Chapter 1 Reflection

  1. What in this chapter made you think about an economic concept differently than your previous beliefs?  I hadn't thought about principle number 3, that "rational people think at the margin before". This intrigues me and will help guide my purchasing habits as a consumer in the future and also help me when starting a business in terms of marketing to consumers. The downside of this though, from other sources that I have read, is that consumers do not act rationally in the marketplace. How then do we account for irrational behavior by consumers? I also appreciated principle 4, that "People respond to incentives" and the line that some economists believe that economics can be boiled down to one principle, "people respond to incentives. The rest is commentary." I would like to know how subsidies and taxes affect this. For instance, I don't think its fair for gasoline and conventional ag products to be subsidized when they don't account for all externalities and give the consumer a false incentive to purchase gas and GMO food at a cheap price. In this situation, the consumer is de-incentivized from using public transit and buying organic food. I wonder if the subsidies were removed or reversed how the markets would change as well as consumer behavior?

  1. What new questions do you have now about the US economy based on this chapter? Well, the author's description of efficiency and equality rubs me the wrong way. For instance, he writes, "while pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, they come at the cost of reducing the income of the regulated firms' owners, workers, and customers." Isn't clean air, water and land an unalienable right? Don't the citizens of our country and planet deserve to live healthfully? So then, if a corporation impedes us from living in a healthy way, shouldn't they be responsible legally? Shouldn't they be fined or taxed accordingly or at least regulated to where they simply aren't allowed to produce environmentally damaging products? To put this burden on the consumer seems unfair, especially in today's age where corporations aren't held responsible for their actions and aren't taxed and prosecuted to the degree that our citizens are. The author goes on t0 say that "when the government tries to cut the economic pie into more equal slices, the pie gets smaller." The concept he uses to prove his point is that the rich are taxed more heavily to pay for welfare and unemployment for the poor. This, in my opinion, is a fallacy, at least in the United States, where the effective tax on the rich is similar to the effective tax on the poor and the middle class is then left with the heaviest tax burden. If the effective tax was equal across the board for the lower, middle, and upper-income levels then we would have more equality, would that also improve efficiency? is that necessary? This, in my opinion, is the same for businesses. The smallest, poorest businesses are effectively taxed the most while the biggest, wealthiest businesses are effectively taxed the least. If we want to discuss economic equality lets start here and start with accurate facts that depict effective tax not what's written on paper and what wealthy accountants and lawyers spend their days undercutting and working around in the best interest and profits for their clients.

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