Economics Archives

The Factors That Cause Salary Inequality

Why do some people earn more than others? What factors determine a person’s pay? Labor—people’s time, energy, knowledge, and skills—is a scarce resource. Just like any other resource, pricing labor allocates scarce resources that have alternative uses. For example, paying engineers higher salaries than artists shifts people’s time toward engineering, where their output to society may be larger. In this article, we’ll discuss what determines a person’s pay and why salary inequality is the case.

The Role of Profit Incentives in Consumer Welfare

How does the incentive of profit contribute to consumer welfare? What role does it play in economic efficiency? Business profit is the price society pays for efficiency, quality, and low cost. Without the profit incentive, businesses would be less efficient, producing lower quality goods with less concern for cost, as in the Soviet Union. In this article, we’ll discuss the role of the profit incentive in consumer welfare, how business profits are measured, and how they incentivize efficiency.

Is Government Intervention Good for an Economy?

Why do governments intervene in markets? Is government intervention good for an economy? When there is a market failure of some sort, governments often intervene to restore the economic system. However, if the government sets too many rules, or gets too involved in managing economic operations, it can destroy an economy. In this article, we’ll discuss three possible downsides of government intervention: 1) misallocation of resources, 2) rising costs due to regulations, 3) stifled growth, and 4) distorted incentives due to taxes.

What Causes Global Economic Inequality?

What causes global economic inequality? Do you think it is possible to achieve perfect equality across the world? The vast differences in wealth between people living in different countries can be emotionally troubling. However, given the vast differences in factors underlying economies (geography, natural resources, culture), as well as the complex interaction of such factors, it is impossible to expect economic equality across the world. In this article, we’ll take a look at the factors that underpin global economic inequality.

Wealth Transfer: How Do Countries Exchange Wealth?

How does wealth get transferred between countries? What are the implications of international wealth transfers for the participating economies? Transfers of wealth between countries take many forms. The primary wealth transfer channels include international investments (direct investment in stocks and bonds), putting money in a country’s banks, remittances from outside workers back to family, imperialists transferring wealth from nations they conquered (now more obsolete), and foreign aid. In this article, we’ll take a look at the economics behind the primary channels of international wealth transfer.

Can You Get Rich Quick From Stocks?

Can you get rich quick from stocks? How do investors determine which stocks are going to pay off big? The stock market has a reputation for allowing people to “get rich quick” by betting big on a stock that pays unexpectedly large returns. Unfortunately, this reputation is misleading. Although it certainly can happen occasionally—just as gambling in Las Vegas can occasionally make a person wealthy—the unremarkable truth is that get-rich-quick schemes usually fail because they hit two realities: 1) all information is public, and 2) people don’t typically undervalue their own stocks. Here is why getting rich quick off stocks

Basic Economics: Book Overview (Thomas Sowell)

Have you ever wondered how an economy works—how millions of people can buy and sell goods and services without a master coordinator? Why do we use money, rather than bartering our services with each other? Why do some nations prosper, while others stay poor despite vast natural resources? In his book Basic Economics, Stanford economist Thomas Sowell answers all of these questions and more. Containing no math, he instead explains intuitive principles that will help you understand how market transactions work and the effect of policies on the economy. Below is a brief overview of Basic Economics: A Citizen’s Guide

Understanding the Economics of Financial Markets

What is the purpose of financial markets? How does a financial market (such as a market for stocks and bonds) work? Financial markets are markets specifically designed for moving and managing money. This includes stock and bond markets as well as insurance markets. What other markets do for tangible goods, financial markets do for capital—essentially, they direct it to where it can be the most productive, which, in general, is where it’s earning the highest return. In this article, we’ll explore the economics of financial markets, explain the four basic needs they serve and discuss the common misbelief about financial

Lifting the Veil off Political Decision-Making

Why do politicians adopt policies that seem so bad for citizens? Why is it so easy for politicians to cover up their mistakes? In a popularly elected government, the incentive is to do what is popular and garners votes, even if the consequences are worse than those of doing nothing. Even worse, politicians are spending taxpayer money, not their own, so frivolous spending hurts them little. Here is a quick look at what really drives political decision-making.

What Are Economic Incentives?

What are economic incentives? What are the key forces that drive the behavior of economic agents? Economics is based on the assumption that incentives drive the market. This means the incentives of both individual people and also individual firms, each of which are working to benefit their own particular well-being. In this article, we’ll explore the incentives of both firms and individuals and some ways in which incentives can work poorly, distorting the market instead of allowing it to function properly.