition to the factors which can affect individual demand there are three factors that can affect market demand:
  • a change in the number of consumers,
  • a change in the distribution of tastes among consumers,
  • a change in the distribution of income among consumers with different tastes.

Changes that cause Demand Shift:
  • Decrease in price of a substitute,
  • Increase in price of a complement,
  • Decrease in income if good is normal good,
  • Increase in income if good is inferior good.

The Backyard Economist: The Basic Economics Principles

The Backyard Economist: The Basic Economics Principles: Nerdy introduction to the basics.

The Basic Economics Principles

Economics is the social science studying the decisions we make and why we make them. A nerdy economist looks at production, distribution and consumption of goods and services.

It is a complex social science that spans from mathematics to psychology. At its most basic, however, economics considers how a society provides for its needs.

Looking at Maslows Hierarcy of Needs Our most basic need is survival; which requires food, clothing and shelter. Once those are covered, it can then look at more sophisticated commodities such as services, personal transport, entertainment, the list goes on. How do we satisfy these needs?

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize it's production and capacity so it could lower prices and better compete in its industry.

Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross Domestic Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate.

While these studies of economics may appear different, actually they are very much linked.  For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product's price charged to the public. Which then introduces the study of scarcity.

Thursday, 4 April 2013

Top Economics Podcasts

Since starting to take an active interest in Economics, I have found that there is more than enough reading. So in order to make the learning more efficient I suggest podcasting on the go.

If you are unfamiliar with the use of podcasts read this:

Tim Harford: Pop-up Economics gives a really fun and interesting history of the great game changers in economics. He is the presenter of the BBC's More or Less which is also a very insightful podcast where he investigates the numbers used in the news and public debate. He also has a blog Tim Harford The Undercover Economist and as far as economists go he is very interesting and provides easy to digest articles. Tim is well published and well respected in the field. 

NPR’s Planet Money is one of the best podcasts out there, with weekly guests and global views. They present great values and serious economics speak with a light attitude. NPS's team also produces This American Life's: The invention of Money.

If you are looking for further light listening with a educational touch try Freakonomics Radio. The host Stephen Dubner presents a range of topics with a very strange twist, such as discovering why teachers are likely to cheat.

Econ Talk is a much more in-depth look economics issues today. Econ Talk’s host Russ Roberts is a economics professor at George Mason University. Every week Russ picks a different topic and invites an expert on that topic. This is a much more content heavy podcast but gives a large amount of time for explanation of topics. 

Two Radio 4 podcasts I would recommend about business rather than straight economics: Peter Day’s World of Business, which provides an in-depth look at businesses and is recorded on location, a recent episode was recorded in India with the M&M machinery manufacturing company. Evan Davis’s The Bottom Line provides a business analysis and discussion. 
The London School of Economics holds regular public lectures on economics, these can be quite hard to understand at first and are fantastically detailed. It may take some time for you to understand the economics 'jokes'. The events are streamed as podcasts.
If your seeking an American view of business and economics then Bloomberg on the economy with Tom Keene is great. There is a wealth of quality guest interviews and quality analysis. 
If your looking for an Asia Pacific business analysis the Australian Broadcasting Corporation offers a few podcasts. Asia Pacific Business, Radio Australia's is where Karon Snowdon presents a weekly regional report on what's making news in the business world including economic conditions, regulatory changes, mergers and acquisitions, and the pitfalls and opportunities of doing business in new markets.
The Australia National University offers a varied collection of public lectures on the region and categories these by the area of study, business and economics.  You may have to do some searching but the pocasts offered are loaded with information. 
If I have missed anything or you have suggestions/comments please let me know. 

Wednesday, 3 April 2013

Economics Introduction

Economics may to be all stats, equations, charts and heavy handed maths. But in actual fact there is an enormous amount of theory involved. 

In your personal life, for example, you face the problem of having only limited resources with which to fulfil your financial wants and needs as a result, you must make certain choices with your money. You'll probably spend part of your money on rent, save for a house, pay for electricity and food. Then you might use the rest to go to the movies and/or buy a new pair of jeans. Economists are interested in the choices you make, and inquire into why, for instance, you might choose to spend your money on a new car. This can be explained with theories such as game theory. 

Economics is referred to as applicable moral theory, or science a is a study of certain aspects of society. Adam Smith (1723 - 1790), the "father of modern economics" and author of the famous book "An Inquiry into the Nature and Causes of the Wealth of Nations", spawned the discipline of economics by trying to understand why some nations prospered while others lagged behind in poverty. Others after him also explored how a nation's allocation of resources affects its wealth. 

In order to study this, economics makes an assumption that human beings will aim to fulfill their self-interests. It also assumes that individuals are rational in their efforts to fulfill their unlimited wants and needs. 

Economics, therefore, is a social science, and theory, which examines people behaving according to their self-interests. The definition set out at the turn of the twentieth century by Alfred Marshall, author of "The Principles Of Economics" (1890), reflects the complexity underlying economics: "Thus it is on one side the study of wealth; and on the other, and more important side, a part of the study of man."

World Economics (couldn't be more interesting)

Right now world economics are in a very strange state. As the free market economy has handed out some extreme real-life scenarios over recent years - with the global financial crisis and subsequent collapse of more than one country's economy. This poses some real questions for modern life, such as:

  • Is this just another cycle or is it going to change the system indefinitely? 
  • What does this mean for job security? 
  • Is there going to be another market crash? 
  • Will I still be able to sleep at night? 
  • Why should I even care? 
It is the aim of this blog to help you become a better understanding (upstanding) citizen in this this complex world, exploring the causes and effects of major corporate actions or government decisions on the living breathing entities we call the financial markets.

Having started reading economics I have found some very interesting theories, and intend to share them with the globe in order to help my understanding and yours. Theories such as Game theory, or facts like who built the first computer out of a plumbing system.