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Old 01-22-2005, 12:08 AM   #1
The_Q
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Default Externalities and You: Why Do Cities Exist? Part I of II

Ah, the far depths of social science: Economics. Probably one of the least respected fields, too. What's to say for economics beyond it's logical reach, measuring everything it can possibly measure and analyzing the data? Well, there is the actual social science part of it; the study of human behavior. Then there is also the grand scheme part of it. To start understanding the grand scheme you must understand the simple things. To start off we have incentives. After that we go to the more comples: externalities.

Incentives: Driving and Your Health

Economics boils down to two things, Incentives Matter and "TANSTAAFL (There Ain't No Such Thing As A Free Lunch)." If you can't understand that you need to stop reading right now. I told you to stop reading, dammit. You stopped? Ok. Incentives: the driving force of any decision you'll ever make. Admit it, there has never been a single decision you've ever made that hasn't been affected by incentive, whether slanted or equal. The amazing thing is, incentive delves so deeply into our decisions you'd never realize it until you look at it closely.

There's a common model that's used by my dad and I when we explain this at dinner parties. It's simple enough for a six year old to understand. Seatbelts kill. Let's admit it, most people wear seatbelts and when they do they feel more secure (no pun intended...kinda) about their driving. Because they know they're safer they'll drive more recklessly. A soccer mom in a 5 star safety rated van is more likely to succumb to road rage and drive at 80 in a 65 zone (Assuming you don't live in Texas. It's 80 everywhere here) than a college kid in a 1968 Volkswagon Deathtrap *ahem* Bug. True or false: If there was a spike on your steering column that extended to your chest and you had no restraints to hold you away from the said spike, you would drive more carefully. Because I like living, I choose to drive carefully. Incentives matter. End of story.

Why in all hell does this matter to the rest of this? Just to cover the reason why the rest of my theory works. Because incentives matter people will do their best to make the best of any opprotunity that has positive incentives involved. With this I move to the wonderful world of externalities.

Externalities: Why I Buy Girl Scout Cookies

There are always two parties in a transaction; the person selling the product and the person buying the product. Out of a stroke of genius, one day someone realized "Hey, other people are affected by my personal life too!" On that fateful day externalities were born.

An externality occurs when a third party is affected by the transaction of two other parties. One example of an externality is buying gasoline. If I buy gas I get gas and the gas station gets money. Both sides are happy (another win for Free Trade!). You're not happy, though. You have to breathe in the extra smog my car creates because I bought gasoline. So does everyone around my car. Let's say I buy a new car, a hybrid, and I go cruising around. I get a car, the dealer gets money, we're both happy (Free Trade seems to be on a roll). Everyone is happier because there is less smog, too. Everyone except Fred down the street. I ran him over. His leg is busted up. Poor Fred. Fred is an example of an externality. Because I bought that car I went cruising and hit Fred. Because I bought that extra gasoline the people around my car breathe more smog.

Don't hate externalities just yet, though. There are also good externalities. Let's say I take up gardening. I really enjoy it so I spend every Saturday gardening. In this case I've got an extra-market situation. The opprotunity cost of me gardening is relative to how much I enjoy gardening so a definate number is not possible to acheive. Anyway, the externality here is my neighbors. They'll get to look at the pretty plants I put up. We could also say that a Girl Scout stops by my house and tries to sell me cookies. Of course I'll buy 'em, but not because I love mint chocolate chip (which I do. Only I have to have them dipped in sweet and sour sauce) but because I get the externalities of the whole transaction: sisters and mothers who look at my name on the list and say "What a nice boy. We owe him a favor." Welcome to the informal market.

(PART II comes later)

Q

EDIT: Next part of the post is here!
http://www.flashflashrevolution.com/...wtopic&t=23373
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Old 01-22-2005, 12:12 AM   #2
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I read it, and somewhat understood it, but can you please give me a better explanation as to what an externality is?

btw: Q- Write a book, please.
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Old 01-22-2005, 12:21 AM   #3
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I'll go further into externalities on Part II. That's the part that ties up the whole thing. I just need to condense it first. Should be done by my next economics rant.

Q
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Old 01-22-2005, 09:43 AM   #4
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Q, I don't buy that the main cause of you buying Thin Mints is that you want that 12 year old cookie wench to owe you a favor. That is statutory rape buddy. You buy them because, like you said, you enjoy mint flavored, chocolate covered baked goods. So, when that innocent little burden on society rings your bell trying to hock you overpriced Samoas or Trefoils, you think to yourself, "Self, I do enjoy me some Do-Si-Do's. I think I can splurge once a year on these $5 delicacies." So you then say, "Hello little cookie wench. I'll take one box of All Abouts."

It is cost-benefit that plays the biggest role in your decision. What weighs on the decision? Price of the cookies, How much money you have at that moment, How hungry you are, How much you are craving Tagalongs, and probable Will my buying these cookies have any future return for me from either this young cookie wench, her organization, or anyone else who may see that I bought her wares? And, of those, it is pretty obvious that the last one has the smallest potential gain. If you really need me to go into the reasoning behind it, I will, but I surely hope you see it yourself.

PS - Whorli, we are discussing Q here, not me. Any attempts to bring up my desire for 14 year olds (Besides the fact that I mentioned 12 year olds, which is just wrong. 14 is a prime age.) must be ignored. This is Q's post, his words, his fetishes.
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Old 01-22-2005, 10:12 AM   #5
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Quote:
Originally Posted by Q
the externalities of the whole transaction: sisters and mothers who look at my name on the list and say "What a nice boy. We owe him a favor."
When I was thinking sisters and mothers I was thinking my age or older. I wasn't thinking of sexual favors either. We've gone over this. Being the average male I have an urge to have sex but being me I'd prefer to wait until a good girl comes along. Please, no more about sex.

Incentives are what drive the decision, whether they be positive or negative. Cost-Benefit is nothing but the decision making process that I go into. Why didn't I mention the minty-chocolatey goodness in my analysis, then? It's a given. I'm buying the cookies I like which is a benefit. I'm spending 5 bucks on them, though. That's a cost. Let's check my additional benefits.

1.) Someone to do favors for me later (girl's brother mows the lawn for me)
2.) Neighbors are happier (and I don't put up with their whining)
3.) I have lunch for the next few days (because I'd rather not spend my lunch money)
4.) I can now flaunt this around as a simple model on FFR.

That's a lot for 5 bucks.

Q

(PART II coming Monday)
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Old 01-22-2005, 03:24 PM   #6
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Quote:
Originally Posted by Tasselfoot
Q, I don't buy that the main cause of you buying Thin Mints is that you want that 12 year old cookie wench to owe you a favor. That is statutory rape buddy. You buy them because, like you said, you enjoy mint flavored, chocolate covered baked goods. So, when that innocent little burden on society rings your bell trying to hock you overpriced Samoas or Trefoils, you think to yourself, "Self, I do enjoy me some Do-Si-Do's. I think I can splurge once a year on these $5 delicacies." So you then say, "Hello little cookie wench. I'll take one box of All Abouts."

It is cost-benefit that plays the biggest role in your decision. What weighs on the decision? Price of the cookies, How much money you have at that moment, How hungry you are, How much you are craving Tagalongs, and probable Will my buying these cookies have any future return for me from either this young cookie wench, her organization, or anyone else who may see that I bought her wares? And, of those, it is pretty obvious that the last one has the smallest potential gain. If you really need me to go into the reasoning behind it, I will, but I surely hope you see it yourself.
Uh... what about the idea that you've just helped a well-intentioned organization, I mean, yea- there's the idea that you excpect some favor back, but you get a good feeling from donating, and these cookies probably get them 900% profits per box, and I'm sure at least half of that benifits the girls in some way. People are charitable for a reason other than expecting things in return, that's slowly changing but- people like Mother Teresa weren't in it for getting a way with statutory rape, or maybe your just rich, and feel bad not giving your money to someone other than your self.

*sigh*...so lonely, all this money *guilt, guilt, guilt*
-DING-DONG!-
Bill Gates- What the hell was that?
Girl- Want to buy some Girl Scout cookies?
Bill- *thinks*I'll feel good about myself,... ditch some money *thinks*
Bill- I'll take 400,... dozen.
Girl- o.o;; ..o..k..........

Bill feels good about himself, shared his wealth with part of the world, and realises that someone found out he's donated, it will up his image around the US- but this wasn't what he was thinking about when he bought the cookies.

PS: Tassel- I'm certain that less than 1% of the population on the FFR forum are not activley pedophiles, and I'm again certain
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Old 01-22-2005, 03:45 PM   #7
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Quote:
PS: Tassel- I'm certain that less than 1% of the population on the FFR forum are not activley pedophiles, and I'm again certain
So the other 99% ARE active pedophiles. Good. Glad we're on the same page.

And Q, you are honestly going to try and tell me that you believe this will happen:
A) Q buys crappy cookies to make girl happy
B) Girl's brother mows lawn for you.

I fail to see how that could happen. What INCENTIVE does the brother have? He is as lazy as you or I (presumably) and wouldn't want to mow his own lawn, let alone yours. So, his whiny skirt-wearing, cookie-selling little brat of a sister says to him, "Hi brother, Q bought some cookies from me today. I think you should mow his lawn. His $5 contribution to the scouts merits not only the cookies that he bought, but your time and energy as well."

Not a chance.

Also, it is given that they'll be used to eat, Q. That rules out #3 from your list. Were you planning on buying the cookies to use as a decorative ornament of some kind or a diorama? Didn't think so. Cookies are purchased to eat. Obviously the benefit of the cookies is not only that they are yummy, but that they are filling, provide nutrients, etc. Plus, you can't think about them as using in place of your lunch, because if you didn't buy those cookies you would have still used that $5 on food for lunch (most likely).



Deltro, there is another thread here somewhere all about charity and donations. Read that if that is what you want. I don't want to turn this thread into a discussion about how wrong you are in regards to Mr. Gates.
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Old 01-22-2005, 05:17 PM   #8
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deltro300111 An Externality is a really simple concept.

A Third party is not involved in the consumption of a good. Hershey produces a Chocolate bar. Hershey is not a Third party. You eat a chocolate bar, you are not a Third party. Bill watches some guy eat a chocolate bar, Bill is a third party. Now...

An externality is the effect that the consumption of a good has on a Third party.

A negative externality is a negative effect.
Example: When I smoke, I get cancer. This is not a negative externality, but when the person next to me suffers athsma or other health problems because of my smoking, then he is suffering from a negative externality.

Negative externalities are societies bads. We want to support positive externalities and tax negative ones.


deltro300111, The Q's style of writing is great, yes, and he should write a book, but keep in mind that this is all basic economic theory and he's not inventing it himself
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Old 01-23-2005, 01:39 PM   #9
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When I'm done with college I'll write a book about it, ok? Actually, I might want to do it now and get the benefits for when I need them (college). I'm just worried about it selling well.

Ok, Tass. You're starting to take this at its face value. I'm sure that I would have bought cookies from many different organizations, helping out that girl's family once in a while. I tutor the girl (she's a bloody freshman at my school) who sells us our cookies. All of this "communtity aid" will pump up my reputation somehow. Eventually people will do me favors. Let's say that I've bought cookies from this girl for 3 years now, which I have. She'd eventually realize "Wow, what a nice guy." From there you could think of many different things she could help me with. One of which would be a raise on my tutoring fees.

And I know cookies are eaten Tass. You're missing one small detail though: I don't ever buy my lunch if I can avoid it. I'll go through the day without having a bite to eat. At around 3 in the afternoon I'll pop open one of my many jars of Joe T. Garcia's salsa and finish half of the jar by 3:15. That's all I eat until supper. Buying a five dollar box of cookies insures reimbursement form the family and a week full of minty goodness for lunch.

Our school also gives us "free" sauce, too. I could just drink that but then I don't get anything good. If they had "free" cheddar too I'd be happy.

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Old 01-24-2005, 02:22 AM   #10
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A good economist can't be cheap Q I know that doesn't really apply here, because we're talking about personal necessities, and ultra-microeconomic topic.
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Old 01-28-2005, 05:29 PM   #11
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Cities exist so that man can collaborate and strive with less trouble. We automatically become dependant and significantly wiser.
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Old 02-3-2005, 10:08 PM   #12
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Quote:
Cities exist so that man can collaborate and strive with less trouble. We automatically become dependant and significantly wiser.
To say something that is very much similar than that I wrote almost four pages.

And, Alain, a good economist knows why it's ok to be cheap or a big spender.

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Old 02-4-2005, 12:41 AM   #13
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Fair enough. I was just implying the general truth that the greatest successes are associated with the greatest initial risks.
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