What is the term for workers who outputs more than other workers at the same wage thus depressing wage for others? What is the specific term for this worker:
A worker who outputs more than other workers at the same wage, therefore now the owner doesn't have to pay workers as much since he gets the same total output for less

There are two aspects to your question. One is indeed (marginal) productivity of workers. The other is the "depressing wages" [for others] angle. (In more neutral terms, the latter would be "wage adjustment".)
Wages are generally downward sticky, so lowering everyone else's wages when one more productive worker shows up is a bit mythical (or at least uncommon), I think, in a salaried environment anyway. For wages to get lowered due to worker competition, it would have to be a more sustained effect, like finding cheaper labor "in bulk" due to some systemic reasons (e.g. finding labor abroad, or there being substantial unemployment etc.)
If there really is term for this pertaining to an individual worker... it might be:

The term Stakhanovite (стахановец) originated in the Soviet Union and referred to workers who modeled themselves after Alexey Stakhanov. These workers took pride in their ability to produce more than was required, by working harder and more efficiently, thus strengthening the socialist state. [...]  The movement eventually encountered resistance as the increased productivity led to increased demands on workers.

But note it assumes some kind of political motivation on behalf of the worker... In a more "normal" capitalist setting, that could be substituted with other hopes/goals, e.g. not being (the one) fired or maybe even being promoted... but I am extrapolating.
I'll also say that the term is somewhat unrelated to how Stakhanov actually improved
productivity (not only of his own, but of his mine). His innovation was no different in what it involved than what Ford or McDonalds did for other kinds production: a combination of
task sequencing (pipelining) [more] specialized workers and using new technology, although the Stakhanovite movement in the Soviet Union later involved training workers in highly specialized roles, in view of increasing their individual productivity. Stakhanov himself was promoted to mine management, so even in the Soviet Union you can't say there were no individualized incentives.
It's even been claimed that Stakhanovism was merely the Soviet form of Taylorism, however this
ignores that Taylor proposed a clear process for deriving quotas, piece-rate (with a subunitary bonus for over-quota), and firing the least
productive workers continuously, while Stakhanovism in practice had a haphazard approach to these. As far as terminology goes, Taylor only named the opposite behavior, i.e. "soldiering", which he defined as working at the slowest pace that goes unpunished.
There may actually be some terms in Japanese that more or less equate "Stakhanovite" in a different context, namely

The victims of
karoshi are known in their companies as moretsu shain (fanatical
workers) and yoi kigyo senshi (good corporate soldiers).

cf. Organizational Behavior and Management, 9th ed., p. 252. (I'm not really familiar with Japanese work slang and a bit of searching finds that at lest "moretsu shain" can have some positive meanings as well, so take that with a grain of salt.)  Another (English) term given in this book (p. 288) that's probably more clear is

rate-busters (Producing above the group norm of acceptance).

Oxford Reference actually links this term with Stakhanovite

An employee who is highly productive and exceeds the formally agreed rate of output for the particular task. Whilst this is advantageous for management, rate-busters are usually disliked by their colleagues because their action provides managers with the excuse to raise the rate of output for all the other employees. Typically, there is informal social regulation of work in most workgroups where rate-busting is deemed antisocial behaviour and potential rate-busters are brought into line by their work colleagues through a mixture of persuasion and coercion. [See Stakhanovite.]

The Merriam-Webster definition for the same term more clearly links it to a reduction in income for co-workers, albeit in a per-piece rather than salary setting:

a pieceworker who produces to the utmost of his ability despite opposition by his fellows who fear that his high earnings may cause a reduction in the piece rate.

A similar term that in even more specific circumstances may be "strikebreaker".
If you go just by dictionary defs, you'd think rate-busting is always
viewed negatively by co-workers, but that's not really the case, see e.g.
a case study done at a warehouse, which involved a gamification aspect to a certain extent, but which also had loads of "standard" Taylorism elements.


If rent control "doesn't work" and supply induces demand, how can cities improve affordability? Suppose we aim that moderately poor people (let's say 1.5× minimum wage) can afford the rent for an apartment meeting minimum quality standards and located within city limits.  This may be a political aim.

What economic policies are effective to achieve this?

Rent control.  Popular, but economics appears to tell us it creates more problems than it solves.  See also the questions Why did Berlin freeze the rent prices as opposed to letting the market set the price? and What is the likely result of rent control in Berlin?.
Increase supply?  In cities, it appears supply may create demand (the more people in a city, the more services, the more people want to live there) so this may not always work either, or only under limited circumstances (perhaps unless building huge amounts, but developers hate vacancies, so I doubt that limit would be surpassed in a free market).
Social housing, owned by the government?  I don't know what economic theory says about this.
Reduce demand?  Not sure how that would work without harming the city.
Impossible?  Should we give up on the idea that poor people can live in alpha world cities such as London, New York, Tokyo, Paris, Singapore, Amsterdam, Seoul, Berlin, Hong Kong, or Sydney?
Something else?

I'm aware that most economists say that rent control "doesn't work" — what are the alternatives that economists may prefer?

Disclaimer: this answer was significantly rewritten to spell out explicitly how it answers OPs question and to add some sources (thanks to @Fizz). The gist remains the same.

The only case I know where housing policy seems to work the way you envision is Vienna (the Austrien capital). They use a combination of several of the policies on OPs list, they have been doing this for a long time and they seem to be very good at implementing them in productive ways.

First, the city owns a significant proportian of all apartments, enough to have pricing power in the market (about 60% according to source). Additionally there are rent control laws on the privately owned housing (see for example here for some housing policies). Nevertheless private housing is more expensive than public housing (source).

Second, the city is engaged in long term planning for housing and they do that wholesale. So they are not just building houses on existing ground attached to existing infrastructure but they are creating entire new suburbs including attachment to public transportation, schools and all the other infrastructure needed for a successful city. The sources above also talk about that in more detail.

This is hard to pull of because it takes much longer to bear fruit that a typical election cycle. Doing things that cost money now and are very useful in 20 years is difficult for elected politicians. So even if politicians or people in general in other cities like to copy the Vienna model, it is not just a few simple policy changes.

In many cases, it's impossible.

  This may be a political aim.

Your problem is the political objective is a form of "central planning." Central planning objectives are rarely achievable without sacrificing individual liberties. Why not simply leave people alone to live out their lives without being controlled by the government? Why does the government need to plan and control where people live?

The answer is: it doesn't.


Economic anthropology: Have there been cultures / societies without a market? I was having a discussion about whether the "market" or "markets" always and inherently emerge as long as human societies exist.
Given the definition of market as the interplay of supply and demand and given that in our reality there is always a demand to sustain one's own life and at the same time there are limited resources, it is tempting to suggest that markets are an inherent feature of human societies.
Thus, the question: Have there been cultures or societes for which there is an agreement that they did not produce a market?
In this context I was reading about the terms reciprocity and redistribution. Are these mechanisms distinguished from the formal definition of a market? I.e., could one say that a group of people that exercised reciprocity observed a society without a market?

Wherever a society exists, there is repeated exchange. And wherever there is repeated exchange, there are also markets.
(Of course, markets can vary in the degree of their development/functioning. One market may be better developed/functioning than another in that it has more frequent transactions, better enforced property rights and contracts, greater honesty/trust, lower transaction costs, greater competition, better flows of information, etc.)
Exchange should be understood broadly: It can be one tangible object for another or even a piece of information for another. It can also be gift exchange. (A common layperson error is to think that only exchanges involving money count as exchanges.)
Gift exchange includes instances where a hunter shares his big find with everyone in the group, with the tacit understanding that he has access to the group's other resources. It could also be where one group assists a second group, with the tacit understanding that the second group will provide assistance should the need arise.
Rough exchange ratios can be implicitly established and sustained through tradition: If lazy John is always skiving, then members of the community will notice and eventually sanction him (through e.g. ostracism). So, if John is consistently taking from the rest of the community $X$ amount of meat every month, then he must also contribute $Y$ in fruit or other goods and services monthly to the rest of the community, in order to avoid sanction. Over time, rough exchange ratios (and these may be a wide band) may form and be embedded in tradition. And if conditions change so that meat becomes more abundant/scarce relative to fruit, then the exchange ratios may change accordingly.
(There is also the evolutionary argument that these exchange ratios will tend to be "correct" in the sense that they correspond to actual scarcity: Groups that maintain the correct exchange ratios thrive, while those that don't die out. Groups that develop strong social norms to punish free-riders and reward appropriate levels of reciprocity thrive, while those that don't die out.)

If two isolated individuals each living on his own deserted island visits each other and engages in an isolated exchange once or twice in their lifetimes, then one could possibly argue that no market exists. But then one should also argue that these two individuals do not form a society (under any reasonable definition of the term "society").

If you mean that if there was ever a society in which there was an agreement NOT to produce a market, I'd say no, there was never such a society.
Even in socialism there were commercial relationships between humans.
NOW it depends on what you understand as a society. I'm not sure but I understand the Amish have no market at all.


What benefits do governments receive from not eliminating debt? Most major economies have substantial government debt; for example among the OECD countries the lowest debt rate is Estonia with around 6% of GDP. Now we may be in a global recession at the moment, but even during the more prosperous times of the twentieth century most countries maintained substantial public debt. Here is a graph of the US federal debt:

And here is one of the UK's national debt:

(Both graphs via Wikimedia.)

What benefits do governments of advanced economies receive from not eliminating their debt?

Most of the same considerations apply to countries as apply to businesses and people, plus a couple of extra cons

Pros of Being Debt Free

No interest payments
Not beholden to someone else (financial freedom)

Cons of Being Debt Free

Buying things on (interest free) credit can save a little money
Paying for things in installments can match costs to income
Interest rates can be used to control economic activity and defend currency
Having a bond market promotes domestic financial activity
Having government bonds provides savers with a safe investment

There is big difference between having no debt and having no net debt.  In the former case, you do not borrow any money and that is rare.  In the latter case you have the money but choose to borrow instead.  Many individuals do this by spending on credit card even though they have money in the bank, or not paying off all of their mortgage because the interest rate is good (so they can earn more with their money elsewhere).

For governments there are extra benefits from having debt (even if you can pay it off).

Perhaps the best way to understand this though is to look at a few notable examples, past and present.

US 1836

If you don't set interest rates, someone else will

The Federal Reserve was only established in 1913, prior to that the US had an uneasy relationship with the concept of central banking.

It seems the founding fathers were against central banking, and it wasn't until Alexander Hamilton that "First Bank of the United States" was created in 1791, mandated to last for 20 years, after which it's mandate was not renewed.

Second Bank was established in 1816.  Andrew Jackson was strongly against central banking (and banking generally!) and so when he came to power in 1832 he pulled the state money out of the bank.  The bank countered by tightening money supply to push the economy into recession.  Andrew Jackson held out and paid off the entire national debt by 1836.  The Second Bank did not have it's chartered renewed, and liquidated in 1838.

With no debt, and no central bank the US money supply was effectively free.  Jackson also introduces the Specie Circular which required all government land be purchased in gold and silver.  The rest of the 1830 saw significant inflation and recession, generally attributed to Jackson defeating the central bank.

The US government had lost control of their own economy, and in 1837 the Bank of England raise rates, forcing up domestic US interest rates, precipitating the 1837 panic.  The following years were marked by major recession.

For more on this see: WDJ article on US debt and Wiki: Second Bank

Norway Today

Keep some debt for liquidity purposes and financial control

Norway currently has around \$170bn of public debt, with a GDP of about \$500bn.  However in 1990 the government established what is now called the "Government Pension Fund of Norway" into which the excess income from Norwegian oil is poured.  It is an equity and bond portfolio currently estimated to be worth in excess of \$700bn.

The government of Norway could choose to pay off all its debts easily, but chooses not to.  Instead they maintain issuance in sovereign debt markets in order to hold a liquid reserve to cover their daily payments.  They also mention using the money to "develop well-functioning and efficient financial markets".  A final consideration in their case is that their assets are abroad, and repatriating them would weaken the Krone, so there is some FX consideration here.

Because of this, it is not surprising that Norway has a AAA credit rating, and that also makes it cheaper for Norway to borrow than even the US (based on 5Y CDS).

For more on this see: Norway Ministry of Finance and Norges Bank

Singapore Today

Issue debt to give people something to invest in

Singapore has had no foreign debt (ie. non-SGD) since 1995, and consistently runs with a fiscal surplus.  Despite this they issue T-Bills and Notes of various maturities consistently and simply invests the proceeds.

Why?  According to the Monetary Authority of Singapore (MAS) the main objectives are:

  Provide a liquid investment alternative with little or no risk of default for individual and institutional investors;
  Establish a liquid government bond market, which serves as a benchmark for the corporate debt securities market; and
  Encourage the development of skills relating to fixed income financial services available in Singapore.

For more on this see: MAS MoneySense

North Korea

If you don't pay, its not really debt...

This is only a semi serious one, but one country that basically has no debt is North Korea, for the simple reason that no-one will lend to them.  They do technically have debts though, including a debt to Sweden for some Volvos, but in 1984 they defaulted on them all and refused to pay anything.  It seems they have no-intention of ever paying.  I don't think I need to explain the downsides to the North Korean approach to economics.

See: North Korea's Stolen Volvos

From a political standpoint, debt is less contentious than taxes.

From an economic standpoint, in a fiat currency deficit is equal to an increase in the money supply, and can be used as a bridge between fiscal and monetary policy to stimulate growth. As older debt retires, this could lead to a stabilizing, or even temporary reduction in nominal debt load.

Lastly, externalities like decreased economic output during a recession would increase the debt to GDP ratio as depicted by those charts.


The Effect of Two income Households on Housing Prices In the book The Two-Income Trap: Why Middle-Class Parents Are Going Broke) by Warren and her daughter, she states the following in chapter 1:

  If two-income families had saved the second paycheck, they would
  have built a different kind of safety net—the kind that comes from
  having plenty of money in the bank. But families didn't save that
  money. Even as millions of mothers marched into the workforce, savings
  declined, and not, as we will show, because families were frittering
  away their paychecks on toys for themselves or their children. Instead,
  families were swept up in a bidding war, competing furiously
  with one another for their most important possession: a house in a decent
  school district. As confidence in the school system crumbled, the
  bidding war for family housing intensified, and parents soon found
  themselves bidding up the price for other opportunities for their kids,
  such as a slot in a decent preschool or admission to a good college.
  Mom's extra income fit in perfectly, coming at just the right time to
  give each family extra ammunition to compete in the bidding wars --
  and to drive the prices even higher for the things they all wanted.

Could someone provide some references for this? I'd like to see when this happened, and some evidence. And is this what economists call a "bubble"?

Todd Zywicki has tried to directly evaluate this claim. He finds that it housing prices and other costs are much lower than the increase in the tax burden.

  Thus, taxes increase in the example by \$13,086. By contrast, annual
  mortgage obligations increased by only \$3690 and automobile
  obligations by \$2860 and health insurance \$620. Those increases are
  not trivial, but they are swamped by the increase in tax obligations.
  Too put this in perspective, the increase in tax obligations is over
  three times as large as the increase in the mortgage (the supposed
  driver of the "two income trap") and about double the increase in the
  combined obligations of mortgage and automobile payments. This also
  leaves aside the peculiarity that the 2000s family is paying \$9670 in
  new child care and \$2860 in new automobile expenses supposedly to meet
  a \$3690 increase in mortgage expenses, the supposed driver of the
  model.

Evaluating The Two-Income Trap Hypothesis

Arnold Kling (Taxes and the Two-Income Trap) notes that Zywicki's estimate doesn't include payroll taxes and therefore underestimates the change in tax burden.

I actually have been thinking about this theory as well. In fact, the improvement of education and gender equality together produce more educated woman. Educated woman would want to contribute to the society even after marriage hence produce more dual income household. In the beginning, maybe there is only a small percentage of dual income household. They are more willing to pay more to get a house which drive the price higher. Eventually more single income household become dual income household in order to afford a house.

How about those investor who flip real estate property to make money? I don't think they are the real reason because eventually someone will buy the house and stay inside. Based on supply and demand, if there aren't so many household who can afford an expensive house, there will be less sale and the price won't go up so fast.


Why can't countries immediately stop the deficit? Governments often say things like "we will reduce the deficit by 2025".

Why can't they simply eliminate the deficit immediately by spending less than the taxes they receive?

Surely if a country is in debt, it should try and run a surplus so it can start paying off it's debts and reduce its interest payments.

Is there some reason why they can't do this?

Some countries have very strict fiscal rules that basically force them to keep on spending more, or reduce the government's ability to cut spending (Brazil is a good example). Other countries have looser rules, but can't cut because of political pressures.

Remember acute spending cuts mean less money for hospitals, schools and many other services that rely on public money. It's often a very impopular measure.

That's why economists often favor clear, well-defined spending rules. Such as establishing a primary surplus target during times of economic growth, a maximum deficit during recessions and maybe a debt/GDP ratio ceiling.

This strategy works perfectly well for an individual, household, or company, because for these entities, there is no link between income and expenditure.  Each one can cut expenditure and expect to continue to earn the same income.  Governments do not work like that.

Most government income is highly dependent on the overall level of activity in the economy.  If the government quickly reduces expenditure, this will almost certainly* lead to reduced employment, reduced investment, reduced tax receipts, and push up variable forms of government expenditure like unemployment and low-income benefits.

The result tends to be a massive contraction in economic output, and often an increase in the budget deficit, increasing the government's debt and reducing its ability to repay.

Here is a 4-minute summary of this point by Yanis Varoufakis.

There is also an obvious social cost to reductions in government expenditure.  For instance, mild austerity in the UK since the global financial crisis caused around 30,000 excess deaths per year by 2015.  Killing tens of thousands of your electorate each year can prove politically costly.  The level of austerity required to balance a substantial deficit within a year is likely to have a much more extreme human cost.

*There are a few potentially large types of government expenditure that could have minimal effect on the domestic economy, e.g. purchase of foreign military equipment.


Why do stocks that don’t pay any dividends change price when the company does better? I don’t understand why (non-dividend paying) stocks increase in price when a company is successful; is it just because everyone expects that everyone else will find it more valuable because the company is doing better? Is the link between this type of stock and the company really just psychological? If investors are getting something other than dividends or just “ownership,” from buying this type of stock, what is it?

Even if a company pays no dividends, its price will usually reflect its "fundamentals" or "how well it's doing". This is because:
If the price is too low (relative to any metric, be it earnings, growth, etc.), then anyone can profitably launch a takeover/acquisition bid.
Example. A company has 1B shares each priced at \$1 (so market cap is \$1B), pays no dividends, and earns \$100B (profits) per year. Then one could buy up all 1B shares for \$1B, own the company entirely, and enjoy \$99B in profits in just the first year alone.
(Second and third paragraphs are identical to another answer I gave.)

Short answer is market values change when perceptions of the market valuation of the stock changes between at least one buyer and one seller in the last trade of shares.
Long analysis first watch this video by Aswath Damodaran On The ‘Dark Side Of Valuation’:
https://www.youtube.com/watch?v=3DtpkMOjH7s
Then read his 50 page paper The Dark Side of Valuation: Firms with no Earnings, no History and no ComparablesCan Amazon.com be valued? - March 2000
http://people.stern.nyu.edu/adamodar/pdfiles/papers/HighGrow.pdf


Why are people rich? Different people become rich for different reasons, such as:

Developing/selling a great product
Investing
Winning the lottery
Inheriting family money

Some of these seem more fair than others, which leads me to wonder: Are there any studies that attempt to measure what percentage of people get rich in different ways?

You have some incorrect ideas about wealth. First of all, inheriting money does not concentrate wealth, it disperses it. Usually the recipients of inheritances, both organizations and wayward children spend the money the receive so the inheritance is dispersed completely.

Most people who are wealthy got that way not by earning a lot of money, but by saving the money they did earn. How much a person saves and invests is a much bigger indicator of wealth than income. A plumber that saves and invests will eventually become much richer than a doctor who spends all his money.

Also, most people who wealthy are not manufacturers who "make a great product," they are ordinary professionals and businessmen: doctors, lawyers, business executives, electricians, plumbers, and builders. You can even find many blue collar workers who have become rich by saving and investing: policeman, firemen, teachers. Where I live there are two teachers, a husband and wife couple, who started out as ordinary high school teachers and now they are quite wealthy and own their own private school. There are probably more millionaire garbage men, than there are millionaire manufacturers. Owning a bunch of garbage trucks is enough to make you a millionaire. Now think how many garbage trucks there are.

Here is an article about typical characteristics of wealthy people:

https://www.nytimes.com/books/first/s/stanley-millionaire.html


A trillion dollar invention Is it possible to make a trillion dollar invention or exploration? I mean an invention or exploration that will be valued at trillion dollars.

Sure, because dollars are nominal goods. Perhaps a ticket to Star Wars Episode CXVIII will cost one trillion dollars. If you meant today, without huge changes in the price level:
 Yes, there is way more than one trillion dollars of wealth in the world. Depending on the laws of physics and psychology there is probably something you would be able to market for this amount. (Private luxury homes in other dimensions.) Coming up with it is another question, but there is no law of economics that makes this impossible.

There is no such things.

All human invention are incremental.

Otherwise, there will be endless backtrack argument of invention, i.e. AI , computing, C programming,  First computing program, first computer,  printing press, paper. All this invention/progress added up will cost more than trillions.


How are the price signals of stocks in the stock market centralized? We can look up the price of a stock, like that of Google, and it gives a particular figure. I would like to know how the price signal is "centralized". What I mean is: if the trades happen between individuals holding the stocks, then how is the overall trading price arrived at? Surely, the individuals who are on the buy side and the sell side would have to "register" the sale with the SEC or something? That's the way it happens with other tangible items, like houses and cars, etc.

The stock price on the market acts as a global signal, which efficiently moves financial capital around. Without it, we would be left to our best guesses, which might take too long to converge on a single number, if it ever did at all.

Think of the stock certificate as a physical object being traded around. It may be traded on more than one market. The centralisation you speak of depends on the source for the quote. The quote, generally (some exceptions), is a last trade price (a delayed last trade price). It is not global. I have trading software that allows me to see quotes with less delays, I can choose to see it only on certain markets or last trade from any market. I see different signals than you do.
The most direct answer to the question in the title is "they're not". There is no central, global signal. What you are likely referring to is just the (delayed) last trade price of the security on the markets that the quote service pulls from.


Is the marginal cost the same for every firm in a perfectly competitive market? Spin-off from: market equilibrium quantity $\ne$ firm profit maximising quantity?

Consider a perfectly competitive market with equilibrium price $P_{eq}$ and quantity $Q_{eq}$ and firm with profit maximising quantity $Q_f$ as illustrated below:

Is the MC for each firm in the market the same?

Can we deduce such from any of the assumptions listed in the PC Wiki page?

No, the marginal cost curves are not necessarily the same for each firm in the market. However the values of marginal costs are.

To disprove the general claim that "The marginal cost curve of each firm in a competitive market is the same" we simply need to find one counter-example, such as the one given below:

Suppose there are two firms in the market and the market inverse demand function is given by $P=7 - q^m = 7 - (q_1 + q_2)$

Here $P$ represents the price, $q^m$ the market supply and $q_1, q_2$ represent the respective supplies of the firms 1 and 2.

Suppose the marginal cost curves for each firm are given by:

$MC_1 = 2q_1$,

$MC_2 = 4q_2$

Note that these are not the same! Since we are looking for a competitive equilibrium, the firms behave competitively and hence we must assume that they do not realize they have market power. Hence they each set:

$P = MC_i, \; i\in\{1,2\}$

From this, solving for quantity we have the respective Supply functions of each firm:

$S_1 = q_1 = 0.5P$

$S_2 = q_2 = 0.25P$

Inserting these two supply functions into the inverse demand function we have:

$P=4$, $q_1=2$, $q_2=1$.

Is this an equilibrium with perfect competition? Well we found it by combining Supply and Demand assuming perfectly competitive firms, so it must be. To verify:

$Market \; Demand = 7 - p = 3$

$Market \; Suppy=q_1 + q_2 = 3$

So the market is indeed in equilibrium. Are both firms setting $P=MC$ as they should in perfect competition?

$MC_1 = 2*q_1 = 4 = P$

$MC_2 = 4*q_2 = 4 = P$

So indeed we have a market equilibrium with perfect competition and different marginal cost curves. QED

Note however that the values of the marginal cost curves at the equilibrium quantities are the same for each firm (and must be the same for each firm in equilibrium).

The marginal cost is the same for any firm in a perfectly competitive market at equilibrium.

Now, let's prove it.

Suppose there is at least one firm (firm 1) that has a higher marginal cost, $MC_1$, than the remaining firms, at $MC_0$.
The price, $P$, is the same for every firm because goods are homogenous. Rational consumers with perfect information would never buy the same good at a higher price.
As firms maximize their profits and the technology does not have increasing returns to scale, their margional costs must be equal to the equilibrium price, $P=MC_0=MC_1$. This contradicts our initial assumption $MC_1>MC_0$. We have just shown our result.

An interesting case to get a complementary intuition is the Bertrand competition. Suppose the technology has constant returns to scale. In other words, producing a quantity $Q$ for firm 1 costs $MC_1 \times Q$, the marginal cost is constant. Imagine many firms able to produce the same homogenous good but with different marginal costs. As consumers would go for the cheapest price. Firms with the lowest marginal cost (the most efficient firms) can prevent the other firms for making a positive profit by setting a price low enough. The less efficient firms would leave the market and only the firms with the lowest marginal cost would exist at equilibrium. The equilibrium price would be equal to this lowest marginal cost. The result holds because of the same assumptions: the ability of consumers to choose the cheapest good, homogeneous goods, enough market competition.


Compound interest problem using PMT in Excel So I found this example in the net

  Compound interest formula (including principal):

  A = P(1+r/n)(nt)

  If an amount of $5,000 is deposited into a savings account at an annual interest rate of 5%, compounded monthly, the value of the investment after 10 years can be calculated as follows...

  P = 5000. r = 5/100 = 0.05 (decimal). n = 12. t = 10.

  If we plug those figures into the formula, we get:

  A = 5000 (1 + 0.05 / 12) ^ (12(10)) = 8235.05.

  So, the investment balance after 10 years is $8,235.05.

Okay, I'm using the PMT calculator in excel and I plug in these values

I get 53.03\$ per month, okay if I multiply it by 12*10 years I should get the same amount as the site, but now I get 6 363,93$

Why not the same? I use the pmt function in excel

The reason of this difference is that you do not fully understand what Compound interest is.

Actually, if you want to get the same amount as the site, while using your monthly payment, which is almost correct (more about this "almost" thereafter), what you must do is less straightforward than simply multiplying it by $120$ (calculation which would return the correct value in the $0$ interest rate case.)

What you must understand is that, the first monthly payment, let call it $P_0$, is going to capitalize (at a $\frac{5}{12}\%$ rate) for $120$ months, $P_1$ during $119$ months, $...$ and $P_{119}$ during $1$ month. And this is the sum of all these differently capitalized identical payments that you must compute to get $8235.05$.

That being said, if you do so, you will get $8263.36$ instead of $8235.05$, since the payment is actually due at the beginning of the period (whence the term almost above), i.e. you must set a $1$ instead of $0$ for the argument Type, which will return a monthly flow of $(\$52.81)$.

Thus, to summarize

$8235.05 = 52.8127046833568 \times \sum_{i=0}^{119} \left( 1+\frac{.05}{12} \right)^{120-i} \approx 52.813 \times 155.9292889
$

Where $155.9292889$ can be interpreted as an implicit capitalization factor.

Get the Future Value: $8235.05
2. Divide it by 120 to get payment per month: $68.63
Calculate Monthly Interest: 5000 * (5/12)
Change formula in "Balance" column to previous balance + interest (5000 + 20.83)
Copy down to row 120

Yes, you do fully understand compounding but putting it into an amortized plan is not quite intuitive


What are the correct utility functions? It is common to talk about utility functions. For example in a universe with only two goods, we might assume each person (or group of people) carries a function $u(x,y)$ in their heads. When offered some baskets $B_j$ containing $x_j$ amount of good 1 and $y_j$ amount of good 2 the person will select the basket $B_k$ that maximises $u(x_k,y_k)$.
I wonder has anyone ever tried to find what there utility functions look like experimentally? Of course they might vary from person to person, and depend on the type of goods. But if the functions are a realistic model it should be possible in principle to see what they look like. Has there been any attempts to do so?
The closest I can find are regression attempts, where data is gathered and then fit to some class of functions. For example linear regression tries to draw the straight line (hyperplane) that best fits the data. This is not what I am looking for however, since regression assumes the type of function in advance. I'm looking for something as simple as offering a bunch of baskets, plotting the data, and comparing to a bunch of different types of functions.

It would be really tough to find papers (other than structural models) that empirically determine a particular utility function. Because of their subjective nature, it is incredibly tough to obtain observable data to estimate them. So researchers study the primitive preference relations that utility functions represent. Arguably, the preference relation is what you want to study when talking about rationality and choice. Utility functions are useful insofar as it opens up a tool-box of real analysis tools which a binary relation doesnt typically allow.
So you should rather look for papers that test rationality from observable choice data. I have elaborated a bit on this in an answer to a related question: Click Here

Good question!
I would like to address a more general point about utility functions, which is often overlooked. Suppose that such an experiment were conducted on a group of people. Each of them is offered a "basket" containing some combination of goods and it is somehow measured how the utility function for each person depends on each of the goods. The question is now:
By determining these functions, have we obtained any interesting/useful information at all?
There is a case to be made that the answer is "no!". To illustrate the point, suppose that we are looking only at one person and the utility they gain from owning bottles of water. Even if their utility function is somehow mapped out, it will only tell us how that particular person valued a particular type of bottled water at a particular time and place. It tells us nothing about how it looked in the past or how it will look in the future or how it changes if he goes outside the laboratory. It tells us nothing about how he might value mineral waver vs. tap water or how other people might behave differently. None of this changes if we introduce more goods (bicycles, hamburgers, etc.) or more test subjects.
In light of these caveats, you may wonder why the utility function is such a widely utilized concept. Its prevalence must be seen in the light of an ongoing trend that arose after WWII of "mathematizing" economics. Critics of this development argue that there is no reason to use complex mathematical formulas, statistical tools and regressions to say something that could be said in plain English. Why introduce an indeterminable, N-dimensional function and talk about optimizing it, when one could just say: "At any given time, people do things that satisfy their most urgent need in the best possible way!" and gain the exact same amount of insight? Some schools of thought actually take this statement as an axiom and use it to explain economic phenomena without introducing abstract math.


How will non-rich citizens make a living if jobs keep getting replaced by robots and are outsourced? Decades ago a factory job could support a wife and kids until retirement and they offered insurance, benefits, etc. Now, no more unions, those jobs as well as tech and customer service jobs are outsourced, and anything left in the US is mostly being replaced by a machine or robot.
Assembly lines had 50 guys in the factory, all gone due to 2 robots assembly something and only needs a few men to monitor them. Blockbuster and Borders were destroyed by online video streaming and Ebooks. Wages also aren't keeping up with the cost of living. The rich get all these tax cuts even if they outsource every job they make, but us "little people" keep getting the downside.
I'm young and very scared of the future. Technology and new companies use to make jobs. Now one guy can make billions of dollars with a few friends only.

This is an interesting question a lot of good labour economists have been thinking about for a while. There are a few conflicting theories as to what will happen. You could base a whole career on this question.

This IGM survey will give you some idea as to what leading economists think.

The prevailing opinion seems to be that increased automation is not going to come at a cost to employment. There are countless examples of advancement lowing the returns to labour occurring throughout history (the plough, the steam train, industrial revolution). None of them has shown a long-run reduction in employment. The Solow Swan model for example,  includes inputs to labour, capital and technology. They show technology and labour being complementary. I know of no empirical evidence suggesting that this has changed.

This HBR article suggests that we aren't really seeing a cost in jobs, more a benefit in productivity. It also mentions Robert Solow's famous remark (which was correct at the time):

  you can see the computer age everywhere but in the productivity statistics

This MIT article presents a bleaker perspective with the concluding sentence:

  In other words, in the race against the machine, some are likely to win while many others lose.

Another article suggests that "this time it's different".

The analogy used is that humans are horses and we are reaching peak human

  demand for the labour of horses today is vastly less than it was a century ago, even though horses are extremely strong, fast, capable and intelligent animals. “Peak horse” in the U.S. came in the 1910s

In my opinion, this analogy is intuitively satisfying but is not particularly useful. We will see fewer humans working the supermarket checkouts and more in entertainment in the same way horses are no longer our ploughs and our taxis but are more likely to be racing and performing. Past that I think the comparison is a pretty big logical leap.

The Economist has an opinion somewhere in between

  [Keyne's] worry about technological unemployment was mainly a worry about a “temporary phase of maladjustment” as society and the economy adjusted to ever greater levels of productivity. So it could well prove. However, society may find itself sorely tested if, as seems possible, growth and innovation deliver handsome gains to the skilled, while the rest cling to dwindling employment opportunities at stagnant wages.

More likely, we will see a (potentially painful) transition in the uses of labour. A factory that used to employ thousands will now employ hundreds, possibly eventually only a dozen. These people will seek employment elsewhere and probably find it, either in existing industries or ones that do not yet exist.

For outsourcing the jobs to China/Bangladesh etc the solution is protectionism - and that doesn't mean isolationism. Just keep the trade deficit close to zero (the amount of jobs you are exporting by importing goods must be close to the amount of jobs you are importing by exporting goods). The trade deficit also translates into public debt (external debt to be more specific) so you really want to keep it very low.

For the replacement with the robots the solution is taxes. If the amount of unemployed people is 70% of the workforce then increase the taxes of those who do the work to 70%. They can surely afford. Imagine one person working the land can create all the food for ten persons. That means that he/she can afford to pay 90% of the food for the rest of nine people. If he/she doesn't like the idea then remove his/her licence to do the work and replace them with someone else.

Those 70% of the people who live from taxes (or basic income) don't have to sit and do nothing. The government can ask them to do all kind of work in return for the basic income: research, journalism, cleaning the streets, edit Wikipedia etc.


Ordinal axiomatization of proportional division A proportional division is a kind of fair division in which a resource is divided among $n$ partners with subjective valuations, and each partner receives a share which is worth for him at least $1/n$ of the total resource value.

This definition is cardinal in nature: it relies on the assumption that each partner has a numeric value function which is unique up to scaling.

Suppose that all we know about the partners is that they have an ordinal preference relation. Is there a natural way to define the notion of proportional fairness in this case?

I thought of several possibilities myself, but I would like to know if something like this has already been done in the literature.

The answer hinges on the level of 'atomicity' dictated by the problem. If the decision making unit is non atomic- i.e. can make infinitesmal decisions- then there is always an algorithm corresponding to the competitive allocation such that it is known also to be a 'cardinal' value allocation under certain conditions- vide Aumann & Shapley. However this would not be robust to even a small perturbation towards atomicity. My understanding is that this field is interesting because of how small changes in the lower limit to what is within the agent's decision making scope can lead to big changes in behavior

D.G Saari's work may be of interest if only as an awful warning- vide http://socioproctology.blogspot.co.uk/search?q=dark+matter


Rigorously Defining Newcomb's "Paradox" I was surprised to find that we did not have a question on this Stack Exchange on this particular problem in decision theory. So I have chosen to add a question on Newcomb's Paradox, though I would like to limit the scope of it to its economic considerations more than its philosophical considerations.

For those unfamiliar with the problem, here is the usual formulation of the problem.

You are presented with two boxes.

Box A is clear and has \$1,000 in it.
Box B is opaque and either has \$0 or \$1,000,000 in it, which is decided by another player, let's say a machine here.

You can choose to take just Box B, or both Box A and B, but before you choose, a machine makes a decision about what is in Box B, based on what it thinks you will do. The machine has played this game many times before and empirically is almost always correct in predicting what the player will do.

If it thinks you are going to choose both boxes, the machine will place \$0 in Box B.
If it thinks you are going to choose just Box B, the machine will place \$1,000,000 in Box B.

Empirically, people are split on whether to play the one box or two box strategy. The intuition for both cases goes likes this.

For those who pick one box, the intuition is that if the machine is almost always right, then the expected value/utility of picking just Box B will be much much higher than picking both boxes. So obviously one should pick just Box B and not be greedy.

For those who pick two boxes, the intuition is that picking both boxes seems to be a dominant strategy. If the machine has already picked putting nothing in Box B, it doesn't hurt, and can only help, if you pick both boxes. If the machine has already picked putting \$1,000,000 in Box B, then...well you should still want both boxes!

So what's the rub? Philosophers like getting into the weeds with this question in discussing causality or free will. But perhaps one criticism of this thought experiment is that the scenario described here is not rigorously defined within the realm of game theory. The machine's only goal is to predict the player's move correctly, but it does not actually have a defined payoff for making the correct prediction. One can map the set of choices and player payoffs as a tree, where the player cannot observe the choice of the machine, but the information set needs more elaboration than this. How does the machine make its prediction exactly so that it is "almost always right"? Why does the machine get to completely preclude mixed strategies and just...know what the player will do most of the time? Essentially, the whole game, strategies and payoffs and information, seems all very hazy. Should it even be considered a game? Or is this just a weird decision theory question?

With paradoxes, trying to add in extra assumptions, or showing why an existing assumption is ill-defined, this can go a long way to providing a possible solution to a paradox. So my question(s) are:

  How could one alter the formulation of Newcomb's Paradox to make it decisively analyzable with game theory or decision theory, and what strategy/decision should the player make in that case?
  If you would choose not to alter the formulation of the paradox, what is the correct analysis of the problem?

Two ending points.

$^1$ I hope I have formulated my question so that there could be multiple correct answers that are objectively correct, and not just opinion based.

$^2$ If you think Newcomb's Paradox is just so incoherent that one can't really alter it without really altering what makes the paradox interesting, you can talk about that too. I am not asking that as a question because I think that would be too opinion based.

In order to start making this tractable, I'd start by stating in which order the two events – the player making their choice, and the machine deciding how much money to put into box B – happen. There's two options:

First, the machine deposits money into box B (based on a guess as to how the player will choose); the player chooses afterward.
First, the player chooses; the machine deposits money into box B afterward.

(Technically, there's a third option: both actions being performed at the same time. I'd consider this to be equivalent to the first, in that the machine cannot observe the player's actual choice, and the machine's choice is a given for the player.)

The first option is not interesting as a one-off game, as choosing both boxes is clearly a dominant strategy. However, it would be interesting as an iterated game where the player's goal is to maximize their total payout, while the machine's goal is to minimize it. Obviously the player's optimal strategy would depend on the strategy (programming) of the machine, and vice versa. In order to identify overall good strategies, one could perhaps come up with different strategies for both player and machine, pit them against each other over a certain number of rounds, and see which strategy is robust against a wide variety of adversary strategies, the way that Axelrod did for prisoner's dilemma strategies in the early 1980s.

For the second option, the machine's decision-making process needs to be clarified; what does it mean for the machine to be "almost always correct"? I'd implement this as follows: the machine has access to an oracle that will tell it the player's choice, but which, with probability $p > 0$, will give an incorrect answer. The machine always follows the oracle and puts \$1,000,000 into box B iff the oracle says the player did not choose both boxes. This scenario could then be analyzed using standard tools, and the player's optimal strategy determined for both one-off and iterated games, depending on the value of $p$.


Is it correct to say opportunity cost is cost of giving up quantity of what you are selling? In this video (https://m.youtube.com/watch?v=KEYYN-a_x6E), the instructor talks about the marginal opportunity cost and supply curve. (Begins talking about it at after 1:50).

He states that the opportunity cost of giving up a quantity of apples (what she is selling) is the opportunity cost.

Is this correct? I thought the opportunity cost is the cost of giving up alternative things. But he plots the points of "giving up an apple' on the marginal opportunity cost curve, even though she is selling apples, so wouldn't that not be the opportunity cost.

It seems the instructor is referring to the opp. cost of giving up the profit from selling x amount of apples. Which would be an opportunity cost. Opportunity cost isn't strictly alternative based, for example: If I'm selling 10 apples today, the opportunity cost of be only selling 9 apples tomorrow is whatever profit I stand to lose from not selling the 10th apple tomorrow.

If you can do A or B and make gain of a  or b,  then the opportunity cost of doing B would be b-a.  If a were larger then doing B would result in an opportunity loss.

Alternatively if you do nothing then the opportunity cost would be the larger of a or b which you could have made by doing A or B instead of nothing.


Does the Efficient Market Hypothesis Solve the Tragedy of the Commons? My layman understanding of the Efficient Market Hypothesis is that there is so much brain power focused on the maximization of profit in the marketplace, that the market will find the best solution both in the short and in the long term.

The particular instance of "Tragedy of the Commons" I have in mind is global warming, for which there is a fair amount of scientific consensus that it will disturb our civilization to an extent that does not guarantee that markets will continue existing as usual (stable governments being somewhat important for markets).

So here is my question: It seems that market players are not investing in ensuring the effects of global warming are minimized (i.e. market players are not ensuring the continuing existence of a market place). Does this mean that the Efficient Market Hypothesis is a model that does not describe our actual reality? If that is the case, how is one supposed to know when the Efficient Market Hypothesis is a good model?

A side question: Is this whole "exploiting the commons before someone else exploits them, irrespective of the fact that we are all doomed without the commons" more closely described by a Prisoner's Dilemma? But if that is the case, would you not expect the intelligent efficient actors in the marketplace to decide to work together to save themselves?

My education is not in economics so maybe my question is not well defined. My hope is that even if this is the case, an explanation of why the question is not well defined would be useful on its own.

Your description of the Efficient Market Hypothesis (EMH) is not correct.

The EMH simply states that asset prices fully reflect all publicly-available information. It does not make the wild claim that:

  the market will find the best solution both in the short and in the long term.

You write:

  It seems that market players are not investing in ensuring the effects of global warming are minimized (i.e. market players are not ensuring the continuing existence of a market place). Does this mean that the Efficient Market Hypothesis is a model that does not describe our actual reality?

Market players do not invest with the goal of minimizing the effects of global warming. Instead, their goal is to maximize their returns.

To the extent that their interests and those of society's (or the world's) are not aligned, we have a problem of externalities. But this says nothing whatsoever about the EMH.

Example. At a horse-racing track, individuals place bets with the goal of maximizing their winnings. They do not place bets with the goal of raising the horses' welfare or of sustaining the horse-racing business. Their goal may not align with that of the horses or the business owner. But this says nothing whatsoever about the EMH.

(What the EMH would say in this example is that the bets reflect the expected performances of the horses. The bets do not say anything about the welfare of the horses of the viability of the horse-racing business.)

Market players do not invest with the goal of minimizing the effects
  of global warming. Instead, their goal is to maximize their returns.

I'm just postulating here, but is this actually the case? This is looking at investment from an "Econ"'s point of view, but don't investors also have vested interests in the environmental impacts of whatever assets they're investing in? Especially if these investors look at holding these assets in the long term (when sustainability and climate change becomes more of a public issue)?


In this 3-way currency exchange, who loses, and by how much? Let's say, hypothetically, we have the following imbalanced exchange rates:

1USD = 1.2EUR

1.2EUR = 1000 JPY

1000 JPY = 1.5 USD

Let's say person A starts off with 1 USD, buys 1.2 EUR from B, then buys 1000 JPY from C with the 1.2 EUR, then finally buys 1.5 USD from D with the 1000 JPY.

Person A now has .5 more USD than they started with. Where did the .5 USD come from? Who lost that equivalent amount? Does it depend on the exchange rates before and after this imbalance happens?

If the starting balances were

A = 1USD
B = 1.2EUR
C = 1000JPY
D = 1.5USD

then the ending balances are

A = 1.5USD
B = 1USD
C = 1.2EUR
D = 1000JPY

so the simple answer to where the 0.5USD came from is D.

A more complicated answer would be some combination of B, C and D depending on how the exchange rates rebalanced to iron out this arbitrage opportunity.

For example if 1000JPY dropped back to 1USD, then D could do some exchanges with B and C leaving them where they started and D with 1USD, i.e. D lost the 0.5USD

But if the EUR/JPY changed so that 1.8EUR = 1000JPY, then C ends up with -0.5USD, if you do exchanges to restore the JPY and EUR to where they started.

If USD/EUR changed so that 1.5USD = 1.2EUR, B ends up with -0.5USD.

I think you have answered your own question in the first line

  we have the following imbalanced exchange rates

Keyword here, imbalanced.

What you have written is mathematically impossible, one of your 3 exchange rates could never happen.


Why do many countries hoard gold bars? In my country, the only legal way to sell a gold bar is to sell it to the central bank. What are the reasons why some countries hoard gold bars?

The answer from the former Chair of the Federal Reserve is in a word: tradition.

Chair Ben Bernanke testifying to the United States Senate.

Gold is regarded as safe haven. It was used as an exchange before money was invented. Good hedge in crisis times.


What determines whether slavery is economically efficient in industrialized/modern era economies? Various forms of slavery were nearly universal before the industrial revolution. After industrialization, it would naively seem forced labor would continue to be widespread, as there is no way to compete against it. But it only remained or became entrenched in a few locations and market sectors. Even current non-industrialized economies rarely involve slavery. I can't find a convincing explanation of why.
The coincidence with industrialization suggests slave profits are disproportionately vulnerable to automation, but slavery was largely agricultural and declined before much agricultural automation, while wage labor specifically coincided with industry. Why are profits higher from agricultural/automatable work, but not those from factory work and non-automatable services, when using slaves rather than wage labor?
I find it impossible to believe it was because of lofty values for human rights. But imagining US/English history without a labor movement, for example, seems like it was resulting in the kind of sweathouse economy I would have expected to be typical. Do the data show that labor movements decisively shifted the equilibrium world-wide?
I also find it impossible to believe that most work requires education incompatible with being indentured, or that maintaining discipline and motivation would be prohibitive. Do the data say otherwise?
Maybe workers create so much more profit when they are themselves maximal consumers that capital creates political pressure to inflate wages above subsistence, to create (investment) markets? I think this would be capitalists' explanation, but coordination among capital would be susceptible to being undercut, prisoner's-dilemma style, by competitors willing to use slaves. I think the only thing that prevents that in an international context are trade agreements, but again, it is hard to believe those have been so dramatically effective.
I haven't been able to find this question addressed with data, it is always completely overwhelmed with ideology.
Some common explanations claim slaves cost more to maintain than they produce (under most circumstances). That can't be right -- workers make enough to eat, profit their employers, and buy comforts unavailable to slaves (including time off, medical care, and retirement), considering redistribution of course. So why hasn't capital driven those comforts to zero?
The first answer here contains an insight I find plausible: you can fire/exchange a wage worker, but you can't sell an unproductive slave. So capital is willing to pay to insure against sinking costs into future labor of uncertain value. Another way to emphasize the mechanism is to focus on the cost of management necessary to utilize workers' full capacity -- workers can do this more efficiently than an employer. I find this line quite persuasive, are there data? @1muflon1 cites Anderson & Gallman (1977) -- is this the best reference in this vein?
Are there respected/consensus analyses of historical data that shed light on this question?

Necessary Caveats When Discussing Slavery:
First before tackling this question it is important to note that this issue is broad and complex. This is because there is no single 'slavery'. For example, slavery under the Roman Empire was not the same as slavery practiced in US south (see Tamin; 2017). Furthermore, even within a given society there might be different parallel forms of slavery. This is especially true if you count as slavery all 'unfree labor' such as indentured servitude or serfdom which were similar to slavery (Russian serfs could even be bought and sold see Kolchin 1990).  Hence it is extremely difficult to generalize about an institution that has been practiced differently all across world and time until very recently, and making exhaustive review of all forms of slavery and unfree labor is beyond scope of stack exchange. As a consequence I will mainly focus in my answer on the sort of slavery that existed in the US although I will try to keep thigs as general as possible.
Second, when we discuss whether slavery made an economic sense we have to distinguish between economic sense from point of view of society and point of view of few private individuals. For example, mercantilism is demonstrably not economically beneficial to society and generally tends to make economies poorer than they could be without it, which you can learn from any international economics textbook (see Krugman et al (2018) for example). Yet despite of that you could historically find many merchants who became fabulously rich thanks to mercantilist doctrines. North Korean or Venezuelan institutions also make local elites extremely rich but are arguably disastrous to the general level of economic welfare in their societies. If government would give a company monopoly on apple production it would greatly benefit the owners of said apple company but  hurt consumers much more so on net basis it would be not economically desirable to have it.
Slavery from Private Perspective:
From narrow private perspective slavery was profitable. For example, according estimates provided by Conrad & Meyer (1958) the slave owners in antebellum US could expect to see return in excess of $10\%$ during certain time periods. According to Fogel & Engerman (1974) returns of plantation owners using slave labor were comparable to those in manufacturing.
Generally speaking if slavery was not privately profitable for people engaged in the slave business they would not continue to do it on any large scale. Yes even if it would not be profitable some individuals could have kept slaves as a some sort of Veblen good to signal their high status, and I am sure historically some wealthy individuals kept slaves for only this purpose, but on any economy-wide scale slavery would not persist if it would not bring benefits to the slaveholders themselves.
Slavery from Societal Perspective
From a societal point of view the economic literature suggest slavery had more costs than benefits. For example, Anderson & Gallman (1977) argue that slave ownership is detriment to specialization. The reason for this is that if you own slaves you own them whether demand for your goods is high and low. Slaves are essentially a fixed cost for a business because you need to shelter them and feed them even if you dont have any work for them whereas free laborer can be just fired and hired at will. As a response slave owners were often not engaged in just one single line of business (like just picking cotton) but had to also diversify and use their slaves for various tasks.
However, such diversification is detrimental to economic welfare and even economic growth as specialization leads to both higher efficiency and hence allows economies to produce more, but what even more specialization can also have dynamic effects that allow economies to grow more faster (inventions & discoveries are usually made by specialist not by 'jacks of all trades'). Consequently, Anderson & Gallman argue that slavery in long run stifled the economic growth in south and hence been detrimental to southern economies even if for the slave owning elite benefited from such system. Other authors such as Genovese (1976) went even so far as to claiming that slave ownership was detrimental to the development of 'capitalism' as it discouraged  development of towns and commercial centers.
Furthermore, generally from a development perspective we recognize two types of institutions (see Acemoglu and Robinson Why Nations Fail);

Inclusive Institutions - “inclusive economic institutions… are those that allow and encourage participation by the great mass of people in economic activities that make the best use of their talents and skills”

Extractive Institutions - are defined as the opposite of the above inclusive institutions (and authors even mention slavery as prime example of extractive institution).

And developmental research shows (again see Acemoglu and Robinson) that extractive institutions are detrimental to economic development. In fact the authors argue that most of the differences between 'rich' and 'poor' countries today can be explained by the fact that  countries that are high income today tended to adopt inclusive institutions while the low income countries mostly relied on extractive institutions. Now slavery is only one of myriad of institutions so it is possible that a country would manage to develop even despite of it. Also the contrary holds a country where most institutions are highly extractive but does not have slavery will still not be able to develop itself. Nonetheless, their research suggests that slavery would be detrimental to economic development.
An concrete example of study that looks at unfree labor would be study of Dell (2010) that using regression discontinuity (in order to ensure exogeneity) examines the long‐run impacts of the mita, an extensive forced mining labor system (which is very close to slavery) in effect in Peru and Bolivia between 1573 and 1812. Results show that this system had persistent effect on lowering household consumption by around 25% and increases the prevalence of stunted growth in children by around 6 percentage points in subjected districts today (long after the system was abolished). Furthermore, the study shows this system had also persistent negative effects on other developmental measures such as integration of road networks and that also the regions that used to had mita are less industrialized and focus more on subsistence farming even today.
There are also some studies that highlight that slavery also had some positive economic impacts. For example, Williams (1944) argues that even though slavery was overall detrimental to economies of Americas it helped to develop international financial networks and in turn international banking has first order effect on economic development. Nonetheless, international financial systems would most likely develop thanks to the international trade eventually anyway so the benefits of slave trade were likely just indirect.
Furthermore, all of the above does not even take into account the welfare cost associated with the loss of utility experienced with by the slaves themselves. This utility loss was undoubtedly tremendous and any economic analysis from societal point of view has to take it into consideration.
Lastly, as pointed out by Giskard in his +1 comment, slavery was not abolished just due to economic reasons (and the same can be said about serfdom or myriad of other extractive institutions). Moral and socio-political factors play role as well. For example, top US public economists are generally in favor of well regulated market for kidneys as this poll shows, yet US does not have such market and this is most likely because most voters would consider such market immoral regardless of any general welfare benefits. Consequently, one should not assume that some economic policy exists or ceases to exist solely because it is or ceases to be economically efficient. You should also note that slavery was most prevalent in the  past when democracy was not ubiquitous as today, and even countries that had democracy extended franchise only to the land holding elites (which were also most likely the ones to own slaves) and was further restricted based on other ethic or gender characteristics. Thus extension of franchise probably played big role in abolition of slavery and other forms of unfree labor but these are questions for political scientists, historians, sociologist and anthropologists to answer.

Slavery is not the root issue here. The level of automation and the required investment (and human capital to decide, do and handle it) is the core issue: today we can find firms that produce almost the same goods but one firm does it with lot of automation and robots and AI but other firm does it with lot of manual labor, with work that is almost inhuman and whose conditions are almost comparable to the slavery. The real question is - why both types of firms may exist and whether it is good that there are firms with no automation?
Agriculture is one example - e.g. there is harvesting robots like https://www.youtube.com/watch?v=FCivsotZEjk but still - the agriculture is the business with lot of manual and inhumane work - and even it the European Union which is said to celebrate the humanity, e.g. https://www.politico.eu/article/italy-seasonal-migrant-farm-workers-coronavirus-covid-19/ I guess the lack of social policy and lack of education policies supports the survival of industries with lot of manual/inhumane work.
I have sought for years the economic literature about this duality that can model and provide guidance of these issues, but I have not find any good papers about it. I have this question Emergence of notion "primitive business" in the era of Industry 4.0 and globalization that can gave insight into the issues about which I am talking. Unfortunately, that question is unaswered.


Anything written on the process behind "multiplicative" production function? Intuitively, one might make a naive first guess that the production function of the economy, or of a firm, should be a "leontief" production function: "for example, you need both a factory and a worker to produce cars. A worker by himself, without the help of furnaces, and so forth, cannot construct a car, and the furnace by itself cannot do so either"

Obviously, this argument does not mean that the production function has to be leontief, but intuitively this might be what one expects.

I am looking for something written, that goes into great detail, on what the processes are behind the form of the production function (both firm-level and aggregate). Why would we expect a certain form of production function and not another? E.g. why would we expect a CES production function? why would the elasticity parameter be close to negative infinity, or to 0, or to 1? I hope that someone has written something that answers these questions on the basis of a micro level account (whether mathematical, or narrative).

As I understood from my lectures, a multiplicative function means that the marginal product of one factor increases when another factor increases, and decreases when another factor decreases. The extreme cases (leontieff or additive) don't have this property.

At the moment the teacher explained this, it made sense to me. If one factor increases, it expands the capacity of the other to produce more. I think it makes sense.


Basic question: why do markets grow? I apologize if this is gonna be very basic, but I am a beginner. My question is: why do markets (expressed as indices) grow? Is it because money is constantly moved from the real economy into stock markets, but the ingoing flow surpasses the outgoing flow?

Suppose no money can flow in or out a market, besides what is already in. Would that market (or a stock index that represents that market) just reach a dynamical equilibrium? I would say yes, but please correct me.

The general answer is no, a closed market with only money circulating within the market, and that money never leaving it or entering it, cannot increase its aggregate price level - provided that the quantity of goods being sold on that market also remains constant. Price wise however, it can display variations over time, so share values can change - even if the money circulating that creates them doesn't.

The main reason market prices grow and shrink in the real world is that not only are new companies always being listed, but money is entering them and sometimes leaving them at different rates. In a typical western economy for example, the money supply is continuously growing due to bank lending, a percentage of that growth it being invested in the stock market through pension funds, and so there is a linkage between monetary growth and the market.

Consequently any time some kind of conduit between lending and stock market purchases gets created, things tend to get exciting. cf. 1929 US Crash.

The key concept is what exactly "markets (expressed as indices) means. The term stands for "market value" of public cooperations (those issue stocks, in America this simply means the S&P 500). As you can see, market value does not necessarily mean the same as the total money the corporations hold. There are three reasons why market values can increase:

When the financial environment exceeds previous expectation. For example, if the US government announce a better fiscal quarter of inflation/housing prices, the market rallies up in response because
everyone (not literally, but most of investors) expects stocks in
hands will worth more in the future. The current market value
increases.
When there exist less worrisome threats. Basically, when the markets can safely be sure that the critical events have passed
(the US financial crisis, ...), the market recovers. Business cycle
can be of help here.

These two reasons, in my opinion, are of "artificial money" created by expectations of investors. The last reason might be of real money.

When demand exceeds supply. I am thinking of a simple example. Holding every other S&P 499 constant, if Apple issues their financial report claiming that last quarters they sold better than ever, more investors (in quantity) want to buy more stocks of Apple. The price of Apple stocks increases (though they are not issuing more stocks). This increase the market value of Apple (and of those investors holding the stocks already). In turn, this excess drives up the whole market.

The last reason might not be seen often in my opinion.


Why does raising interest rates work? Why does the federal raising interest rates actually have an effect on the economy? The typical answer is that it reduces money supply by incentivizing saving and increasing cost of loans.

But couldn't market participants just react by adjusting FX rates, inflation, etc. by the appropriate amount? Then even though the money supply is reduced, the real rates are unchanged, resulting in no net effect. What are the factors preventing this from actually happening?

The typical answer is that it reduces money supply by incentivizing saving and increasing cost of loans.

This is backwards.  The Federal Reserve (the United States' central bank) sets a target for the federal funds rate.  The rate itself is a weighted average based on market activity.  The Fed encourages the average rate to match the target by buying and selling bonds in what are called open market operations.  Buying bonds puts money into circulation, increasing the money supply.  Selling bonds takes money out of circulation.  The Fed changes the money supply to change the interest rate, not the other way around.

  But couldn't market participants just react by adjusting FX rates, inflation, etc. by the appropriate amount?

Only if all (or even most) of the participants worked together.  If only one or a small portion of participants attempt this, then it creates arbitrage opportunities for the remainder.  Currency exchange rates and inflation are both set based on market actions.  They aren't so easy to adjust.

couldn't market participants just react by adjusting FX rates,
  inflation, etc. by the appropriate amount?

Exchange rates actually adjust in a way that ends up precluding arbitrage opportunities.

Although a central bank might aim at a certain level of inflation, the exchange rate and inflation are not variables that the central bank can control. Instead, the central bank's primary tool to influence these and other variables is the interest rate.

A central bank can intervene by using its reserves of foreign currencies for the purpose of restoring stability of the local currency, but the bank's ability to do so is limited to the amount of reserves it is willing or able to sacrifice. By contrast, the central bank is not "physically" constrained when determining an interest rate. In other words, interest rates entail a degree of freedom that a central bank does not have with exchange rates.


What causes the US media obsession with tariffs; The EU and others have charged tariffs on US stuff forever? The EU has about a 50% tariff on US beef and higher tariffs on US liquor (typical EU bureaucracy has many categories and quotas, so a single number is impossible). So why is a relatively low US tariff on 2 materials, (the EU has tariffs on about 100 materials from the US) make so much news time?

Nations frequently have tariffs between each other. However, the trend since WW2 has been fewer tariffs and other trade barriers. For example, even recently the EU has significantly reduced tariffs.

Likewise, the US has also both practiced and preached free trade, reducing tariff rates.

Economists have strong consensus that tariffs are bad. This isn't dependent on political leanings, it has wide agreement. "The economics profession continues to show a consensus in favor of unfettered international trade, as 83 percent agree and only 10 percent disagree that the United States should eliminate remaining tariffs and other barriers."

The reason the new tariffs are reported by the US media are because they are a new policy change which oppose the existing trends and expert opinion, although they do have public suport

Steel and aluminum are used to make tanks and jets. The US already has the largest military in history.

Because this will make other countries justifiably paranoid, it could start an arms race and a) waste a lot of everyone's money everywhere and b) possibly be a step toward some war of aggression. Both of these factors could force realignments among other countries that they might prefer not to have to make, in order to ensure that things cannot get too crazy.

Even if it's just Mr. Tough Guy being an idiot, other people have to plan for that. Due to the theoretical possibility that it's planning for some war of aggression, presumably those who disagree with wars of aggression will prefer to purchase media outputs from companies who provide sufficient information and perspective toward prevention of such things coming to pass.


What's a singular model in economics? What's a singular model in economics? I've tried google, but I didn't find a definition...

In an article by Ingram et al (1994), they state:

  This linear model is singular because it predicts that the current value of consumption is an exact(non-stochastic) function of current output and lagged consumption.

Also, the paper says that any model (RBC and extensions) with a number of shocks smaller than the number of observable endogenous variables, has this particular behaviour. So, the models are not 'singular' as a dictionary definition.

From this I get that any stochastic model, which determines some observable endogenous variable to follown a non-stochastic path, then I can call it singular. Is this correct?

Also, does this definition have any relation to bifurcation? In ODE we have a 'bifurcation' of solutions, when

$\dot x = F(x,\mu)$, and at $\mu=\mu^*$, $DF(x,\mu^*)$ is singular, but non-singular at every other value of $\mu$. The equilibrium will depend continuously on $\mu$ and 'after' stability is lost, new stable equilibria will appear. (this lacks mathematical precision, but I think it suits the purpose of stating the intuition of bifurcation)

Any help would be appreciated.

I have tried to grab the article to read it, but my library apparently doesn't subscribe to JME as full text.  However, when I have seen the word singular used in economics it is usually in the framework of a singular matrix.  As this article appears to be a criticism of another model, it would appear they are arguing the other model would not give rise to an invertible matrix.  In the above set of comments, it is implying that the stochastic component is vanishing and that the model is deterministic, despite the fact, there are no actual deterministic models in economics if you have to measure things.

My guess is that they are criticizing the other model by showing it can't work.

singular

adjective: unusual and easily noticed:

  His campaign was singular because he talked about issues and did not attack his opponents' personal lives.

Cambridge Dictionary Link

Without further context to consider, it is most probable that the use of the word is not with regard to the field of Economics or Mathematics, but rather it is used as an adjective to denote how remarkable the linear model is, similar to the example above.

Therefore, it is illogical to conclude that one may refer to "any stochastic model, which determines some observable endogenous variable to follown [sic] a non-stochastic path" as "singular" based on this use of the word alone.

Likewise, it is doubtful that the statement bears any effect on your understanding or use of bifurcation.


Is it possible to quantify & cost the ideological obstruction to climate change? Paul Rogers in an article on Open Democracy, writes:

It is also significant that the term 'hothouse earth' has caught on, and that the idea of runaway climate disruption is covered in the media in some depth - even by newspapers that have long been impregnable citadels of climate denial
The weekly economist has for many years given ample space to climate sceptics, but recently it's coverage has changed markedly. The cover story of its latest is about the failure to tackle climate change.

Is it possible to quantify and cost the ideological obstruction on tackling climate change given that the earlier climate change is tackled the more effective it would be?
One example of a global effort to limit environmental damage was the Montreal protocol on limiting substances that damage the ozone layer that came into force in 1987 with climate projections showing that ozone layer will return to 1980 levels around 2050-70. Of course, the CFC industry is valued in the billions whereas the fossil fuel industry is valued in the trillions so there is likely to be a much larger push-back from the industry. It's this that I want to have numbers on.
In view of the comment below in the top rated answer, I'd suggest that such an exercise would useful in informing class action suits in the future in the same way that we have had class action suits against big tobacco firms. (In the latter, they are polluting peoples lungs and in the former, the planet lungs).

Yes, it is possible to cost it. The range of costs could be estimated by taking the range of estimates of the marginal social cost of carbon (in €/tCO2e), and the range of estimates of the net excess amount of greenhouse gases [GHG] released due to delay (in tCO2e), and multiplying these together.

One starting point would be to ask how long it would have taken to get to zero net GHG if there had been international agreement in 1989, at the start of the IPCC, to put the world on track to tackle climate change (a deal that was killed by the USA, USSR, UK, Japan at the time), and what the total net emissions would have been on that trajectory, versus how they'll be if we achieve a 1.5°C or 2°C trajectory now.

I suspect no one's done it because it's not obvious what the value of the exercise would be: in the absence of a time machine, it doesn't really inform any decisions now.

You cant change the climate/weather any more than you can stop the tides.

All money spent 'fighting' climate change is wasted so we can say definitively that the value/cost of obstructing this nonsense is good [and >0 as long as not spending more than the greenies are wasting]   as not fighting it would result in even greater waste of resources.


Is 'full employment' synonymous with 'the natural rate of unemployment'? Is the phrase 'full employment' synonymous with the phrase 'the natural rate of unemployment'? Parkin, et al. (2010) seem to use these two terms interchangably in chapter 20, but looking up these two terms in the Oxford dictionary of economics (Black, Hashimzade & Myles 2009) shows two different meanings: Black, Hashimzade and Myles state that 'full employment' relates to the equilibrium point in the labour market, whereas 'the natural rate of unemployment' is a Keynesian concept which looks at the level of unemployment given constant inflation.
My interpretation of this is that 'full employment' is a classical concept, whereas 'the natural rate of unemployment' is not, because it seems as if the latter varies according to the rate of inflation (a nominal variable).
EDIT: The answers I have gotten so far are incorrect in that they say that 'full employment' means '100% employment'. This is incorrect because full employment actually takes into account frictional unemployment. I quote two dictionaries on the definition of full employment:

A situation where the labour market has reached a state of equilibrium, so that those in the active labour force who are willing and able to work at going wage rates are able to find work, and the only remaining unemployment is frictional unemployment.
(Black, Hashimzade & Myles 2009)

The following definition comes from The Economist

Jobs for all that want them. This does not mean zero unemployment because at any point in time some people do not want to work. Also, because some people are always between jobs, there will usually be some frictional unemployment. Full employment means that everyone who wants work and is willing to work at the market wage is in work. Most governments aim to achieve full employment, although nowadays they rarely try to lower unemployment below the nairu: the lowest jobless rate consistent with stable, low inflation.

The Economist goes on to define frictional unemployment as

That part of the jobless total caused by people simply changing jobs and taking their time about it, because they are spending time on job search or are taking a break before starting with a new employer. There is likely to be some frictional unemployment even when there is technically full employment, because most people change jobs from time to time.

In South Africa, unemployment is defined as those people who are actively seeking work, but who have not found work. Frictional unemployment seems to be a looser concept: the citizen wants work, but is happy to give up their previous job. It may be entirely possible for them to get work, just that it's taking them a while to secure their next contract. For this reason, one cannot say that an economy with a surplus of jobs is not at full employment.
References
Black, J, Hashimzade, N & Myles, G. 2009. Oxford dictionary of economics.  3rd edition. New York: Oxford University Press.
Parkin, M, Kohler, M, Lakay, L, Rhodes, B, Saayman, A, Schöer, V, Scholtz, F & Thompson, K. 2010. Economics: global and Southern African perspectives. Cape Town: Pearson.

Full employment is a more general term, which has much less implication than natural rate of employment. My experience reading a lot of economics papers is that careful authors do not mix the two concepts.

Stricto sensu, full employment should mean 100% of the workforce is employed. But when we are talking about periods such as the trente glorieuses, the term is often used to mean "very low unemployment", which Keynesian economists associate with natural rate of employment. Politicians will most certainly never use the later, while economists may not always be very careful about which one they use.

Full employment is rather a deceiving term. It suuggest that 100% of the workforce is employed. However, there are so many reasons why this cannot be achieved and should not be achieved. Typical workforce would include people who are studying, people who have just got out of colleges, differently-abled etc who might not be supposed to be working in the way we assume they should. So at any point of time there will always exist some structural, frictional unemployment. Adjusting which we get the natural rate of employment or unemployment.
Economists do not confuse between these two terms. You will find terms like potential output, zero output gap etc which refer to the same state and are technically more sound.
Also, every level of output is an equilibrium point. The question is whether the economy is at its natural level of output or potential output or long term output level. At that level, natural employment level should prevail.


Have the stocks and flows of hunter-gatherer economies been formally analysed? A lot of work in economic anthropology seems to be about allocation mechanisms. This feeds into economic discourses about the institutions governing markets and non-market alternatives, e.g. Douglas North (1977):
Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi

It is reasonable to assume that the forces that lead to the
substitution of firms for markets today may also help us to explain
the variety of forms of economic organisation in past societies.

I wonder if similar work has been done on stocks and flows, i.e. a formal economic analysis of stocks (e.g. rights to access common land, its fruits once harvested, services such as healthcare, tools, artefacts) and flows (e.g. reciprocity mechanisms, both within and between groups).
There is ample qualitative analysis, e.g. in this volume edited by John Gowdy (1997) which includes a contribution by Marshall Sahlins (Stone Age Economics, 1972):
Limited Wants, Unlimited Means: A Reader On Hunter-Gatherer Economics And The Environment
I wonder if there have been attempts to formalise the stocks and flows?

Anthropology is concerned with understanding a society in qualitative terms rather than quantitative terms. To try to understand it in these terms is to misconceive how those societies work and what anthropology is.


Revealed preferance: elementary question When the market prices are Rs 5 per apple and Rs 6 per orange a person
  buys 16 apples and 28 oranges. When the prices are Rs 4.4 per apple
  and Rs 6.4 per orange ,the person buys 20 apples and 25
  oranges.Assuming that utility is derived only from apples and
  oranges,in which situation is the person better off?

My answer: it can't be said because in the first case the second bundle is not affordable and in the second case the first one is not affordable. Therefore, none is revealed preferred to the other?

Is this correct? Please help. I'm trying to understand this concept. Thanks so much in advance.

Yes, your reasoning and your conclusion are correct.


what is the Relationship between Zero nominal interest rates and liquidity traps So I'm reading mankiw"s principles of economics and I'm in the chapter about the influence of monetary and fiscal policy on Aggregate demamd.
The part about nominal Interest rates and liquidity traps left me confused and I didn't really understand what it meant. Can anyone elucidate the role of short run interest rates and their effect on the economy?
More specifically, can anyone explain this particular paragraph:

"Some economists have suggested that the possibility of hitting the zero lower bound for interest rates justifies setting the target rate of inflation well above zero. Under zero inflation, the real interest rate, like the nominal interest, can never fall below zero. But if the normal rate of inflation is, say, 4 percent, then the central bank can easily push the real interest rate to negative 4 percent by lowering the nominal interest rate toward zero. Thus, moderate inflation gives monetary policymakers more room to stimulate the economy when needed, reducing the risk of hitting the zero lower bound and having the economy fall into a liquidity trap."

The paragraph that you included likely assumes that nominal rates won't go below zero, and therefore that $r_n$>=0 at the zero lower bound. This has been challenged by unconventional monetary and exchange rate policies (i.e. the EU, Switzerland). This likely leads to a few assumptions under classical economic frameworks:

-The Money Demand curve is not horizontally asymptotic at $r_n$=0

-If it is assumed that there is rate mobility below a zero nominal rate (it can go lower and lower with market manipulation), $\frac{d\left(r_n\right)}{d\left(Q_{md}\right)}$≠0 where $r_n$<0. Logically, a -0.41% rate affects consumers differently than does a -0.68% rate (remember that this is effectively the risk free rate; risk premiums will yield positive rates that can be interpreted using classical liquidity preference theory)

This tool has been used for different reasons. Switzerland isn't using negative nominal rates to escape a liquidity trap, but to keep the Franc from appreciating and sending their trade deficit through the roof. The EU on the other hand has resorted to this unconventional monetary policy to try to stimulate growth and avoid a deflationary spiral. They hope to incentivize banks to lend money at the negative rate plus a risk premium rather than be charged to hold money as reserves by the ECB. Consequences exist for these policies, however. Because consumers would rather hold money as cash than lose it in a negative yielding savings account, the money supply of the banking system weakens, and rates can rise back up. Due to its only recent implementation, negative interest rates are likely still considered experimental at best.

Anyways, the paragraph argues that an above zero inflation target allows more policy flexibility, as $r_r$=$r_n$ when inflation equals zero. This effectively gives borrowers cheaper "real" lending while lenders still gain a rate on their assets above holding money as cash (and therefore no bank runs or contracted money supply). Again, this paragraph is either assuming that the ZLB equals zero, or that negative nominal rates are not sustainable. Mankiw would probably argue that a higher inflation target (which leads to generally higher nominal rates in equilibrium), would've given the EU a better ability to manipulate aggregate demand with a "target" lower bound of 0% nominal interest.


Is it possible to have constant marginal cost and decreasing average cost simultaneously? I thought about possibility of occurring such event in the case of presence  of fixed costs, but I would like to know others opinions.

Yes, if there are non-zero fixed costs, and constant marginal cost, then average cost decreases strictly monotonically with quantity, asymptotic to the marginal cost.

Yes, but dropping fixed costs is not really a thing, is it? That is kind of the idea, you can't lower them easily