Naked Economics - Blog Entry #1

D. In chapter 1, Wheelan explains that firms always try to maximize profit using the easiest and most efficient methods. "That may mean laying off twenty thousand workers or building a plant in Vietnam instead of Colorado" (pg. 15) Consumers drive firms to adopt this strategy as they themselves seek personal gain, by finding the lowest prices. This in turn forces professionals to seek how to make the most money for their services. Wheelan examples that the best doctors in the world don't help the millions of dying children, they instead perform plastic surgery on Hollywood stars because they can make significantly more money. In conclusion, firms are more interested in profit gain than ethical or moral obligation.

Economic analysis is complex and hard – while there are “logical regularities”, people do not always behave predictably. Even though it is this complex and varies day by day, economic analysis is useful in many, many aspects of financial and government policymaking. Almost all political decisions have some economic consequences, between health care, taxes, agriculture and promoting competition between businesses, they all have a direct effect on our lives at some point economically. Economics also play into every ordinary consumer’s life – from ordering food, to attending college – the theories behind economics play into these issues. Most people wouldn’t think that economics plays into their daily lives, but the truth is they do. Being educated about how the US literally runs its businesses is essential to living in this democracy. Understanding economic principles and theories is important because it simply affects each and every one of us in such an immense way.

B. In the introduction Mr. Wheelan brings about two important points. The first of which is why he wrote Naked Economics the way he did and the second is what Naked Economics means. He begins by discussing the need for economic knowledge. Economics is needed because it is a powerful force in this country and very relevant to our daily lives mentioning things like organ donation, which many of us, including myself, have written on the back of licenses. So even though we might not be filling out tax forms we have already taken part in what economics assists to explain. As consumers, on a daily basis we contribute to the economy. Wheelan also makes the point that many people have no idea what economics actually is and frighteningly enough some of those people hold high-up positions in our government, which the basic knowledge of economics would readily clear up. Secondly, Wheelan discusses his idea of 'naked economics'. Essentially he proposes to write about the basic ideas of economics that are most pertinent to us, especially focusing on the things that are intuitive to us. The idea of "peeling away it's complexities" to get to the core of what is important. These things can help us explain the past and help us to predict and evade occurences in the future. ----------- C. To a certain level I agree with Wheelan's thought that "Maximizing utility is not synonymous with acting selfishly." As he explained earlier we each have our own set of preferences that maximize our utility. So depending upon one's set of preferences they can act in different ways that can be considered selfish or not. If everyone is trying to maximize their utility and most commonly, their wealth then the wealthier people will then consume more and contribute more to the economy due to their greater amount of money. Similarily, if Wheelan was correct when he said, "Wealthy Americans are willing to spend more money to protect the environment... because we can," then once again people maximizing their utility are giving back to society in the form of environmental help. Also if a person's idea of maximizing utility is volunteering more, they wouldn't be considered selfish as is seen in the example given by Wheelan of Oseola McCarty of Hattiesburg, Mississippi. I also recognize that there are those who are selfish who, with more money, keep it all to themselves without spending or donating much of it, that being the extreme case. But for the most part I do agree with Wheelan that maximizing utility and acting selfishly are not one and the same.

Firms try to make as much money as possible. Their goal is to try to make things that are worth far more than the cost of the materials. They think to themselves, what can we provide that will make us the most amount of money? “Profit opportunities attract firms like sharks to blood…” Firms will go to many lengths to insure that they’re making a profit, even that includes selling cheap goods for a high price. But at the same time firms are not just choosing what goods or services to produce but also how to produce them. “Firms must decide what to produce, how and where to produce it, how much to produce, and at what price to sell what they produce—all in the face of the same kinds of uncertainties that consumers deal with.” Ethical and moral limits fly out the window when dealing with a profit. The only thing on a firms mind when producing a service or product is: what is going to make the firm the most money in the long run?

Economics is a very important subject that governs many of the most important decisions that people make around the world. As students, I feel it is important to be informed about economics so that we are able to make the best possible decisions regarding our incomes and expenditures in life. ---It is very interesting how Wheelan uses his example of "naked" economics being without any of the complex formulas and charts that bore and confuse many students later in life. I like this approach a lot particularly in an introductory course, because I want to get a general overview of economics, but I do not want to be scared away by overwhelming calculations. I hope that reading this type of a book will prove interesting as well as fun. ---I agree with the quote stating, "maximizing utility is not synonomous with acting selfishly." The example in the book, of a woman who chooses to live in a modest house and donate her money to charity illustrates this point very well. I believe that money can be used in selfish as well as unselfish ways. If someone's primary concern is the welfare of others or society, regardless of the wealth of that person they will be a unselfish person. I realize that there are many wealthy people who act selfishly, but the quote simply states that one does not require the other.

B. In the introduction of "Naked Economics" Wheelan uses multiple examples to describe economics in the world today. The examples provide important information about economics in the past and present, which many people may or may not know. One example stated that there are more costs to buying a car than the initial price, maintenance, insurance and gasoline. In fact there are many other costs that, we, the consumers don't have to pay for directly. These costs consist of many environmental factors such as emissions that come from cars, congestion, wear and tear on roads, and dangers to other drivers. In the end, society pays for the "bill," which can end in the form of air pollution, global warming, and urban sprawl. He states that the solution to this problem is a tax raise for gasoline and cars, which is the only way the cost of driving reflects the real social cost. Public transportation is an alternate solution as well. In reaction to the proposals of Wheelan, I agree that the price of owning a car goes beyond maintenance, etc. Also, his proposal could lead to alternative fuels, which lead to new, creative industry and employment. Gas prices fluctuate constantly because of the lack of or excess oil that is available for purchase. If the gas price was raised to slow down car sales and save the environment, then there is a possibility that there would be a loss of employment from related industries that are impacted. If alternate, more efficient fuels started to become more popular, this would not only lead to more employment in the new fuel, but a loss of employment in gas related areas. In other words, as old industry is replaced, new industry creates new opportunities and employment. The proposal of Wheelan, to me, is a beneficial proposal to saving our environment, roads, congestion and other dangers because of the possibilities of a new environmental friendly automobile.

D. Depending on the size of one’s firm, (and its purpose) there are great ethical and moral dilemmas. A hot dog stand isn’t really in danger of compromising general moral values, but other, larger firms are. Let’s use Nike for example. Phil Knight, or someone that works for him, realized that it is much cheaper to make shoes in Indonesia instead of Indiana. Why was it cheaper? Because in Indonesia, you don’t have to pay sweatshop workers a living wage*--you can force a family of four to live on something like a dollar a week. The people that work in Nike sweatshops live in absolute poverty and lead unimaginably horrible lives. I’m sure Phil Knight wouldn’t want his family living in a way he makes other families live. This is the moral danger many large firms face—in attempting to maximize profits, they often reduce other people’s standard of living to something that barely registers as human.

*Judging by America’s current minimum hourly rate, you don’t have to pay workers in Indiana a living wage either, but that’s beside the point.

A.
Studying economics is important for all people, because while we may become involved in macroeconomics, we will be involved in microeconomics.
As John Michael wrote, we need to understand the economy to be informed voters in this democracy. In the forward, Wheelan writes, “A bipartisan majority of economists is quite likely to unite on the opposite side of a bipartisan coalition of politicians.” Economists want what’s best for the future economy, and (as Karen said some politicians don’t do) they do understand how to take events from the past and translate them into likely results in the future. Politicians want what will get them elected. Unfortunately, the vast majority of voters (myself included) don’t understand what economic decisions produce the best results. Therefore, eliminating taxes might sound brilliant to some.
For those of us who will not be in politics, economics or who may not even vote, microeconomics will probably play a large role in our lives anyway. Unless you become a hermit who grows your own food and lives in some undiscovered land without taxes, you will use money. In fourth grade, my classmates and I all spent recess in the woods, and ach clique had a separate fort in the trees. Pinecones were worth one cent and corn kernels were worth a dollar (thank god I lived in a corn field that year!) Anyway, it’s pretty impossible to escape an economy.
From buying things, to balancing a check book (which, yes, I know we will not do in this class), to investing in stocks, to taking the job that will pay the best over fifteen years, understanding money’s role in our lives as well as in all of society is vital for human existence.

D.
Maximizing utility and acting selfishly are quite separate. For those of you who don’t know, Sandy Cohen is a grown male character on the OC. In tonight’s episode he was trying to get some hospital board to choose his pitch to build a hospital in a low-income neighborhood where it would be very helpful. The other company was pitching some lesser hospital- I don’t really know. Anyway, the other company got the job (at first) because they took the head of the board out to nice restaurants. Sandy didn’t like that kind of business and said it would be hard for him to sleep at night if he used bribery. That was selfish (although I don’t think his morals were bad). Later in the show, he decided to take the head out to a nice restaurant because even Sandy was sacrificing his way of doing business, he was helping so many people through that hospital that the good outweighed the bad. That was maximizing his utility.

(D)
Though I admit to being sheltered and leaning to the left, I cannot ignore my befuddlement to Wheelan's justification of sweatshops (p. 20-21; feel free to argue with me). I understand that economically, moving labor overseas is a cost-effective way to keep products competitive in our market. I understand that these sweatshops provide jobs for thousands of people who might otherwise have none. I even understand that under some circumstances, third-world countries welcome the factories of large American and European corporations. Economically speaking, sweatshops make sense. However, these sweatshops concern people. People are not economic units; they are not products waiting to be bought or sold (though our own American culture suggests otherwise) -- they live, breathe, and try to survive. I cannot justify a corporation paying any man or woman three dollars a day (or however much they get paid), when the big boss has enough money in the bank to pay workers a much more respectable wage. I am not a fan of taking advantage of less-fortunate countries -- or people. There must be a line of morality when trying to maximize profits. High profits should not be at the expense of unnecessary disrespect toward other human beings. Obviously, the majority of corporations in the United States do not act with this integrity, but that does not make their actions right. I believe that corporations can indeed keep prices reasonable while keeping integrity in their factories overseas.

C.

I agree with Mr. Wheelan's comment that "Maximizing utility is not synonymous with acting selfishly" for the most part. I think that as he said in page 8, "Individuals seem to make themselves as well off as possible, however they happen to define that." we know this is the case, and since some people define making themselves as well off as possible differently, we can assume that it is not synonymous with acting selfishly. Even if people do not act similarly to the way Oseola McCarty does, in the end people's economic decisions help the economy in one way or another. By everyone maximizing their utility, our economy flourishes. Even when individuals intentionally act selfishly, lavishing themselves in superficial and materialistic things, our economy is bettered and our market raises, etc. So yes, I agree with his comments mad eon page 7 (and 8).

Brendan Byrne
Question A

Economics is a fascinating subject that is important to know if one hopes to have an financially successful life. A thorough understanding of economics is very helpful when going out into the world and managing your finances, banking, credit cards, checking accounts, taxes and many other things. I don't know very much about economics and I'd be scared if I had to go out on my own and manage my finances without knowing the basic economic ideas and theories. There have been many great economists throughout the history of the world with many unique, and original ideas and theories. The writings and teachings of people like Adam Smith, Karl Marx, Milton Friedman, John Keynes, John Gailbrath, David Ricardo, and Thomas Malthus among others have changed economics for the better. Major economic philosophies like the invisible hand, communism, monetarism; the iron law of wages, comparative advantage, and many other economic ideas were created and/or worked on by these people.
The discipline of economics is the building block of our country. Virtually everything on earth has a relationship to economics in some way. Economics has a bad reputation in many circles and is often considered dismal science because it can be vague, boring, and complicated. One thing that contributes to its dismal stature is that it is difficult to convey economic ideas so that they are interesting and practical to people with very little knowledge about economics. This is unfortunate as it is hard to become wealthy and successful in life without a basic understanding of economics.
Learning about economics is important because it can give a person a new perspective on life and how the world operates. I had no idea that a terrible tragedy like an oil spill could have such a dramatic impact on the Gross Domestic Product. Many basic and important questions can be answered by just looking at economics and the world would be a much better place if everyone had a basic understanding of economics.

The basic theme in chapter 1 of Naked Economics is all about the motivation to make profit. The underlying goal in all of business is to generate the most money. It is in each one’s best interest to do whatever it takes to achieve their goal. Though this seems unethical and negative for non-business people of America, these businesses are what drives our economy and causes the growth of this nation. Ultimately, the growth of business will have an indirect affect on the people of this nation, which will benefit them. I believe it is important to learn economics so that I will know how to best fit into the economy around me, and so that I will be able to maximize my profits in life.

I believe, for the most part, in a free market economy, firms should be able to use whatever strategies necessary to make money. If consumers want a product, it is perfectly reasonable for firms to adjust prices to maximize profits. The concept of supply and demand dictates this idea. I do believe, however, that strategies need to be ethical and moral. Price gouging, for example, violates the idea of supply and demand, because costs do not adequately match either the supply or the demand. But what constitutes an immoral or unethical practice? This is a difficult question to answer. Is it wrong for a chef to use $30 worth of food to make an $80 meal? Does this violate the concept of morality? I believe in this situation, it does not, because the chef undoubtedly was able to use her talents to make a meal worthy of such a lofty price. But still, in terms of economics, morality and ethicality can at times be a blurred concept. At what point does attempting to maximize profits cross the line?

"The fact is that economic analysis is incredibly useful for investors and producers as well as government policymakers" (xiii). In the foreword of "Naked Economics," Malkiel discusses the importance of economics to today's society. Although the importance of economics may not be outwardly obvious, the underlying significance of economics influences the entire state of living today. A nation's GDP is directly related to the wealth of that country and the well-being of its citizens. Because it holds so much weight in human survival, it is important for people to study economics because it ensures that governments are making the right decisions when it comes to the well-being of their citizens.

C. In chapter one Wheelan emphasizes the point that both the firm and the consumer are acting to maximize the utility of a product. In many cases, both the consumer and the producer benefit from the exchange of the product or service, otherwise the transaction would not occur. Both may be getting a good deal, and therefore to say that to maximize utility is to act selfishly is incorrect. An example Wheelan gives is of an old woman who saves her whole life, making herself as well off as possible because of her accumulating wealth. She decides to give her money to a charity, not a selfish act, but one made possible by maximizing her profits. It is unfair to assume off the bat that all decisions made by humans are going to be selfish, though they might coincide more that we like to admit, and therefore I agree with the statement made by Wheelan. Another example I would add looks at hybrid cars. Someone might buy one to profit because of the high mileage per gallon, while it also is beneficial to the environment, or something to that effect.

B. i really liked the Coke and Soviet Union idea. it talks about how the Coke company lost a lot of money for giving people the drink for free. However, because of that, people showed more interest in Coke. It is just gestures like these, that could help a company grow in the economy

A. What Malkiel tries to explain is that economics is a lot more than graphs and equations. Economics is a concept that isn't recognized right away by readers. If it is expressed in a certain way, it can be understood greatly. That is what Malkiel is trying to say in the perspective of Wheelan. Wheelan is able to explain high schoolers, the purpose of economics, and being able to explain it in words people can understand.

--C. I agree with Wheelan’s statement, which says “Maximizing utility is not synonymous with acting selfishly.” For each of us, our maximum utility varies; we all have different preferences in the ways we choose to spend our money and should all have complete control over this. Some choose to spend their earnings on large houses, luxury cars, or designer apparel, but nonetheless this is their choice and they are still contributing to the overall economy. One with less money may consider this a selfish act, however in many cases, proportionally, (as Wheelan explains) the rich can therefore afford to contribute money into something one may define “unselfish ways” such as the environment or charity. There are of course examples where some choose to hoard all of their money, not donating a significant amount, but as Karen said in her earlier entry I think this is just one case out of many. Overall, I agree with Wheelan’s point of distinguishing between maximum utility and acting selfishly, as it is all a matter of perspective and the various choices different people choose to make.

--D. As Wheelan states, “In short, firms try to make as much money as possible…Why did the entrepreneur cross the road? Because he could make more money on the other side.” While I find this particular passage very intriguing and understandable there is a moral limit that applies to a firm in their endless, and many times ruthless, road to profit. I must agree with earlier entries, specifically Stacey and Emogene, when I say that once a company reaches the point that its workers cannot live like a human being with the wages provided, that crosses a line. I understand companies must attain a profit, but my personal opinion is that when this profit comes in the way of decency and lives of people just wanting a steady job, that that draws a limit. It is difficult to say how conditions can be monitored or improved of many exploited workers, but I must believe that with the excess and profit some companies obtain, that something is more than possible for improvement.

D.
Unfortunately, because Firms do “attempt to maximize profits,” there are significant ethical dilemmas. The second dilemma that came to mind (the first was sweatshops, that were already covered by previous comments), was a situation with my parents’ card company, Artists to Watch (ATW). They got a deal from Trader Joe’s, a chain grocery store on the east and west coasts, to be their greeting card supplier. One condition of the agreement was that each individual card/envelope set would come in a plastic sleeve. For my parents, the environmental tolls that these plastic bags would pose outweighed that of the presentation of the cards. Yet, if they wanted the deal, they had to agree to this condition. To many, this may not be a big sacrifice, but my parents are very environmentally aware. They print their cards on recycled paper with soy-based inks and religiously recycle the plastic bags in which bread and newspaper come. Yet, they produce vast quantities of cards that use plastic bags, which contribute to the amount of waste that the U.S. already produces and also increases the consumption of petroleum.

On the other hand, because ATW is using these plastic bags, they are employing people who would otherwise have been without a job. There has to be someone to put the envelope in the card, and then put this set in the plastic sleeve. For this, my parents employed Merrik and Phoenix, two opportunity workshops that employ mentally handicapped people. These people get paid by how many pieces they assemble. Unlike sweatshops, the working conditions are great (well, sun-lit rooms, comfortable chairs) and they get paid really well (the fastest woman working gets paid around $20 per hour!). In conclusion, there are moral dilemmas for firms, but there can be possible positive impacts the firm can make in order to compensate for the negative impact made in another area.

D. In our economy today, in order to maximize profits and strengthen our economy as a whole, companies should be allowed to try different means to make more money. This is regulated by the fact that in a free market economy with other companies selling similar products it is hard to make prices unreasonable. However, the only concern that I would have and what I see as the biggest threat to these ethical and moral limits are monopolies. For example, if in our country we have only one company that sells soap, it would be easy for them to jack up prices, as the entire country needs this product. They would have no moral or ethical obligation to keep prices down as the company would probably feel more obligated to keep the prices up to ensure that they were maximizing their profit. Competition is what is great for our economy as it is what keeps prices down. If there were two similar brands of soap with similar quality, the consumer would tend to purchase the less expensive soap. Which forces the more expensive one to drop its price or stay closer to the price of the cheaper one. Therefore I believe that companies do not need to have moral and ethical limits to prices as the competition of our free market economy ensures that prices will be kept at a place that is fair to the consumer.