So, today it’s time for an introduction to Microeconomics, for everyone that has stupid opinions about big issues but doesn’t have the conceptual framework on which to build.
Microeconomics is much like macroeconomics, only much smaller. Ok, actually it’s a bit different. Microeconomics looks specifically at the issues facing firms and industries among producers. (See yesterdays entry for more on producers) There are many issues that face such firms, like how much of our shoddy dangerous product should we produce this month to properly meet “demand.” They also worry about setting the correct price, and whether their plant will be invaded by evil gremlins from the planet Zokak.
Here are our definitions for the day:
Microeconomics: The study of very small economics.
Demand: How many people are dumb enough and rich enough to buy our product.
Supply: How much of our shoddy dangerous product can we pawn off on unsuspecting consumers without the justice department noticing.
Isocost Curve: This doesn’t mean anything. It’s just a drawing that economists do to confuse normal people.
ISLM Model: This is a Keynsian Macroeconomic theory, which basically says that if you take some money, and some interest, and you have some taxes and some goverment spending, and you do something, then something happens. I forgot to mention it yesterday. Sorry.
Equilibrium: Much like in macroeconomics, this is when the demand is perfectly equal to supply, which happens right around the time that the sun turns into an artichoke and falls into Palm Beach and is made into Guacamole.
Surplus: This happens when people get wise to the dangers of your product, via such nuisances as Consumer Reports. Once people wise up, they will stop purchasing your defective dangerous product (See Ford Explorer/Firestone Tires for more info) and you will have a bunch of your product sitting around in a warehouse. Surplus is a direct cause of “Sales Promotions.”
Sales Promotions: This is the process of giving people a discount if they will purchase several units of your product, the product with known defects likely to cause harm or death.
Shortage: This happens when a company accidentally produces a relatively good, danger free product, such as dehydrated waterÂ®. Word of mouth and good write-ups in Consumer Reports will result in unusually high demand, which will cause a deficit in the amount of product needed. Shortage always results in prices being increased by the producer, called “gouging.”
Gouging: Gouging is a primary way for companies to increase profits, usually done when they own a significant market share, or a monopoly. (See Microsoft for more information)
Scarce: Scarce is a term used to inflate the value of something far beyond what it is actually worth. For instance, oil is scarce. This means that the people that have the oil are only willing to sell a little bit at a time, meaning more dollars are chasing the good, which results in higher prices. (see yesterday’s article for more on inflation) Another example of something scarce is diamonds. Diamonds keep their value by creating the illusion that there are only a few of them around, instead of the truth; that they are just a bunch of shiny gravel found by a nomadic group of midgets in Africa.
Slack: This is what employees do when the boss is not looking. It’s also what happens when one of two things happens: 1. Slack in demand means there is more product than consumers. 2. Slack in supply means there is more product than people want. Both scenarios are bad, theoretically.
Elastic: Elasticity of demand is the term that describes buyer behavior. For example, consider a company that sells crack cocaine. If the price increases, chances are, demand is not going to go down. More likely, crime would go up, as crackheads everywhere began robbing Quicktrips to support their habit. The same would be true of cigarettes. The elasticity of these two products is very very low. On the other hand, consider Coca Cola. If Coca Cola raised their price a quarter higher per can than Pepsi, most consumers would just push the Pepsi button. Products like cola have very high elasticity. I realize that there are always exceptions… the morons that would pay 10 dollars a can for Coke instead of switching to Pepsi. But that’s just bad economics.
ABC: Activity-Based Costing is a cost accounting concept, but it sounds cool, so I threw it in. But if you want to know what it means, you’ll have to look it up, because I don’t have time to explain it to a bunch of idiots.
Fixed Cost: Fixed cost of a product would be something that does not increase or decrease based on how much product is produced. For example, rent, kickbacks to vendors, payment to secretaries for sexual favors, etc.
Variable Cost: Variable cost is the cost associated with producing each unit of product. So the raw materials that go into each can of Coke, such as water, sugar, and roach legs would be variable cost items. As your unit production increases, so does your total variable cost.
Marginal Cost: This is the cost for each additional unit of product that you produce. This is important in determining the optimal amount of production that maximizes profit. The optimal production quantity is found using the EOQ formula, which stands for “The more the merrier.”
Profit: The amount of money you can squeeze out of the consumers. The ideal target for profit is infinity$, but most companies settle for a couple billion jillion dollars.
Well, I hope you will all leave with a better grasp of how our great nation has stayed on top of the heap for so long. Talk to you tomorrow.