Published on 18 Mar 2015
This section connects several ideas covered in previous videos about the price system and profit maximization. In this video, we begin to understand two basic functions of the Invisible Hand. In competitive markets, the market price (with the help of the Invisible Hand) balances production across firms so that total industry costs are minimized. Competitive markets also connect different industries. By balancing production, the Invisible Hand of the market ensures that the total value of production is maximized across different industries. We’ll use the example of minimizing total costs of corn production, and demonstrate our findings through several charts.
November 23, 2015
Minimization of Total Industry Costs of Production
Comments Off on Minimization of Total Industry Costs of Production
November 12, 2015
Entry, Exit, and Supply Curves: Decreasing Costs
Published on 18 Mar 2015
In this video, we talk about the special case of the decreasing cost industry. As output increases, costs will continue to fall, and more firms will enter which, again, increases output. It’s a virtuous circle! At the end of this video, we review the major points made in this section. If you find that something doesn’t quite make sense, feel free to re-watch videos as many times as you’d like.
Comments Off on Entry, Exit, and Supply Curves: Decreasing Costs
November 4, 2015
Entry, Exit, and Supply Curves: Constant Costs
Published on 18 Mar 2015
Some industries have a flat supply curve. These are called constant cost industries. Take domain name registration: to increase the supply of domain names, we must only increase the inputs by a negligible amount. That is why even as the Internet expands so rapidly, it still costs only about six or seven dollars to register a new domain name. By showing you how these industries respond to an increase in demand, we can explain why they are constant cost industries.
Comments Off on Entry, Exit, and Supply Curves: Constant Costs
October 29, 2015
Entry, Exit, and Supply Curves: Increasing Costs
Published on 18 Mar 2015
We understand cost curves and entry and entry/exit decisions. Now we are going to explore how each firm’s decisions influence the supply curve. Here’s the key question: As industry output increases, what happens to costs? We look at three options: an increasing cost industry, a constant cost industry, and a decreasing cost industry.
First up, we look at oil as an example of an increasing cost industry. Other examples of increasing cost industries include copper, gold, and silver, coffee, and even the profession of nuclear engineers.
Comments Off on Entry, Exit, and Supply Curves: Increasing Costs
October 24, 2015
Maximizing Profit and the Average Cost Curve
Published on 18 Mar 2015
Being able to predict your company’s profit is a very useful tool. In this video, we introduce the third concept you need to maximize profit — average cost. When looked at in conjunction with the marginal revenue and marginal cost, the average cost curve will show you how to accurately predict how much profit you can make!
The usefulness of these tools does not stop there. Sometimes, you can’t make a profit. You’ll have to take a loss. These tools can also show you how to minimize losses, and make decisions on whether a company should enter or exit an industry.
We also define terms such as zero profits and sunk costs in this video.
Comments Off on Maximizing Profit and the Average Cost Curve
October 19, 2015
Maximizing Profit under Competition
Published on 18 Mar 2015
A company in a competitive environment does not control prices. So the key to maximizing profit is choosing how much to produce. To do that, we need to factor in the costs involved in production. So what exactly are the costs? How do these costs influence how you maximize profit? And, remember, if you want to think like an economist, you must factor in opportunity cost!
In this video, we define profit, including how to calculate total revenue and total cost. We also go over fixed costs, variable costs, marginal revenue, and marginal cost.
Comments Off on Maximizing Profit under Competition
October 16, 2015
Fair Trade: Does It Help Poor Workers? (Everyday Economics 7/7)
Published on 8 Jul 2015
Elizabeth, an Everyday Economics viewer, asks: “How does the purchase of fair-trade goods affect wages in developing countries?”
Great question! The “fair trade” movement has become popular as a proposed way to increase living standards in developing countries. In this video, we look at whether fair trade does just that.
For a good to be considered “fair trade” it must meet various requirements developed by a handful of fair trade organizations. In the developing world, who is better positioned to meet these fair trade requirements — large producers in wealthier countries or small producers in poorer countries? To answer this question, we take a look at the the example of fair trade coffee produced in both Costa Rica and Ethiopia. How does fair trade affect wages and overall quality of life in those countries?
And, if fair trade isn’t the best way to improve living standards in developing countries, how else can we maximize employment options and well-being for poor workers? This question is at the core of an entire branch of economics — Development Economics. To learn more, check out MRU’s Development Economics course.
Comments Off on Fair Trade: Does It Help Poor Workers? (Everyday Economics 7/7)
October 14, 2015
Introduction to the Competitive Firm
Published on 18 Mar 2015
How does a company really behave? We tend to assume profit — the bottom line — is the main motivation for a firm’s actions. For most firms most of the time, this is a good assumption, especially in a competitive market. With this video, you will explore how a company maximizes profit in a competitive environment where there are many buyers and sellers.
This idea comes with a few surprises. Does a company really control what price it sets? Or does the market determine the price? Here’s a clue. If you owned an oil well, even your mother wouldn’t buy your oil if she could get the same oil somewhere else for less money. Watch and find out why.
Comments Off on Introduction to the Competitive Firm
October 9, 2015
Are We Better Off if We Buy Local? (Everyday Economics 6/7)
Published on 24 Jun 2015
In this Everyday Economics video, Don Boudreaux addresses one of your viewer-submitted questions: “Is everyone better off if we buy local?”
In a modern economy, it’s hard to say that anything is truly “local.” Even an apple grown at a nearby farm isn’t a “local” good — everything from the fertilizer used to feed the trees to the wooden crates that carry the apples to market are likely made elsewhere. And, the profits the farmer makes from selling his apples are likely not spent locally — for instance, he may buy a tractor or supplies manufactured far away.
This video also takes a look at what would happen if you could direct your money locally. Would it benefit the local economy? How many businesses could survive solely on local business? What happens to specialization and productivity when we shrink markets? What about prices and variety of goods? Let’s take a look.
Comments Off on Are We Better Off if We Buy Local? (Everyday Economics 6/7)
October 7, 2015
A Deeper Look at Tradeable Allowances
Published on 18 Mar 2015
Since the passage of the Clean Air Act, SO2 emissions have decreased by 35%. Part of this is due to tradable allowances, which created a market solution to the external costs of SO2 emissions. In this video, we look at the lessons of tradable allowances for SO2 and see if a similar market-based solution could work to decrease other pollutants, such as CO2.
Comments Off on A Deeper Look at Tradeable Allowances
October 5, 2015
Trading Pollution: How Pollution Permits Paradoxically Reduce Emissions
Published on 18 Mar 2015
In an effort to reduce pollution, the government tried two policy prescriptions under the Clean Air Act Amendments of 1990. The first — command and control—mandated that each power plant lower its pollution by a determined amount. However, different firms face different cost curves and, because information is dispersed, policymakers don’t always know those costs. The second policy prescription — tradable pollution permits — empowered firms to use knowledge of their cost curves to buy or sell pollution permits as needed. Under this policy, the invisible hand of the market helped discover the lowest cost way of reducing pollution.
Comments Off on Trading Pollution: How Pollution Permits Paradoxically Reduce Emissions
September 30, 2015
The Coase Theorem
Published on 18 Mar 2015
In this video, we show how bees and pollination demonstrate the Coase Theorem in action: when transaction costs are low and property rights are clearly defined, private arrangements ensure that the market works even when there are externalities. Under these conditions, the market properly manages externalities.
Comments Off on The Coase Theorem
September 23, 2015
Comparative Advantage and the Tragedy of Tasmania (Everyday Economics 4/7)
Published on 24 Jun 2014
What can a small, isolated island economy teach the rest of the world about the nature and causes of the wealth of nations? When Tasmania was cut off from mainland Australia, it experienced the miracle of growth in reverse, as the reduction in trade and human cooperation forced its inhabitants back to the most basic ways of living. In an economy with a greater number of participants trading goods and services, however, there are more ways to find a comparative advantage and earn more by creating the most value for others. Let’s join Bob and Ann as they teach us the “Story of Comparative Advantage” like you’ve never seen it before.
Comments Off on Comparative Advantage and the Tragedy of Tasmania (Everyday Economics 4/7)
September 21, 2015
Command and Control Solutions
Published on 18 Mar 2015
What happened to the cleanliness of your clothes after the U.S. Department of Energy issued new washing machine requirements? The requirements — which require washers to use 21% less energy — mean that washers actually clean clothes less than they used to. Is “command and control” an efficient way to achieve the desired outcome (which is less pollution)? Rather than a standard requirement, such as the Department of Energy issued, a tax on electricity would provide users with greater flexibility in their washing—and would prompt people to purchase machines that use energy more efficiently and keep their clothes clean.
Are there times when a command and control solution to a problem makes the most sense? We look at the eradication of smallpox as one example.
Comments Off on Command and Control Solutions
September 16, 2015
External Benefits
Published on 18 Mar 2015
What can the flu teach us about economics and externalities? In this video, we go over how vaccines produce positive externalities that help people stay healthy. When someone receive the vaccine, they pass along the positive benefits of the vaccine to others, generating positive externalities. However, when someone gets a vaccine, they bear all of the costs and only reap some of the benefits of the vaccine. The social value is larger than the private value, resulting in an an undersupply of flu shots. One solution to this problem is a Pigouvian subsidy — a subsidy on a good with external benefits.
Comments Off on External Benefits
