Economics Week In Review 9/25-9/30

1.              Price Equilibrium- This is where the price meets the demand and the supply of the product equally crossing both curves on a chart. The price is usually not in equilibrium due to how long its takes to change the price of good on market except in the case of stock markets.

2.              Law of Supply- as price increases quantity supplied increases (producer mindset). A change in price though does not shift the supply or demand curve just moves the price up or down on the graph.

3.              Diminishing Marginal Utility- with each additional unit consumed you derive less utility.

4.              Water Diamond Paradox- how much utility to would we get from one more glass of water.

5.              Supply Curve- cost of production, government regulation, and number of sellers effects the supply curve.

6.              Human Capital- Described in the Naked Economist as the most valuable good in the American economy human capital are what skills you bring to the table and or what service and product you produce. Going to college increases your human capital with an average of ten percent more income a year in returns. If Bill Gates had nothing, but the clothes on his back his human capital would still give him the ability to be hired anywhere and make money. He is so rich it isn’t worth his time to pick up a thousand dollars on the ground.

7.              Shorting a stock- A trader immediately sells a stock at its current value betting the stock will decrease in value. Later he buys the stock back the lower value and keeps the profit without ever owning the stock. When you own a lot of shares you can make money by letting people short your shares on a stock.

8.              To go “Long” on a stock- This means you are buying the stock and believe it will go up sooner or later and think it is still a good time to buy for anyone else.

9.              Zero Sum Game- An often used term to describe how the job market is not a zero sum game. When immigrants move to America they bring skills that take lower class jobs, but the money they make must be spent throughout the economy giving rise to more jobs.

10.           Demand Curve- The demand curve is effected by four main things

i.  incomes go up

ii. preferences of group

iii. expectations for the future expect price go down

iv. price of related good with some substituting and other complimenting the good

OPEC Lowers Oil Production

The price of a barrel of oil effects every part of the United States economy and the lowering production in one of the main productive regions would increase the price of oil in the short term. I say the short term because Saudi Arabia is lowering production only slightly to raise oil prices. The prices are still to low for many American oil ventures to be profitable. This means that it will be slower for offshore rigs to get up and running and less valuable to try fracking oil in the oil shale of the United States. This is all part of OPEC’s strategy to retain their monopoly on the oil market and will keep gas prices low in the United States. Low gas prices are great for business, but also slow America’s transition to more fuel efficient cars, electric cars, and greater environmentally sustainable ways of using energy.

This relates to what we learned about supply and demand this week. Oil demand is consistent and always growing, but with less supply the price per barrel goes up. If the price per barrel went up significantly such as if the United States stopped subsidizing oil prices or stopped producing oil of its own, then demand may go down. Though this is big news in the oil market resulting in a lot of trading in futures, shorting, buying shares of Seadrill if your Adolfo, this won’t make much long term difference on demand for oil. America can supply the market with much oil, but it is more expensive to drill so OPEC is manipulating the supply curve so they can keep prices unprofitable for America and sell more of their own regions oil rather then more America’s oil on market.

Go Pro and Dji Release New Drones

Go Pro has one big monopoly on indestructible video camera and now its expanding its market to include a drone. Their big improvement on the drone is that it folds up, has a removable forward facing camera on a gimbal, and that camera can be removed to for a steady cam that you hold while moving around. Its essentially a Gopro steady camera and drone combined into one. Though this was innovative for almost a week and would have really eaten into DJi’s market share for drones it didn’t last long. Dji had been preparing a competitive product of its own that was even more small, more compact, and would come across as the more trusted product in the camera drone market where they themselves have a monopoly. Its so small that it can fit in your pocket making it easier to travel and shoot with to the average consumer.

This week we learned a bit about shorting stocks first hand in our stock trading games. Most investors knew for weeks that Go Pro was releasing a drone and they could have known Dji was too. The smart investment going in was the Go Pro is going to become overvalued by this news and shorter will want to find its peak price and short it from there. Buyers will want to take advantage of the stocks rise and sell it off when it starts going down helping propel it further thanks to the quick shedding of shares. Go Pro though is a small cap stock with little interest from the bigger investment community due to them until now only making one product for three years. Also one of Go Pro and Dji’s biggest promoters on YouTube summarized the two products somewhat like this “The Dji is the best drone ever, but I haven’t given much use to Go Pro’s Drone and they aren’t necessarily competitors, but actually just swimming in the same pool. Go Pro’s is more adapted for someone who wants to shoot steady cam shots and have the option to take shots in a drone, while Dji is pure drone and pure power.” What this means is that there are more drones in supply forcing both companies to compete over price or pick out their own market. According to what we learned in class more supply should bring down price, but if they both sell of the shells it would become expensive for each company to retool and supply more drones for selling. Competition brings media attention and innovation so both the companies investors could benefit from this release like Apple and Samsung when Samsung phones don’t explode of course.

The key takeaways from this week can be the that supply and demand govern the market in a macroeconomic view. Often though smaller factors change the basic concepts of how these models function in real life. In real life Apple and Samsung both benefit from competition because they don’t compete on price all of the time and convince consumers that their brand is worth a higher price than the competitor if spec are relatively similar. Another key take away is that supply and demand when controlled can effect the whole world economy as a whole. With the case of Oil high prices and issues in the market can be attributed to lack of competition, government regulation, and other factors that we learned effect supply.