1. Opportunity Costs
1.1
A Matter of OpportunitiesThe lack of alternative opportunities reduces the cost or enhances the attraction of a given action. On the other hand, the abundance of alternative opportunities increases the cost or reduces the attraction of a given action.
1.2
Who Has Comparative Advantage? - youtubeComparative advantage in a two-goods, two-workers economy can be identified easily by comparing the relative slopes of their linear production functions.
1.3
Gaining from Comparative Advantage - youtubeProduction through partial or complete specialization can increase total output and with trade total consumption can also be increased
1.4
Opportunities PayJob security of American workers whose opportunity costs are higher but whose labor productivity is no higher than foreign workers will be increasingly threatened by foreign competition.
1.5
The Case for SweatshopsSweatshops in low wage countries supplying goods to American companies may offer better paying jobs than other local firms.
1.6
Why Do Immigrants Own Inner-City Stores?Inner city stores attract immigrant owners who are risk takers and have lower opportunity costs of alternative employment.
1.7
Picket Line for RentOutsourcing the picket line makes economic sense but might dilute the moral force of the protest.
1.8
Baby DilemmaLow fertility among educated women threatens to lower the supply of high-skilled workers.
1.9
My Prom Dates - youtube cartoonOpportunity cost is the best available opportunity you need to give up for a given choice.
1.10
Gaining Through Comparative Advantage - recording transcriptPartial or complete specialization according to comparative advantage is a win-win strategy to increase total output, even though one party might enjoy absolute advantage over another party.
1.11
Who Has Comparative Advantage? - recording transcriptThe different relative slopes of the production functions graphically illustrate the different relative costs of producing grapes and nuts between the two workers.
2. What Price Means and Does
2.1
Price Signals as Guides for Resource AllocationHigh prices for scarce resources ensure that these resources will be used for only high-valued purposes.
2.2
Supply and demand - youtubeMarket prices and quantities supplied and demanded are determined by the interactions between supply and demand.
2.3
Lemonade Economics - youtube cartoonLemonade sale illustrates the difference between change in demanded vs change in quantity demanded.
2.4
Should parking be free? - youtubeFree parking generates lower total benefit when parking spaces are scarce.
2.5
Surge Pricing Ride ServiceDynamic pricing allows mobile-dispatched ride services such as Uber to digitally match supply and demand at the expense of regular taxi companies.
2.6
Happy Hogging!Price hikes in anticipation of shortages can lead to re-allocation of scarce resources to higher-valued uses.
2.7
Price Gouging? - Historical Cost vs Opportunity Cost cartoonPricing at opportunity cost rather than historical cost can solve market shortages. In other words, "price gouging" can be an unsung hero.
2.8
Excess Demand Blues - Scalpers profit from ticket shortageExcess demand generated by low concert ticket price created profitable opportunity for scalpers.
2.9
Sugar DaddyUS subsidies to domestic sugar cane and sugar beet growers have resulted in huge collateral damage to domestic industries and overseas producers.
2.10
Is a Fine a Price?A fine which normally connotes shame can be confused with a price which connotes right if a fine is not properly implemented.
2.11
Supply and demand (transcript)Narrated lecture on supply and demand curves and price determination under free market.
2.12
Should parking be free? (transcript)Narrated lecture comparing total benefits under free vs paid parking when parking spaces are scarce.
3. Types of Goods
3.1
There Are no Widgets - Types of GoodsThe law of supply and demand applies differently depending on the exact types of goods.
3.2
Complements and Substitutes - youtubeComplements and substitutes illustrate the difference between changes in quantity demanded vs changes in demand.
3.3
Private Goods vs Public Goods - youtubePublic goods cannot or do not exclude non-paying users and your consumption does not reduce others' consumption.
3.4
Rivalry and Excludability in GoodsGoods can be classified by their consumption rivalry and ability to exclude non-payers.
3.5
Drinking ExperienceStarbucks commands premium prices for its lifestyle coffee because of its status cachet.
3.6
The Sharing EconomyThe peer-to-peer rental and sharing economy could lead to more efficient allocation of scarce resources and a cleaner economy.
3.8
More Money, More OptionsFast foods are inferior goods that are used more when income is low. "Sit down" restaurant meals are normal goods that are consumed more when income is high.
3.9
Streaming RevenuesMany companies earn more revenues from selling replacement parts than selling the complementary products.
3.10
He Who Pays the PiperHow on-the-air radio is indirectly funded affects the quality of radio programming as a public good.
3.11
Complements and Substitutes (transcript)Complements and substitutes illustrate the difference between changes in quantity demanded vs changes in demand.
3.12
Private goods vs. public goods (transcript)Narrated lecture on the difference between private goods and public goods. Demand schedules for private goods and public goods are generated using Flash animation.
4. A Matter of Cost
4.1
A Matter of CostsThe rate at which variable cost changes in the short run is related to the nature of the fixed cost.
4.2
Law of Diminishing Returns - youtubeThe Law of Diminishing Returns says that when some inputs are fixed in capacity in the short run, increasing the variable input working with the fixed inputs would first lead to increasing additional output per additional unit of variable input, but eventually decreasing additional output per additional unit of variable input after the optimal capacity of the fixed input has been exceeded.
4.3
Marginal Cost and Average Total Cost - youtubeMarginal cost and average total cost can be derived from the short-run total cost subject to the law of diminishing returns.
4.4
Marginal Cost, Average Variable Cost and Average Fixed Cost - youtubeMarginal cost, average variable cost and average fixed cost can be derived from a short-run production function subject to the law of diminishing returns.
4.5
Untangling Marginal vs Average ValueWhen average value is falling, marginal value is below it. And when average value is rising, marginal value is above it.
4.6
Labor on CallFlexible work scheduling to match customer traffic is one effective way to transform labor from a fixed cost into a variable cost in the retail business.
4.7
Aerial Predators?Are major airlines that temporarily lower their fares to squeeze out their low-fare niche-market startup competitors guilty of predatory pricing?
4.8
Load PricingPeak-load pricing can lower electric bills and increase business profitability by inducing household consumers to shift their consumption from higher-rate peak period to lower-rate slack period.
4.9
The Snowball EffectKnowledge-based industries subject to increasing returns because of high R&D fixed costs and low variable costs naturally tend to monopolize the market.
4.10
Metered ConsumptionResource conservation depends on who pays and the time horizon of costs vs benefits.
4.11
Who Is Over a Barrel?The impact of low oil prices on oil output depends on the cost structures of different types of oils.
4.12
The High-Tech TreadmillThe profit of New Economy business firms that have very high R&D fixed costs and very low marginal costs is brutally squeezed in economic downturn.
4.13
Law of Diminishing Returns - youtube (transcript)The Law of Diminishing Returns says that when some inputs are fixed in capacity in the short run, increasing the variable input working with the fixed inputs would first lead to increasing additional output per additional unit of variable input, but eventually decreasing additional output per additional unit of variable input after the optimal capacity of the fixed input has been exceeded.
4.14
Marginal Cost and Average Total Cost - youtube (transcript)Marginal cost and average total cost can be derived from the short-run total cost subject to the law of diminishing returns.
4.15
Marginal Cost, Average Variable Cost and Average Fixed Cost - youtube (transcript)Marginal cost, average variable cost and average fixed cost can be derived from a short-run production function subject to the law of diminishing returns.
5. Pricing for Profit
5.1
Price Searchers, Price Discriminators, and Price TakersThe uniqueness of products affects the pricing power of sellers.
5.2
Market structure taxonomyMarket structure depends on the uniqueness of the products, barrier to entry, and scale economy. Specifically, the more unique the product, the higher the entry barrier, and the larger the scale economy is, the greater the pricing power.
5.3
Demand Elasticity and Total Revenue - youtubeA linear downward-sloping demand curve has a range of demand elasticities and an inverted U-shaped total revenue curve under single pricing.
5.4
Profit Maximization of Price Takers - youtubeAs one of many small firms, price takers are powerless to set price. They set the max-profit output by equating price with marginal cost.
5.5
Fund Raising at the MarginThe MR = MC profit maximization rule could be applied to fund raising.
5.6
Profit vs Efficiency Maximization - youtubePricing modes determine the conflicts between profit maximization and efficiency maximization.
5.7
Flexible PricingThe Internet has made it possible to replace fixed pricing with flexible pricing based on changing supply and demand conditions. Spot pricing will lead to a more efficient market with winners and losers.
5.8
Fare GameThe pricing strategy of charging premium prices for business travels and deeply discounted prices for leisure travels has fallen apart amid a slowing economy and fear of on-air terrorist attacks.
5.9
Virtual ScalpingSports teams and other entertainment promoters use online secondary ticket auction market to compete with scalpers while sticking to uniform pricing for the primary market.
5.10
Rebate CouponsMail-in rebate coupons succeed in promoting sales at relatively low cost because of low redemption rates.
5.11
Cleaning Up the Detergent MarketA cartel in detergents broke up over defections from agreed prices and promotion practices.
5.12
A Fable of Fruit VendorsFruit vendors may choose perfect competition or pricing power depending on foot traffic and other locational advantages.
5.13
Noodle Price-hike ConspiracyPrice hike is difficult to sustain in commodity business with many competitors.
5.14
Demand Elasticity and Total Revenue -youtube (transcript)A linear downward-sloping demand curve has a range of demand elasticities and an inverted U-shaped total revenue curve under single pricing.
5.15
Profit vs Efficiency Maximization - youtube (transcript)Pricing modes determine the conflicts between profit maximization and efficiency maximization.
5.16
Profit Maximization of Price Takers - youtube (transcript)As one of many small firms, price takers are powerless to set price. They set the max-profit output by equating price with marginal cost.
6. Pricing Strategy
6.1
How Much Is Anything Worth?Price must cover cost for business survival but its level above cost varies with the product life cycle.
6.2
A la carte or Set Menu?Mixed bundling, by offering a package deal as well as separately priced items, can be a revenue-maximizing pricing strategy in the face of varying customer needs.
6.3
Border PatrolTo enhance profit, businesses often sell non-interoperable versions of the same products in different markets.
6.4
Bundling - youtubeSelling goods in a bundle could increase sellers' profit under certain demand and cost conditions.
6.5
Captive CustomersPrison inmates must pay much higher fees for using pay phones installed by exclusive phone carriers chosen by the state.
6.6
Flat-rate PricingFlat-rate pricing may increase the bottom line of businesses when consumers over-estimate the amount they might consume and under-estimate the cost of un-restrained use.
6.7
Premium from FreemiumFree public goods with close to zero marginal cost could profit from partial excludability.
6.8
Pay What You WantThe pay-what-you-want model makes economic sense when it is used as a limited-time promotion and as a loss-leader to increase sale of higher profit-margin related products.
6.9
Loss-leader EconomyLoss leaders might conceal punishing fee traps for the unwary myopic consumers.
6.11
Value-based PricingInnovative products offering high customer value should command value-based prices rather than cost-plus prices.
6.12
Bundling (transcript)By selling goods in bundles with a lower bundle price than the sum of the prices sold separately, mixed bundling could increase total net revenue when demands are mostly negatively correlated and price discrimination is impossible.
7. Competitive Strategy
7.1
Competitive StrategyStatic efficiency in mature products may be good for consumers in the short run, but dynamic efficiency in innovative products is what drives the economy and elevates consumer welfare in the long run.
7.2
From Brands to Generics - No Monopoly, No CompetitionBy providing incentives for brand-name drug companies to fund expensive R&D, temporary patents for expensive blockbuster drugs inadvertently lead to cheaper generic rivals when the patents expire.
7.3
Battles of StandardsWinners in the battle among proprietary standards can keep out competitors and lock in existing customers
7.4
Systems Competition and Network EffectsA dominant network based on a near universal standard can internalize a great deal of system externality to the benefits of network users and can persist even in the face of technically superior competing networks.
7.5
Beating the Pirates to the Punch BowlThe low marginal cost of reproducing DVD movies has made it difficult to stamp out the bootleg DVD business in China.
7.6
Extreme Image MakeoverThe successful emergence of once-slighted digital cameras has reshuffled the cast of major players in the photography business.
7.7
Shadow BrandingStore brands gain competitive advantage by free-riding on name brands’ brand recognition and R & D.
7.9
The Rise of ChickenBy vertically integrating the chicken business and applying quality control and standardization to all the steps from production to marketing, Tyson Foods has brought better and cheaper chicken to consumers, higher wages to workers and fatter returns to shareholders in a once low-profit commodity business.
7.10
Is Imitation a Flattery or a Ripoff?High-end-orientated garment fashion designers leave a lot of money on the table for the knockoff competitors.
7.12
Protest-free Drug TestingChina's low labor cost, abundant test animals, tax incentives, and permissive research environment have contributed to its comparative advantage in drug development.
8. Property Rights and Externality
8.1
Property Rights and ExternalityTransferable and enforceable property rights encourage investment and high-valued uses.
8.2
Spillovers Are Not Always ExternalitiesExternal costs or benefits exist only if property rights have not been clearly defined and/or when the negotiation or enforcement cost exceeds damage.
8.3
External Benefit and External Cost - youtubeExternal cost and external benefit exist because some property rights have not been clearly defined and enforced. Their existence leads to misallocation of resources.
8.4
Tragedy of the Commons - youtubeUnlimited entry could easily lead to over-exploitation of commons resources.
8.5
The Tragedy of the Popsicle CommonsOver-exploitation of commons resources could be avoided if the rights to commonly owned resources are assigned to individual owners.
8.6
Patently DeadlyGranting patents to biotechnology discoveries encourages inventions but could delay the introduction of competing products.
8.7
Right Makes MightThe right to transfer private property has led to windfall gain to right owners and better allocation of scarce resources, such as water and power.
8.8
Owners, Keepers?Stronger property rights may reduce overexploitation of natural resources that require little upfront capital investment, but may lead to faster exploitation of resources that require substantial upfront capital investment.
8.9
Busy Bees cartoonHoney bees tell an interesting story of how businesses settle payments for spillover costs and benefits among them.
8.11
Your Customers Are My Customers - youtube cartoonWhen it comes to external benefits, appearance could be deceptive.
8.12
The Tragedy of the AnticommonsWhen too many individuals have the right of exclusion to a scarce resource, and no one has an effective privilege of use, under-utilization may occur.
8.13
Tragedy of the commons (transcript)Narrated lecture on over-exploitation of commons resources due to unlimited entry.
8.14
External Benefit and External Cost (transcript)The existence of external cost and external benefit leads to misallocation of resources.
9. Market Intervention and Regulation
9.1
Market Intervention and RegulationMarket regulation may be justified under some circumstances to increase economic efficiency.
9.2
The Logic of Collective ActionNarrow special interests are often more politically powerful because they are easier to organize and the benefits of membership exceed the cost of participation.
9.4
Blocked ExitInefficient firms in mature industries often are preserved for political reasons long after they should have exited the market.
9.5
Licensed to Kill?One-size-fits-all occupational licensing often makes entry difficult for the less educated and basic services too expensive for low-income consumers.
9.6
Milked to OrderMilk price support has discouraged vertical integration in the milk industry that might have led to cheaper milk for and lower tax on milk consumers.
9.7
Byrding for ProfitU. S. shrimpers use anti-dumping protection to resist competitive pressure from more efficient Asian shrimp farmers and to gain de facto subsidy.
9.8
The Trustbusters' New ToolsEconometric analysis of store checkout scanners' data can directly predict whether a proposed merger will raise prices.
9.9
Yellow Cabs, Red TapeTransferable fixed-supply permanent taxi licenses result in high taxi fare and poor service with only normal return to current license owners.
9.10
Strange Bedfellows!Government regulation might protect the tobacco industry from ruinous lawsuits.
9.11
Vitamin Inc.Mature oligopoly with a few large producers of homogeneous commodities is driven to output and price fixing to increase their profit.
9.12
Oil GlutSupply gluts do not always result in low prices to consumers if supply and demand conditions are not allowed to freely interact.
9.13
The Dust Bowl - Natural or Man-made Disaster?High transaction costs, whether natural or artificial, could delay the transfer of property rights from lower-value use to higher-value use.
9.14
The Right to Pollute?Pollution credits convert the atmosphere from a commons into private property. They can reduce pollution if the pollution cap is lower than the unrestricted total and lower the costs of reducing pollution if credits can be sold from low-cost avoiders and high-cost avoiders.
10. Income Distribution
10.1
Income DistributionIn the U. S., the top income group has been gaining relative to the rest of the population due to globalization, but the belief in upward mobility is still strong.
10.2
Glamour vs HardshipMost glamorous jobs have high average income but low median income while most bread-and-butter jobs have median income that is very close to the average income.
10.3
The Economics of SuperstarsJoint consumption technology combined with imperfect substitution of consumer preferences can lead to outsized rewards to a few superstars in mass entertainment businesses.
10.4
Choose Your Parents CarefullyMarital sorting can increase wage inequality and lead to lower economic growth over generations by concentrating the life-chance advantage of better educated people.
10.6
The Diet PoorLack of affordable transportation due to poverty forces the poor to shop in neighborhood stores that charge more for the mostly unhealthy but high-turnover food that they carry.
10.8
Dividing the PieOver-extended American consumers provided the ultimate market for consumer goods exported from low-wage countries that are willing to sell on credit.
10.9
Choke PowerTheir strategic location at the chokepoints of global trade allows American longshoremen to share a bigger piece of the globalization pie.
10.10
Efficient but not Fair?Efficiency may conflict with fairness because it is often difficult to re-distribute the gain from greater efficiency.
10.11
The Truncated Job LadderThe job ladder that has been truncated from the bottom and from the top means longer formal education to get to the bottom of the ladder and more limited promotion prospects once on the ladder.
10.12
Wealth Inequality in AmericaInfographics on the distribution of wealth in America, highlighting both the inequality and the difference between our perception of inequality and the actual numbers. The reality is often not what we think it is.
10.13
What We Know About WealthMost people are uninformed about the actual distribution of wealth in the U.S.
11. Information
11.2
Crystal BallBetter information on risky events may lead to market failure due to adverse selection.
11.3
Insurance at RiskGenetic test results on fatal diseases could lead to adverse selection of membership in life and health insurance if unfavorable results are concealed from insurers.
11.4
Joint Liability as Loan CollateralThe Grameen Bank in Bangladesh uses joint liability as a screening device to overcome insufficient information on the soundness of individual loan projects and to circumvent the dangers of providing loans without collateral among the poor.
11.5
Lemon LaunderingPoorly informed consumers usually end up getting stuck with lemon products which are passed around to avoid capital loss.
11.6
May the Best Brand Win!Because well-known brands can signal quality and integrity amid consumer ignorance, brands could stabilize market share and enhance brand-owners' ability to charge premium prices.
11.7
The Blind Leading the BlindAn informational cascade occurs when people blindly follow the early movers, but can be quickly reversed in the light of trusted information.
11.8
Yes, Boss.The prevalence of yes persons is due to the difficulty of objectively assessing the contribution of white-collar work and the bosses’ human desire to hear confirming information.
11.9
Grade A MaterialIn the absence of perfect information, insurers charge premiums according to classes of risks rather than individual risks.
11.10
Choice ParalysisToo many choices might lead to decision paralysis due to information overload.
11.11
Too Little vs Too Much Panda-ing - youtube cartoonYou could have too little or too much of a good thing.
11.12
The Evolution of Defectors and CooperatorsThere is selective advantage in being always honest even when it may be disadvantageous to do so at times.
11.13
Raiders of the NetControlling the distribution of products and the provision of after-sale service considerably reduce free riding of online shoppers on offline stores for product information.
11.14
Uber as a Two-sided MarketBy reducing information cost, the internet has ushered in many novel two-sided markets.
12. Games People Play
12.1
Games Are Serious and UbiquitousIn game-theoretic situations, organization and coordination are needed to ensure the compatibility of individual and group interests.
12.2
Invisible-hand Game and Prisoner's Dilemma Game - youtubeGames involving binary choices can be better illustrated with N number of players rather than just two players. The invisible-hand game and the prisoner's dilemma game are featured examples in this first in a series of 3 video lectures on game theory.
12.3
Lending an Invisible HandThe efforts to polish my resume for selfish reasons ended up helping many worthy causes.
12.4
Fat NationThrough innocent pursuit of self-interests, Americans have grown fat with the food industry.
12.5
Tipping the ScalesTipping for service is a social custom that traps everybody into a collectively inferior position.
12.6
Aborting White FlightAn ethnically integrated neighborhood may not come about or persist if it is not reinforced by deliberate intervention.
12.7
Please Sit Down! - youtube cartoonA prisoner's dilemma results when people compete for limited positional goods. Individually smart, but collectively dumb.
12.8
Coordination Game and Congestion Game - youtubeMulti-party coordination game and congestion game.
12.9
Right PriorityInconsistent or unclear traffic rules in Belgium have turned a co-ordination game into a game of chicken.
12.10
On Your Mark. Get Set. Scrub!When the majority chooses the “right” choice, it pays off to choose the “left,” especially when it comes to personal hygiene.
12.11
Systems Competition and Network EffectsA dominant network based on a near universal standard can internalize a great deal of system externality to the benefits of network users and can persist even in the face of technically superior competing networks.
12.12
Battles of StandardsWinners in the battle among proprietary standards can keep out competitors and lock in existing customers
12.14
6.3 Brides for Seven BrothersSex-selective abortions in China, South Korea, and Taiwan have resulted in excess of male over female births.
12.15
Games people play (transcript)Narrated lecture on multi-party games involving binary choices.
13. Tastes and Preferences
13.2
Unsinkable Sunk CostHealth club usage patterns clearly show that members are emotionally attached to sunk cost even though most economists think that rational incremental decisions should only compare marginal benefit with marginal cost.
13.3
Bad Decision - TED lectureBad decisions are made because people are bad at figuring out the odds and values of possible events.
13.4
Doing It Now or LaterPeople who believe that they will procrastinate when faced with immediate costs and prematurely appropriate immediate rewards may counteract this tendency sometimes to their own benefits.
13.5
Happiness - Absolute or Relative?If happiness depends on one's relative wealth, one will never be absolutely happy as long as there are others who are even richer.
13.6
Life by defaultPresent bias and inertia lead to low enrollment in 401(k) retirement plans even though employer matching of employee contribution is quite generous.
13.7
Statistical VictimsWhen identifiable victims are involved, people are willing to spend disproportionally more resources to save a few lives rather than spending the same amount to save a much larger number of statistical victims.
13.9
Framing PerceptionsSince people are risk-averse with respect to gain and risk-seeking with respect to loss, their choices can be easily manipulated by whether an offer is framed as a gain or a loss.
13.10
The Origin of Predictable BehaviorEconomic behavior is predictable largely because bounded rationality leads people to adopt rules of thumb which display greater regularity than does optimization.
13.11
Health Risk is a Matter of Life and DeathHealth insurance premiums tend to be high for individual policies because of adverse selection and moral hazard.
13.13
Looks MatterLooks matter when most people are plain looking, even in jobs where looks do not affect job performance.
13.14
Luck of the DrawLuck may be just as important as fitness in determining who survives the market test.
14. Income and Output
14.1
Circular Flow - youtubeThe circular flow diagram captures the big picture of how different sectors of an economy are connected to one another by flows of money and goods.
14.2
Injections and Leakages - Planned vs RealizedAn open economy allows for more varied interplays between planned vs actual leakages and injections among countries.
14.3
Flows and StocksThe excess of inflows over outflows adds to the stock if flows are not instantly perishable.
14.4
Re-counting GDPSome long-lived intangible assets will be counted as capital investment rather than one-time expenses in US GDP.
14.7
Paradox of ThriftIf everybody tries to save more and spend less, nobody ends up saving more from a shrinking output pie.
14.11
Front LoadingCash for clunkers and home-buyer tax credit provided huge subsidies for each incremental sale but failed to sustain the car and housing markets.
14.12
Bubble SavingThe US has been spending more than it earns and has to borrow from abroad to fund its real investment.
14.13
Jobless Safety NetJobless benefits cushion the fall of disposable income during economic recessions.
14.14
Inflation IllusionPrice inflation creates strong illusion of monetary gains that hides the reality of more mundane performance.
14.15
Circular Flow (transcript)The circular flow diagram captures the big picture of how different sectors of an economy are connected to one another by flows of money and goods.
14.17
Deficit and Debt (transcript)Debt/income ratio will rise as long as the deficit exceeds debt times the income growth rate.
14.18
Spending Multiplier (transcript)Total expenditure could be a multiple of the injected stimulus if most of the additional income is spent.
15. Money and Credit
15.1
Money Multiplier - youtubeThe creation process of money in a fractional-reserve banking system.
15.2
Banks and Non-Bank FinanceBanks may be able to expand money supply through fractional-reserve loans, but more and more loans and other financing are channeled through the non-bank finance sector.
15.3
Bonds vs StocksBonds and stocks are alternative means of business financing where bonds offer steady income while stocks offer potentially substantial capital gains to investors.
15.5
Quantitative Easing - How It WorksThe Bank of England is injecting money directly into the economy to meet the inflation target.
15.8
Liquidity TrapEven with short-term interest rates close to zero, the US economy has failed to respond to cheap money because of anemic bank lending.
15.9
Bubble EconomicsRun-away securitization of housing mortgages abetted by loose credit rating, shaky credit default swaps, and cheap money led to a huge housing bubble in the US.
15.11
Who Needs Casinos?Unregulated credit default swaps (CDS) gave shaky coverage to subprime loans.
15.12
Hong Kong Housing BoomThe low interest rates intended to stimulate the recessed US economy after the US housing bust in 2007 – 2009 have inadvertently led to a housing boom in Hong Kong when Hong Kong has to lower its interest rates to defend its dollar peg.
15.13
Leveraging and DeleveragingThe leverage cycle could amplify business cycles apart from routine monetary policies via interest rates.
15.14
Too Big to FailSome financial institutions could commit moral hazard by leveraging their implicit high credit ratings and tax-payer guarantees to load up on high-risk debts and obligations.
15.15
Under WaterSecuritization of mortgage loans has fueled a US housing bubble whose bursting has put one in four mortgages under water.
15.16
Who Rates the Raters?Bond rating agencies found it hard to serve both the interests of bond investors and bond issuers since they were directly paid by bond issuers for favorable ratings.
15.17
Money Multiplier - flashIn a fractional reserve banking system, the Central Bank needs to print only a fraction of the total money supply. This fraction depends on the average circulation needs of the banking customers. The rest of the money supply could be created by banks through loans.
15.18
Money multiplier (transcript)In a fractional reserve banking system, the Central Bank needs to print only a fraction of the total money supply. This fraction depends on the average circulation needs of the banking customers. The rest of the money supply could be created by banks through loans.
16. Trade and Foreign Exchange
16.1
Big Mac Index - youtubeThe prices of Big Mac across countries could give an idea of the relative value of foreign currencies.
16.2
Trade Deficits - youtubeTrade deficits serve to fill domestic private saving gap and government budget gap.
16.4
To Revalue or Not to Revalue – The Yuan StoryThe Chinese yuan may be under-valued against the US dollar, but yuan revaluation is unlikely to substantially reduce US trade deficit with China.
16.5
Is China on a 'Gold Standard'?Domestic inflation in China as well as yuan appreciation have boosted the prices of Chinese imports to the US.
16.6
Trade Surplus TrapCountries heavily dependent on exporting manufactured goods must deny their own citizens higher standard of living to maintain their trade surplus in an era of global wage arbitrage.
16.7
Free Money?The dollar as an international reserve currency allows the United States to pile up huge budget and trade deficits as export-surplus countries accumulate dollars for their foreign exchange reserves.
16.8
Hedging Inflation with ProstitutionProstitution has proven to be an effective hedge against high inflation induced by subsidies and price control in Venezuela.
16.9
Less than Meets the EyeChina’s apparent heavy dependence on exports for its GDP growth conceals the low value-added contents of its exports.
16.10
Too Global To Be National?US multinationals fatten their bottom lines by arbitraging wages, taxes, and regulations across countries.
16.11
Your Technology or Your Market AccessIn a buyer's market with many potential sellers, China exacts technology transfers as a condition of entry into its lucrative mass market.
16.12
Domestic ContentEconomic stimulus might end up stimulating foreign economies more than the domestic economy when the US is so dependent on imports.