Chapter 19, 20 Economics

Agriculture is diverse
includes cattle ranches, fruit orchads, dairies, poultry plants, pig farms, grain farms, feed lots, vegetable plots, sugar-cane plantations.
farm commodities
includes wheat, soybeans, cattle, and rise
food products
items sold through restaurants or grocery stores
short tun price and income instability in agriculture results from
an inelastic demand for agricultural products, fluctuations in farm output, shifts of the demand curve for farm products.
Inelastic demand for agricultural products
the price elasticity of demand for agricultural products is low, the agricultural inelasticity of agricultural demand is also related to diminishing marginal utility
fluctuations in output
farm output tends to fluctuate from year to year, because farmers have limited control over their output.
fluctuation in demand
another reason for short run instability of farm income results from shifts in the demand curve for agricultural products.
agriculture depends on
world markets
Why has agriculture been a declining industry in the long run?
the supply of farm products has increased rapidly because of technological progress, the demand for farm products has increased slowly because it is inelastic, population has increased we can afford much more than we used to
large corporate firms have emerged in some areas of farming such as potatoes, beef, fruits, veggies, and poultry.
there has been less farms than in the past
4 million in 1960 to 2.2 million today
farm labor
in 1960 9.4 % and now 1.2%, farm household incomes have decreased
subsidized agriculture with a "farm program" that includes
support for agricultural prices, income, and output. Soil and water conservation. Agricultural research. Farm Credit. Crop insurance. Subsidized sale of farm products in world markets.
crop insurance
anytime bad weather comes or crops go bad, insurances are instituted so they are covered
Rationale for farm subsidies
necessities of life, "family farm" is a fundamental institution and should be nurtured as a way of life, extraordinary hazards-floods, droughts (without government help, farmers would have to go against these disasters), competitive markets for output while inputs have significant market power.
The Agricultural Adjustment Act of 1933
established the parity concept
the parity concept
cornerstone of agricultural policy. In real terms, year after year for a fixed output of farm products, a farmer should be able to acquire a specific total amount of other goods and services. In nominal terms, the parity concept suggests that the relationship between the prices received by farers for their output and the prices they myst pay for goods and services must remain constant.
parity ratio
prices received by farmers/ prices paid by farmers
economics of price supports
surplus output, gain to farmers, loss to consumers, efficiency losses, other social losses, environmental costs, international costs
acreage allotments
a pre 1996 government program that determined the total number of acres to be used in producing (reducing amounts of) various food and fiber products and allocated these acres among individual farmers. These farmers had to limit their plantings to the allotted number of acres to obtain price supports for their crops.
blend of gasoline and alcohol (ethanol) made mainly from corn is one such successful attempt to increase the demand for farm output
Criticisms of parity concept
they found no economic logic in the proposition that if a bushel of wheat could buy a shirt in 1900 it should still be able to buy a shirt several decades later.
Criticisms of price-support system
was designed to treat the symptoms, not the causes of the farm problem. The subsidy system benefited those farmers who needed subsidies the least. Price supporters for crops meant increased feed costs for ranchers and farmers and high consumer prices for animal products.
import quotas
a limit imposed by a nation on the quantity (or total value) of a good that may be imported during some period of time.
farm policy has been centered on..
price and based on the parity concept
use of price floors and its economic effects:
causes surplus production, increases the incomes of farmers, causes higher consumer prices for farm products, creates an overallocation of resources to agriculture, obliges society to pay higher taces to finance the purchase and storage of surplus output, increases pollution because of the greater use of agrochemicals and vulnerable land, forces other nations to bear the costs associated with import barriers and depressed world agricultral prices
economists criticisms of farm policy for
confusing symptoms (low farm incomes) with causes (excess capacity), providing the largest subsidies to high income farmers, and creating contradictions among specific farm programs
political banking for price supports and acreage allotments have eroded for several reasons
the number of us farmers and thus their political clout has declined relative to the number of urban consumers of farm products, successful efforts by the us to get other nations to reduce their farm subsidies have altered the domestic debate on the desirability of us subsidies.
The food, conservation and energy act of 2008
provides farmers with direct payments (based on previous crops planted), countercyclical payments (based on the differences between market prices and targeted prices), and marketing loans (based on a specified crop price and an option to either pay back the loan or forfeit the crop to the government lender)
Average US income is high
in 2008, $68,424, among the highest in the world
distribution by quintiles
to measure income inequality is to divide the total number of individuals, households, or families into five numerically equal groups (quintiles)
income inequality
to look at the percentages of households in a series of income categories
Income mobility
the extent to which income receivers move from one part of the income distribution to another over some period of time
Lorenz curve
a curve showing the distribution of income in an economy. The cumulated percentage of families is measured along the horizontal axis and the cumulated percentage of income is measured along the vertical axis.
gini ratio
a numerical measure of the overall dispersion of income among households, families
causes of income inequality
ability, education and training, discrimination, preference and risks, unequal distribution of wealth, market power, luck, connections and misfortune
income inequality over time
rising income inequality since 1970
causes of growing inequality
greater demand for highly skilled workers, demographic changes, international trade, immigration, and decline in unionism
Equality versus inefficiency
the case for equality, maximizing total utility, the case for inequality, incentives and ineffiency, the equal-efficiency tradeoff,
what is the relationship between efficiency and equality, how would government handle
difficult to have both efficiency and equality. Equality is where all employees are paid the same wages regardless of their efforts. Therefore, efficiency will go down if wages are the same throughout. Government has difficulty handling both efficiency and equality together.
economics of poverty
how the government decided if a family is poor. If an individual receives less than 10,201 per year, then they are poor. Poverty rate in 2008 was 13.2% . White is the lowest,african americans poverty rate is high.
poverty of rate trends
the percentage of the population living in poverty in 2008, was 13.2 percent
entitlement programs
1. social insurance 2. public assistance or welfare
social insurance programs
partially replace earning that have been lost due to retirement, disability,or temporary employment, they also provide health insurance for the elderly.
social security
the major social insurance program
is a federal insurance program that provides health insurance benefits for those who are 65 or older
what type of maintenence program exist
social insurance program, public assistance program.
supplemental security income
federal program, that provides a uniform nationwide minimum income for the aged, blind, and disabled who are unable to work and who do not qualify for social security
temporary assistance for needy families
the basic welfare program for low-income families in the us, financed through general federal tax revenues
the supplemental nutrition assistance program
formerly known as the food-stamp program. Federal program that permits eligible low-income people to obtain vouchers that can be used to buy food
federal program, provides medical benefits to people covered by the SSI and TANF (basic welfare) programs
the earned-income tax credit
is a refundable federal tax credit provided to low-income wage earners to supplement their families' incomes and encourage work. It is available for low income working families, with or without children
is the practice of according people inferior treatment on the basis of some factor such as race, gender or ethnicity.
Taste for discrimination model
examines prejudice by using the emotion-free language of demand theory. It views discrimination as resulting from a preference or taste for which the discriminator is willing to pay
Discrimination coefficient
a prejudiced white employer behaves as if employing black workers would add a cost, the amount of this cost is D
Prejudice and the market african american white wage ratio
the ratio determined in the labor market, will depend on the collective prejudice of white employers
competition and discrimination
the taste for discrimination model suggests that the competition will reduce discrimination in the long run
statistical discrimination
in which people are judged on the basis of the average charectertistics of the group to which they belong, rather than on their own personal charecteristics or productivity
Labor market example
hiring men over women, because women care more about children, errands,etc.
Profitable, Undesirable, but not malicious
the firm that practices statistical discrimination is not being malicious in its hiring behavoir. The decisions it makes will be rational and profitable because on average its hiring decisions are likely to be correct
occupational segregation
the crowding of women, african americans, and certain ethnic groups into less desirable, lower paying occupations-is still apparent in the U.S economy
crowding model of occupational discrimination
a model of labor markets suggesting that occupational discrimination has kept many women and minorities out of high-paying occupations and forced them into a limited number of lower-paying occupations
effects of crowding
is that the companies are able to put wages low, wage differentials between two occupations, decide if they want a man or a women because it is so crowded.
elimination of crowing
eliminating of segregation between men and women.
Patient Protection and Affordable Care Act
president obama signed into law, claimed would lower health care costs while increasing access to quality health care for millions of poorer americans.
National health insurance
in which the government uses tax revenues to provide a basic package of health care to every resident at either no charge or low cost sharing levels.
prices of health care have..
increased significantly, over 46 million people do not have health insurance
Is the US healthier?
longer life expectancies, most advanced medical equipment and technologies
the insured pays 20% of all health care costs and the insurance company pays 80%
the insured pays 20% of all health care costs and the insurance company pays 80%
Is the United States healthier?
longer life expectancies, most advanced medical equipment, aids epidemic
higher health care costs and insurance premiums reduce...
access to health care
labor market effects
slower wage growth, use of part time and temporary workers, outsourcing and offshoring
personal bankruptcies
large, uninsured medical bills are one of the manjor causes.
impact on government budgets
the budgets of federal, state and local governments are negatively affected by the spiraling and sometimes unpredictable health care expenditures
limited access
the poor are likely to be uninsured, make too much to qualify for medicaid, waiting for treatment increases costs
pecuiliarities of the health care market
ethical and equity considerations, asymmetric information, positive externalities, third-party payments: insurance
factors for increasing demand in health care
rising incomes: the role of elasticities, an aging population, unhealthy lifestyles, the role of doctors,
role of doctors
supplier-induced demand, defensive medicine, medical ethics
fee for service
paid seperately for each service they perform
defensive medicine
they recommend more tests and procedures than are warranted medically or economically to protect themselves against malpractice suits
role of health insurance
moral hazard problem-less prevention, overconsumption, government tax subsidy, rationing to control costs
supply factors in rising health costs
supply of physicians, slow productivity growth, changes in medical technology, relative importance of supply and demand factors.
health savings accounts
available to all workers who are covered by health insurance plans with annual deductibles of $1000 or more and do not have other first-dollar insurance coverage.
managed care
preferred provider organizations, health maintenance organizations
preferred provider organizations
some insurance companies have set this program up, which require that hospitals and physicians accept discounted prices for their services as a condition for being included in the insurance plan.
health maintenance organizations
which provide health care services to a specific group of enrollees in exchange for a set annual fee per enrollee.
Medicare and DRG
a hospital receives a fixed payment for treating each patient, that payment is an ammount associated with the diagnosis
limits on malpractice awards
congress has for many years debated whether to cap at 250k or 500k the "pain and suffering" awards on malpractice lawsuits against physicians
primary goal of the patient protection and affordable care act
passed in '10 was not cost containment but rather the extension of health care coverage to all americans.
The PPACA makes it illegal for insurance companies to
deny coverage to anyone on the basis of preexisiting medical condition
the PPACA increases
the amount of money that insurance companies will be spending in the future by prohibiting them from imposing annual or lifetime expenditure caps
the PPACA also makes fraud
the only legal reason that an insurance company can drop a policy holder
employer mandate
every firm with 50 or more employees must either purchase health insurance for their employees or pay a fine of $2000 per employee
personal mandate
that individuals must purchase health insurance for themselves and their dependents unless they are already covered by either government insurance or empower-provider insurance
covering the poor
the PPACA attempts to cover those with lower incomes
insurance exchanges
individual shopping for their own insurance will do so in government regulated markets
objections and alternatives
greater ineffeciences in health care, first step to national health insurance, lack of revenue sources, increased consumption, need to force consumers to weigh marginal benefits and costs
Singapore health insurance
rated as one of the best, spent just 3.8% of gdp on health care, competition between hospitals, increased out of pocket expenses, required to save 6% of income to medisave
the US health care industry comprises of how many workers including physicians and hospitals?
16 million
US delivers health care through what type of health insurance?
private, employer-provided health insurance
effects of rising health care costs and prices
reduced access to the health care system, contributed to slower real wage growth and expanded the employment of part time and temporary workers, caused governments to restrict spending on non health care programs and raise taxes
what is the core health care problem?
alleged allocation of resources to the health care industry
special characteristics of the health care market
the belief that health care is a "right", an imbalance of information between consumers and suppliers, the presence of positive externalities, the payment of most health care expenses by private or public insurance
the exemption of employer-paid health insurance from the federal income tax does what?
subsidizes health care. the subsidy increases demand, leading to higher prices and a likely overalocation of resources to health care
rationing mechanisms
waiting lists, committtees that set standards for denial of service and restriction on capital spending
economic immigrants
international migrants motivated by economic gain
legal immigrants
immigrants who have permission to reside and work in the united states
illegal immigrants
immigrants who arrive illegally or who enter legally on temporary visas but then fail to leave as stipulated
H1-B provision
A provision of the US immigration law that allows the annual entry of 65,000 high skilled workers in specialty occupations such as science, R&D, and computer programming to work legally and continuously in the United States for six years.
one third of population growth is made up of
legal immigrants
one half of labor force growth is made up of
legal immigrants
how many illegal immigrants are there approx?
11 million residing in US 2009, 62% from mexico,250 k enter each year
where do most illegal immigrants come from?
mexico and central america
why do people migrate into the US
to take advantage of superior economic oppurtunities, to escape political or religious oppression in their home countries, to reunite with family members or other loved ones usually prior immigrants who are already in the united states
factors affecting costs and benefits
distance, age, lack of english language
complications and modifications
costs of migration, remittances and backflows, complementary versus substitute costs, expansion of capital, full employement versus unemployement
In 2007 bush administration did what?
increased funding for use along US and mexican border, increase fines for those who hire illegal immigrants, rebalance current systems for number of legal immigrants on work visas, rejected by congress
simple immigration model suggests what?
for a high wage country, the movement of migrants from a low-wage country a. increases domestic output b. reduces the average wage rate c. reduces the total wage income of native born workers d. increases business income. the opposite effects happen in a low-wage country.
the outcomes of immigration predicted by the simple immigration model become more complicated when considering what?
a. the costs of moving b. the possibility of remittances and backflows c. complementary rather than substitute labor d. impacts on investment e. the levels of unemployment in each country f. the fiscal impact on the taxpayers of each country
a concern of illegal workers and families
is that they impose greater fiscal costs on state and local governments than they contribute to tax revenues to those jurisdictions
some key trade facts
us exports and imports have more than doubled as percentages of GDP since 1980, a trade deficit occurs when imports exceed exports (the united states has a trade deficit in goods, in 2009 us imports of goods exceeded us exports of goods by $517 billion), currently the united states provides about 8.5% of the worlds exports, the united states dependence on foreign oil is reflected in its trade with members of OPEC. In 2009 the us imported $112 billion of goods mainly oil from OPEC members while exporting $48 billion of goods to those countries
benefits of international trade
1. win-win situation: increase welfare for all trading parties 2. reduce terms of trade and factor prices
barriers of international trade
tariffs, quotas, nontariff barriers
comparitive advantage
where a producer has this when producing a particular product if it can produce that product at a lower oppurtunity cost than other producers
are excise taxes or "duties" on the dollar values or physical quantities of imported goods
protective tarriff
implemented to shield domestic producers from foreign competition
import quota
is a limit on the quantities or total values of specific items that are imported in some period
non tarriff barrier
includes onerous licensing requirements, unreasonable standards pertaining to product quality
export subsidy
consists of a government payment to a domestic producer of export goods and is designed to aid that producer.
voluntary export restriction
is a trade barrier by which foreign firms voluntarily limit the amount of their exports to a particular country
shifting work previously done by american workers to workers located in other nations
world pricing
the price that equates the quantities supplied and demanded globally
domestic prices
the price that would prevail in a closed economy that does not engage in international trade, equates quantity supplied and quantity demanded domestically.
world trade organization
the uruguay round agreement established this, 153 nations belonged to this, oversees trade agreements reached by the member nations and rules on the trade disputes among them.
general agreement on tariffs and trade
1. equal non discriminatory trade treatment for all member nations 2. the reduction of tariffs by multilateral negotiation 3. the elimination of import quotas
income maintenance program
AKA: Welfare or public assistance. Purpose is to provide some minimum level of income to all families and individuals.
complementary resources
resources and assets not directly involved in the production of the product but required for success, such as marketing, management, financial assets, and reputation
pros/cons of immigration
The pros are experienced solely by employers who are able to cheat the tax base by not paying payroll, SSI, SDI or obeying OSHA laws. The cons are shared by everyone who pays taxes, uses public schools, county hospitals, roads, first responder services and in some states WIC, welfare and section 8 housing. And in California anyone who wants to attend the Cal or UC systems.
international trade benefits
Exchange rates, international laws/regulations, tariffs/trade restrictions, political barriers, social/cultural barriers, ethics, technological barriers.