Maximizing Utility The Price of Everything

Shereidy Mancheno
Wheelan stresses that a successful economy depends on the many different needs and desires of the citizens. The different passions and interests people have make the world and economy thrive.
“Individuals seek to maximize their own utility,” and individuals maximize their utility in different ways based on their personal preferences. I also learned the expense of rarity. Availability is everything in economics. It has a lot of control over the market and the prices the public will pay for goods.
For example, about a year ago the first frozen tart yogurt store, Lutz, opened in South Florida and it was an instant hit. It was the only yogurt place in the South Florida area which caused people to travel from both near and far to get the delicious treat. Many yogurt stores began to open as a result of the original store’s success. This led to a decrease in the price of frozen yogurt, more options of yogurt flavors, and shorter lines in the stores. The demand for yogurt was so great that it created an overwhelming supply with many more options to satisfy everybody’s personal preferences.
In Chapter One we learn the advantage of advantage; how having a product with a slight edge can make all the difference in your profits. A classic example of this is the iPhone. Apple added the feature of an iPod to a cell phone which made life more convenient for all cell phone and iPod users. The iPhone is one of the most common phones today because of the added advantage Apple gave to the typical cellphone making it a hit on the market very quickly.
Creating incentives as well as punishments help accomplish win-win situations that will satisfy all parties.
In Chapter Two the author mentions the concept of giving customers free meals if they do not receive a receipt. It gives the employees an incentive to follow the rules and do as they are told. A similar example of this concept is when truck drivers are forced to drive their cars with a bumper sticker that asks how their driving is and also has a number you can call to report the driver if he/she is not driving safely.
These type of business practices help ensure that the employees act appropriately so the customers get the treatment they deserve without the management in the company having to constantly watch every employee’s actions.
Likewise, companies put rewards in place for their customers. For example, car insurance companies like
Allstate pay their consumers for driving safely and following the laws for extended periods of time. It seems odd to reward what is expected but Allstate gives themselves much more of an edge because no other car insurance company currently pays their customers to simply follow the rules. The book has repeatedly mentioned the value of taking risks in hopes of seeking greater rewards and I think this is a prime example of that. Allstate is clearly losing money through paying its customers, but they must feel that this “promotion” will help them achieve their ultimate goal of having more customers thus making them a larger profit and making up for their lost money.
When one’s family, friends, or possessions are on the line one will do all it takes to ensure his loved ones or objects are getting the best treatment possible. Investing your own money or most cherished objects forces you to work harder hence the reason some CEO’s own shares in their company. An example of this in the political world is when government officers, such as governors and senators, place their children in the public school system. Placing their own children in the system gives them an added incentive to work hard to make sure our countries education is the best it can be.

Chapter 3 points out the unappreciated aspects of our government; the reasons we are able to conduct out lives in an efficient manner simply by trusting formal government organizations. These government organizations are our eyes and ears ensuring employees are following protocol and conducting business in the expected manner.
Organizations such as the FDA, the federal transportation agency, the TSA, and the Securities and
Exchange Commission give us the freedom to place our money and goods in the hands of strangers and still trust that these strangers are carrying out our wishes. If it wasn’t for the FDA many Americans would not feel secure walking into a pharmacy to buy drugs for their family. The FDA allows one to know the drugs they are using are safe and effective. There are many risks with airplane travel, but the federal transportation agency helps eliminate the risk factor flying by making sure all planes have passed certain tests safeguarding safe flights for all the passengers. As it is mentioned in the book, the SEC ensures that one can invest money with as much information as possible. The government helps protect the economy by keeping a close eye on many aspects of our life through these organizations. Crime and corruption is avoided through the safety tests and organized plans these government groups have put in place.
Another aspect of our economy that was mentioned in Chapter Three was the “free riders” who reap the benefits of our government without necessarily paying for them. For instance, there are many people in our country right now who are unemployed and some of them are not even bothering to look for jobs because our country gives out benefits to those who are unemployed. They are benefitting from our country’s programs in the wrong ways. Our citizens do not have an incentive to look for a job when they are receiving money and food for being unemployed. I believe the people in our country are practically being rewarded for being unemployed and the US needs a new system that motivates people to find a job.
I have learned that Economics is all a game of tradeoffs; which option will give you the greater satisfaction. Chapter Four weighs the benefits of having operations and programs being run solely by the government. They point out how all competition is lost when the government is in charge, thus eliminating the potential benefits that come along with having competition. The clear question remains whether or not it is better to have government strongly regulating many things in our society or if things should be privately done.
Wheelan gives the example of the Illinois Cosmetology Association lobbying for more stringent licensing requirements for manicurists. The Spas and Salons “do not want to compete with a slew of immigrant upstarts.” I think it is crazy for the government to go and impose stricter licensing laws. Competition is a part of life that forces spa and salon owners and workers to work harder and create a better product for the consumer. The government should easily allow a variety of salons to be open without stricter licensing requirements. The more spas and salons that are available to service the public, the more options the people have, hence increasing their utility.
“In short, government is like a surgeon’s scalpel: It is an intrusive tool that can be used for good or for ill.”
An example of this today is the government has not made another nuclear energy plant since the 1970s because they are deeming them unsafe. In actuality they are the most efficient form of energy we have and completely safe. We, the citizens in this country, are losing out on living our lives with nuclear energy because the government is trying to “protect us”. Our country has so much potential that is being limited or unexplored which I believe is a shame because it is hindering positive development.

Chapter Five is all about the advantages and disadvantages of being with and without information. It shows the ways providing information can put you at a disadvantage as well as the significant profits a company can receive by having consumer’s educated about their product. The novel gives the example of how almost always one will choose to eat a hamburger from Macdonald’s (or any reputable fast food restaurant) over a random and unfamiliar hamburger joint. Familiarity sells and instills confidence in the customer. For this simple reason, people higher travel agents. It is the same concept as choosing
Macdonald’s over an unknown restaurant; people want to know about the places they are traveling to, and feel confident that they are traveling and spending their money responsibly.
In this chapter, Wheelan discusses the influence companies have once they brand their products and make the public familiar with what they have to offer. In addition, companies brand their goods by either creating a recognizable logo on all their merchandise or by using celebrities to give their products credibility. In my opinion, Apple did a fabulous job branding their computers, iPods, and iPads. They created the “Apple” logo and placed it on all their products making all their goods easily distinguishable.
Logos help you find the brands you trust and make you more confident in your purchases.
Lastly, how much information is too much information? This chapter highlights the struggle between the people and the healthcare insurance industry. The public is obviously more informed about their personal health than the health insurance companies. This puts health insurance companies at a disadvantage by not knowing potential health risks. The health insurance companies want to make money but they cannot do so if all their clients are sick or likely to become ill. I believe health insurance firms have the right to do medical tests to find out individuals’ medical issues and history. They need to make money in order for the market to run hence the reason I think they have the right to be completely informed about their customers. “Human Capital creates opportunities.” Chapter Six helps us realize the need for individuals to have something that makes them stand out in order to meet success. If you have a skill then you are of value to society. Possessing characteristics such as honesty, creativity, and drive appeal to employers and almost ensure you that you will be useful and desired. Applying to college is similar to becoming employed.
Colleges want someone who can add something positive and different to their community. They hope to have a well-rounded class full of talented and skilled individuals. The moral of the section is stand out and offer what is not currently offered and you will be sought after and eventually earn more money.
I believed the common misconception that many people are becoming unemployed when more people are being hired. I did not realize that people are not getting replaced, there are just more jobs being created.
Much to my surprise, more jobs are created than lost when people join the workforce. The more people are employed, the more people are investing and purchasing goods, the more people who continue to be in work. One would assume that someone developing a technology that replaces human labor would put more people out of jobs but that is not necessarily true; it can most importantly increase productivity. For example, in the past when one was interested in learning a new language one had to hire a teacher and pay him or her significant amounts of money. Now, thanks to new technology, there are computer programs such as Rosetta Stone that can teach someone a whole new language without a human being present. Yes, a teacher has lost an opportunity but now many more people are employed thanks to the new computer company. The company that has replaced teachers and tutors has now opened up job opportunities for

software engineers, teachers, lawyers, and much more. This is an example of productivity and everyone becoming better off as a result of someone’s human capital.
Chapter 7 is about making smart investments that will realistically work; basing your decisions off of whether there is little risk and great potential for reward. The financial markets enable society to be productive through lending capital. Capital opens the doors to almost everything: affording a college education, a car, a house. In order to have the basic living amenities we need to spend capital that we do not have through loans and mortgages and other forms of borrowing.
The next lesson taught was to not be naïve; if an offer or investment looks too good to be true than it most likely is. Everyone is trying to “maximize their utility” so a truly good offer could not ever really be that great because everyone would be doing everything they could to be the recipient of the offer, thus creating competition and a higher demand and making the offer more expensive and not truly a bargain anymore. In Chapter 7 we learn how being cautious can create a better reward in the long run. Wheelan suggests spreading yourself thin, so to speak. He says you should invest in many different areas and maintain a diverse portfolio. Investing in many different places instead of all in one eliminates the risk of losing everything. For this reason, many people keep their money in different banks therefore if a bank crashes and their money is lost they still have capital at another location. Another example of diversifying is in relation to flying. There is a lot of risk attached to airplane travel therefore some couples split up and have one person on one flight and one person on another to almost ensure that one member of the duo will be around god forbid a tragic event would occur. Although you have to be cautious in order to protect your hard earned capital, it is also critical that you take risks to receive great rewards. As long as one invests with common sense and takes risk’s that have all the signals of giving you a positive outcome then risks are something one should take.
Chapter Eight is titled “What economics can tell us about politics.” It explained how politicians will support small groups or create new initiatives in order to have more supporters, and sometimes they do not have the economy’s best interest in mind. An example of this is the way the government deals with special interest groups. The 2005 portentous budget bill included these allots: $350,000 for the Rock and
Roll Hall of Fame in Cleveland, $250,000 for the Country Music Hall of Fame in Nashville, $150,000 for the Grammy Foundation, $250,000 for an Alaska statehood celebration, and $25,000 for a mariachi music course in a Nevada school district. The government supports these small groups in exchange for support even though there are better places for the money to be spent. Another example of favoring small groups is in the past oil companies have received large tax cuts. There has been much debate regarding whether or not they deserve to receive these tax breaks, especially with gas prices skyrocketing.
Roger Ferguson explained, “Policymakers who fail to appreciate the relationship between the relentless churning of the competitive environment and wealth creation will end up focusing their efforts on methods and skills that are in decline. In so doing, they establish policies that are aimed at protecting weak, outdated technologies, and in the end they slow the economy’s march forward.” Politicians are restricting progress. Competition brings benefits to society and if the government keeps trying to protect the old economic structure than new economic structures cannot move forward.

Chapter Nine informs us about the meaning of GDP (Gross Domestic Product), and how it cannot be the sole indicator of the happiness of the American people. GDP is not a broad enough measure of progress because it represents the value of all goods and services produced in an economy, including negative aspects. Like the book said, money is spent to build jails and we would be better off if we did not need to build them, nonetheless this money is still incorporated into the GDP. This proves we are not as well off as we think when the GDP is high.
Recessions are inevitable and the result of many different things occurring simultaneously to make the economy plunge. The major problem with recessions is that they can affect the global community. For example, right now Greece has a significant amount of debt and they do not have the money to get themselves out of it. This is stopping Grecians from trading and importing and exporting with other countries in Europe, which then becomes a problem for us in the USA. Jon Hilsenrath, the Wall Street
Journal’s chief economic correspondent said, "What we've seen in the last 12 months with an earthquake in Japan, European financial turmoil last year, that when there are bumps outside of the U.S., it slows us down. Our own economy is going through a slowdown right now, so we have to be very attuned to what's happening rest of the world." Problems in Europe aren’t just their problems; they always become our problems too hence the need for us to be supportive of their economy.
Another example of a distant issue trickling down to affect our economy is the recent Japanese earthquake.
This major earthquake destroyed manufacturing facilities, offices, and many buildings. Japan is a leader in the car industry; they make their own cars and export them as well as make the parts for cars for other companies to produce their own cars. As a result of this earthquake, companies like Brickell Motors in
Miami had a demand for cars but they simply could not sell any because cars were not being shipped to them due to the quake which clearly put a halt to production.
Chapter Ten elaborates on the roles of The Federal Reserve. Their job is critical to the goal of achieving a balanced budget and economic stability. The pros and cons to both monetary policy and fiscal policy are discussed.
An example of fiscal policy is President Bush’s tax cuts to stimulate spending. Recently, the government has been forced to deal with the debt ceiling situation. The Republicans are in favor of keeping Bush’s tax cuts and having the government stop spending while the Democrats believe increasing taxing is the solution to relieve the debt ceiling. The Republicans are worried about the affect the Democrat’s plans will have on the economy through fiscal policy. I agree with the Republicans; I think the government should be responsible for their own actions and just stop spending so much instead of punishing the people by making them pay higher taxes, especially in already troubled economy.
The other option is monetary policy. These decisions are made by the Federal Open Market Committee.
They have power to increase or decrease spending when they deem it necessary. They do so by managing interest rates. They can decrease interest rates which allows companies to borrow for less and make products cheaper therefore people start spending which stimulates the economy rapidly. They also have the power to slow down spending. Slowing spending down may become necessary because when everyone starts spending crazily money becomes less valuable which will lead to inflation.
Bonds and cash create different environments in our economy. I’ve learned bonds stop the spending which therefore stops stimulation the economy in a similar way that low interest rates do. Money in

bonds is, for the most part, locked and unusable to finance the typical needs. The Federal Reserve goes to the banks and exchanges cash for bonds. The cash is used to dole out loans to the public which opens the doors for financial investment. Chapter 10 shows us how difficult of a job The Federal Reserve has and the tough decisions they are forced to deal with in a timely and efficient manner.
Trade is the epitome of a win-win situation. Everyone should gain and increase their utility in a good trade. In this chapter, Chapter 11, we learn the effects of globalization. Globalization has the power to move developed countries forward and make impoverished countries self-sustainable.
Companies employ people in foreign countries to complete tasks more cheaply than they would be able to get done here in the USA. Yes, this does take away potential jobs for Americans but it also makes the products they purchase cheaper, therefore it keeps more money in their pockets. An example of employing workers from abroad is when companies outsource. Companies like IBM and other technology firms have call centers abroad in countries such as India and China that answer client’s questions and provide tech support. IBM could easily find people who could deal with their client’s concerns but they would not be able to pay them the same salary as the people in other countries. The “win-win” in this situation is people in America are getting cheaper goods and people in less developed countries have jobs which will help boost their economy.
Ideally, trade should make everyone better off and richer than they were previously. I think the book’s example describes this concept completely. America’s strength is in its agriculture meanwhile Saudi
Arabia’s forte is its plethora of oil. They then trade the excess of what they produce in exchange for what the other country has to offer. Both countries benefit by retrieving what they need but do not have the resources to create. These countries capitalize on their assets and focus on their specialty which in turn increases their productivity.
Chapter 12 discusses the key things rich countries have that developing countries lack. Wheelan also pulls apart the causes and effects of certain government actions, or lack thereof. A country needs authority in order to thrive. The book states that it is proven that economic development is strongly connected with great governance. Authority needs to set guidelines and laws to maintain a safe and productive society, therefore government institutions are created. For example, the Internal Revenue
Service collects taxes which make the government wealthier. The money collected by this government institution allows the country to invest in education, public transportation, and other federally run operations. We are able to make progress because our government is not corrupt and tax money goes where it is supposed to, back into society. Developing countries have problems flourishing because their governments are corrupt; money has the power to hypnotize government officials to do many illegal things. Therefore money is not going to the places where it is most needed and these countries are at a stalemate. Democracies encourage more growth in the economy than any other form of government. I believe the fact that we are a democracy has such a powerful effect on the American economy because it allows the markets to correct themselves and promotes long time periods of growth. If developing countries had a democratic government, citizens would be able to run their companies and lives the way they want. It would promote productivity and increase human capital and thus increase significant economic growth.

Lastly, I think managing the deficit and the socially dependent is plausible but there can be conflict. In fiscal policy, when the government lowers taxes they then have a conflict because they do not have money to put towards programs that help the poor. When taxes are increased, the government is now in a position to financially help the socially dependent. With monetary policy, when the interest rates are low, people start spending and it helps create jobs and stimulates the economy. When interest rates are high people cannot afford to make investments creating a conflict for people in poverty.