Tsinghua Principles of Economics Lecture 1

8/14/2019 Tsinghua Principles of Economics Lecture 1

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MacroeconomicsMichael Kratsios

Lecture 1

03.08.10


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IntroductionAcademics, Work Experience, and Interests


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About me

Graduated Princeton University in2008

AB in Politics, magna cum laude

Concentration in American PoliticsCertificates in Political Economyand Hellenic Studies

Carolyn M. Picard Prize in Politicsand the Hellenic Studies SeniorThesis Prize for Economics andVoting in the Third Hellenic

Republic

Interests: Economic Voting, VoteChoice, Ethics


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Work Experience

Barclays Capital

Consumer/Retail IBD

Real Estate IBD

Lyford Group International

Discretionary Macro

Hedge Fund

Business Today


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GoalsDiscoveryExtension

ApplicationParticipation


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Earthquake in HaitiResulting changes in labor market


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Devastating Tragedy

230,000 people dead

300,000 injured

1,000,000 homeless

250,000 residencesdestroyed

30,000 commercialbuildings collapsed


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Unprecedented Relief

USA

$665mm

Clinton/Bush Fund5,000 soldiers

Greece

!200,00025 healthcareprofessionals


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Effect of Relief on Business

Since earthquake, Haitian streetvendors & small business are suffering

Blame relief effort rather than decline indemand

"I have fewer customers now becausethey are handing out free food downthe street."

Usually only about 5% of the budgetsof humanitarian agencies is spent

locally (Peace Dividend Trust, CanadianNGO)

Priority is getting relief supplies inquickly

WSJ, 3/3/10


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Effect on

Labor Market Wage

Quantity of Labor

D1

S1

What happens to the price of

outputs?


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Effect on Labor Market

Price of goods fall since there

is a very cheap (free)

alternative to consumers

Labor demand shifts left

Equilibrium wage falls

This change reflects a change

in the value of the MPL. Firmcan only be profitable by

lowering wage and hiring less

workers

Wage

Quantity of Labor

D1

D2

S1


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Price GougingEthics and Economics


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What is Price Gouging?

Conditions:

1. Emergency situation

2. Necessary good

(ex: water, gas, ice)

3. Prices raised in response tosupply shock


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US Congress takes up issue

S. 1520: Price Gouging Act of

2007, sponsored by Ben Nelson

(D-NE)

The term `price gouging' means

the charging of an

unconscionably excessive price

by a supplier in an affected area.

What is unconscionably

excessive or necessary?

Never became law


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Is Price Gouging Legislation

a Mistake?Price, when set by the

market, allocates the goods

to those who value themmost.

If price cannot be raised

following a supply shock, firms

must ration.

Firms must resort to queuing,merit, nepotism, or black market.

Ex: NY landlords and rent

controlled apartments.


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Additional Considerations

But what about the poor?

Solution: Give them subsidies andthus those who value the scarcegood the most will have the same

ability to pay for it (at the marketclearing price) as the rich would.

Key takeaway: Price-controls do not

eliminate the scarcity.

Legislation discourages privateenterprise from investing in disasterreadiness.

Potential profits from selling thesescarce goods disappears.

Private companies can moreefficiently move goods.


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QuestionsEconomics, Princeton, Wall Street, Greece,anything...

Documents

Tsinghua Principles of Economics Lecture 1