14 votes
Accepted

Why hasn't massive derivatives exposures at banks already led to disaster?

While gross notional exposures are huge, net exposures at the banks are much smaller, on the order of 0.1 percent of gross exposures. Since most financial risk (but perhaps not operational risk) is ...
BKay's user avatar
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13 votes
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Wouldn't abolition of cash give rise to a substitute currency?

"Cash" is an emergent phenomenon of human economic organization. It exists for lots of reasons, as a provider of economic anonymity, a low transaction cost solution to the double-coincidence of wants, ...
BKay's user avatar
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7 votes
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Is it viable to put a cap on personal wealth in the U.S.?

Wealth cap that would confiscate and redistribute wealth above certain limit is in an essence just different term for wealth tax (as opposed to situations where there would be just a ban on having ...
1muflon1's user avatar
  • 55.6k
4 votes

Cournot's game profit maximisation first order condition question

To elaborate on @HerrK’s comment: The product rule of differentiation is $$\frac{d}{dx}fg=f’g+fg’$$ The text in your question states that you are trying to maximize the quantity $$[a-Q-c]q_i$$ So, as ...
Franklin Pezzuti Dyer's user avatar
4 votes
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How can a free market be operated in a way that significant social and environmental costs are intrinsically covered?

As far as we can tell, no, there is no way to do it using only a free market. Coase postulated that within a free market, agents would negotiate private contracts to internalise the externalities. ...
410 gone's user avatar
  • 8,143
3 votes

How should we understand the surplus triangle in the context of a price floor?

You are right to wonder. The shaded area has no interpretation here, this is a bad drawing. Usually these shaded area denote something like consumer surplus/producer surplus/welfare/deadweight loss, ...
Giskard's user avatar
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3 votes

Are obstructed views a negative externality?

In general, yes it's an externality: it's a cost borne by others. How do we know it's a cost with real economic value? Because in general, properties with good light and better views tend to attract ...
410 gone's user avatar
  • 8,143
3 votes

Should the government regulate the price of bananas?

(source: dineshbakshi.com) As you can see in the graph, price controls policies create excess demand, therefore you will end up with shortage or you will import more bananas. I'm not a banana ...
Commissar Vasili Karlovic's user avatar
3 votes

Why hasn't massive derivatives exposures at banks already led to disaster?

As well as most of the positions being hedged, Big banks have large desks of mathematicians modelling these things. The sensitivity to first, second and cross derivatives of possible market moves are ...
Stephen Stretton's user avatar
3 votes
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Hayek's defense of competition regulation

This article states: In both of his seminal works in political theory, The Constitution of Liberty and Law, Legislation and Liberty, Hayek endorsed as a legitimate function of the ...
luchonacho's user avatar
  • 8,591
2 votes

Free market defense against anti-competitive behavior?

Depends on what you mean by 'possible'. The liquor stores in your example could form a union, and collectively bargain with brands. Then if a brand breaks a contract with one of them, they all break ...
Giskard's user avatar
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2 votes
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EmpirIcal evidence on effects of price floors and ceilings

There is different evidence for price controls in labor market and different evidence for price controls in general. Minimum Wage When it comes to minimum wages there is evidence that they do not ...
1muflon1's user avatar
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2 votes

Why don't governments ban businesses from passing tax costs onto their customers?

I don't see how the government taking X% of a business's profits is stopping the business from increasing prices (or is this just the penalty in the enforcement clause?), so I am going ignore that ...
Giskard's user avatar
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2 votes

Will Biden's junk fee bill ultimately decrease or increase the cost to consumers?

You are asking question about effect across various completely different industries with varying industry structures so it is impossible to provide some concrete result, so this answer will only ...
1muflon1's user avatar
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1 vote

Is there a name for adjusting bad regulation until its negative impact is no longer detectable?

There is term policy optimization or optimal policy design or just policy design, which refers to idea of optimizing or fine tuning public policy. It is a term that will be mentioned in any ...
1muflon1's user avatar
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1 vote

Why would the fed impose larger cash requirements on banks if they’re already struggling to compete?

Why is it that we must make sure banks don’t fail? Why not let them fail like anything else forcing people to diversify where they put their funds and providing impetus for banks to be more ...
1muflon1's user avatar
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1 vote

Should free market consumers have the maximum information easily available?

There is an argument to be made that markets work better if there is as little information asymmetry between buyers and sellers as possible. In fact this is so basic insight that you will see it ...
1muflon1's user avatar
  • 55.6k
1 vote

Does price cap in emergency situation (COVID-19) reduce the availability of a good? Does unregulated market increase it instead?

Capping prices at a low level permanently would presumably lower supply in the long term, but that is not germane to this question. I will attack a slightly narrower version of this question: does ...
Brian Romanchuk's user avatar
1 vote
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Economic impact of employer ignorance to cliff effects?

There is generally no effect of employers not formally tracking their employees' subsidies on the labor market. Generally speaking government subsidy is already reflected in the labor market whether ...
1muflon1's user avatar
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1 vote

Why don't governments ban businesses from passing tax costs onto their customers?

The other answers already provided some intuition so I will try to be slightly more technical (although not so that a non-economist would not be able to follow). tl;dr: Government cannot prevent ...
1muflon1's user avatar
  • 55.6k
1 vote

How effective is progressive tax at regulating monopoly?

Progressive income taxes on individuals is not very likely to have any real impact on market power, but progressive income taxes on corporations can certainly have this effect. The key idea is that in ...
Ege Erdil's user avatar
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1 vote

Can't government experiment on price in the case of a monopoly?

If I understand your question correctly, you are proposing that the government sets prices and observes the behavior of market actors to elicit the demand and supply functions. I see two possible ...
Giskard's user avatar
  • 29.2k
1 vote

What's the Difference Between Being Pro-business and Being Pro-market?

In a nutshell, pro-business policies help currently existing businesses and their shareholders. Pro-market economies are those that follow the tenets of the free market - competition, no barriers to ...
android16.5's user avatar
1 vote

Free market defense against anti-competitive behavior?

There really is not one. Even things like unions, water, fire or homeowners' associations are really special purpose governments. They derive their powers from the governmental body that delegates ...
Dave Harris's user avatar
  • 2,006
1 vote
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What would be the economic impact of regulating advertising?

The first thing we must ask is about which part of advertising are we speaking? Are we talking about advertising on television and other entertainment mediums or are we talking about advertisement via ...
DornerA's user avatar
  • 1,568
1 vote

Why hasn't massive derivatives exposures at banks already led to disaster?

It comes down to net exposure (and hedging as much as you can). Simple example: hold 1 bond maturing in 3 years. Sell 1 future that delivers that 1 bond in 3 years. If you can't perfectly hedge (which ...
zevij's user avatar
  • 149
1 vote

Are obstructed views a negative externality?

An externality is a cost on a third party resulting from an economic transaction, that isn't captured by the buyer(s) and/or seller(s) of the initial transaction. So if the price of oranges goes up, ...
Kitsune Cavalry's user avatar
  • 6,608
1 vote
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Regulatory differences between stocks and bonds

Bonds and stocks, and in general all securities related to a firm, are regulated by the SEC in the US. Some other financial instruments are regulated by the CFTC (mainly commodities and derivatives, ...
Hector's user avatar
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